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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, 2007
 COMMISSION FILE NO: 0-17411
 PARKVALE FINANCIAL CORPORATION
 
 Pennsylvania
    
    25-1556590(State of incorporation)
    
    (I.R.S. Employer
Identification Number)
  
  þ o
 o þ o
 o þ




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##### 



PARKVALE FINANCIAL CORPORATION
   
 PagePart I. Financial InformationItem 1.Consolidated Statements of Financial Condition as of September 30, 2007
and June 30, 2007
    
    
    3Consolidated Statements of Operations for the three months ended
September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the three months ended
September 30, 2007 and 2006
    
    
    5-6Consolidated Statements of Shareholders Equity for the three months ended
September 30, 2007
    
    
    6Notes to Unaudited Interim Consolidated Financial Statements
    
    
    7-11Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12-18Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4.Controls and Procedures
    
    
    18Part II  Other Information
    
    
    19-20Signatures
    
    
    20Exhibits
    
    
    21-23Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




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PARKVALE FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30,
    
    
    June 30,2007
    
    
    2007ASSETSCash and noninterest-earning deposits
    
    $
    28,376
    
    
    $
    31,248Federal funds sold
    
    
    119,000
    
    
    
    114,000Cash and cash equivalents
    
    
    147,376
    
    
    
    145,248Interest-earning deposits in other banks
    
    
    5,689
    
    
    
    4,803Investment securities available for sale (cost of
$33,800 at September 30 and $30,303 at June 30)
    
    
    33,517
    
    
    
    30,580Investment securities held to maturity (fair value
of $347,453 at September 30 and $347,022 at June 30)
    
    
    348,443
    
    
    
    349,363Loans, net of allowance of $14,819 at September 30
and $14,189 at June 30
    
    
    1,221,914
    
    
    
    1,234,397Foreclosed real estate, net
    
    
    1,675
    
    
    
    1,857Office properties and equipment, net
    
    
    18,061
    
    
    
    17,387Goodwill
    
    
    25,634
    
    
    
    25,634Intangible assets
    
    
    5,377
    
    
    
    5,604Prepaid expenses and other assets
    
    
    39,070
    
    
    
    29,358Total assets
    
    $
    1,846,756
    
    
    $
    1,844,231LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESDeposits
    
    $
    1,474,628
    
    
    $
    1,469,084Advances from Federal Home Loan Bank
    
    
    211,601
    
    
    
    211,658Trust preferred securities
    
    
    7,200
    
    
    
    7,200Other debt
    
    
    14,770
    
    
    
    13,106Advance payments from borrowers for taxes and insurance
    
    
    4,334
    
    
    
    7,665Other liabilities
    
    
    4,950
    
    
    
    5,848Total liabilities
    
    
    1,717,483
    
    
    
    1,714,561SHAREHOLDERS EQUITYPreferred 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
    
    
    
    6,735Additional paid in capital
    
    
    3,718
    
    
    
    3,717Treasury stock at cost (1,208,065 shares at September 30
and 1,122,546 at June 30)
    
    
    (25,168
    )
    
    
    (22,695
    )Accumulated other comprehensive income
    
    
    (180
    )
    
    
    176Retained earnings
    
    
    144,168
    
    
    
    141,737Total shareholders equity
    
    
    129,273
    
    
    
    129,670Total liabilities and shareholders equity
    
    $
    1,846,756
    
    
    $
    1,844,231
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PARKVALE FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedSeptember 30,2007
    
    
    2006Interest Income:Loans
    
    $
    18,398
    
    
    $
    17,676Investments
    
    
    4,980
    
    
    
    4,694Federal funds sold
    
    
    1,436
    
    
    
    1,559Total interest income
    
    
    24,814
    
    
    
    23,929Interest Expense:Deposits
    
    
    11,961
    
    
    
    10,675Borrowings
    
    
    2,780
    
    
    
    2,910Trust preferred securities
    
    
    164
    
    
    
    753Total interest expense
    
    
    14,905
    
    
    
    14,338Net interest income
    
    
    9,909
    
    
    
    9,591Provision for loan losses
    
    
    703
    
    
    
    204Net interest income after
provision for loan losses
    
    
    9,206
    
    
    
    9,387Noninterest Income:Service charges on deposit accounts
    
    
    1,777
    
    
    
    1,815Other service charges and fees
    
    
    287
    
    
    
    330Gain (loss) on sale of assets
    
    
    
    
    
    
    (9
    )Other
    
    
    683
    
    
    
    492Total noninterest income
    
    
    2,747
    
    
    
    2,628Noninterest Expense:Compensation and employee benefits
    
    
    4,135
    
    
    
    3,763Office occupancy
    
    
    1,128
    
    
    
    1,185Marketing
    
    
    173
    
    
    
    122Office supplies, telephone and postage
    
    
    457
    
    
    
    479Other
    
    
    1,317
    
    
    
    1,298Total noninterest expense
    
    
    7,210
    
    
    
    6,847Income before income taxes
    
    
    4,743
    
    
    
    5,168Income tax expense
    
    
    1,094
    
    
    
    1,687Net income
    
    $
    3,649
    
    
    $
    3,481Net income per share:Basic
    
    $
    0.65
    
    
    $
    0.61Diluted
    
    $
    0.65
    
    
    $
    0.61
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PARKVALE FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Interest received
    
    $
    25,118
    
    
    $
    24,702Loan fees received (paid)
    
    
    31
    
    
    
    (62
    )Other fees and commissions received
    
    
    2,500
    
    
    
    2,512Interest paid
    
    
    (14,986
    )
    
    
    (14,435
    )Cash paid to suppliers and others
    
    
    (5,701
    )
    
    
    (6,350
    )Income taxes paid
    
    
    (2,543
    )
    
    
    (2,091
    )Net cash provided by operating activities
    
    
    4,419
    
    
    
    4,276Cash flows from investing activities:Proceeds from maturities of investment securities
    
    
    27,818
    
    
    
    30,307Purchase of investment securities available for sale
    
    
    (1,028
    )
    
    
    Purchase of investment securities held to maturity
    
    
    (39,360
    )
    
    
    (20,501
    )Net change of deposits in other banks
    
    
    (886
    )
    
    
    302Purchase of loans
    
    
    (14,236
    )
    
    
    (33,858
    )Proceeds from sales of loans
    
    
    152
    
    
    
    153Principal collected on loans
    
    
    87,370
    
    
    
    80,881Loans made to customers, net of loans in process
    
    
    (61,313
    )
    
    
    (45,071
    )Other
    
    
    (1,011
    )
    
    
    (177
    )Net cash (used in) provided by investing activities
    
    
    (2,494
    )
    
    
    12,036Cash flows from financing activities:Net (decrease) increase in checking and savings accounts
    
    
    (9,913
    )
    
    
    48,269Net increase in certificates of deposit
    
    
    15,498
    
    
    
    19,890Repayment of FHLB advances
    
    
    (6
    )
    
    
    (5,006
    )Net increase in other borrowings
    
    
    1,664
    
    
    
    2,885Decrease in borrowers advances for taxes and insurance
    
    
    (3,331
    )
    
    
    (3,319
    )Cash dividends paid
    
    
    (1,236
    )
    
    
    (1,136
    )Proceeds from exercise of stock options
    
    
    21
    
    
    
    93Payment for treasury stock
    
    
    (2,494
    )
    
    
    Net cash provided by financing activities
    
    
    203
    
    
    
    61,676Net increase in cash and cash equivalents
    
    
    2,128
    
    
    
    77,988Cash and cash equivalents at beginning of period
    
    
    145,248
    
    
    
    129,676Cash and cash equivalents at end of period
    
    $
    147,376
    
    
    $
    207,664
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Three months ended September 30,2007
    
    
    2006Reconciliation of net income to net cash provided by
operating activities:Net income
    
    $
    3,649
    
    
    $
    3,481Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    564
    
    
    
    638Accretion and amortization of loan fees and discounts
    
    
    96
    
    
    
    91Loan fees collected and deferred (premiums paid)
    
    
    (134
    )
    
    
    (100
    )Provision for loan losses
    
    
    703
    
    
    
    204(Gain) loss on sale of assets
    
    
    
    
    
    
    9Decrease in accrued interest receivable
    
    
    252
    
    
    
    632Decrease (increase) in other assets
    
    
    81
    
    
    
    (281
    )(Decrease) in accrued interest payable
    
    
    (37
    )
    
    
    (58
    )(Decrease) in other liabilities
    
    
    (755
    )
    
    
    (340
    )Total adjustments
    
    
    770
    
    
    
    795Net cash provided by operating activities
    
    $
    4,419
    
    
    $
    4,276
  PARKVALE FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Treasury
    
    
    Comprehensive
    
    
    Retained
    
    
    ShareholdersStock
    
    
    Capital
    
    
    Stock
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance, June 30, 2007
    
    $
    6,735
    
    
    $
    3,717
    
    
    
    ($22,695
    )
    
    $
    176
    
    
    $
    141,737
    
    
    $
    129,670Net income, three months ended
September 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,649
    
    
    
    3,649Accumulated other comprehensive income:Change in unrealized gain on securities,
net of deferred tax benefit of $(249)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    
    
    
    
    (356
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,293Treasury stock purchased
    
    
    
    
    
    
    
    
    
    
    (2,494
    )
    
    
    
    
    
    
    
    
    
    
    (2,494
    )Dividends declared on common stock at
$0.22 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,218
    )
    
    
    (1,218
    )Exercise of stock options
    
    
    
    
    
    
    1
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    22Balance, September 30, 2007
    
    $
    6,735
    
    
    $
    3,718
    
    
    
    ($25,168
    )
    
    
    ($180
    )
    
    $
    144,168
    
    
    $
    129,273
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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Statements of Operations
  Loans
 September 30, 2007
    
    June 30, 2007Loans are summarized as follows:Mortgage loans:Residential:1-4 Family
    
    $
    848,591
    
    
    $
    859,972Multifamily
    
    
    32,722
    
    
    
    32,474Commercial
    
    
    114,110
    
    
    
    112,287Other
    
    
    18,637
    
    
    
    18,3211,014,060
    
    
    
    1,023,054Consumer loans
    
    
    173,934
    
    
    
    173,506Commercial business loans
    
    
    41,427
    
    
    
    45,184Loans on savings accounts
    
    
    5,632
    
    
    
    5,1621,235,053
    
    
    
    1,246,906Less: Loans in process
    
    
    83
    
    
    
    98Allowance for loan losses
    
    
    14,819
    
    
    
    14,189Unamortized premiums and deferred loan fees
    
    
    (1,763
    )
    
    
    (1,778
    )Loans, net
    
    $
    1,221,914
    
    
    $
    1,234,397
   2007
    
    
    2006Beginning balance
    
    $
    14,189
    
    
    $
    14,907Provision for losses  mortgage loans
    
    
    603
    
    
    
    62Provision for losses  consumer loans
    
    
    50
    
    
    
    142Provision for losses  commercial loans
    
    
    50
    
    
    
    Loans recovered
    
    
    16
    
    
    
    9Loans charged off
    
    
    (89
    )
    
    
    (163
    )Ending balance
    
    $
    14,819
    
    
    $
    14,957
 Comprehensive Income
  7




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Earnings Per Share (EPS)
  2007
    
    
    2006Numerator for basic and diluted earnings per share:Net Income
    
    $
    3,649
    
    
    $
    3,481Denominator:Weighted average shares for basic earnings per share
    
    
    5,573,343
    
    
    
    5,676,240Effect of dilutive stock options
    
    
    48,518
    
    
    
    70,223Weighted average shares for dilutive earnings per share
    
    
    5,621,861
    
    
    
    5,746,463Net income per share:Basic
    
    $
    0.65
    
    
    $
    0.61Diluted
    
    $
    0.65
    
    
    $
    0.61Dividends per share
    
    $
    0.22
    
    
    $
    0.20
 Stock Based Compensation
  Investments
 U.S. Government and Agency Obligations.
 Corporate Debt.
 8




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 Marketable Equity Securities.
 Income Taxes
   New Accounting Pronouncements
   9




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
      10




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PARKVALE FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  Forward-Looking Statements:
    Critical Accounting Policies, Judgments and Estimates:
  12




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Balance Sheet Data:
 September 30,2007
    
    2006Total assets
    
    $
    1,846,756
    
    
    $
    1,923,586Loans, net
    
    
    1,221,914
    
    
    
    1,214,310Interest-earning deposits and federal funds sold
    
    
    124,689
    
    
    
    188,004Total investments
    
    
    381,960
    
    
    
    415,464Deposits
    
    
    1,474,628
    
    
    
    1,519,881FHLB advances
    
    
    211,601
    
    
    
    216,827Shareholders equity
    
    
    129,273
    
    
    
    125,218Book value per share
    
    $
    23.39
    
    
    $
    22.05
 Statistical Profile:
 Three Months EndedSeptember 30, (1)2007
    
    2006Average yield earned on all
interest-earning assets
    
    
    5.77
    %
    
    
    5.46
    %Average rate paid on all
interest-bearing liabilities
    
    
    3.54
    %
    
    
    3.34
    %Average interest rate spread
    
    
    2.23
    %
    
    
    2.12
    %Net yield on average
interest-earning assets
    
    
    2.30
    %
    
    
    2.19
    %Other expenses to average assets
    
    
    1.58
    %
    
    
    1.48
    %Taxes to pre-tax income
    
    
    23.07
    %
    
    
    32.64
    %Return on average assets
    
    
    0.80
    %
    
    
    0.75
    %Return on average equity
    
    
    11.27
    %
    
    
    11.17
    %Average equity to average total assets
    
    
    7.08
    %
    
    
    6.72
    %
 At September 30,2007
    
    2006One year gap to total assets
    
    
    11.06
    %
    
    
    -2.33
    %Intangibles to total equity
    
    
    23.99
    %
    
    
    25.50
    %Ratio of nonperforming assets to total assets
    
    
    0.47
    %
    
    
    0.36
    %Number of full-service offices
    
    
    47
    
    
    
    47
 
 (1)
    
    The applicable income and expense figures have been annualized in calculating the
percentages. 13




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Nonperforming Loans and Foreclosed Real Estate:
  (Dollar amounts in 000s)
    
    9/30/07
    
    
    6/30/07
    
    
    9/30/06Delinquent single-family mortgage loans
    
    $
    3,754
    
    
    $
    2,746
    
    
    $
    2,769Delinquent other loans
    
    
    2,243
    
    
    
    1,402
    
    
    
    2,499Total nonperforming loans
    
    
    5,997
    
    
    
    4,148
    
    
    
    5,268Total impaired loans
    
    
    1,063
    
    
    
    191
    
    
    
    19Real estate owned, net
    
    
    1,675
    
    
    
    1,857
    
    
    
    1,707Total
    
    $
    8,735
    
    
    $
    6,196
    
    
    $
    6,994
     14




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Allowance for Loan Losses
   Liquidity and Capital Resources:
    15




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Tier 1
    
    Tier 1
    
    Tier 2Core
    
    Risk-Based
    
    Risk-Based(in 000s)
    
    Capital
    
    Capital
    
    CapitalEquity capital (1)
    
    $
    133,854
    
    
    $
    133,854
    
    
    $
    133,854Less non-allowable intangible assets
    
    
    (31,011
    )
    
    
    (31,011
    )
    
    
    (31,011
    )Less unrealized securities gains
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )Plus permitted valuation allowances (2)
    
    
    
    
    
    
    
    
    
    
    13,308Plus allowable unrealized holding gains (3)
    
    
    
    
    
    
    
    
    
    
    1Total regulatory capital
    
    
    102,841
    
    
    
    102,841
    
    
    
    116,150Minimum required capital
    
    
    71,800
    
    
    
    42,547
    
    
    
    85,094Excess regulatory capital
    
    $
    31,041
    
    
    $
    60,294
    
    
    $
    31,056Adjusted total assets
    
    $
    1,795,003
    
    
    $
    1,063,678
    
    
    $
    1,063,678Regulatory capital as a percentage
    
    
    5.73
    %
    
    
    9.67
    %
    
    
    10.92
    %Minimum capital required as a percentage
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    8.00
    %Excess regulatory capital as a percentage
    
    
    1.73
    %
    
    
    5.67
    %
    
    
    2.92
    %Well capitalized requirement
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %
 
 (1)
    
    Represents equity capital of the consolidated Bank as reported to the Pennsylvania Department
of Banking and FDIC on Form 041 for the quarter ended September 30, 2007.(2)
    
    Limited to 1.25% of risk adjusted total assets.(3)
    
    Limited to 45% of pretax net unrealized holding gains.  Results of Operations  Comparison of Three Months Ended September 30, 2007 and 2006:
  16




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Interest Income:
  Interest Expense:
  Net Interest Income:
  Provision for Loan Losses:
   17




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Noninterest Income:
  Noninterest Expense:
  Income Tax Expense
  Impact of Inflation and Changing Prices:
  
   
   18




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PART II  OTHER INFORMATION
      (a)
    
    No equity securities were sold by the Corporation during the period covered by this report
that were not registered under the Securities Act of 1933.(b)
    
    Not applicable(c)
    
    During the quarter ended September 30, 2007, Parkvale purchased 86,519 shares.
  Total Number ofShares Purchased as
    
    Maximum Number ofTotal Number
    
    Average
    
    Part of Publicly
    
    Shares that May Yet Beof Shares
    
    Price Paid
    
    Announced Plans
    
    Purchased Under thePeriod
    
    Purchased
    
    Per Share
    
    or Programs
    
    Plans or Programs (1)July 1-31, 2007
    
    
    26,000
    
    
    $
    29.94
    
    
    
    26,000
    
    
    
    255,000August 1-31, 2007
    
    
    37,019
    
    
    $
    28.14
    
    
    
    37,019
    
    
    
    217,981September 1-30, 2007
    
    
    23,500
    
    
    $
    28.69
    
    
    
    23,500
    
    
    
    194,481
 
 (1)
    
    The repurchase program approved on June 19, 2007 is scheduled to expire on June 30, 2008.    (a)
    
    The 2007 Annual Meeting of Shareholders of Parkvale Financial Corporation was held on
October 25, 2007. Of 5,571,782 shares eligible to vote, 93.5% or 5,209,072 shares 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 Robert J. McCarthy,
Jr. as director were 4,305,387 shares in favor and 903,686 shares withheld. The results
for the re-election of Patrick J. Minnock as director were 5,024,000 shares in favor and
185,072 shares withheld.(c)
    
    The shareholders approved the amendment of the Articles of Incorporation to permit
issuance of shares in Book Entry Form. The results for the amendment of the Articles of
Incorporation to permit issuance of shares in Book Entry Form were 5,162,959 shares in
favor, 38,385 shares against and 7,728 shares abstaining.(d)
    
    The recommendation by the Board of Directors to ratify the appointment of Parente
Randolph,
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LLC as the Corporations independent auditors, as described in the Proxy Statement for the
Annual Meeting, was approved with 5,190,143 shares in favor, 14,307 shares against and 4,623
shares abstaining.
     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: October 29, 2007
    By:
    /s/ Robert J. McCarthy, Jr.Robert J. McCarthy, Jr.President and
Chief Executive OfficerDATE: October 29, 2007
    By:
    /s/ Timothy G. RubritzTimothy G. RubritzVice President, Treasurer and
Chief Financial Officer 20