##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 COMMISSION FILE NO: 0-17411
 PARKVALE FINANCIAL CORPORATION
  Pennsylvania
    
    25-1556590(State of incorporation)
    
    (I.R.S. EmployerIdentification Number)
 4220 William Penn Highway, Monroeville, Pennsylvania 15146
  þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



PARKVALE FINANCIAL CORPORATION
  PagePart I. Financial InformationItem 1.Consolidated Statements of Financial Condition as of September 30, 2009
and June 30, 2009
    
    
    3Consolidated Statements of Operations for the three months ended
September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the three months ended
September 30, 2009 and 2008
    
    
    5-6Consolidated Statements of Shareholders Equity for the three months ended
September 30, 2009
    
    
    6Notes to Unaudited Interim Consolidated Financial Statements
    
    
    7-21Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    21-31Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4.Controls and Procedures
    
    
    31-32Part II  Other Information
    
    
    32-33Signatures
    
    
    33Exhibits
    
    
    34-36EX-31.1EX-31.2EX-32.1
  2




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PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30,
    
    
    June 30,2009
    
    
    2009(Unaudited)ASSETSCash and noninterest-earning deposits
    
    $
    16,195
    
    
    $
    15,381Federal funds sold
    
    
    166,866
    
    
    
    150,510Cash and cash equivalents
    
    
    183,061
    
    
    
    165,891Interest-earning deposits in other banks
    
    
    542
    
    
    
    3,899Investment securities available for sale (cost of
$21,218 at September 30 and $22,041 at June 30)
    
    
    22,513
    
    
    
    23,505Investment securities held to maturity (fair value
of $464,143 at September 30 and $438,745 at June 30)
    
    
    524,442
    
    
    
    504,029Loans, net of allowance of $19,484 at September 30
and $17,960 at June 30
    
    
    1,071,611
    
    
    
    1,108,936Foreclosed real estate, net
    
    
    6,139
    
    
    
    5,706Office properties and equipment, net
    
    
    17,862
    
    
    
    18,073Goodwill
    
    
    25,634
    
    
    
    25,634Intangible assets
    
    
    3,559
    
    
    
    3,786Prepaid expenses and other assets
    
    
    47,951
    
    
    
    47,647Total assets
    
    $
    1,903,314
    
    
    $
    1,907,106LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESDeposits
    
    $
    1,518,661
    
    
    $
    1,511,248Advances from Federal Home Loan Bank
    
    
    186,144
    
    
    
    186,202Term debt
    
    
    25,000
    
    
    
    25,000Other debt
    
    
    14,300
    
    
    
    21,261Advance payments from borrowers for taxes and insurance
    
    
    4,109
    
    
    
    7,359Other liabilities
    
    
    3,990
    
    
    
    5,276Total liabilities
    
    
    1,752,204
    
    
    
    1,756,346SHAREHOLDERS EQUITYPreferred stock ($1.00 par value, liquidation preference $1,000;
5,000,000 shares authorized; 31,762 shares issued)
    
    
    31,762
    
    
    
    31,762Common stock ($1.00 par value; 10,000,000 shares
authorized; 6,734,894 shares issued)
    
    
    6,735
    
    
    
    6,735Additional paid in capital
    
    
    4,116
    
    
    
    4,116Treasury stock at cost (1,307,199 shares at September 30 and June 30)
    
    
    (27,314
    )
    
    
    (27,314
    )Accumulated other comprehensive income (loss)
    
    
    153
    
    
    
    (10
    )Retained earnings
    
    
    135,658
    
    
    
    135,471Total shareholders equity
    
    
    151,110
    
    
    
    150,760Total liabilities and shareholders equity
    
    $
    1,903,314
    
    
    $
    1,907,106
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##### Table of Contents



PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedSeptember 30,2009
    
    
    2008Interest Income:Loans
    
    $
    14,792
    
    
    $
    17,582Investments
    
    
    5,132
    
    
    
    5,735Federal funds sold
    
    
    98
    
    
    
    503Total interest income
    
    
    20,022
    
    
    
    23,820Interest Expense:Deposits
    
    
    7,993
    
    
    
    10,423Borrowings
    
    
    2,711
    
    
    
    2,500Total interest expense
    
    
    10,704
    
    
    
    12,923Net interest income
    
    
    9,318
    
    
    
    10,897Provision for loan losses
    
    
    2,289
    
    
    
    1,027Net interest income afterprovision for loan losses
    
    
    7,029
    
    
    
    9,870Noninterest Income:Other-than-temporary impairment losses
recognized in earnings
    
    
    (2,761
    )
    
    
    (3,947
    )Non-credit related losses recognized in
other comprehensive income
    
    
    
    
    
    
    Service charges on deposit accounts
    
    
    1,652
    
    
    
    1,742Other service charges and fees
    
    
    367
    
    
    
    383Net gain on sale of assets
    
    
    1,102
    
    
    
    25Other
    
    
    543
    
    
    
    615Total noninterest income
    
    
    903
    
    
    
    (1,182
    )Noninterest Expense:Compensation and employee benefits
    
    
    3,807
    
    
    
    4,008Other occupancy
    
    
    1,111
    
    
    
    1,106Marketing
    
    
    67
    
    
    
    169FDIC insurance
    
    
    568
    
    
    
    61Office supplies, telephone and postage
    
    
    470
    
    
    
    461Other
    
    
    1,569
    
    
    
    1,291Total noninterest expense
    
    
    7,592
    
    
    
    7,096Income before income taxes
    
    
    340
    
    
    
    1,592Income tax expense (benefit)
    
    
    (515
    )
    
    
    487Net income
    
    
    855
    
    
    
    1,105Less: Preferred stock dividend
    
    
    397
    
    
    
    Income to common shareholders
    
    $
    458
    
    
    $
    1,105Net income per common basic share
    
    $
    0.08
    
    
    $
    0.20Net income per common diluted share
    
    $
    0.08
    
    
    $
    0.20
 4




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PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Interest received
    
    $
    20,196
    
    
    $
    23,860Loan fees received (premiums paid)
    
    
    149
    
    
    
    111Disbursements of student loans
    
    
    
    
    
    
    (19
    )Other fees and commissions received
    
    
    2,284
    
    
    
    2,451Interest paid
    
    
    (10,749
    )
    
    
    (13,000
    )Cash paid to suppliers and others
    
    
    (8,403
    )
    
    
    (10,168
    )Income taxes paid
    
    
    
    
    
    
    (1,201
    )Net cash provided by operating activities
    
    
    3,477
    
    
    
    2,034Cash flows from investing activities:Proceeds from sale of investment securities available for sale
    
    
    1,405
    
    
    
    1,039Proceeds from maturities of investment securities
    
    
    69,454
    
    
    
    23,312Purchase of investment securities available for sale
    
    
    (273
    )
    
    
    Purchase of investment securities held to maturity
    
    
    (91,301
    )
    
    
    (14,047
    )Redemption (purchase) of deposits in other banks
    
    
    3,357
    
    
    
    (1,197
    )Sales of loans
    
    
    7,293
    
    
    
    Principal collected on loans
    
    
    72,177
    
    
    
    50,699Loans made to customers, net of loans in process
    
    
    (44,897
    )
    
    
    (34,050
    )Other
    
    
    (49
    )
    
    
    (47
    )Net cash provided by investing activities
    
    
    17,166
    
    
    
    25,709Cash flows from financing activities:Net increase (decrease) in checking and savings accounts
    
    
    23,146
    
    
    
    (5,379
    )Net (decrease) in certificates of deposit
    
    
    (15,734
    )
    
    
    (5,907
    )Repayment of FHLB advances
    
    
    (7
    )
    
    
    (5,006
    )Net (decrease) in other borrowings
    
    
    (6,960
    )
    
    
    (3,393
    )Decrease in borrowers advances for taxes and insurance
    
    
    (3,250
    )
    
    
    (2,989
    )Cash dividends paid
    
    
    (668
    )
    
    
    (1,206
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    21Net cash (used in) financing activities
    
    
    (3,473
    )
    
    
    (23,859
    )Net increase in cash and cash equivalents
    
    
    17,170
    
    
    
    3,884Cash and cash equivalents at beginning of period
    
    
    165,891
    
    
    
    104,692Cash and cash equivalents at end of period
    
    $
    183,061
    
    
    $
    108,576
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Three months endedSeptember 30,2009
    
    
    2008Net income
    
    $
    855
    
    
    $
    1,105Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    486
    
    
    
    508Accretion and amortization of loan fees and discounts
    
    
    27
    
    
    
    (717
    )Loan fees collected and deferred
    
    
    31
    
    
    
    (10
    )Provision for loan losses
    
    
    2,289
    
    
    
    1,027Net writedown (gain) on sale of securities
    
    
    1,659
    
    
    
    3,922Decrease in accrued interest receivable
    
    
    705
    
    
    
    761(Increase) in other assets
    
    
    (1,282
    )
    
    
    (1,293
    )Increase (decrease) in accrued interest payable
    
    
    11
    
    
    
    (26
    )(Decrease) in other liabilities
    
    
    (1,304
    )
    
    
    (3,243
    )Total adjustments
    
    
    2,622
    
    
    
    929Net cash provided by operating activities
    
    $
    3,477
    
    
    $
    2,034
  
 PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    Treasury
    
    
    Comprehensive
    
    
    Retained
    
    
    Shareholders'Stock
    
    
    Stock
    
    
    Capital
    
    
    Stock
    
    
    Income (Loss)
    
    
    Earnings
    
    
    EquityBalance, June 30, 2009
    
    $
    31,762
    
    
    $
    6,735
    
    
    $
    4,116
    
    
    
    ($27,314
    )
    
    
    ($10
    )
    
    $
    135,471
    
    
    $
    150,760Net income, three months ended
September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    855
    
    
    
    855Accumulated other comprehensive
Income (loss):Change in swap liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (281
    )Change in unrealized gain (loss)
on securities, net of deferred
tax benefit of $1,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,197Reclassification adjustment, net
of taxes of $(1,008)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,753
    )
    
    
    
    
    
    
    163Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018Dividends declared on common
stock at $0.05 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )
    
    
    (271
    )Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (397
    )
    
    
    (397
    )Balance, September 30, 2009
    
    $
    31,762
    
    
    $
    6,735
    
    
    $
    4,116
    
    
    
    ($27,314
    )
    
    
    153
    
    
    $
    135,658
    
    
    $
    151,110
 6




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 STATEMENTS OF OPERATIONS
  SUBSEQUENT EVENTS
  LOANS
 September 30, 2009
    
    June 30, 2009Loans are summarized as follows:Mortgage loans:Residential:1-4 Family
    
    $
    692,447
    
    
    $
    726,586Multifamily
    
    
    31,703
    
    
    
    34,216Commercial
    
    
    115,096
    
    
    
    114,827Other
    
    
    14,150
    
    
    
    14,806853,396
    
    
    
    890,435Consumer loans
    
    
    187,159
    
    
    
    185,818Commercial business loans
    
    
    43,720
    
    
    
    44,602Loans on savings accounts
    
    
    5,731
    
    
    
    5,0311,090,006
    
    
    
    1,125,886Less: Loans in process
    
    
    5
    
    
    
    60Allowance for loan losses
    
    
    19,484
    
    
    
    17,960Unamortized premiums and deferred loan fees
    
    
    (1,094
    )
    
    
    (1,070
    )Loans, net
    
    $
    1,071,611
    
    
    $
    1,108,936
    2009
    
    
    2008Beginning balance
    
    $
    17,960
    
    
    $
    15,249Provision for losses  mortgage loans
    
    
    2,246
    
    
    
    837Provision for losses  consumer and commercial loans
    
    
    43
    
    
    
    190Loans recovered
    
    
    9
    
    
    
    7Loans charged off
    
    
    (774
    )
    
    
    (1,231
    )Ending balance
    
    $
    19,484
    
    
    $
    15,052
 7




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 COMPREHENSIVE INCOME
  FAIR VALUE OF FINANCIAL INSTRUMENTS
  Level I
    
    Quoted prices are available in the active markets for
identical assets or liabilities as of the measurement date.Level II
    
    Pricing inputs are other than quoted prices in active markets,
which are either directly or indirectly observable as of the
measurement date. The nature of these assets and liabilities
includes items for which quoted prices are available but
traded less frequently, and items that are fair valued using
other financial instruments, the parameters of which can be
directly observed.Level III
    
    Valuations derived from valuation techniques in which one or
more significant inputs or significant value drivers are
unobservable. Level III valuations incorporate certain
assumptions and projections in determining the fair value
assigned to such assets or liabilities.
   Level I
    
    Level II
    
    Level III
    
    TotalAvailable for Sale  Measured on a recurring basis
Assets:Available for sale securities
    
    $
    22,513
    
    
    
    
    
    
    
    
    
    
    $
    22,513Mortgage loans held for sale
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    172Liability: Interest rate swaps
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45
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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  Level I
    
    
    Level II
    
    
    Level III
    
    
    TotalAssets Measured on a Nonrecurring Basis:OTTI  Held to maturity trust preferred securities
    
    $
    190
    
    
    
    
    
    
    $
    1,311
    
    
    $
    1,501OTTI  Held to maturity Non Agency CMO securities
    
    
    
    
    
    
    
    
    
    
    352
    
    
    
    352Impaired loans
    
    
    
    
    
    
    
    
    
    
    3,496
    
    
    
    3,496
  Cash and Noninterest-Bearing Deposits  Federal Funds Sold
Interest-Earning Deposits in Other Banks
Accrued interest
Cash Surrender Value (CSV) of Bank Owned Life Insurance (BOLI)
Commercial Investment Agreements
  Investments and Mortgage-Backed Securities:
 Loans Receivable:
 Deposit Liabilities:
 Advances from Federal Home Loan Bank:
 Term Debt:
 9




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Off-Balance-Sheet Instruments:
  September 30, 2009
    
    June 30, 2009Estimated
    
    Carrying
    
    Estimated
    
    CarryingFair Value
    
    Value
    
    Fair Value
    
    ValueFinancial Assets:Cash and non-interest-earning deposits
    
    $
    16,195
    
    
    $
    16,195
    
    
    $
    15,381
    
    
    $
    15,381Federal funds sold
    
    
    166,866
    
    
    
    166,866
    
    
    
    150,510
    
    
    
    150,510Interest-earning deposits in other banks
    
    
    542
    
    
    
    542
    
    
    
    3,899
    
    
    
    3,899Investment securities, excluding mortgage-backed securities
    
    
    288,336
    
    
    
    323,185
    
    
    
    251,380
    
    
    
    285,012Mortgage-backed securities
    
    
    198,320
    
    
    
    223,770
    
    
    
    210,870
    
    
    
    241,058Loans receivable, gross of allowances
    
    
    1,119,992
    
    
    
    1,090,006
    
    
    
    1,154,459
    
    
    
    1,125,886Accrued interest receivable
    
    
    6,312
    
    
    
    6,312
    
    
    
    7,017
    
    
    
    7,017CSV of BOLI
    
    
    24,466
    
    
    
    24,466
    
    
    
    24,188
    
    
    
    24,188Financial Liabilities:Checking, savings and money market accounts
    
    $
    640,925
    
    
    $
    640,925
    
    
    $
    621,967
    
    
    $
    621,967Certificates of deposit
    
    
    885,606
    
    
    
    863,213
    
    
    
    900,017
    
    
    
    878,433Accrued interest payable
    
    
    11,227
    
    
    
    11,227
    
    
    
    11,713
    
    
    
    11,713Advances from Federal Home Loan Bank
    
    
    199,735
    
    
    
    186,144
    
    
    
    199,156
    
    
    
    186,202Term debt
    
    
    24,955
    
    
    
    25,000
    
    
    
    24,673
    
    
    
    25,000Commercial investment agreements
    
    
    14,300
    
    
    
    14,300
    
    
    
    20,136
    
    
    
    21,261Off-balance sheet loan instruments
    
    $
    150
    
    
    
    
    
    
    $
    13
    
    
    
    
 INVESTMENT SECURITIES
 Investment Securities available for sale:
 Investment Securities Held to Maturity:
 10




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Other-than Temporary Impairments
     Available for Sale Investments
 September 30, 2009
    
    
    June 30, 2009Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair ValueFHLB of Pittsburgh stock
    
    $
    14,099
    
    
    $
    14,099
    
    
    $
    13,826
    
    
    $
    13,826Preferred stocks:FHLMC Series M Pfd
    
    
    20
    
    
    
    105
    
    
    
    20
    
    
    
    49FHLMC Series S Pfd
    
    
    30
    
    
    
    123
    
    
    
    30
    
    
    
    73Bank of America Corp Pfd Series J
    
    
    1,096
    
    
    
    2,169
    
    
    
    2,192
    
    
    
    3,680Mutual Funds  ARM mortgages
    
    
    5,500
    
    
    
    5,310
    
    
    
    5,500
    
    
    
    5,302Common equities
    
    
    473
    
    
    
    707
    
    
    
    473
    
    
    
    575$
    21,218
    
    
    $
    22,513
    
    
    $
    22,041
    
    
    $
    23,505
 11




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2009
    
    
    June 30, 2009Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair ValueHeld to Maturity InvestmentsU.S. Government and agency obligations
    
    $
    155,550
    
    
    $
    156,866
    
    
    $
    108,682
    
    
    $
    109,719Municipal obligations
    
    
    16,996
    
    
    
    17,506
    
    
    
    19,165
    
    
    
    19,365Corporate debt:Short to medium term corporate debt
    
    
    52,568
    
    
    
    53,783
    
    
    
    57,464
    
    
    
    57,848Pooled trust preferred securities
    
    
    66,198
    
    
    
    30,298
    
    
    
    68,306
    
    
    
    34,456Individual trust preferred securities
    
    
    9,360
    
    
    
    7,370
    
    
    
    9,354
    
    
    
    6,487Mortgage-backed securities:Agency
    
    
    58,090
    
    
    
    58,788
    
    
    
    63,367
    
    
    
    63,811Agency Collateralized Mortgage Obligations
(CMOs)
    
    
    1,458
    
    
    
    1,501
    
    
    
    1,540
    
    
    
    1,558CMOs  non agency
    
    
    164,222
    
    
    
    138,031
    
    
    
    176,145
    
    
    
    145,496$
    524,442
    
    
    $
    464,143
    
    
    $
    504,029
    
    
    $
    438,745
   Less than 12 months
    
    
    Greater than 12 monthsOf unrealized losses
    
    
    of unrealized losses
    
    
    TotalAvailable for Sale Investments
    
    Fair Value
    
    
    Unrealized loss
    
    
    Fair Value
    
    
    Unrealized loss
    
    
    Fair Value
    
    
    Unrealized lossMutual funds
    
    
    
    
    
    
    
    
    
    $
    4,792
    
    
    $
    208
    
    
    $
    4,792
    
    
    $
    208Common equities
    
    $
    282
    
    
    $
    18
    
    
    
    
    
    
    
    
    
    
    
    282
    
    
    
    18Held to Maturity InvestmentsU.S. Government and agency
obligations
    
    
    45,163
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    45,163
    
    
    
    199Municipal obligations
    
    
    
    
    
    
    
    
    
    
    933
    
    
    
    67
    
    
    
    933
    
    
    
    67Short to medium term corporate debt
    
    
    
    
    
    
    
    
    
    
    2,833
    
    
    
    9
    
    
    
    2,833
    
    
    
    9Pooled trust preferred securities
    
    
    2,090
    
    
    
    4,106
    
    
    
    28,208
    
    
    
    31,794
    
    
    
    30,298
    
    
    
    35,900Individual trust preferred securities
    
    
    
    
    
    
    
    
    
    
    4,330
    
    
    
    2,257
    
    
    
    4,330
    
    
    
    2,257Mortgage-backed securities  agency
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    1
    
    
    
    94
    
    
    
    1Mortgage-backed securities 
Non agency CMOs
    
    
    51,034
    
    
    
    9,524
    
    
    
    58,435
    
    
    
    18,499
    
    
    
    109,469
    
    
    
    28,023
 12




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Available for sale securities.
 FHLB of Pittsburgh Stock
 Preferred Stocks
 Mutual Funds
 Common Equities.
 General
 Held to maturity securities.
 U.S. Government and Agency Obligations.
 Trust Preferred Securities
 13




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
       14




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  ExpectedDefaults (%
    
    
    Excessof
    
    
    SubordinationLowest
    
    
    
    
    
    
    Actual
    
    
    Actual
    
    
    performing
    
    
    (as a % ofNote
    
    
    Par
    
    
    Book
    
    
    Fair
    
    
    Unrealized
    
    
    Credit
    
    
    # of
    
    
    Default %
    
    
    Deferral
    
    
    collateral)
    
    
    performingDeal
    
    Class
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Gain (Loss)
    
    
    Ratings
    
    
    Issuers
    
    
    (1)
    
    
    % (1) (2)
    
    
    (3)
    
    
    collateral) (4)Pooled InvestmentsP1
    
    
    C1
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    1,929
    
    
    
    (3,071
    )
    
    Ca
    
    
    81
    
    
    
    14.9
    %
    
    
    12.0
    %
    
    
    3.6
    %
    
    
    13.8
    %P2
    
    
    A2A
    
    
    
    5,000
    
    
    
    4,533
    
    
    
    1,433
    
    
    
    (3,100
    )
    
    BB
    
    
    79
    
    
    
    11.8
    %
    
    
    10.5
    %
    
    
    6.1
    %
    
    
    37.9
    %P3
    
    
    C1
    
    
    
    4,592
    
    
    
    4,376
    
    
    
    2,024
    
    
    
    (2,352
    )
    
    Ca
    
    
    85
    
    
    
    9.0
    %
    
    
    7.8
    %
    
    
    1.8
    %
    
    
    7.0
    %P4
    
    
    C1
    
    
    
    5,058
    
    
    
    4,718
    
    
    
    2,057
    
    
    
    (2,661
    )
    
    
    C
    
    
    
    72
    
    
    
    8.0
    %
    
    
    11.2
    %
    
    
    5.4
    %
    
    
    5.6
    %P5
    
    
    C1
    
    
    
    5,000
    
    
    
    4,933
    
    
    
    1,891
    
    
    
    (3,042
    )
    
    Ca
    
    
    93
    
    
    
    7.9
    %
    
    
    12.5
    %
    
    
    3.7
    %
    
    
    7.0
    %P6
    
    
    C1
    
    
    
    3,075
    
    
    
    3,075
    
    
    
    1,358
    
    
    
    (1,717
    )
    
    Ca
    
    
    65
    
    
    
    19.1
    %
    
    
    10.8
    %
    
    
    1.6
    %
    
    
    21.5
    %P8
    
    
    C
    
    
    
    3,219
    
    
    
    2,903
    
    
    
    1,083
    
    
    
    (1,820
    )
    
    Ca
    
    
    52
    
    
    
    10.7
    %
    
    
    14.6
    %
    
    
    7.5
    %
    
    
    17.1
    %P9
    
    
    B
    
    
    
    2,008
    
    
    
    1,662
    
    
    
    656
    
    
    
    (1,006
    )
    
    Ca
    
    
    54
    
    
    
    8.7
    %
    
    
    15.2
    %
    
    
    11.1
    %
    
    
    28.2
    %P10
    
    
    B1
    
    
    
    5,000
    
    
    
    4,833
    
    
    
    2,930
    
    
    
    (1,903
    )
    
    
    B2
    
    
    
    25
    
    
    
    5.8
    %
    
    
    0.0
    %
    
    
    4.3
    %
    
    
    37.7
    %P11 (5)
    
    Mezz
    
    
    1,500
    
    
    
    1,405
    
    
    
    1,311
    
    
    
    (94
    )
    
    Ca
    
    
    35
    
    
    
    8.4
    %
    
    
    19.5
    %
    
    
    3.9
    %
    
    
    0.0
    %P12
    
    
    B2
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    573
    
    
    
    (427
    )
    
    Ca
    
    
    49
    
    
    
    7.3
    %
    
    
    18.2
    %
    
    
    2.7
    %
    
    
    16.4
    %P13
    
    
    B
    
    
    
    3,909
    
    
    
    3,753
    
    
    
    1,240
    
    
    
    (2,513
    )
    
    Caa3
    
    
    55
    
    
    
    6.6
    %
    
    
    10.8
    %
    
    
    2.8
    %
    
    
    9.2
    %P14
    
    
    A1
    
    
    
    4,811
    
    
    
    4,415
    
    
    
    2,725
    
    
    
    (1,690
    )
    
    BB
    
    
    64
    
    
    
    8.3
    %
    
    
    11.7
    %
    
    
    6.8
    %
    
    
    42.8
    %P15
    
    
    B
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    2,348
    
    
    
    (2,652
    )
    
    Caa3
    
    
    34
    
    
    
    2.0
    %
    
    
    24.6
    %
    
    
    4.7
    %
    
    
    9.5
    %P16
    
    
    C1
    
    
    
    5,000
    
    
    
    4,930
    
    
    
    2,666
    
    
    
    (2,264
    )
    
    
    C
    
    
    
    49
    
    
    
    9.2
    %
    
    
    12.6
    %
    
    
    3.0
    %
    
    
    16.4
    %P17
    
    
    C1
    
    
    
    5,000
    
    
    
    4,970
    
    
    
    2,536
    
    
    
    (2,434
    )
    
    
    C
    
    
    
    43
    
    
    
    11.4
    %
    
    
    13.9
    %
    
    
    0.0
    %
    
    
    16.7
    %P18
    
    
    D
    
    
    
    5,058
    
    
    
    4,692
    
    
    
    1,538
    
    
    
    (3,154
    )
    
    
    C
    
    
    
    63
    
    
    
    6.6
    %
    
    
    13.8
    %
    
    
    4.5
    %
    
    
    5.1
    %Subtotal
    
    
    17
    
    
    
    69,230
    
    
    
    66,198
    
    
    
    30,298
    
    
    
    (35,900
    )Single Issuer InvestmentsS1
    
    
    N/A
    
    
    
    1,000
    
    
    
    924
    
    
    
    580
    
    
    
    (344
    )
    
    BB-
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S2
    
    
    N/A
    
    
    
    2,000
    
    
    
    1,967
    
    
    
    1,262
    
    
    
    (705
    )
    
    BB-
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S3
    
    
    N/A
    
    
    
    3,000
    
    
    
    2,761
    
    
    
    1,817
    
    
    
    (944
    )
    
    
    A1
    
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S4
    
    
    N/A
    
    
    
    500
    
    
    
    443
    
    
    
    205
    
    
    
    (238
    )
    
    BB
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S5
    
    
    N/A
    
    
    
    1,000
    
    
    
    1,006
    
    
    
    1,092
    
    
    
    86
    
    
    NR
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S6
    
    
    N/A
    
    
    
    700
    
    
    
    713
    
    
    
    734
    
    
    
    21
    
    
    NR
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S7
    
    
    N/A
    
    
    
    529
    
    
    
    492
    
    
    
    466
    
    
    
    (26
    )
    
    
    B+
    
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S8
    
    
    N/A
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,024
    
    
    
    24
    
    
    BBB-
    
    
    1
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %S9 (5)
    
    
    N/A
    
    
    
    500
    
    
    
    54
    
    
    
    190
    
    
    
    136
    
    
    NR
    
    
    1
    
    
    
    0.0
    %
    
    
    100.0
    %
    
    
    0.0
    %Subtotal
    
    
    9
    
    
    
    10,229
    
    
    
    9,360
    
    
    
    7,370
    
    
    
    (1,990
    )Grand total of Trust Preferred holdings
    
    
    79,459
    
    
    
    75,558
    
    
    
    37,668
    
    
    
    (37,890
    )
  
 Notes:(1)
    
    As a percentage of the original collateral.(2)
    
    Includes deferrals that have not paid current interest payments as permitted by the debt
instruments.(3)
    
    Expected additional defaults are determined by an analysis of the collateral for each security.
The total expected additional defaults are then
generally applied over a three year period with 50% projected to occur in year 1, 30% in year
2, and 20% in year 3.(4)
    
    Excess subordination represents the additional defaults in excess of actual deferrals and
defaults that the CDO can absorb before the security
class experiences a shortfall in principal or interest due. To the extent the Banks security was
purchased at a discount, the Banks excess subordination is
greater than the CDO security class at par.(5)
    
    Book value reduced in March 2009 for OTTI to fair value at March 31, 2009. 15




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Non agency CMOs
 Year originated
    
    Book Value
    
    
    Fair Value2003
    
    $
    17,521
    
    
    $
    18,0732004
    
    
    23,187
    
    
    
    19,6612005
    
    
    81,133
    
    
    
    71,2122006
    
    
    22,406
    
    
    
    14,0302007
    
    
    0
    
    
    
    02008
    
    
    13,115
    
    
    
    8,4272009
    
    
    6,860
    
    
    
    6,627$
    164,222
    
    
    $
    138,031
  Book Value
    
    
    Fair ValueAAA by Moodys, S&P, or Fitch
    
    $
    60,520
    
    
    $
    59,893AA by Moodys or S&P
    
    
    12,158
    
    
    
    11,377A by Moodys, S&P, or Fitch
    
    
    40,166
    
    
    
    34,756BBB by Moodys or Fitch
    
    
    22,359
    
    
    
    15,044BB by Fitch
    
    
    3,754
    
    
    
    990CCC by S&P or Fitch
    
    
    16,812
    
    
    
    11,489CC by Fitch
    
    
    8,452
    
    
    
    4,483$
    164,222
    
    
    $
    138,031
  General
 16




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Other-Than-Temporary- Impairment
  Unadjusted
    
    OTTI
    
    OTTI
    
    09/30/09
    
    09/30/09Carrying
    
    Charge to
    
    charge to
    
    Carrying
    
    FairSecurity
    
    Value
    
    earnings
    
    OCI
    
    Value
    
    ValueNon Agency CMO
    
    
    2,115
    
    
    
    1,052
    
    
    
    714
    
    
    
    349
    
    
    
    352Pooled trust preferred security
    
    
    1,623
    
    
    
    218
    
    
    
    
    
    
    
    1,405
    
    
    
    1,311Individual trust preferred security
    
    
    500
    
    
    
    446
    
    
    
    
    
    
    
    54
    
    
    
    190
  Trust preferred securities
    
    
    Non Agency CMOBalance at June 30, 2009
    
    $
    552
    
    
    $
    714Total losses  realized/unrealized
    
    
    2,761Included as a charge to earnings
    
    
    2,761Change to other comprehensive income
    
    
    (552
    )Balance at September 30, 2009
    
    $
    
    
    
    $
    714The amount of securities with OTTI charges to earnings are as follows:Recorded in March 2009
    
    $
    14,113Recorded in June 2009
    
    
    3,395
    
    
    $
    1,052Recorded in September 2009
    
    
    2,761$
    20,269
    
    
    $
    1,052The above amounts are categorized as of September 30, 2009 as follows:Writeoffs no longer reflected as investments
    
    $19,605Charged to earnings in March 2009Level 1 - individual TPS
    
    
    446Level III  Pooled TPS
    
    
    218Charged to earnings in June 2009Level III  Non Agency CMO
    
    
    
    
    
    
    1,052
  17




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
   
    
    Estimate of future cash flows  cash flows are constructed on Intex software. Intex
is a proprietary software program recognized as the industry standard for analyzing all
types of collateralized debt obligations. It includes each deals structural features
updated with information from trustee reports, including collateral/hedge
agreement/cash flow detail, as it becomes available. A present value analysis is then
performed on the modeled cash flows to determine any cash flow shortages to our
respective holdings, if any.
    
    Credit analysis  A quarterly credit evaluation is performed for each of the issuers
comprising the collateral across the various pooled trust preferred securities. The
credit evaluation considers all evidence available to us and includes the nature of the
issuers business and geographic footprint. The analysis focuses on shareholders
equity, loan loss reserves, non-performing assets, credit quality ratios and capital
adequacy.
    
    Probability of default  A probability of default is determined for each issuer and
is used to calculate the expected impact of future deferrals and defaults in our
expected cash flows. Each issuer in the collateral pool is assigned a probability of
default with an emphasis on near term probability in the first three years. Issuers
currently defaulted are assigned a 100% probability of loss and issuers currently
deferring are assigned a probability of loss with recoveries ranging from 0% to 50%
projected to begin 2 years after the deferrals began. All other issuers in the pool are
assigned a probability of loss ranging from 0% to 80%, with ranges based upon the
results of the credit analysis. The probability of loss of 0% is assigned to only the
strongest financial institutions. The probability of default is updated quarterly with
data provided by trustees and other sources.
 18




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  GOODWILL AND MARKET VALUATION
    19




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 EARNINGS PER SHARE (EPS)
  2009
    
    2008Numerator for basic and diluted earnings per share:Net Income
    
    $
    855
    
    
    $
    1,105Less: Preferred stock dividend
    
    
    397
    
    
    
    Net income to common shareholders
    
    $
    458
    
    
    $
    1,105Denominator:Weighted average shares for basic earnings per share
    
    
    5,427,695
    
    
    
    5,482,369Effect of dilutive stock options
    
    
    -
    
    
    
    3,606Weighted average shares for dilutive earnings per share
    
    
    5,427,695
    
    
    
    5,485,975Net income per common share:Basic
    
    $
    0.08
    
    
    $
    0.20Diluted
    
    $
    0.08
    
    
    $
    0.20Dividends per common share
    
    $
    0.05
    
    
    $
    0.22
 NEW ACCOUNTING PRONOUNCEMENTS
   20




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##### Table of Contents



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
   
  PARKVALE FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  Forward-Looking Statements:
   21




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##### Table of Contents



Critical Accounting Policies, Judgments and Estimates:
    Balance Sheet Data:
    
    September 30,(Dollar amounts in thousands, except per share data)
    
    2009
    
    2008Total assets
    
    $
    1,903,314
    
    
    $
    1,828,077Loans, net
    
    
    1,071,611
    
    
    
    1,181,938Interest-earning deposits and federal funds sold
    
    
    167,408
    
    
    
    97,449Total investments
    
    
    546,955
    
    
    
    433,580Deposits
    
    
    1,518,661
    
    
    
    1,482,400FHLB advances
    
    
    186,144
    
    
    
    186,372Shareholders equity
    
    
    151,110
    
    
    
    131,258Book value per share
    
    $
    21.99
    
    
    $
    23.94
 22




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##### Table of Contents



Three Months EndedSeptember 30, (1)Statistical Profile:
    
    2009
    
    
    2008Average yield earned on all interest-earning assets
    
    
    4.45
    %
    
    
    5.47
    %Average rate paid on all interest-bearing liabilities
    
    
    2.44
    %
    
    
    3.07
    %Average interest rate spread
    
    
    2.01
    %
    
    
    2.40
    %Net yield on average interest-earning assets
    
    
    2.07
    %
    
    
    2.50
    %Other expenses to average assets
    
    
    1.59
    %
    
    
    1.53
    %Taxes to pre-tax income
    
    
    74.28
    %
    
    
    30.59
    %Dividend payout ratio
    
    
    59.25
    %
    
    
    109.22
    %Return on average assets
    
    
    0.18
    %
    
    
    0.24
    %Return on average equity
    
    
    2.26
    %
    
    
    3.28
    %Average equity to average total assets
    
    
    7.91
    %
    
    
    7.27
    %
 At September 30,2009
    
    2008One year gap to total assets
    
    
    9.68
    %
    
    
    2.28
    %Intangibles to total equity
    
    
    19.32
    %
    
    
    22.93
    %Ratio of nonperforming assets to total assets
    
    
    2.15
    %
    
    
    0.90
    %Number of full-service offices
    
    
    48
    
    
    
    48
 
 (1)
    
    The applicable income and expense figures have been annualized in calculating the
percentages. Nonperforming Loans and Foreclosed Real Estate:
  (Dollar amounts in 000's)
    
    9/30/09
    
    
    6/30/09
    
    
    12/31/08
    
    
    9/30/08Delinquent single-family mortgage loans
    
    $
    26,247
    
    
    $
    21,046
    
    
    $
    11,041
    
    
    $
    8,264Delinquent other loans
    
    
    4,973
    
    
    
    3,321
    
    
    
    2,334
    
    
    
    1,567Total nonperforming loans
    
    
    31,220
    
    
    
    24,367
    
    
    
    13,375
    
    
    
    9,831Total impaired loans
    
    
    3,495
    
    
    
    3,568
    
    
    
    508
    
    
    
    1,265Real estate owned, net
    
    
    6,139
    
    
    
    5,706
    
    
    
    6,897
    
    
    
    5,353Total
    
    $
    40,854
    
    
    $
    33,641
    
    
    $
    20,780
    
    
    $
    16,449
   23




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24




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Allowance for Loan Losses:
   Liquidity and Capital Resources:
  TARP Capital Purchase Program
 25




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Term Debt
 26




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27




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Tier 1
    
    Tier 1
    
    TotalCore
    
    Risk-Based
    
    Risk-Based(Dollars in 000s)
    
    Capital
    
    Capital
    
    CapitalEquity capital (1)
    
    $
    173,720
    
    
    $
    173,720
    
    
    $
    173,720Less non-allowable intangible assets
    
    
    (29,193
    )
    
    
    (29,193
    )
    
    
    (29,193
    )Plus permitted valuation allowances (2)
    
    
    
    
    
    
    
    
    
    
    15,208Plus allowable unrealized holding gains (3)
    
    
    
    
    
    
    
    
    
    
    478Total regulatory capital
    
    
    144,527
    
    
    
    144,527
    
    
    
    160,213Minimum required capital
    
    
    75,369
    
    
    
    54,417
    
    
    
    108,833Excess regulatory capital
    
    $
    69,158
    
    
    $
    90,111
    
    
    $
    50,902Adjusted total assets (1)
    
    $
    1,884,231
    
    
    $
    1,354,469
    
    
    $
    1,354,469Regulatory capital as a percentage
    
    
    7.67
    %
    
    
    10.67
    %
    
    
    11.83
    %Minimum capital required as a percentage
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    8.00
    %Excess regulatory capital as a percentage
    
    
    3.67
    %
    
    
    6.67
    %
    
    
    3.83
    %Well capitalized requirement
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %
 
 (1)
    
    Represents amounts for the consolidated Bank as reported to the Pennsylvania Department
of Banking and FDIC on Form 041 for the quarter ended September 30, 2009.(2)
    
    Limited to 1.25% of risk adjusted total assets.(3)
    
    Limited to 45% pf pretax net unrealized holding gains.  Results of Operations  Comparison of Three Months Ended September 30, 2009 and 2008:
  Interest Income:
  28




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Interest Expense:
  Net Interest Income:
  Provision for Loan Losses:
   29




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Noninterest Income:
   Pooled trust preferred securities
    
    
    $2,761,000Recovery on sale of preferred stock
    
    
    (1,001,000
    )Gain on the sale of mortgage loans
    
    
    (101,000
    )Total
    
    
    $1,659,000
    30




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Noninterest Expense:
  Income Tax Expense (Benefit):
  Impact of Inflation and Changing Prices:
  
   
   31




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PART II  OTHER INFORMATION
      (a)
    
    Not applicable(b)
    
    Not applicable(c)
    
    During the quarter ended September 30, 2009, Parkvale did not purchase shares of common
stock. Share repurchases were suspended in December 2008 due to the restrictions by the US
Treasury prohibiting share repurchases without prior approval.
    (a)
    
    The 2009 Annual Meeting of Shareholders of Parkvale Financial Corporation was held on
October 22, 2009. Of 5,427,695 shares eligible to vote, 90.6% or 4,916,752 were voted by
proxy.(b)
    
    The shareholders voted to re-elect the nominees for director, as described in the Proxy
Statement for the Annual Meeting. The results for the re-election of Andrea F. Fitting as
director were 4,424,031 shares in favor and 492,721 shares withheld. The results for the
re-election of Robert D. Pfischner as director were 3,820,387 shares in favor and 1,096,365
shares withheld. The results for the re-election of Stephen M. Gagliardi as director were
3,695,177 shares in favor and 1,221,575 shares withheld.(c)
    
    Adopt a non-binding resolution to approve the compensation of our named executive
officers as described in the Proxy Statement for the Annual Meeting, was approved with
4,258,736 shares in favor, 626,449 shares against and 31,567 shares abstaining.(d)
    
    The recommendation by the Board of Directors to ratify the appointment of Parente
Randolph, LLC as the Corporations independent auditors, as described in the Proxy
Statement for the Annual Meeting, was approved with 4,695,280 shares in favor,
208,963shares against and 12,509 shares abstaining. Due to a merger on October 1, 2009, the
firm is now known as ParenteBeard LLC.
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31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 SIGNATURES
  Parkvale Financial CorporationDATE: November 5, 2009
    By:
    /s/ Timothy G. RubritzTimothy G. RubritzVice President, Treasurer and
Chief Financial OfficerDATE: November 5, 2009
    By:
    /s/ Robert J. McCarthy, Jr.Robert J. McCarthy, Jr.President and
Chief Executive Officer 33