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 MARCH 31, 2011

PARKVALE FINANCIAL CORPORATION

 

(Exact name of registrant as specified in its charter)

Pennsylvania		25-1556590
(State of incorporation)		(I.R.S. Employer Identification Number)

4220 William Penn Highway, Monroeville, Pennsylvania 15146

(Address of principal executive offices; zip code)

Registrant’s telephone number, including area code: (412) 373-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The closing sales price of the Registrant’s Common Stock on May 16, 2011 was $10.30 per share.

Number of shares of Common Stock outstanding as of May 16, 2011 was 5,582,846.

 

 

PARKVALE FINANCIAL CORPORATION

INDEX

		Page
Part I. Financial Information
Item 1.
Consolidated Statements of Financial Condition as of March 31, 2011 (Unaudited) and June 30, 2010			3
Consolidated Statements of Operations for the three months and nine months ended March 31, 2011 and 2010 (Unaudited)			4
Consolidated Statements of Cash Flows for the nine months ended March 31, 2011 and 2010 (Unaudited)			5-6
Consolidated Statements of Shareholders’ Equity for the nine months ended March 31, 2011 and 2010 (Unaudited)			6-7
Notes to Unaudited Interim Consolidated Financial Statements			7-31
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations			31-41
Item 3.
Quantitative and Qualitative Disclosures about Market Risk			41
Item 4.
Controls and Procedures			41
Part II — Other Information			42
Signatures			43
EX-31.1
EX-31.2
EX-32.1

Item 1.

PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)

		March 31,				June 30,
		2011				2010
		(Unaudited)
ASSETS
Cash and noninterest-earning deposits		$	15,492			$	17,736
Federal funds sold			156,218				135,773
Cash and cash equivalents			171,710				153,509
Interest-earning deposits in other banks			3,835				801
Investment securities available for sale at fair value (cost of $5,501 at March 31 and $65,778 at June 30)			5,243				65,770
Investment securities held to maturity (fair value of $481,082 at March 31 and $437,931 at June 30)			484,223				443,452
Federal Home Loan Bank Stock, at cost			12,958				14,357
Loans, net of allowance of $19,030 at March 31 and $19,209 at June 30			998,936				1,032,363
Foreclosed real estate, net			9,390				8,637
Office properties and equipment, net			17,144				17,374
Goodwill			25,634				25,634
Intangible assets			2,195				2,877
Prepaid expenses and other assets			70,024				77,606
Total assets		$	1,801,292			$	1,842,380
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits		$	1,480,886			$	1,488,073
Advances from Federal Home Loan Bank			150,862				185,973
Term debt			21,875				23,750
Other debt			12,925				13,865
Advance payments from borrowers for taxes and insurance			6,775				7,526
Other liabilities			4,105				4,249
Total liabilities			1,677,428				1,723,436
SHAREHOLDERS’ EQUITY
Preferred stock ($1.00 par value, liquidation preference $1,000; 5,000,000 shares authorized; 31,762 shares issued)			31,762				31,762
Common stock ($1.00 par value; 10,000,000 shares authorized; 6,734,894 shares issued)			6,735				6,735
Additional paid-in capital			2,151				2,734
Treasury stock at cost (1,152,048 shares at March 31 and 1,205,683 shares at June 30)			(24,072	)			(25,193	)
Accumulated other comprehensive loss			(13,516	)			(13,413	)
Retained earnings			120,804				116,319
Total shareholders’ equity			123,864				118,944
Total liabilities and shareholders’ equity		$	1,801,292			$	1,842,380

PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)

		Three months ended								Nine months ended
		March 31,								March 31,
		2011				2010				2011				2010
Interest income:
Loans		$	12,408			$	13,745			$	38,269			$	42,768
Investments			3,497				4,799				10,631				14,895
Federal funds sold			77				88				284				291
Total interest income			15,982				18,632				49,184				57,954
Interest expense:
Deposits			4,543				6,464				14,538				21,843
Borrowings			2,340				2,754				7,476				8,289
Total interest expense			6,883				9,218				22,014				30,132
Net interest income			9,099				9,414				27,170				27,822
Provision for loan losses			691				1,164				2,740				4,851
Net interest income after provision for losses			8,408				8,250				24,430				22,971
Noninterest Income:
Other-than-temporary impairment losses recognized in earnings			(255	)			(6,536	)			(4,236	)			(12,537	)
Non-credit related losses recognized in other comprehensive income			—				5,492				2,039				7,950
Net impairment losses recognized in earnings			(255	)			(1,044	)			(2,197	)			(4,587	)
Service charges on deposit accounts			1,628				1,487				5,052				4,754
Other fees and service charges			339				376				1,101				1,102
Net gain on sale of assets			—				167				1,366				2,372
Other			507				521				1,799				1,575
Total noninterest income			2,219				1,507				7,121				5,216
Noninterest Expense:
Compensation and employee benefits			3,649				3,804				11,049				11,236
Office occupancy			1,158				1,243				3,272				3,449
Marketing			78				78				256				238
FDIC insurance			918				769				2,716				1,982
Office supplies, telephone and postage			477				479				1,487				1,412
Other			1,555				1,494				4,757				4,456
Total noninterest expense			7,835				7,867				23,537				22,773
Income before income taxes			2,792				1,890				8,014				5,414
Income tax expense			845				472				2,003				716
Net income			1,947				1,418				6,011				4,698
Less: Preferred stock dividend			397				397				1,191				1,191
Income available to common shareholders		$	1,550			$	1,021			$	4,820			$	3,507
Net income per common basic share		$	0.28			$	0.18			$	0.87			$	0.64
Net income per common diluted share		$	0.28			$	0.18			$	0.87			$	0.64

PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)

		Nine months ended
		March 31,
		2011				2010
Cash flows from operating activities:
Interest received		$	50,262			$	57,544
Loan fees received			444				242
Other fees and commissions received			7,148				6,604
Interest paid			(22,182	)			(30,260	)
Cash paid to suppliers and others			(17,302	)			(39,447	)
Income taxes refund (paid)			3,748				(1,718	)
Net cash provided by (used in) operating activities			22,118				(7,035	)
Cash flows from investing activities:
Proceeds from sale of investment securities available for sale			51,308				2,331
Proceeds from maturities of investment securities held to maturity			207,469				280,366
Purchase of investment securities held to maturity			(242,235	)			(332,140	)
(Purchase) maturity of deposits in other banks			(3,034	)			3,318
Principal collected on loans			209,781				181,473
Loans made to customers, net of loans in process			(169,186	)			(121,120	)
Purchase of loans			(10,722	)			—
Proceeds from loans sold			—				7,527
Other			(412	)			(178	)
Net cash provided by investing activities			42,969				21,577
Cash flows from financing activities:
Net increase in checking and savings accounts			34,679				58,945
Net (decrease) in certificates of deposit			(41,867	)			(56,751	)
Repayment of FHLB advances			(35,014	)			(19	)
Repayment of term debt			(1,875	)			(625	)
Net (decrease) in other borrowings			(940	)			(6,683	)
Net (decrease) in borrowers’ advances for taxes and insurance			(751	)			(759	)
Dividends paid			(1,690	)			(2,009	)
Contribution to benefit plans			572				712
Net cash (used in) financing activities			(46,886	)			(7,189	)
Net increase in cash and cash equivalents			18,201				7,353
Cash and cash equivalents at beginning of period			153,509				165,891
Cash and cash equivalents at end of period		$	171,710			$	173,244
Reconciliation of net income to net cash provided by operating activities:
Net income		$	6,011			$	4,698
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,324				1,439
(Accretion) and amortization of loan fees and discounts			488				(1,296	)
Loan fees collected and deferred (premiums paid)			60				(45	)
Provision for loan losses			2,740				4,851
Loss on writedown of assets			2,197				4,587
Gain on sale of assets			(1,366	)			(2,372	)
Decrease in accrued interest receivable			460				797
Decrease (increase) in other assets			7,124				(16,327	)
(Decrease) increase in accrued interest payable			(52	)			43
Increase (decrease) in other liabilities			3,132				(3,410	)
Total adjustments			16,107				(11,733	)
Net cash provided by (used in) operating activities		$	22,118			$	(7,035	)

For purposes of reporting cash flows, cash and cash equivalents include cash and noninterest earning deposits, and federal funds sold. Generally, federal funds are sold for one-day periods. Loans transferred to foreclosed assets aggregated $7.4 million for the nine months ended March 31, 2011 and $8.0 million for the nine months ended March 31, 2010, and is included in the principal collected on loans component of the consolidated statements of cash flows. Loans were transferred to foreclosed assets at the lesser of their carrying value or indicated fair value, less costs to sell.

PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands, except share data)
(Unaudited)

																		Accumulated
										Additional								Other								Total
		Preferred				Common				Paid-in				Treasury				Comprehensive				Retained				Shareholders’
		Stock				Stock				Capital				Stock				Income (Loss)				Earnings				Equity
Balance, June 30, 2010		$	31,762			$	6,735			$	2,734				($25,193	)			($13,413	)		$	116,319			$	118,944
Net income, nine months ended March 31, 2011																							6,011				6,011
Accumulated other comprehensive income (loss):
Change in swap liability, net of tax																			(238	)
Change in unrealized gain (loss) on securities, net of deferred tax benefit of $236																			675
Reclassification adjustment, net of taxes of $(291)																			(540	)							(103	)
Comprehensive income																											5,908
Dividends declared on common stock at $0.06 per share																							(335	)			(335	)
Dividends on preferred stock																							(1,191	)			(1,191	)
Sale of treasury stock to
ESOP & Benefit Plans											(633	)			1,121												488
Recognition of stock option compensation expense											50																50
Balance, March 31, 2011		$	31,762			$	6,735			$	2,151				($24,072	)			($13,516	)		$	120,804			$	123,864
Balance, June 30, 2009		$	31,762			$	6,735			$	4,116				($27,314	)			($10	)		$	135,471			$	150,760
Net income, nine months ended March 31, 2010																							4,698				4,698
Accumulated other comprehensive Income (loss):
Change in swap liability																			452
Change in unrealized gain (loss) on securities, net of deferred tax benefit of $(2,713)																			(4,273	)
Reclassification adjustment, net of taxes of $(808)																			(1,407	)							(5,228	)
Comprehensive loss																											(530	)
Dividends declared on common stock at $0.15 per share																							(823	)			(823	)
Dividends on preferred stock																							(1,191	)			(1,191	)
Sale of treasury stock to
ESOP & Benefit Plans											(1,409	)			2,121												712
Recognition of stock option compensation expense											27																27
Balance, March 31, 2010		$	31,762			$	6,735			$	2,734				($25,193	)			($5,238	)		$	138,155			$	148,955

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share data)

NOTE 1. STATEMENTS OF OPERATIONS

The statements of operations for the nine months ended March 31, 2011 and 2010 are unaudited, but in the opinion of management reflect all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the results of operations for those periods. The results of operations for the nine months ending March 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2011. The Annual Report on Form 10-K for the year ended June 30, 2010 contains additional information and should be read in conjunction with this report.

NOTE 2. RECLASSIFICATION

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. The reclassifications had no significant effect on Parkvale’s financial condition or results of operations.

NOTE 3. SUBSEQUENT EVENTS

The Corporation evaluated and disclosed all material subsequent events that provide evidence about conditions that existed as of March 31, 2011 through the date the consolidated financial statements were filed with the Securities and Exchange Commission.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

NOTE 4. LOANS AND THE ALLOWANCE FOR LOAN LOSS

Loans are summarized as follows:

		March 31, 2011				June 30, 2010
Mortgage loans:
1-4 Family		$	633,105			$	660,685
Commercial			159,435				159,991
			792,540				820,676
Consumer loans:
Home Equity			145,479				147,567
Automobile			28,047				34,817
Other Consumer			9,571				7,250
			183,097				189,634
Commercial business loans			41,429				40,445
Total gross loans			1,017,066				1,050,755
Less: Loans in process			3				135
Allowance for loan losses			19,030				19,209
Unamortized premiums and deferred loan fees			(903	)			(952	)
Loans, net		$	998,936			$	1,032,363

The loans receivable portfolio is segmented into mortgage loans, consumer loans and commercial business loans. The mortgage loan segment has two classes, 1-4 family first lien residential mortgage loans and commercial mortgage loans, which are comprised of commercial real estate, multi-family and acquisition and development loans. The consumer loan segment consists of three classes, home equity loans, automobile loans and other loans. The commercial segment consists of one class, commercial and industrial loans.

Portfolio Risk Characteristics:

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the known circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial business loans and commercial mortgage loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Corporation’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial business loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual 1-4 family mortgage loans or consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if a pattern of consistent principal and interest payments under the modified terms is demonstrated after modification. Loans classified as troubled debt restructurings are designated as impaired.

1-4 family loans include residential first mortgage loans originated by Parkvale Bank in the greater Pittsburgh Metropolitan area, which comprises its primary market area, and loans purchased from other financial institutions in the secondary market, which are geographically diversified. We currently originate fixed-rate, fully amortizing mortgage loans with maturities of 15 to 30 years. We also offer adjustable rate mortgage (“ARM”) loans where the interest rate either adjusts on an annual basis or is fixed for the initial one, three or five years and then adjusts annually. We underwrite 1 to 4 family residential mortgage loans with loan-to-value ratios of up to 95%, generally provided that the borrower obtains private mortgage insurance on loans that exceed 80% of the appraised value or sales price, whichever is less, of the secured property. We also require that title insurance, hazard insurance and, if appropriate, flood insurance be maintained on all properties securing real estate loans. We require that a licensed appraiser from our list of approved appraisers perform and submit to us an appraisal on all properties secured by a first mortgage on 1 to 4 family first mortgage loans. In underwriting 1-4 family residential mortgage loans, the Corporation evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Real estate loans originated by the Corporation generally contain a “due upon sale” clause allowing the Corporation to declare the unpaid principal balance due and payable upon the sale of the property. The Corporation has not engaged in

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

sub-prime residential mortgage loan originations. Our single-family residential mortgage loans generally are underwritten on terms and documentation conforming to guidelines issued by Freddie Mac. All of Parkvale’s lending activities, including loan purchases, are subject to written underwriting standards and loan origination procedures approved by the Board of Directors.

Commercial mortgage loans include commercial real estate, multi-family and other loans that are secured by non-farm nonresidential properties. Commercial and multi-family real estate loans generally present a higher level of risk than loans secured by 1-4 family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial and multi-family real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.

Consumer loans include home equity loans secured by first or second liens on residential property, automobile loans and other unsecured consumer loans. The Corporation currently originates most of its consumer loans in its primary market area and surrounding areas. The Corporation originates consumer loans primarily on a direct basis. Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans secured by rapidly depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Commercial business loans are primarily short term facilities extended to small businesses and professionals located within the communities served by Parkvale, and are generally secured by business assets of the borrower. The commercial business loans which we originated may be either a revolving line of credit or for a fixed term of generally 10 years or less. Interest rates are adjustable, indexed to a published prime rate of interest, or fixed. Generally, equipment, machinery, real property or other corporate assets secure such loans. Personal guarantees from the business principals are generally obtained as additional collateral.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Corporation’s internal risk rating system as of March 31, 2011:

		Pass				Special Mention				Substandard				Doubtful				Total
Mortgage loans:
1-4 family		$	608,879			$	3,958			$	20,268			$	—			$	633,105
Commercial			155,647				1,101				2,687				—				159,435
Consumer loans:
Home Equity			144,671				—				780				28				145,479
Automobile			27,929				—				118				—				28,047
Other Consumer			9,567				—				—				4				9,571
Commercial business loans			38,655				1,140				1,634				—				41,429
Total		$	985,348			$	6,199			$	25,487			$	32			$	1,017,066

Pass-rated loans consist of facilities that do not currently expose the Bank to sufficient risk to warrant classifications. Special mention loans have potential weaknesses requiring management’s close attention that if uncorrected, may result in deterioration of the repayment prospects. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt, and includes loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Doubtful loans have all the weaknesses inherent with substandard facilities with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.

The following table presents nonaccrual loans by class of the loan portfolio as of March 31, 2011:

Mortgage loans:
1-4 family		$	23,324
Commercial			1,425
Consumer loans:
Home Equity			503
Automobile			136
Other Consumer			4
Commercial business loans			1,259
Total		$	26,651

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

A loan is considered impaired when, based on current information and events, it is probable that Parkvale will not be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The following table summarizes information regarding impaired loans by loan portfolio class as of March 31, 2011:

		Net Recorded				Unpaid Principal				Related				Average Recorded				Interest Income
		Investment				Balance				Allowance				Investment				Recognized
With no related allowance recorded:
Mortgage loans:
1-4 family		$	20,289			$	20,289			$	—			$	19,871			$	263
Commercial			—				—				—				—				—
Consumer loans:
Home Equity			—				—				—				—				—
Automobile			—				—				—				—				—
Other Consumer			—				—				—				—				—
Commercial business loans			799				799				—				1,735				—
With an allowance recorded:
Mortgage loans:
1-4 family		$	8,550			$	13,802			$	5,252			$	9,744			$	—
Commercial			1,394				2,013				619				1,369				14
Consumer loans:
Home Equity			406				564				158				399				—
Automobile			113				228				115				134				—
Other Consumer			—				27				27				—				—
Commercial business loans			—				49				49				—				—
Total:
Mortgage loans:
1-4 family		$	28,839			$	34,091			$	5,252			$	29,615			$	263
Commercial			1,394				2,013				619				1,369				14
Consumer loans:
Home Equity			406				564				158				399				—
Automobile			113				228				115				134				—
Other Consumer			—				27				27				—				—
Commercial business loans			799				848				49				1,735				—

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

At March 31, 2011, modifications have been performed at market terms on 126 loans totaling $20,289 primarily related to extension of maturity dates and extension of interest-only payment periods of thirty-six months or less. These modified loans, which are all performing at March 31, 2011, are included in the reported $20,289 of impaired loans without a related allowance for loan losses amount above. The discounted cash flow analysis related to these modifications results in an insignificant impact over the life of the loan.

The performance and credit quality of the loan portfolio is monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of March 31, 2011:

																										Loans
						60-89								Total												Receivable
		30-59 Days				Days				Greater than				Past								Total Loans				> 90 Days
		Past Due				Past Due				90 Days				Due				Current				Receivables				and Accruing
Mortgage loans:
1-4 family		$	5,774			$	4,655			$	23,324			$	33,753			$	599,352			$	633,105			$	—
Commercial			3,111				419				1,425				4,955				154,480				159,435				—
Consumer loans:
Home Equity			681				256				503				1,440				144,039				145,479				—
Automobile			205				41				136				382				27,665				28,047				—
Other Consumer			8				10				4				22				9,549				9,571				—
Commercial business loans			117				208				1,259				1,584				39,845				41,429				—
Total		$	9,896			$	5,589			$	26,651			$	42,136			$	974,930			$	1,017,066			$	—

The adequacy of the allowance for loan loss is determined by management through evaluation of the loss probable on individual nonperforming, delinquent and high dollar loans, economic and business trends, growth and composition of the loan portfolio and historical loss experience, as well as other relevant factors.

The following summarizes the allowance for loan loss activity for the nine month period ended March 31, 2010

Beginning balance		$	17,960
Provision for losses — mortgage loans			4,727
Provision for losses — consumer loans			127
Provision for (recovery of) losses — commercial business loans			(3	)
Loans recovered			34
Loans charged off			(5,188	)
Ending balance		$	17,657

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

The following table presents the Allowance for Loan Losses and Recorded Investment in Financing Receivables at March 31, 2011:

																						Commercial
		1-4 family				Commercial				Home								Other				Business
		Mortgage				Mortgage				Equity				Automobile				Consumer				Loans				Total
Allowance for Loan Losses:
Beginning balance at June 30, 2010:		$	10,440			$	3,340			$	2,091			$	907			$	155			$	2,276			$	19,209
Charge-offs			(2,593	)			(46	)			(183	)			(46	)			(69	)			(58	)			(2,995	)
Recoveries			15				—				—				34				—				27				76
Provisions			2,106				537				64				33				—				—				2,740
Ending balance at March 31, 2011		$	9,968			$	3,831			$	1,972			$	928			$	86			$	2,245			$	19,030
Ending balance: individually evaluated for impairment		$	5,252			$	619			$	158			$	115			$	27			$	49			$	6,220
Ending balance: collectively evaluated for impairment		$	4,716			$	3,212			$	1,814			$	813			$	59			$	2,196			$	12,810
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Recorded Investment:
Ending balance		$	633,105			$	159,435			$	145,479			$	28,047			$	9,571			$	41,429			$	1,017,066
Ending balance: individually evaluated for impairment		$	34,091			$	2,013			$	564			$	228			$	27			$	848			$	37,771
Ending balance: collectively evaluated for impairment		$	599,014			$	157,422			$	144,915			$	27,819			$	9,544			$	40,581			$	979,295

NOTE 5. COMPREHENSIVE INCOME

Sources of comprehensive income (loss) not included in net income are unrealized gains and losses on certain investments in equity securities, mortgage-backed securities, corporate debt and swaps on interest rate contracts. For the nine months ended March 31, 2011 and 2010, total comprehensive income (loss) amounted to $5,908 and $(530), respectively.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

US GAAP requires a hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. This hierarchy requires the use of observable market data when available. The three broad levels of hierarchy are as follows:

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.

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of March 31, 2011 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities in the available-for-sale (“AFS”) security portfolio are measured at fair value using quoted market prices and classified within Level I of the valuation hierarchy. Mutual funds in the available-for-sale security portfolio are measured at fair value using Level II valuation hierarchy. Interest rate swaps are priced using other similar financial instruments and are classified as Level II.

Financial Instruments — Measured on a recurring basis

		March 31, 2011																June 30, 2010
		Level I				Level II				Level III				Total				Level I				Level II				Level III				Total
Available for sale securities:
CMOs — Non Agency (Residential)		$	—			$	—			$	—			$	—			$	—			$	59,804			$	—			$	59,804
Common Equities			1				—				—				1				682				—				—				682
Mutual Fund — ARM mortgages			—				5,242				—				5,242				—				5,284				—				5,284
Interest rate swaps			—				403				—				403				—				494				—				494
Total		$	1			$	5,645			$	—			$	5,646			$	682			$	65,582			$	—			$	66,264

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

The following table presents the assets measured on a nonrecurring basis on the consolidated statements of financial condition at their fair value as of March 31, 2011. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by the reporting entity based on the best information available under each circumstance, the asset valuation is classified as Level III inputs. Pooled trust preferred securities and impaired loans are measured using Level III valuation hierarchy. Our pooled trust preferred securities are collateralized by the trust preferred securities of individual banks, thrifts and bank holding companies, and to a lesser extent, insurance companies. There has been little or no active trading in these securities for approximately twenty-four months; therefore it was more appropriate to determine estimated fair value using a discounted cash flow analysis. The discount rate applied to the cash flows is determined by evaluating the current market yields for comparable corporate and structured credit products along with an evaluation of the risks associated with the cash flows of the comparable security. Due to the fact that there is no active market for the pooled trust preferred collateralized debt obligations, one key reference point is the market yield for the single issue trust preferred securities issued by banks and thrifts for which there is more activity than for the pooled securities. Adjustments are then made to reflect the credit and structural differences between these two security types.

The estimated fair value of impaired loans is based upon the estimated fair value of the collateral less estimated selling costs when the loan is collateral dependent, or based upon the present value of expected future cash flows available to pay the loan. Collateral values are generally based upon appraisals from approved, independent state certified appraisers.

The estimated fair value of foreclosed real estate is comprised of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. Foreclosed real estate acquired in settlement of indebtedness is recorded at the lower of the carrying amount of the loan or fair value less costs to sell. Subsequently, these assets are carried at the lower of the carrying value or fair value less costs to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by licensed or certified appraisers and is classified as Level II.

		Level I				Level II				Level III				Total
Assets Measured on a Nonrecurring Basis:
Other than temporarily impaired (“OTTI”) — Held to maturity trust preferred securities		$	—			$	—			$	11,016			$	11,016
Impaired loans			—				—				10,463				10,463
Impaired foreclosed real estate			—				3,575				—				3,575

The carrying value of impaired loans was $16,683 with an allowance for loss of $6,220 at March 31, 2011. The carrying value of the foreclosed real estate was $4,399 with an allowance of $824 at March 31, 2011, and the charge to earnings during the March 31, 2011 quarter related to impaired foreclosed real estate was $120.

US GAAP requires the determination of fair value for certain assets, liabilities and contingent liabilities. The carrying amount approximates fair value for the following categories:

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

Cash and Noninterest-Bearing Deposits, which includes noninterest-bearing demand deposits
Federal Funds Sold
Interest-Earning Deposits in Other Banks
Accrued interest
Cash Surrender Value (CSV) of Bank Owned Life Insurance (BOLI)
Checking, savings and money market accounts

The following methods and assumptions were used to estimate the fair value of other classes of financial instruments as of March 31, 2011 and June 30, 2010.

Investment Securities: The fair values of investment securities are obtained from the Interactive Data Corporation pricing service and various investment brokers for securities not available from public sources. Prices on certain trust preferred securities were calculated using a discounted cash flow model based upon market spreads for longer term securities as permitted for Level III assets when market quotes are not available. See accompanying notes for additional information on investment securities.

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 prepayment assumptions.

Deposit Liabilities: Fair values of commercial investment agreements and fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on commercial investment agreements or time deposits of similar remaining maturities.

Advances from Federal Home Loan Bank: Fair value is determined by discounting the advances using estimated incremental borrowing rates for similar types of borrowing arrangements.

Term Debt and Other Debt: Fair value is determined by discounting the term and other debt using estimated incremental borrowing rates for similar types of borrowing arrangements.

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.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

The following table presents additional information about financial assets and liabilities measured at fair value:

		March 31, 2011							June 30, 2010
						Carrying								Carrying
		Fair Value				Value				Fair Value				Value
Financial Assets:
Cash and non-interest-earning deposits		$	15,492			$	15,492			$	17,736			$	17,736
Federal funds sold			156,218				156,218				135,773				135,773
Interest-earning deposits in other banks			3,835				3,835				801				801
Investment securities available for sale			5,243				5,243				65,770				65,770
Investment securities held to maturity			481,082				484,223				437,931				443,452
FHLB stock			12,958				12,958				14,357				14,357
Loans receivable			1,043,996				1,017,066				1,087,009				1,050,755
Accrued interest receivable			5,738				5,738				7,409				7,409
Cash surrender value of BOLI			26,093				26,093				25,288				25,288
Financial Liabilities:
Checking, savings and money market accounts		$	730,713			$	730,713			$	696,364			$	696,364
Certificates of deposit			772,013				750,173				812,339				791,709
Advances from Federal Home Loan Bank			167,638				150,862				204,699				185,973
Term debt			22,279				21,875				24,244				23,750
Other debt			12,280				12,925				13,156				13,865
Interest rate swap			402				402				494				494
Accrued interest payable			850				850				902				902
Off-balance sheet loan instruments		$	19			$	—			$	118			$	—

NOTE 7. INVESTMENT SECURITIES

Investment significant accounting policies are as follows:

Securities — Held to Maturity, Available for Sale and Other than Temporary Impairment

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

The recent accounting guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairment losses on debt and equity securities. The recent guidance replaced the “intent and ability” indication in current guidance by specifying that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment should be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

As a result of this guidance, Parkvale’s consolidated statements of operations as of March 31, 2011 and March 31, 2010 reflect the full impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that Parkvale intends to sell or would more-likely-than-not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale and held-to-maturity debt securities that management has no intent to sell and believes that it more-likely-than-not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the non-credit loss is recognized in other comprehensive income, net of applicable taxes.

For equity securities, when Parkvale has decided to sell an impaired available-for-sale security and Parkvale does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made. Parkvale recognizes an impairment loss when the impairment is deemed other-than-temporary even if a decision to sell has not been made.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

Federal Home Loan Bank Stock

Parkvale, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. In December 2008, the FHLB declared a moratorium on the redemption of its stock. At its discretion, the FHLB may declare dividends on the stock. However, since 2009 the FHLB suspended its dividend. Management reviews for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.

Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the low-cost products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.

The Bank’s FHLB stock totaled $12,958 at March 31, 2011 and $14,357 at June 30, 2010. The Bank accounts for the stock based on U.S. GAAP, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

The Bank periodically evaluates its FHLB investment for possible impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. The FHLB exceeds all regulatory capital requirements established by the Federal Housing Finance Agency, the regulator of the FHLB. Failure by the FHLB to meet this regulatory capital requirement would require an in-depth analysis of other factors including:

	•		the member’s ability to access liquidity from the FHLB;
	•		the member’s funding cost advantage with the FHLB compared to alternative sources of funds;
	•		a decline in the market value of FHLB’s net assets relative to book value which may or may not affect future financial performance or cash flow;
	•		the FHLB’s ability to obtain credit and source liquidity, for which one indicator is the credit rating of the FHLB;
	•		the FHLB’s commitment to make payments taking into account its ability to meet statutory and regulatory payment obligations and the level of such payments in relation to the FHLB’s operating performance; and
	•		the prospects of amendments to laws that affect the rights and obligations of the FHLB.

The Bank believes its holdings in the stock are ultimately recoverable at par value at March 31, 2011 and, therefore, determined that FHLB stock was not other-than-temporarily impaired. In addition, the Bank has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

At March 31, 2011 and June 30, 2010, the following comprises Parkvale’s investment portfolio:

		March 31, 2011								June 30, 2010
Available for Sale Investments		Amortized Cost				Fair Value				Amortized Cost				Fair Value
CMOs — Non Agency (Residential)			—				—			$	59,804			$	59,804
Mutual Funds — ARM mortgages			5,500				5,242				5,500				5,284
Common equities			1				1				474				682
Total available for sale investments		$	5,501			$	5,243			$	65,778			$	65,770

		March 31, 2011								June 30, 2010
Held to Maturity Investments		Amortized Cost				Fair Value				Amortized Cost				Fair Value
U.S. Government and agency obligations		$	148,232			$	148,135			$	194,248			$	195,920
Municipal obligations			27,478				27,881				21,641				22,345
Corporate debt:
Short to medium term corporate debt			30,607				31,539				27,112				28,352
Pooled trust preferred securities			21,182				17,590				24,229				16,849
Individual trust preferred securities			9,340				8,459				9,322				7,977
Mortgage-backed securities:
Agency			179,412				180,076				93,248				95,055
Agency Collateralized Mortgage Obligations (“CMOs”)			8,124				8,262				10,357				10,630
CMOs — non agency			59,848				59,140				63,295				60,803
Total held to maturity investments		$	484,223			$	481,082			$	443,452			$	437,931

The amortized cost and fair value of debt securities at March 31, 2011, by contractual maturity, is included in the table below. Expected maturities will differ from contractual maturities because the borrowers may have the right to call or prepay the obligation.

		Amortized
		Cost				Fair Value
Due in one year or less		$	12,515			$	12,665
Due after one year through five years			96,887				98,440
Due after five years through ten years			125,706				125,058
Due after ten years			249,115				244,919
Total debt securities		$	484,223			$	481,082

Liquidity concerns in the financial markets have made it difficult to obtain reliable market quotations on some infrequently traded securities that are held to maturity. Corporate debt has been valued using financial models permitted by guidance in Accounting Standards Codification (“ASC”) 820 for Level III (see Fair Value Note) assets as active markets did not exist at March 31, 2011 and June 30, 2010 to provide reliable market quotes. The assets included in Level III pricing relate to pooled trust preferred securities. The trust preferred market has been severely impacted by the deteriorating economy and the lack of liquidity in the credit markets.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)

The unrealized losses on investments are primarily the result of volatility in interest rates, changes in spreads over treasuries and certain investments falling out of favor with investors due to illiquidity in the financial markets. Based on the credit-worthiness of the issuers and discounted cash flow analyses, management determined that the remaining investments in debt and equity securities were not other-than-temporarily impaired. The following table represents gross unrealized losses and fair value of investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011:

		Less than 12 months								Greater than 12 months
		of unrealized losses								of unrealized losses								Total
						Unrealized								Unrealized								Unrealized
Available for Sale Investments		Fair Value				loss				Fair Value				loss				Fair Value				loss
Mutual funds — ARM mortgages		$	—			$	—			$	5,242			$	258			$	5,242			$	258
Held to Maturity Investments
U.S. Government and agency obligations			86,742				862				—				—				86,742				862
Municipal obligations			10,668				116				—				—				10,668				116
Corporate debt			9,167				69				—				—				9,167				69
Pooled trust preferred securities			431				124				8,129				6,516				8,560				6,640
Individual trust preferred securities			—				—				5,109				1,020				5,109				1,020
Non agency CMO’s			104				31				19,915				2,977				20,019				3,008
Mortgage-backed securities			101,292				1,326				22				1				101,314				1,327
Totals		$	208,404			$	2,528			$	38,417			$	10,772			$	246,821			$	13,300