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EX-32 - EXHIBIT 32 - ALLEGHENY BANCSHARES INCc92565exv32.htm
EX-31.1 - EXHIBIT 31.1 - ALLEGHENY BANCSHARES INCc92565exv31w1.htm
EX-31.2 - EXHIBIT 31.2 - ALLEGHENY BANCSHARES INCc92565exv31w2.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
     
þ   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2009
     
o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-50151
Allegheny Bancshares, Inc.
(Exact name of registrant as specified in its charter)
     
West Virginia   22-3888163
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)
300 North Main Street
P. O. Box 487
Franklin, West Virginia 26807
(Address of principal executive offices, including zip code)
(304) 358-2311
(Registrant’s Telephone Number)
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 (or for such shorter period that the registrant was required to file such reports), 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 (§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, a non-accelerated filer, or a smaller reporting company. See the definition of “accelerated filer,” “accelerated filer” and smaller reporting company” in rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
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
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
Common Stock, par value — $1.00
867,809 shares outstanding as of November 5, 2009
 
 

 

 


 

ALLEGHENY BANCSHARES, INC.
         
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 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32

 

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Table of Contents

Part I. Financial Information
Item 1.   Consolidated Financial Statements
Allegheny Bancshares, Inc.
Consolidated Statements of Income
(In thousands, except for share and per share information)
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
Interest and Dividend Income:
               
Loans and fees
  $ 8,561     $ 8,490  
Investment securities — taxable
    309       367  
Investment securities — nontaxable
    464       510  
Deposits and federal funds sold
    63       181  
 
           
 
               
Total Interest and Dividend Income
    9,397       9,548  
 
           
 
               
Interest Expense:
               
Deposits
    3,036       3,499  
Borrowings
    216       281  
 
           
 
               
Total Interest Expense
    3,252       3,780  
 
           
 
               
Net Interest Income
    6,145       5,768  
 
               
Provision for loan losses
    292       216  
 
           
 
               
Net Interest Income After Provision for Loan Losses
    5,853       5,552  
 
           
 
               
Noninterest Income:
               
Service charges on deposit accounts
    723       637  
Restricted equity security impairment
    (604 )      
Gain on sale of securities
    64        
Other income
    509       487  
 
           
 
               
Total Noninterest Income
    692       1,124  
 
           
 
               
Noninterest Expense:
               
Salaries and benefits
    2,322       2,176  
Occupancy expenses
    304       289  
Equipment expenses
    471       453  
Other expenses
    1,699       1,159  
 
           
Total Noninterest Expenses
    4,796       4,077  
 
           
 
               
Income before Income Taxes
    1,749       2,599  
 
               
Income Tax Expense
    586       682  
 
           
 
               
Net Income
  $ 1,163     $ 1,917  
 
           
 
               
Earnings Per Share
               
Net income
  $ 1.34     $ 2.18  
 
           
 
               
Weighted Average Shares Outstanding
    870,675       879,350  
 
           
The accompanying notes are an integral part of these statements.

 

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Table of Contents

Allegheny Bancshares, Inc.
Consolidated Statements of Income
(In thousands, except for share and per share information)
                 
    Three Months Ended  
    September 30,  
    2009     2008  
Interest and Dividend Income:
               
Loans and fees
  $ 2,995     $ 2,804  
Investment securities — taxable
    96       108  
Investment securities — nontaxable
    158       167  
Deposits and federal funds sold
    21       53  
 
           
 
               
Total Interest and Dividend Income
    3,270       3,132  
 
           
 
               
Interest Expense:
               
Deposits
    1,046       1,083  
Borrowings
    71       86  
 
           
 
               
Total Interest Expense
    1,117       1,169  
 
           
 
               
Net Interest Income
    2,153       1,963  
 
               
Provision for loan losses
    125       81  
 
           
 
               
Net Interest Income After Provision for Loan Losses
    2,028       1,882  
 
           
 
               
Noninterest Income:
               
Service charges on deposit accounts
    282       225  
Other income
    189       164  
 
           
 
               
Total Noninterest Income
    471       389  
 
           
 
               
Noninterest Expense:
               
Salaries and benefits
    799       729  
Occupancy expenses
    106       100  
Equipment expenses
    164       151  
Other expenses
    542       394  
 
           
Total Noninterest Expenses
    1,611       1,374  
 
           
 
               
Income before Income Taxes
    888       897  
 
               
Income Tax Expense
    230       217  
 
           
 
               
Net Income
  $ 658     $ 680  
 
           
 
               
Earnings Per Share
               
Net income
  $ 0.76     $ 0.77  
 
           
 
               
Weighted Average Shares Outstanding
    870,294       877,831  
 
           
The accompanying notes are an integral part of these statements.

 

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Table of Contents

Allegheny Bancshares, Inc.
Consolidated Balance Sheets
(In thousands, except for share and per share information)
                 
    September 30, 2009     December 31, 2008  
    Unaudited     Audited  
ASSETS
               
Cash and due from banks
  $ 5,096     $ 2,562  
Federal funds sold
          1,570  
Interest bearing deposits in banks
    15,060       4,637  
Investment securities available for sale
    30,721       25,685  
Restricted equity securities
    748       1,351  
Loans receivable, net of allowance for loan losses of $1,524 and $1,396 respectively
    179,788       156,982  
Bank premises and equipment, net
    6,929       6,249  
Interest receivable
    1,484       1,276  
Goodwill
    1,087        
Bank owned life insurance
    3,823       3,693  
Other assets
    1,427       725  
 
           
 
               
Total Assets
  $ 246,163     $ 204,730  
 
           
 
               
LIABILITIES
               
Deposits
               
Noninterest bearing demand
  $ 25,943     $ 20,197  
Interest bearing
               
Demand
    31,896       18,985  
Savings
    27,054       28,567  
Time deposits over $100,000
    41,526       28,211  
Other time deposits
    83,855       71,280  
 
           
 
               
Total Deposits
    210,274       167,240  
 
               
Accrued expenses and other liabilities
    737       841  
Short-term borrowings
    1,028       3,569  
Long-term debt
    5,752       5,920  
 
           
 
               
Total Liabilities
    217,791       177,570  
 
           
 
               
STOCKHOLDERS’ EQUITY
               
Common stock; $1 par value, 2,000,000 shares
               
Authorized, 900,000 issued
    900       900  
Additional paid in capital
    900       900  
Retained earnings
    27,794       26,631  
Accumulated other comprehensive income
    573       320  
Treasury stock (at cost, 32,191 shares in 2009 and 28,767 shares in 2008)
    (1,795 )     (1,591 )
 
           
Total Stockholders’ Equity
    28,372       27,160  
 
           
 
               
Total Liabilities and Stockholders’ Equity
  $ 246,163     $ 204,730  
 
           
The accompanying notes are an integral part of these statements.

 

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Allegheny Bancshares, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
(Unaudited)
                                                 
                                    Accumulated Other  
            Common     Additional     Retained     Comprehensive     Treasury  
    Total     Stock     Paid In Capital     Earnings     Income (Loss)     Stock  
 
                                               
Balance, December 31, 2008
  $ 27,160     $ 900     $ 900     $ 26,631     $ 320     $ (1,591 )
 
                                               
Comprehensive Income
                                               
Net Income
    1,163                       1,163                  
Change in unrealized gain on available for sale securities, net of income tax effect of $131
    253                               253          
 
                                             
Total Comprehensive Income
                                               
Purchase of Treasury Stock
    (204 )                                     (204 )
 
                                   
 
                                               
Balance, September 30, 2009
  $ 28,372     $ 900     $ 900     $ 27,794     $ 573     $ 1,795  
 
                                   
 
                                               
Balance, December 31, 2007
  $ 26,731     $ 900     $ 900     $ 25,836     $ 154     $ (1,059 )
 
                                               
Comprehensive Income
                                               
Net income
    1,917                       1,917                  
Change in unrealized gain on available for sale securities, net of income tax effect of $15
    29                               29          
 
                                             
Total Comprehensive Income
    1,946                                          
Purchase of Treasury Stock
    (460 )                                     (460 )
 
                                   
 
                                               
Balance, September 30, 2008
  $ 28,217     $ 900     $ 900     $ 27,753     $ 183     $ (1,519 )
 
                                   
The accompanying notes are an integral part of these statements.

 

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Allegheny Bancshares, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
 
               
Cash Flows from Operating Activities:
               
Net income
  $ 1,163     $ 1,917  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    292       216  
Depreciation and amortization
    346       346  
Loss on disposal of fixed assets
          17  
Net amortization of securities
    34       10  
Gain on sale of securities
    (64 )      
Loss on restricted equity other than temporary impairment
    604        
Deferred income tax benefit
    17       (52 )
Income from life insurance investment
    (130 )     (131 )
Net change in:
               
Accrued income
    (208 )     (62 )
Other assets
    (607 )     (177 )
Accrued expense and other liabilities
    (349 )     23  
 
           
Net Cash Provided by Operating Activities
    1,098       2,107  
 
           
 
               
Cash Flows from Investing Activities:
               
Net change in federal funds sold
    1,570       (948 )
Cash received from the acquisition of branch offices
    6,497        
Net change in interest bearing deposits in banks
    (10,423 )     (4,900 )
Proceeds from sales, calls and maturities of available for sale securities
    6,453       6,856  
Purchase of securities available for sale
    (11,076 )     (2.201 )
Proceeds from maturity of held to maturity security
          500  
Purchase of restricted investments
          (614 )
Proceeds from redemption of restricted investments
          167  
Net increase in loans
    (9,366 )     (7,219 )
Purchase of bank premises and equipment
    (158 )     (162 )
 
           
Net Cash Used in Investing Activities
    (16,503 )     (8,521 )
 
           
 
               
Cash Flows from Financing Activities:
               
Net change in:
               
Demand and savings deposits
    7,409       3,522  
Time deposits
    13,443       6,022  
Short-term borrowings
    (2,541 )     (184 )
Curtailments of long-term borrowings
    (168 )     (1,981 )
Purchase of treasury stock
    (204 )     (460 )
 
           
Net Cash Provided by Financing Activities
    17,939       6,919  
 
           
 
               
Cash and due from banks
               
Net increase in cash and due from banks
    2,534       505  
Cash and due from banks, beginning of period
    2,562       2,846  
 
           
Cash and due from banks, end of period
  $ 5,096     $ 3,351  
 
           
Continued

 

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Table of Contents

Allegheny Bancshares, Inc.
Consolidated Statements of Cash Flows (Continued)

(In thousands)
(Unaudited)
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
 
Supplemental Disclosure of Cash Paid During the Period for:
               
Interest
  $ 3,258     $ 3786  
Income taxes
  $ 864     $ 780  
 
               
Transactions related to acquisition of branches
               
Increase in assets and liabilities:
               
Loans
  $ 13,732        
Bank premises and equipment
  $ 869        
Other assets (Goodwill)
  $ 1,086        
Deposits
  $ 22,182        
Other liabilities
  $ 2          
The accompanying notes are an integral part of these statements.

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES:
The consolidated financial statements include the accounts of Allegheny Bancshares Inc. and its subsidiaries (the “Company”). Significant intercompany accounts and transactions have been eliminated in the consolidation.
The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general industry practices. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2009, and the results of operations for the periods ended September 30, 2008 and 2009. The notes included herein should be read in conjunction with the notes to the financial statements included in the 2008 Form 10-K included with the annual report to stockholders of Allegheny Bancshares, Inc.
Recent Accounting Pronouncements — In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”).
In conjunction with the issuance of SFAS 168, the FASB also issued its first Accounting Standards Update No. 2009-1, “Topic 105 -Generally Accepted Accounting Principles” (“ASU 2009-1”) which includes SFAS 168 in its entirety as a transition to the ASC. ASU 2009-1 is effective for interim and annual periods ending after September 15, 2009 and will not have an impact on the Company’s financial position or results of operations but will change the referencing system for accounting standards. Certain of the following pronouncements were issued prior to the issuance of the ASC and adoption of the ASUs. For such pronouncements, citations to the applicable Codification by Topic, Subtopic and Section are provided where applicable in addition to the original standard type and number.
In December 2008 the FASB issued FASB Staff Position (“FSP”) SFAS 132(R)-1 (FASB ASC 715-20-65), “Employers’ Disclosures about Postretirement Benefit Plan Assets,” (“FSP SFAS 132(R)-1”). This FSP provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The objective of the FSP is to provide the users of financial statements with an understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets. The FSP also requires a nonpublic entity, as defined in Statement of Financial Accounting Standard (“SFAS”) 132, to disclose net periodic benefit cost for each period for which a statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Staff Position will require the Company to provide additional disclosures related to its benefit plans.
On April 9, 2009, the FASB issued the next staff position related to fair value which is discussed below.
FSP SFAS 115-2 and SFAS 124-2 (FASB ASC 320-10-65), “Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP SFAS 115-2 and SFAS 124-2”) categorizes losses on debt securities available-for-sale or held-to-maturity determined by management to be other-than-temporarily impaired into losses due to credit issues and losses related to all other factors. Other-than-temporary impairment (OTTI) exists when it is more likely than not that the security will mature or be sold before its amortized cost basis can be recovered. An OTTI related to credit losses should be recognized through earnings. An OTTI related to other factors should be recognized in other comprehensive income. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Annual disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required for interim periods (including the aging of securities with unrealized losses).

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
Also on April 1, 2009, the FASB issued FSP SFAS 141(R)-1 (FASB ASC 805-20-25, 30, 35, 50), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” The FSP requires that assets acquired and liabilities assumed in a business combination that arise from a contingency be recognized at fair value. If fair value cannot be determined during the measurement period as determined in SFAS 141 (R), the asset or liability can still be recognized if it can be determined that it is probable that the asset existed or the liability had been incurred as of the measurement date and if the amount of the asset or liability can be reasonably estimated. If it is not determined to be probable that the asset/liability existed/was incurred or no reasonable amount can be determined, no asset or liability is recognized. The entity should determine a rational basis for subsequently measuring the acquired assets and assumed liabilities. Contingent consideration agreements should be recognized initially at fair value and subsequently reevaluated in accordance with guidance found in paragraph 65 of SFAS 141 (R). The FSP is effective for business combinations with an acquisition date on or after the beginning of the Company’s first annual reporting period beginning on or after December 15, 2008. The Company will assess the impact of the FSP if and when a future acquisition occurs.
The Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 111 (FASB ASC 320-10-S99-1) on April 9, 2009 to amend Topic 5.M., “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities” and to supplement FSP SFAS 115-2 and SFAS 124-2. SAB 111 maintains the staff’s previous views related to equity securities; however debt securities are excluded from its scope. The SAB provides that “other-than-temporary” impairment is not necessarily the same as “permanent” impairment and unless evidence exists to support a value equal to or greater than the carrying value of the equity security investment, a write-down to fair value should be recorded and accounted for as a realized loss. The SAB was effective upon issuance and had no impact on the Company’s financial position.
NOTE 2 INVESTMENT SECURITIES:
The amortized costs of investment securities and their approximate fair values are as follows (in thousands of dollars):
                                 
            Gross     Gross        
    Amortized     Unrealized     Unrealized        
September 30, 2009   Cost     Gains     Losses     Fair Value  
Securities available for sale:
                               
Mortgaged backed obligations of federal agencies
  $ 3,714     $ 85     $     $ 3,799  
Government sponsored enterprises
    8,988       127             9,115  
Obligations of states and political subdivisions
    16,516       642       7       17,151  
Corporate obligations
    501       23             524  
Other equities
    132                   132  
 
                       
 
                               
Total
  $ 29,851     $ 877     $ 7     $ 30,721  
 
                       
                                 
            Gross     Gross        
    Amortized     Unrealized     Unrealized        
December 31, 2008   Cost     Gains     Losses     Fair Value  
Securities available for sale:
                               
Mortgaged backed obligations of federal agencies
  $ 2,905     $ 34     $ 4     $ 2,935  
Government sponsored enterprises
    6,008       169             6,177  
Obligations of states and political subdivisions
    15,652       396       58       15,991  
Corporate obligations
    501             50       451  
Other equities
    131                   131  
 
                       
 
                               
Total
  $ 25,197     $ 599     $ 112     $ 25,685  
 
                       
Consideration is given to current market conditions, historical trends in the individual securities, as well as trends in the overall market. Declines determined to be other than temporary are charged to operations and are shown on the income statement. There were no other-than-temporary impairment charges on investment securities during the first nine months of 2008 or 2009, however there were charges to restricted equity securities, see footnote number 3.

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
The following table shows the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses that are deemed to be temporarily impaired (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous, unrealized loss position at September 30, 2009. The unrealized losses on the Company’s investment securities were caused by various reasons, but the Company feels that no material impairment of value is due to deteriorating financial condition of the issuers. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider this 1 bond investment to be other-than-temporary impaired at September 30, 2009.
                                         
    Less than 12 months     12 Months or greater      
            Unrealized             Unrealized     Total  
    Fair Value     Losses     Fair Value     Losses     Fair Value  
Description of Securities:
                                       
Mortgaged backed obligations of federal agencies
  $     $     $     $     $  
Government sponsored enterprises
                             
Obligations of states and political subdivisions
                559       7       559  
Corporate obligations
                             
 
                             
Total
  $     $     $ 559     $ 7     $ 559  
 
                             
A maturity schedule of securities in thousands as of September 30, 2009, by contractual maturity is shown below. Actual maturities may differ because borrowers may have the right to call or prepay obligations.
                 
    Amortized        
    Cost     Fair Value  
Due:
               
In one year or less
  $ 2,495     $ 2,530  
After one year through five years
    20,426       20,898  
After five years through ten years
    5,388       5,673  
After ten years through fifteen years
    1,542       1,620  
 
           
Net Cash Provided by Operating Activities
  $ 29,851     $ 30,721  
 
           
For the period ended September 30, 2009, proceeds from sales of securities available for sale amounted to $4,436,390 and gains in the amount of $63,510 were recognized on these sales. No gains or losses were recognized in the same period of 2008.
NOTE 3 RESTRICTED EQUITY SECURITIES:
Restricted equity securities are considered restricted due to lack of marketability. It consists of stock in the Federal Home Loan Bank (FHLB) and at December 31, 2008, the parent company of the Bank’s Correspondent Bank (Correspondent). Investment in the FHLB stock is determined by the level of the Bank’s participation with FHLB various products and is collateral against outstanding borrowings from that institution. The FHLB stock is carried at cost, the “Correspondent” stock is carried at market value and each is restricted as to transferability. Management evaluates these restricted securities for other-than-temporary impairment on a quarterly basis, and more often when conditions warrant.
Consideration is given to current market conditions, historical trends in the individual securities, as well as trends in the overall market. Declines determined to be other than temporary are charged to operations and are shown on the income statement. In view of the recent May 1, 2009 closure of “Correspondent” by the Office of the Comptroller of the Currency, the Company recorded an other than temporary impairment (“OTTI”) non-cash charge against earnings. The carrying value of the Company’s “Correspondent” stock as of December 31, 2008 was approximately $603,515. The OTTI charge as of March 31, 2009 was $603,515, eliminating our carrying value of this stock. No other than temporary impairment charge was recognized in the same period in 2008.

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 LOANS RECEIVABLE:
Loans outstanding are summarized as follows (in thousands of dollars):
                 
    September 30,     December 31,  
    2009     2008  
 
 
Real estate loans
  $ 84,680     $ 72,291  
Commercial and industrial loans
    78,543       70,680  
Loans to individuals, primarily collateralized by autos
    13,588       11,779  
All other loans
    4,502       3,628  
 
           
 
               
Total Loans
    181,312       158,378  
 
               
Less allowance for loan losses
    1,524       1,396  
 
           
 
               
Net Loans Receivable
  $ 179,788     $ 156,982  
 
           
NOTE 5 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2009 and 2008 follows (in thousands):
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
Balance, beginning of period
    1,396     $ 1,186  
Provision charged to operating expenses
    292       216  
Recoveries of loans charged off
    124       87  
Loans charged off
    (288 )     (148 )
 
           
 
               
Balance, end of period
    1,524     $ 1,341  
 
           
NOTE 6 LONG TERM DEBT:
The Company has borrowed money from the Federal Home Loan Bank of Pittsburgh (FHLB). The interest rates on all of the notes payable as of September 30, 2009 were fixed at the time of the advance and fixed rates range from 4.14% to 5.57%. The FHLB notes are secured by FHLB Stock, as well as investment securities and mortgage loans. The weighted average interest rate is 4.87% at September 30, 2009.
NOTE 7 BANK OWNED LIFE INSURANCE:
The Company, in an effort to attract and retain employees, offers a variety of benefits to full time employees. The costs of these benefits continue to grow faster than inflation. In order to offset some of these costs and to offer other benefits the Company has invested in a Bank Owned Life Insurance (BOLI) contract. Earnings on these contracts are tax exempt, and are very attractive in comparison with other long-term investments.

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 FAIR VALUE:
FASB ASC 820-10, Fair Value Measurements, provides a definition of fair value for accounting purposes, establishes a framework for measuring fair value and expands related financial disclosures. This statement does not require any new fair value measurements and was initially effective for the Company beginning January 1, 2008. This statement establishes a hierarchy that prioritizes the use of fair value inputs used in valuation methodologies into the following three levels.
Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 — Valuation is based upon significant inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
At September 30, 2009 the Company had no liabilities subject to fair value. The following is a description of valuation methodologies used for assets recorded at fair values.
Investment securities available for sale: Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, when available. If quoted prices are not available, fair values are measured using independent pricing models. Level 1 securities include those traded by dealers or brokers in an active markets such as U.S. Treasury securities, and securities issued by government sponsored entities that are traded by dealers, and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include other equities that do not have an active market.
Restricted equity securities: Restricted equity securities that are restricted as to the transferability of the shares. Fair value measurement is based upon quoted prices when available, but due to the limited number of transactions, and the restrictions on transferability of these shares, a true active market does not always exist. As such, the restricted equity securities are considered as Level 3 securities.
Loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. If a loan is considered impaired an allowance for loan loss is established in accordance with FASB ASC 310-10 Accounting by Creditors for Impairment of a Loan, by utilizing market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). The fair value was determined by the measurement of the fair value of the underlying collateral. Typically the collateral value is determined by applying a discount to an appraisal that was performed at or about the date of the loan. Due to the age of appraisals the changing market conditions of real estate the Company considers its impaired loans to be level 3 assets and are measured on a nonrecurring basis.
Goodwill: The Company may be required to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. Goodwill is one of these assets, and is subject to impairment testing. The goodwill currently recorded on the books was recorded with the purchase of two branch offices in April 2009. Goodwill is considered by the Company to be a level 3 asset.
Other Real Estate Owned: Certain assets such as other real estate owned (OREO) are measured at the lower of carrying value or fair value less estimated holding costs and cost to sell. We believe that the fair value component in its valuation follows the provisions of FASB ASC 820-10. Due to age of some appraisals and changing real estate market conditions, the Company considers it’s OREO to be level 3 assets.

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
The following table presents the recorded amount of assets measured at fair value (in thousands of dollars):
                                 
    Level 1     Level 2     Level 3     Total  
 
                               
Assets recorded at fair value on a recurring basis:
                               
 
                               
Investment securities available for sale
  $ 9,115     $ 21,606     $     $ 30,721  
Restricted equity securities
          748             748  
 
                       
Total
  $ 9,115     $ 22,354     $     $ 31,469  
 
                       
 
                               
Assets recorded at fair value on a non recurring basis:
                               
 
                               
Impaired Loans
  $     $     $ 1,914     $ 1,914  
Goodwill
                1,087       1,087  
Other real estate owned
                824       824  
 
                       
Total
  $     $     $ 3,825     $ 3,825  
 
                       
NOTE 9 PURCHASE OF TWO BRANCH OFFICES:
On April 17, 2009, the Company’s wholly owned subsidiary, Pendleton Community Bank completed the acquisition of two branch offices from Citizens National Bank (“CNB”). The two offices are in Marlinton, WV and Petersburg, WV. The Agreement can be found by accessing the website of the Securities and Exchange Commission under the filings of Allegheny Bancshares, Inc. and as part of the Current Report on Form 8-K filed on January 20, 2009. The purchase is accounted for under the requirements of FASB ASC 805 and included the real estate and both offices of CNB as well as $13,732,408 loan portfolio and $22,182,383 in deposits. The assets and liabilities were recorded at fair market values.
The Company is still determining the value of the intangible assets and the fair value of the assets acquired and liabilities assumed that are used to calculate goodwill in the transaction. An estimate of the fair value of the assets acquired and liabilities assumed has been used in the preparation of these unaudited consolidated financial statements, however, these estimates may be revised once the final valuations are performed.
NOTE 10 GOODWILL:
The Company follows FASB ASC 350-20 Goodwill and Other Intangible Assets, which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. Provisions within this statement discontinue any amortization of goodwill and intangible assets with indefinite lives, and require at least annual impairment review or more often if certain impairment conditions exist. With the purchase of the two CNB branches (see note #9), there was a significant amount of goodwill recorded, and no impairments reported. The goodwill recognized on the purchase of the two branch offices totaled $1,086,732.

 

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 BENEFIT PLANS:
Executive Performance Driven Plan: On June 4th, 2008, the Company, approved the Pendleton Community Bank , Inc. Executive Performance Driven Plan. The Performance Plan provides for bonus compensation based on achievement of certain performance goals. The CEO is eligible to receive a bonus based on achievement of the performance criteria.
For the Bank’s Chief Executive Officer, performance compensation will be based on the following individual categories (as reflected in the performance of Allegheny Bancshares, Inc.): Return on Average Equity, Increase in Earnings per Share, Return on Assets, Asset Growth Rate.
The total performance compensation which may be earned by the CEO is between 0% and 11.50% of his base salary. The Company has accrued a liability and incurred a benefit expense of $7,660 for the first nine months of 2009 and $15,750 for the first nine months of 2008.
Supplemental Retirement Agreement: On June 4th, 2008 the Bank entered into a non-qualified Supplemental Retirement Agreement (“SERP”) with the CEO. The SERP provide for the payment of a monthly supplemental executive retirement benefit equal to annual payments of $54,663 for a 15 year period. Such benefit shall be payable for a period of fifteen years, or under certain circumstances, prior to age 65. For each full calendar year the CEO completes with the Bank without separation of service, the CEO shall be credited with 8.33% of this benefit, toward 100% after 12 years. The Company has accrued a liability and incurred a benefit expense of $19,416 for the first nine months of 2009 for this plan, and $17,203 for the same period of 2008.

 

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
Allegheny Bancshares, Inc. (Company) is a single bank holding company organized under the laws of West Virginia. The Company provides financial services through its wholly owned subsidiary Pendleton Community Bank (Bank).
The Bank is a full service commercial bank offering financial services through five financial centers located in the West Virginia towns of Franklin, Moorefield Marlinton and Petersburg, and a financial center near Harrisonburg, Virginia. Currently its primary trade areas are these towns and the West Virginia counties of Pendleton, Hardy, Pocahontas, Grant and in Rockingham County, Virginia.
The following discussion and analysis is provided to address information about the Company’s financial condition and results of operations that may not otherwise be apparent from reading the Consolidated Financial Statements and notes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the related notes to the Consolidated Financial Statements.
Forward Looking Statements
The following discussion contains statements that refer to future expectations, contain projections of the results of operations or of financial condition or state other information that is “forward-looking.” “Forward-looking” statements are easily identified by the use of words such as “could,” “could anticipate,” “estimate,” “believe,” and similar words that refer to the future outlook. There is always a degree of uncertainty associated with “forward-looking” statements. The Company’s management believes that the expectations reflected in such statements are based upon reasonable assumptions and on the facts and circumstances existing at the time of these disclosures. Actual results could differ significantly from those anticipated.
Many factors could cause the Company’s actual results to differ materially from the results contemplated by the forward-looking statements. Some factors, which could negatively affect the results, include:
    General economic conditions, either nationally or within the Company’s markets, could be less favorable than expected;
 
    Changes in market interest rates could affect interest margins and profitability;
 
    Competitive pressures could be greater than anticipated; and
 
    Legal or accounting changes could affect the Company’s results.
Critical Accounting Policy
The financial condition and results of operations as presented in the Consolidated Financial Statements and the Notes to Consolidated Financial Statements are dependent on the accounting policies. The policies selected and applied involve judgments, estimates, and may change from period to period based upon economic conditions. In addition, changes in generally accepted accounting principles could impact the calculations of these estimates, and even though this would not affect the true values, it could affect the timing of recognizing income or expense.
The following discussion of allowance for loans loss is, in management’s opinion, the most important and critical policy that affects the financial condition and results of operations. This critical policy involves the most difficult and complex judgments about the unknown losses that currently exist in the Company’s largest asset, its loan portfolio.
Allowance for Loan Losses and Provision for Loan Losses
The provision for loan losses was $282,000 and $216,000 for the nine month periods ended September 30, 2009 and 2008 respectively. The allowance for loan losses (“ALL”) was $1,524,000 (.84% of loans) at the end of the first nine months of 2009 compared with $1,396,000 (.88% of loans) at December 31, 2008. The percentage decrease in ALL was caused primarily by the purchase of $13,732,408 of loans when the bank purchased two branch offices from Citizens National Bank of Elkins, WV (“CNB”). By following the recently enacted purchase accounting rules for the CNB branch transaction, an allowance for loan losses was not recorded since the loans were recorded at fair value. The Company continues to monitor the loan portfolio for signs of weakness or developing credit problems. Loan loss provision for each period is determined after evaluating the loan portfolio and determining the level of reserves necessary to absorb current charge-offs and maintain the reserve at adequate levels. See Note 5 for the amounts.

 

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The Company monitors the portfolio particularly closely in the current downturn in the economy. Real estate sales are certainly slow in the Company’s market area, but this area has not seen a marked increase in foreclosures or dropping collateral values as has been the case for many areas.. Most of the Company’s market area is fairly rural and the majority of employment in theses areas is not in economically sensitive industries. The Company is not immune to the current economic downturn and it has exposure to the slowing economic situation particularly as it relates to the timber industry, and housing industry as the Company has made real estate development loans to a limited extent within our markets. We have seen, on average, the Company’s past due percentages to be higher in 2009 than previous years, however at September 30, 2009, the past due percentage was not outside the normal expected range based upon our historical percentages. With the slow real estate and commercial environment the Company does realizes there is an increase in credit risk in its loan portfolio and has made adjustments not only to the calculation of the allowance for loan loss, but also has made increases to the amount of the provision for loan losses.
The ALL is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans, industry historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Management’s valuation of the ALL is based upon two principals of accounting: 1) FASB ASC 450-20 Accounting for Contingencies and 2) FASB ASC 310-10, Accounting by Creditors for Impairment of a Loan. The Company utilizes both of these accounting standards by first identifying problem loans above a certain threshold and estimating losses based on the underlying collateral values, and second taking the remainder of the loan portfolio and separating the portfolio into pools of loans based on grade of loans as determined by the Company’s internal grading system. We apply loss percentages based upon our historical loss rates, and make adjustments based on economic conditions. The determination of the ALL is subjective and actual losses may be more or less than the amount of the allowance. However management believes that the allowance is a fair estimate of losses that exists in the loan portfolio as of the balance sheet date.
Results of Operations Overview
Net income of $1,163,000 for the first nine months of 2009 represents a decrease of 39.33% compared to the same period a year ago. This represents a $1.34 net income per share as compared to $2.18 income for the same period a year ago. Included in the first nine month’s results for 2009 was an other-than-temporary (“OTTI”) non-cash impairment charge of $604 thousand dollars pre-tax, equivalent to a $559 thousand after tax or $0.64 per share. The impairment charge relates to certain restricted equity securities. On May 1, 2009 the Office of the Comptroller of the Currency closed the company and took control of its assets. This OTTI charge represents the complete write off of the carrying value of the equity securities. Consolidated annualized returns on average equity and average assets for the nine months ended September 30, 2009 were 5.60% and 0.70%, respectively, compared with 9.24% and 1.27% for the same period in 2008. Net interest income had a slight increase from 2008 to 2009, but was more than offset by the combination of the OTTI charge and an increase in non interest expense.
Net Interest Income
The Company’s taxable equivalent net interest income increased by 5.15% for the first nine months of 2009 compared to the same period in 2008. This increase resulted primarily due to the decrease in the interest expense on deposits. Average balance of interest bearing liabilities grew by 13.06% while average balance of total earning assets grew by 9.28%. The Company’s tax equivalent yield on earnings assets for first nine months of 2009 was 4.19% compared to 4.35% for same period in 2008 as the cost of funds decreased by 78 basis points while the yield on earning assets decreased 73 basis points.
As shown in the interest sensitivity analysis in Table II, the Company is in a liability sensitive position, meaning our liabilities mature and reprice faster than our assets in a stable rate environment. In the last two years, the Federal Reserve lowered rates by 450 basis points, and in 2009 the company has seen rates stabilize. This rate decrease has increased the prepayment speeds on assets with investments being called and loans being refinanced. Dropping rates can have a negative effect on interest margins, even for liability sensitive banks since the rates on earning assets can and will typically drop greater than banks can drop the costs of deposits.

 

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Table I shows the average balances for interest bearing assets and liabilities, the rates earned on earning assets and the rates paid on deposits and borrowed funds.
TABLE I
Allegheny Bancshares, Inc.
Net Interest Margin Analysis

(On a Fully Taxable Equivalent Basis) (Dollar Amounts in Thousands)
                                                 
    Nine Months Ended     Nine Months Ended  
    September 30, 2009     September 30, 2008  
    Average     Income/             Average     Income/        
    Balance     Expense     Rates     Balance     Expense     Rates  
 
                                               
Interest Income
                                               
Loans 1, 2
  $ 170,407     $ 8,632       6.75 %   $ 151,094     $ 8,595       7.58 %
Federal funds sold
    784             0.00 %     1,334       30       3.00 %
Interest bearing deposits
    6,349       63       1.32 %     6,281       150       3.18 %
Investments
                                               
Taxable
    11,775       309       3.50 %     11,588       368       4.23 %
Nontaxable 2
    16,184       703       5.78 %     17,744       773       5.81 %
 
                                   
 
                                               
Total Earning Assets
    205,499       9,707       6.30 %     188,041       9,916       7.03 %
 
                                   
 
                                               
Interest Expense
                                               
Demand deposits
    24,215       167       0.92 %     16,079       124       1.03 %
Savings
    27,553       63       0.30 %     31,341       281       1.20 %
Time deposits
    113,783       2,807       3.29 %     96,773       3,093       4.26 %
Short-term borrowings
    1,408       2       0.19 %     1,670       20       1.60 %
Long-term debt
    6,175       214       4.62 %     7,271       261       4.79 %
 
                                   
 
                                               
Total Interest Bearing
                                               
Liabilities
  $ 173,134     $ 3,253       2.51 %   $ 153,134     $ 3,779       3.29 %
 
                                   
 
                                               
Net Interest Margin 1
            6,453                       6,137          
 
                                           
 
                                               
Net Yield on Interest
                                               
Earning Assets
                    4.19 %                     4.35 %
 
                                           
     
1   Interest on loans includes loan fees.
 
2   An incremental tax rate of 34% was used to calculate the tax equivalent income.
Noninterest Income
Noninterest income decreased to $692,000 for the 9 months ending September 30, 2009, compared to $1,124,000 for the same period in 2008. As discussed in the “Results of Operations Overview” above, this decrease was almost entirely caused by the other-than-temporary-impairment charge on a restricted equity investment of the Company. Other than this impairment charge, noninterest income has increased with an $83,000 increase in overdraft protection fees, $59,000 increase in ATM fee income and a $64,000 gain on sale of available for sale securities.
Noninterest Expenses
Total noninterest expense increased $719,000 or 17.64% for the first nine months of 2009, as compared to 2008. Other expenses increased by approximately $540,000 or 46.59%. The main reasons for this increase include $265,000 increase in FDIC insurance cost partially due to a special $103,000 assessment assessed on June 30th, as well as increased FDIC insurance premiums. In addition to this expense we have incurred $199,000 in conversion expenses associated with acquisition of two branch offices of Citizens National Bank (See Note 8 to the financial statements). New accounting rules enacted at the beginning of 2009 require companies to expense the conversion expenses as compared to the old rule of capitalizing these expenses as business combination costs.

 

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Salaries and benefits increased by 6.70% due to merit increases, and an increase in the number of employees. With the purchase of the two additional branch offices, our number of full time equivalent employees has increased. For the first nine months of 2009 our number of full time equivalent employee average increased by over 7 employees or 10.77% over the same period in 2008.
Income Tax Expense
Income tax expense is 33.50% of pretax income for the first nine months of 2009 compared to 26.24% for the same period in 2008. This tax expense is higher than pre tax income due to the majority of the other-than-temporary-impairment charge not being tax deductible. The loss on the OTTI charge for income tax purposes is considered a capital loss and only deductible to the extent that the Company has capital gains. Currently the Company does not have the expectation that it could realistically generate enough capital gains to fully offset the capital losses that have arisen from the OTTI charges on the restricted stock. To that extent, it must consider excess losses as non tax deductible and not derive any tax benefit from the excess capital losses over realistically expected capital gains. It appears that $484,000 of the OTTI charge will not be tax deductible as of September 30, 2009.
Loans and Provision for Loan Loss
Total loans were $181,313,000 at September 30, 2009, compared to $156,982,000 at December 31, 2008, representing a 15.50% increase. This growth in the loan portfolio came primarily from purchase of loans from the two branch offices, which added $13,732,000 to our loan portfolio but also included $10,599,000 of growth in our branch offices. A schedule of loans by type is shown in Note 3 to the financial statements. Approximately 86% of the loan portfolio is secured by real estate at September 30, 2009. The loans purchased as part of the branch acquisition are recorded at fair market value, which includes a credit discount for expected losses existing in the portfolio, but also includes a premium for favorable interest rates included in the portfolio, compared to current market rates. This is required under the new accounting rules and as such an increase in the allowance for loan loss for loans purchased on the date of purchase is not allowed.
Loan Portfolio Risk Factors
Nonperforming loans include nonaccrual loans, loans over 90 days past due and restructured loans. Nonaccrual loans are loans in which interest accruals have been discontinued. Loans are placed in a nonaccrual status when management has information that indicates that principal or interest may not be collectible. The Company has a substantial amount of loans in the loan portfolio related to agribusinesses. Restructured loans are loans for which a borrower has been granted a concession on the interest rate or original repayment terms because of financial difficulties.
The following table summarizes the Company’s nonperforming loans at September 30, 2009 and December 31, 2008 (in thousands of dollars):
                 
    September 30,     December 31,  
    2009     2008  
Nonaccrual loans
  $ 255     $ 659  
Restructured loans
    134       139  
Loans delinquent 90 days or more
    1,285       1,034  
 
           
 
               
Total Nonperforming Loans
  $ 1,674       1,832  
 
           

 

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Deposits
The Company’s primary funding source is deposits from individuals, businesses and government entities located within it’s trade area. The Company’s deposits increased $43,034,000 or 25.73% during the first nine months of 2009. Of this increase, $22,182,000, was assumed in connection with the purchase of the acquisition of the two branch offices, but in addition $20,852,000 of increase in deposits came from our branch operations. A schedule of deposits by type is shown in the balance sheets. The primary reason for this increase was the increase in certificates of deposits (CDs). Much of this deposit growth it is believed to be due to a “flight to quality” as customers seek safe investments due to recent turmoil in the equity markets. Time deposits of $100,000 or more were 19.75% and 16.87% of total deposits at September 30, 2009 and December 31, 2008, respectively.
Borrowings
The Company borrows funds from the Federal Home Loan Bank (FHLB) to provide liquidity and to reduce interest rate risk. As competition for deposits have increased during periods of loan growth, FHLB borrowings have been utilized to help fund the loan growth. These borrowings have a fixed rate of interest and are amortized over a period of 2 to 20 years. Interest rates on these obligations range from 4.14% to 5.57%.
Capital
The Company continues to maintain a strong capital position to support future growth. Capital as a percentage of total assets was 11.49% at September 30, 2009 and significantly exceeded regulatory requirements. The Company is considered to be well capitalized under the regulatory framework for prompt corrective actions.
Uncertainties and Trends
Management is not aware of any known trends, events or uncertainties that will have or that are reasonably likely to have a material effect on liquidity, capital resources or operations. Additionally, management is not aware of any current recommendations by the regulatory authorities which, if they were to be implemented, would have such an effect.
Liquidity and Interest Sensitivity
Liquidity reflects our ability to ensure that funds are available to meet present and future obligations. At September 30, 2009, the Company had liquid assets of approximately $5.096 million in the form of cash and due from banks. Management believes that the Company’s liquid assets are adequate at September 30, 2009. Additional liquidity may be provided by the growth in deposit accounts and loan repayments. In the event the Company would need additional funds, it has the ability to purchase federal funds and borrow under established lines of credit of $92.4 million.
At September 30, 2009, the Company had a negative cumulative Gap Rate Sensitivity Ratio of 32.89% for the one year repricing period. This rate reflects a very conservative estimate since we show an immediate runoff of accounts without a specific maturity date, and does not reflect the historical movement of funds during varying interest rate environments. Adjusted for historical repricing trends in response to interest rate changes, the adjusted Gap Ratio is -17.90%. This indicates that the Company is liability sensitive. But this negative gap ratio is within guidelines set by the Company and the Company expects interest income would remain stable in both a declining and increasing interest rate environment. Management constantly monitors the Company’s interest rate risk and has decided that the current position is an acceptable risk for a community bank operating in a rural environment. Table II shows the Company’s interest sensitivity.

 

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TABLE II
Allegheny Bancshares, Inc.
Interest Sensitivity Analysis

September 30, 2009
(In Thousands of Dollars)
                                         
    0-3     4-12     1-5     Over 5        
    Months     Months     Years     Years     Total  
Uses of Funds:
                                       
 
                                       
Loans
  $ 22,975     $ 24,770     $ 54,651     $ 78,916     $ 181,312  
Interest bearing deposits
    12,854       1,687       519               15,060  
Investment securities
    662       1,560       18,881       9,618       30,721  
Restricted Investments
                            748       748  
 
                             
 
                                       
Total
    36,491       28,017       74,051       89,282       227,841  
 
                             
 
                                       
Sources of Funds:
                                       
 
                                       
Deposits:
                                       
Interest bearing demand
    31,896                               31,896  
Savings
    27,054                               27,054  
Time deposits over $100,000
    7,195       18,088       12,446       3,797       41,526  
Other time deposits
    16,801       36,145       24,054       6,855       83,855  
Short-term borrowings
    1,028                               1,028  
Long-term debt
    1,057       176       1,628       2,891       5,752  
 
                             
 
                                       
Total
  $ 85,031     $ 54,409     $ 38,128     $ 13,543     $ 191,111  
 
                             
 
                                       
Discrete Gap
  $ (48,540 )   $ (26,392 )   $ 35,923     $ 75,739     $    
 
                                       
Cumulative Gap
  $ (48,540 )   $ (74,932 )   $ (39,009 )   $ 36,730     $    
 
                                       
Ratio of Cumulative Gap
    -21.30 %     -32.89 %     -17.12 %     16.12 %        
To Total Earning Assets
                                       
Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities at September 30, 2009. In preparing the above table, no assumptions are made with respect to loan prepayments or deposit run offs. Loan principal payments are included in the earliest period in which the loan matures or can be repriced. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. A loan with a floating rate, such as the majority of our residential loan portfolio, that has reached a contractual floor or ceiling level is being treated as a fixed rate loan until the rate is again free to float. In the current rate environment, this has the effect of causing the table II to model our adjustable rate loans as fixed rate loans. However in a rising interest rate environment when these loans would be repriced at rates above the contractual floor, and are once again free to float, many of our loans would move from the over 5 year timeframe to a more current timeframe.
Item 3.   Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2008 Form 10-K.

 

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Item 4T.   Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers that file periodic reports under the Securities Exchange Act of 1934 (the “Act”) are now required to include in those reports certain information concerning the issuer’s controls and procedures for complying with the disclosure requirements of the federal securities laws. Under rules adopted by the Securities and Exchange Commission effective August 29, 2002, these disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure.
We have established disclosure controls and procedures to ensure that material information related to Allegheny Bancshares, Inc. and its subsidiary is made known to our principal executive officer and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. These disclosure controls and procedures consist principally of communications between and among the Chief Executive Officer and the Chief Financial Officer to identify any new transactions, events, trends, contingencies or other matters that may be material to the Company’s operations. As required, we have evaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s management, including the Chief Financial Officer, concluded that such disclosure controls and procedures were operating effectively as designed as of the date of such evaluation.
Changes in Internal Controls
During the period reported upon, there were no significant changes in the Company’s internal controls pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls.
Part II. Other Information
Item 1.   Legal Proceedings — Not Applicable
Item 2.   Changes in Securities —
During the 9-month period ending September 30, 2009, the Company purchased some of the Company’s stock to be held as treasury stock. This was not part of publicly announced plan. The details of the transaction were as follows:
                 
    Total Number Of     Average Price  
Date   Shares Purchased     Per Share  
 
               
March 03, 2009
    500     $ 60.00  
March 11, 2009
    500     $ 60.00  
June 11, 2009
    224     $ 65.00  
September 23, 2009
    2,690     $ 60.00  
Item 3.   Defaults Upon Senior Securities — Not Applicable
Item 4.   Submission of Matters to a Vote of Security Holders — Not Applicable
Item 5.   Other Information — Not Applicable

 

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Item 6.   Exhibits
The following Exhibits are filed as part of this Form 10-Q
         
No.   Description
       
 
  31.1    
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
       
 
  31.2    
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
       
 
  32    
Certifications 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 (filed herewith).
The following exhibit is incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-KSB filed March 30, 2003.
             
No.   Description   Exhibit Number
       
 
   
  3.1    
Articles of Incorporation — Allegheny Bancshares, Inc.
  E2
The following exhibit is incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-K filed March 31, 2006.
                 
No.   Description   Exhibit Number
       
 
       
  3.3    
Bylaws of Allegheny Bancshares, Inc.
  3.3  

 

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SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant causes this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  ALLEGHENY BANCSHARES, INC.
 
 
  By:   /s/ William A. Loving, Jr.    
    Name:   William A. Loving, Jr.   
    Title:   Executive Vice President and Chief Executive Officer   
     
  By:   /s/ L. Kirk Billingsley    
    Name:   L. Kirk Billingsley   
    Title:   Senior Vice President and Chief Financial Officer   
Date: November 5, 2009

 

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