Attached files
file | filename |
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EX-32 - EXHIBIT 32 - ALLEGHENY BANCSHARES INC | c92565exv32.htm |
EX-31.1 - EXHIBIT 31.1 - ALLEGHENY BANCSHARES INC | c92565exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - ALLEGHENY BANCSHARES INC | c92565exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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)
P. O. Box 487
Franklin, West Virginia 26807
(Address of principal executive offices, including zip code)
(304) 358-2311
(Registrants Telephone Number)
(Registrants 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 issuers 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
867,809 shares outstanding as of November 5, 2009
ALLEGHENY BANCSHARES, INC.
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
1
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)
(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.
2
Table of Contents
Allegheny Bancshares, Inc.
Consolidated Statements of Income
(In thousands, except for share and per share information)
(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.
3
Table of Contents
Allegheny Bancshares, Inc.
Consolidated Balance Sheets
(In thousands, except for share and per share information)
(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.
4
Table of Contents
Allegheny Bancshares, Inc.
Consolidated Statements of Changes in Stockholders Equity
(In thousands)
(Unaudited)
(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.
5
Table of Contents
Allegheny Bancshares, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(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
6
Table of Contents
Allegheny Bancshares, Inc.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
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.
7
Table of Contents
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
Companys 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 employers 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).
8
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
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 Companys 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 staffs 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 Companys 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.
9
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
The following table shows the gross unrealized losses and fair value of the Companys 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 Companys
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
Banks Correspondent Bank (Correspondent). Investment in the FHLB stock is determined by the level
of the Banks 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 Companys 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
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
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 entitys 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 loans 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 its OREO to be level 3 assets.
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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
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 Companys 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
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 Banks 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. | Managements 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 Companys
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
Companys 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 Companys 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 Companys 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 Companys 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 managements 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 Companys 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 Companys 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 Companys 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 Companys 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 managements 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 borrowers 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. Managements 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 Companys 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 months 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 Companys 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 Companys 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.
16
Table of Contents
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)
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.
17
Table of Contents
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 Companys 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 Companys primary funding source is deposits from individuals, businesses and government
entities located within its trade area. The Companys 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 Companys 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 Companys
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 Companys interest sensitivity.
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TABLE II
Allegheny Bancshares, Inc.
Interest Sensitivity Analysis
September 30, 2009
(In Thousands of Dollars)
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 issuers 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
issuers 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 Companys 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 Companys 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 Companys 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 Companys
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
23