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EX-32 - EXHIBIT 32 - ALLEGHENY BANCSHARES INC | c98289exv32.htm |
EX-31.2 - EXHIBIT 31.2 - ALLEGHENY BANCSHARES INC | c98289exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - ALLEGHENY BANCSHARES INC | c98289exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
Commission File No. 000-50151
Allegheny Bancshares, Inc.
(Name of Registrant 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, | 26807-0487 | |
P. O. Box 487, Franklin, West Virginia | (Zip Code) | |
(Address of principal executive office) |
Registrants telephone number: (304) 358-2311
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 Par Value per share
Common Stock $1.00 Par Value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes
o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.
Yes o No þ
Indicate by check mark whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 during the proceeding 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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
As of June 30, 2009 the aggregate market value of the voting stock held by non-affiliates was
$56,582,435, based on the last reported sales prices of $65.00 per share and 870,499 shares of
voting stock held by non-affiliates of the registrant on that date.
The number of shares outstanding of the registrants common stock was 867,459 as of March 21,
2010.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the Annual Meeting of Shareholders to be held May 3, 2010 (the Proxy Statement)
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 42.
The index of exhibits is contained in Part IV herein on page 42.
TABLE OF CONTENTS
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Exhibit 32 |
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Table of Contents
PART I
Item 1. | Business |
General
Allegheny Bancshares, Inc. (the Company or we), incorporated under the laws of West Virginia in
2003, is a one-bank holding company subject to the provisions of the Bank Holding Company Act of
1956, as amended, and owns 100% of the outstanding stock of its subsidiary bank, Pendleton
Community Bank (Bank). The Bank, headquartered in Franklin, West Virginia, was incorporated
under the laws of West Virginia on March 9, 1925 and operates as a state chartered bank. The Bank
is engaged in the general commercial banking business offering a full range of banking services
focused primarily towards serving individuals, small businesses, the agricultural industry, and the
professional community. The Bank strives to serve the banking needs of its customers while
developing personal, hometown relationships.
Location and Market Area
The Banks primary trade area includes the West Virginia localities of Pendleton, Grant, Hardy and
Pocahontas counties including the towns of Franklin, Marlinton, Moorefield, and Petersburg. In
addition, the Bank has an office in Rockingham County, Virginia just outside the City of
Harrisonburg. The Banks secondary trade area includes the neighboring counties of each respective
office, including counties in West Virginia and Virginia. The Banks business locations include
their main office and operations center located in Franklin, West Virginia, a full service branch
in Moorefield opened in July 1999, a full service branch in Marlinton, West Virginia opened in
November 2001, the office near Harrisonburg, Virginia which opened in July of 2006, and an office
in Petersburg, West Virginia opened in April of 2009.
Banking Services
The Bank is a normal full service commercial bank and as such offers services that would be
normally expected. The Bank accepts deposits, makes consumer and commercial loans, issues drafts,
provides internet access to customer accounts, offers drive through banking and provides automated
teller machines. The Banks deposits are insured under the Federal Deposit Insurance Act to the
limits provided thereunder.
Loans
The Bank offers a full range of short-to-medium term commercial and personal loans. Commercial
loans include both secured and unsecured loans for working capital (including inventory and
receivables), business expansion (including acquisition of real estate and improvements) and
purchase of equipment and machinery. Consumer loans may include secured and unsecured loans for
financing automobiles, mobile homes, home purchases and improvements, education and personal
investments. Consumer loans also includes checking account balances that were overdrawn at year
end as this represents a balance that is payable to the Bank. At year end 2009 this balance over
overdrawn checking accounts that were classified as loans totaled $130,300 as compared with
$440,597 at year end 2008.
Real estate construction loans (residential and commercial) are made for a maximum term of twelve
months. Long-term real estate loans (residential and commercial) are made with a maximum
amortization period of 30 years with fixed rates, balloon terms and adjustable rate terms (ARMs)
of from one to five years. Interest rates vary depending on the length of the term. The majority
of the real estate loans are made as investments, with a small percentage sold in the secondary
market.
The Banks lending activities are subject to a variety of lending limits imposed by state law.
While differing limits apply in certain circumstances based on the type of loan or the nature of
the borrower (including the borrowers relationship to the Bank), in general, the Bank is subject
to a loan-to-one borrower limit of an amount equal to 15% of the Banks capital and surplus in the
case of loans which are not fully secured by readily marketable or other permissible types of
collateral. The Bank voluntarily may choose to impose a policy limit on loans to a single borrower
that is less than the legal lending limit. The Bank may establish relationships with correspondent
banks to participate in loans when loan amounts exceed the Banks legal lending limits or internal
lending policies.
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Table of Contents
Deposits
The Bank offers a full range of deposit products including checking, money market, savings
accounts, certificates of deposits, and individual retirement accounts. The deposit accounts are
insured under the Federal Deposit Insurance Act to the limits provided there under.
Other bank services include safe deposit boxes, issuance of cashiers checks, credit life
insurance, direct deposit of payroll and social security checks, automatic drafts for various
accounts, telephone banking, online banking, cash management, remote deposit capture, and bill pay.
Employees
As of December 31, 2009, the Bank had 71 full-time employees and 85 total employees. None of the
Companys employees is represented by a union. No one employee devotes full time service to
Allegheny Bancshares, Inc.
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 the factors as set forth in the Risk Factors Item 1A. as well as the following:
| 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. |
Any forward looking statements made by us in this Annual Report on 10-K speaks only as of the date
on which we make it. New risks and uncertainties arise from time to time that are unpredictable.
We have no duty to, and do not intend to update or revise the forward looking statements in this
report except as may be required by law. In light of these risks and uncertainties you should keep
in mind that any forward looking statements in this report might not occur.
Item 1B. | Unresolved Staff Comments None |
Item 2. | Description of Property |
The main office of the Bank is located at 300 North Main Street, Franklin, West Virginia and
is owned by the Bank. In addition to the main office the Bank owns and operates full service
financial centers in the communities of Moorefield, Marlinton and Petersburg, West Virginia, and in
Harrisonburg, Virginia.
Item 3. | Legal Proceedings |
Management is not aware of any pending or threatened litigation in which the Bank may be
involved as a defendant. In the normal course of business, the Bank periodically must initiate
suits against borrowers as a final course of action in collecting past due loans.
Item 4. | Submission of Matters to a Vote of Security Holders |
Allegheny Bancshares has not submitted any matters to the vote of security holders for the
quarter ending December 31, 2009.
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Table of Contents
PART II
Item 5. | Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities |
Market Information
The Companys common stock is currently not traded on any established market; however, the
Company is frequently informed of the sales price at which common shares are exchanged. Other
transactions may have occurred which were not reported to the Company. The Company acts as its own
transfer agent.
The amount of dividends payable by the Company depends upon its earnings and capital position,
and is limited by the federal and state law, regulations and policy. A West Virginia state bank
cannot pay dividends (without the consent of banking authorities) in excess of the total net
profits of the current year and the combined retained profits of the previous two years. The
dividend limit as of January 1, 2010 is included in Note 14 to the financial statements.
Annual dividends were declared as of December 31, 2009 and 2008 in the amount of $1.50 and
$1.45 per share, respectively.
Stockholders
As of December 31, 2009, there were 735 shareholders of record. This amount includes all
shareholders, whether individually or held by a brokerage firm or custodian in street name.
The high and low trade prices of the Companys common stock reported to management were as
follows:
2009 | 2008 | |||||||||||||||
Year | High | Low | High | Low | ||||||||||||
1st quarter |
$ | 65.00 | $ | 60.00 | $ | 65.00 | $ | 60.00 | ||||||||
2nd quarter |
65.00 | 65.00 | 67.00 | 60.00 | ||||||||||||
3rd quarter |
70.00 | 60.00 | 67.15 | 60.00 | ||||||||||||
4th quarter |
70.00 | 60.00 | 65.00 | 58.50 |
Purchases of Securities During Last Quarter of 2009
Total No. of | ||||||||
Shares | Avg. Price | |||||||
Purchased | Paid Per Shares | |||||||
10/1/09 10/31/09 |
0 | $ | N/A | |||||
11/1/09 11/30/09 |
100 | 65 | ||||||
12/1/09 12/31/09 |
250 | 60 |
Allegheny has not initiated any plans to repurchase its stock, however from time to time as
the opportunity presents itself, the Company, as shown above, has repurchased shares.
Item 6. | Selected Financial Data |
Years ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
PROFITABILITY RATIOS |
||||||||||||||||||||
Return on Average Assets |
0.81 | % | $ | 1.02 | % | 1.32 | % | 1.34 | % | 1.46 | % | |||||||||
Return on Average Equity |
6.54 | % | 7.48 | % | 9.34 | % | 9.15 | % | 9.77 | % | ||||||||||
PER COMMON SHARE |
||||||||||||||||||||
Net Income |
$ | 2.13 | $ | 2.35 | $ | 2.80 | $ | 2.65 | $ | 2.73 | ||||||||||
Cash Dividends Declared |
1.50 | 1.45 | 1.40 | 1.30 | 1.20 | |||||||||||||||
Book Value |
31.83 | 31.17 | 30.35 | 28.87 | 27.77 | |||||||||||||||
Last Reported Market Price |
60.00 | 65.00 | 58.50 | 57.00 | 57.00 | |||||||||||||||
Dividend Payout Ratio |
70.42 | % | 61.70 | % | 49.84 | % | 49.06 | % | 43.92 | % |
- 5 -
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Conditions and Results of
Operations |
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.
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 allowance for loan losses is an estimate of the losses in the current loan portfolio. The
allowance is based on two principles of accounting: (i) FASB ASC-450-20, Accounting for
Contingencies which requires that losses be accrued when they are probable of occurring and
estimatable and (ii) FASB ASC 310-10, Accounting by Creditors for Impairment of a Loan, which
requires that loans be identified which have characteristics of impairment (e.g. the collateral,
present value of cash flows or observable market values are less than the loan balance).
The Bank utilizes both of these accounting standards by first identifying problem loans above a
certain threshold in accordance with FASB ASC 310-10, Accounting by Creditors for Impairment of a
Loan and estimating losses based on the underlying collateral values. The collateral values are
based upon appraisals and are discounted for selling expenses and market conditions. This detailed
review identifies each applicable loan for specific impairment and a specific allocation for that
impaired amount is used in the calculation.
Second taking the remainder of the loan portfolio and in accordance with FASB ASC-450-20,
Accounting for Contingencies, the Company separates the portfolio into pools of loans based on
grade of loans as determined by the Companys internal grading system. Through internal loan
review the bank classifies loans into categories and assigns a risk rating based upon an 8 point
grading scale. Within these categories, Real Estate, Consumer, and Commercial Loans are assigned a
specific loss rate based on historical losses and managements estimation of potential loss. The
Bank applies loss percentages based upon its historical loss rates. The Bank first looks at both
the three year and five year average of net loan loss as a percentage of average loans in each
category of loan pools, and then take the higher of these two loss rates as a base for the lower
end of the loan loss range. The Bank also looks at the highest loss percentage for each of the five
previous years, and uses this as a base for the high end of the loan loss range. These percentages
are applied to the loan pools as well as the available credit lines.
The high end and the low end of the loss ranges are then adjusted based upon certain economic
factors, such as: trends in delinquencies, trends in charge-offs, trends in loan volumes and terms,
changes in risk selection, lending staff experience, national and local economic trends and finally
industry trends of the industries that are most prevalent in our market area.
The allowance for loan losses is computed quarterly and adjusted prior to the issuance of the
quarterly financial statements. All loan losses charged to the allowance are approved by the board
of directors at their regular meetings. 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.
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Table of Contents
Goodwill and Intangibles
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 require at least annual impairment
review or more often if certain impairment conditions exist. With the purchase of the two bank
branches in 2009, 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. In addition
with this purchase the Company acquired core deposit intangibles, these intangibles are amortized
over the expected life of the various deposit accounts.
Securities Impairment
The Company evaluates each of its investments in securities, debt and equity, to determine if the
losses on securities is other than temporary. The Company evaluates each security in a loss
position to determine whether a decline in value below original cost is other than temporary.
Consideration is given to (1) the length of time and the extent to which the fair value has been
less than the cost, (2) the financial condition and near term prospects of the issuer, and (3) the
intent and the ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery of fair value. Declines determined to be other
than temporary are charged to operations. Such charges were $603,515 in 2009 and $804,600 for 2008.
Overview of 2009
Net income of the Company decreased 10.01% from 2008 to 2009 and earnings per share decreased
9.36% from $2.35 to $2.13. Earnings per share decreased less as a percentage than net income due to
lower number of shares outstanding. With good increases in net interest income and non interest
income, income before income taxes actually increased this year, however due to a large increase in
income tax expense net income dropped. The increase in income taxes was due to the Companys
inability to deduct certain losses in 2009 for income tax purposes. An increase in non interest
expenses, an increase in the provision for loan loss, and the increase in income tax expense were
the primary factors in the decrease in net income.
The Companys balance sheet continued to grow in 2009 as assets increased by $38,157,000 or 18.64%
mainly caused by the purchase of two branch offices of another bank in the towns of Marlinton and
Petersburg, West Virginia in April of 2009. The purchase of these two offices, including their
respective real estate, loans and deposits, increased total assets of the Bank by $22,184,000.
Net Interest Income
The primary source of the Companys earnings is net interest income, the difference between income
on earning assets and the cost of funds supporting those assets. Significant categories of earning
assets are loans and securities, while deposits represent the major portion of interest-bearing
liabilities.
Net Interest Income for 2009 was $8,486,321 which represents a $742,263 increase from 2008, or
9.58%. Average loans expressed as a percentage of total earning assets increased to 82.55% from
80.70% in 2008. Tax equivalent income on earning assets increased by $25,000, but this was boosted
by a $301,000 increase in loan income. The real boost to the Companys net interest income comes
from the reduction of cost of interest bearing liabilities. The company saw significant decreases
in cost of deposits and short term borrowings. Cost of interest bearing liabilities dropped by
$650,000 from 2008.
For purposes of the following discussion, comparison of net interest income is done on a tax
equivalent basis, which provides a common basis for comparing yields on earning assets exempt from
federal income taxes to those which are fully taxable. Table 1 shows the various tax equivalent
yields and average balances of earning assets and interest bearing liabilities. The Companys
taxable equivalent net interest margin increased 0.73% in 2009 compared to 2008, due primarily to
growth in earning assets. The Companys net yield on interest earning assets for 2009 was 4.23%
compared to 4.35% for 2008 as the yield on earning assets decreased by 69 basis points while the
cost of funds decreased by 80 basis points. Net interest income increased in 2009 over 2008,
however this increase was due to the increase in the balances of earning assets and not the
increase in net yield on interest earning assets.
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Table of Contents
Net interest income was under pressure from low interest rates. During the majority of 2009, the
U.S. economy saw unusually low U.S. Treasury bond rates, in which a large portion of the Companys
real estate loans are tied. In addition a large portion of the commercial loans are tied to prime
rate, which during 2009, was at historically low levels. The Company also saw low long term rates.
Typically banks earn money since they are investing longer term but utilizing short term deposits
to fund the loans. With long term rates being low the Companys interest margin shrank in 2009.
However the growth in the Banks volume of loans and deposits increased the net interest income.
Noninterest Income
Noninterest income consists of all revenues which are not included in interest and fee income
related to earning assets. Exclusive of impairment charge on a security, noninterest income
increased 15.77% during 2009 as compared to 2008. The majority of this increase is due to increase
in service charge income. Increase of $128,051 in overdraft fees also helped noninterest income in
2009, as well as an $80,788 increase in ATM fees. Noninterest income for 2009 and 2008 included an
impairment charge of an equity interest in Silverton Financial Services, Inc. (SFSI). SFSI was
the parent company of the Subsidiarys correspondent account. In 2008 the Company determined that
the losses that SFSI generated during 2008 were unlikely to be recouped in the near future, and as
such the market value of the investment was determined to be other than temporarily impaired in
accordance with SFAS 115, and the investment was decreased by $804,600. On May 1st,
2009 the Office of the Comptroller of the Currency closed SFSI and the Companys investment at that
point became totally worthless, and the remaining $603,515 was charged to earnings. With regard
to overdraft fees, The Federal Reserve has new rules that take affect on July 1st 2010,
which may negatively affect the Banks overdraft fee income. The new rules are still being studied
and as such it is unclear the extent of the decrease in noninterest income.
Noninterest Expenses
Noninterest expenses increased $802,445 in 2009 compared to 2008. This significant increase was due
primarily to three factors. One of the primary causes for this increase was due to FDIC insurance
premiums for 2009 which were $304,424 over 2008 premiums, partially due to a special one time
premium of $102,000 to help boost the FDIC insurance reserve. Also conversion costs incurred with
the acquisition of two branch offices, totaled $201,427. The acquisition of the two branch offices
also caused an increase in personnel and as such, salaries and benefits increased by $203,116 over
2008. The average number of full time equivalent (FTE) employees increased from 65 for 2008, to 73
for 2009. For 2010 going forward FDIC insurance premiums are projected to remain high, and there
is certainly the possibility of additional special premiums in 2010 and in future years, that could
continue to impact the earning of the Company.
Income Tax Expense
Income tax expense equaled 32.90% and 23.76% of income before income taxes for the years ended
December, 31 2009 and 2008, respectively. This large increase in income tax expense was due to the
inability of the Company to deduct the full loss of the equity interest that became worthless in
2009. Tax laws do not allow capital losses to offset ordinary income. The Company could not
identify potential capital gains to offset the entire capital losses incurred in 2008 and 2009 on
this equity interest.
Securities
Securities have increased during 2009 as a result of increased liquidity. Deposits grew by
$41,599,000 and Loans grew by $26,276,000. This growth in deposits provided cash for purchase of
securities. The Company recognizes this tremendous deposit growth to be partially attributable to
the flight to quality as customers seek safety more than returns, and as such the Company
understands that a portion of this deposit growth is expected to be withdrawn once the customers
feel confident in the various financial markets. As such, the investment security portfolio is
becoming more a liquidity tool, and security for public deposits than a tool to maximize profits.
Schedules of securities by type and maturity are shown in Note 3 to the financial statements.
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Table of Contents
Loans
Total loans increased 16.59% during 2009 to $184,654,511. Loan growth in 2009 occurred primarily
due to the purchase of the loan portfolios of the two branch offices that the Company purchased in
2009. Loans purchased totaled $13,732,408. These loans were primarily Consumer loans secured by
real estate. Normal organic loan growth in 2009 totaled $12,543,998, and the majority of these
loans were in the commercial loan portfolio and the residential land portfolio. The commercial
loans are typically secured by real estate. A schedule of loans by type is shown in Note 5 of the
financial statements. Approximately 86% of the loan portfolio is secured by real estate at December
31, 2009.
Loan Portfolio Risk Factors
Nonperfoming 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 collectable. Restructured loans are loans for which a borrower has been granted a concession on
the interest rate or the original repayment terms because of financial difficulties. The Company
has a substantial amount of loans in the loan portfolio related to agribusinesses; see Note 5 of
the financial statements for additional details. The following table shows a sizeable increase in
loans delinquent over 90 days. Over half of this increase is due to one borrower, and this
particular loan relationship has not had interest discontinued due to the abundance of collateral
which includes assets originally pledged as well as additional assets offered as collateral.
The following table summarizes the Companys nonperforming loans (in thousands of dollars):
Years ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Nonaccrual Loans |
$ | 104 | $ | 659 | $ | 9 | $ | 104 | $ | 155 | ||||||||||
Restructured Loans |
133 | 139 | 143 | 24 | 26 | |||||||||||||||
Loans Delinquent 90 days |
5,290 | 1,034 | 969 | 206 | 646 | |||||||||||||||
Total nonperforming loans |
5,527 | $ | 1,832 | $ | 1,121 | $ | 334 | $ | 827 | |||||||||||
Credit Quality Ratios |
||||||||||||||||||||
Allowance for Loan Losses to Loans |
0.97 | % | 0.88 | % | 0.80 | % | 0.93 | % | 0.93 | % | ||||||||||
Nonperforming Loans to Total Assets |
2.28 | % | 0.89 | % | 0.58 | % | 0.18 | % | 0.48 | % | ||||||||||
Net Charge-offs to Average Loans |
0.13 | % | 0.06 | % | 0.19 | % | 0.06 | % | 0.15 | % |
Loan Losses and Allowance for Loan Losses
The allowance for loan losses (ALL) was $1,790,402 at the end of 2009 compared with $1,396,074 at
the end of 2008. The ALL increase was due to increase in loan loss provision in 2009. The provision
for loan losses was $616,649 and $297,140 for the calendar years 2009 and 2008 respectively. Loan
loss provision was increased due to a declining economic outlook and increase in delinquencies
during 2009. Net charge offs increased from $86,891 in 2008 to $222,321 in 2009. See Table IV for
a summary of the activity in the allowance for loan losses. In addition our purchase of $13,732,408
of loans in April caused a need for an increase in the provision. This purchase of loans from two
branch offices was made under an agreement that allowed time for the Bank to review the loans and
decline any of the loans the Bank did not wish to buy. Therefore the Company believes the quality
of loans purchased did not negatively affect the overall loan portfolio of the Bank.
The Company has allocated the allowance according to the amount deemed to be reasonably necessary
to provide for the losses within each of the categories of loans. The allocation of the allowance
as shown in Table IV should not be interpreted as an indication that loan losses in future years
will occur in the same proportions or that the allocation indicates future loan loss trends.
Furthermore, the portion allocated to each loan category is not the total amount available for
losses that might occur within such categories since the total allowance is a general allowance
applicable to the entire portfolio.
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Table of Contents
Deposits
The Companys primary source of funding is from local customer deposits. The company offers
standard bank deposit products to local individuals and businesses. The Companys deposits
increased $41,599,051 or 24.87% during 2009 and $10,127,508 or 6.45% during 2008. $22,083,021 of
this deposit growth was purchased along with the branch acquisition The company believes that a
large portion of this deposit increase during 2009 was due to flight to quality issues as
customers sought safe places to invest their money. With this belief it also feels that a portion
of this large deposit growth could be withdrawn from the Bank as financial uncertainty decreases.
This could cause an increase in competition for deposits and as such, an increase in cost of
deposits. A schedule of deposits by type is shown in the balance sheets. Time deposits of $100,000
or more were 20.42% and 16.87% of total deposits at December 31, 2009 and 2008 respectively.
Long-Term Debt
The Company has from time to time borrowed long term debt from the Federal Home Loan Bank in order
to fund long-term, fixed rate loan products to qualifying customers. The Company made principal
payments of $1,225,085 and $2,597,224 in 2009 and 2008, respectively. The following table shows
the long-term FHLB debt as of December 31, 2009.
(Dollars in Thousands) | ||||||||||||||||
Interest | Loan | Term of | Current | |||||||||||||
Loan Date | Rate | Amount | Loan | Balance | ||||||||||||
June 8, 2005 |
4.58 | % | $ | 1,000 | 20 years | $ | 847 | |||||||||
July 11, 2005 |
4.77 | % | $ | 1,000 | 20 years | $ | 853 | |||||||||
March 22, 2006 |
5.40 | % | $ | 500 | 15 years | $ | 410 | |||||||||
March 22, 2006 |
5.31 | % | $ | 500 | 5 years | $ | 138 | |||||||||
July 11, 2007 |
5.57 | % | $ | 750 | 20 years | $ | 697 | |||||||||
July 11, 2007 |
5.61 | % | $ | 750 | 20 years | $ | 750 | |||||||||
December 17, 2007 |
4.22 | % | $ | 1,000 | 3 years | $ | 1,000 | |||||||||
Total FHLB Debt at December 31, 2009 |
$ | 4,695 | ||||||||||||||
Maturity schedule and other information on this debt can be found in Note 12 to the financial
statements.
Capital
Capital as a percentage of total assets was 11.37% at December 31, 2009 and significantly exceeded
regulatory requirements. The Company is considered to be well capitalized under the regulatory
guidelines.
Uncertainties and Trends
While management is well aware of the deteriorating economic environment globally, the Company
feels at this point it will be able to withstand a deepening recession thanks to strong capital
ratios and consistent and conservative lending practices over the years. The Company does realize
that this recession will affect its customers, and that earnings will probably be under pressure at
least in the next two years. To what length and extent, it is unsure, but the Company feels they
have the liquidity and capital to withstand the current and future economic challenges.
Liquidity and Interest Sensitivity
The Companys net income is primarily dependent upon net interest income. Swings in interest rates
up an down may lead to volatility in net interest income as there exists mismatches in the
maturities and repricing of the Banks earning assets and interest bearing liabilities. Primarily
banks have earned money by borrowing money with short maturities (through deposits), and investing
in longer term assets (loans and securitities). The company over the years have minimized the
interest rate risk by utilizing longer term debt to offset some longer term fixed rate loans when
made, and tied more loans to floating rates. Periodic measurements are made on the Companys
interest rate sensitivity based on the current interest rate
environment and economic forecasts.
At December 31, 2009, the Company had liquid assets of approximately $3.8 million in the form of
cash and due from banks. In addition the Company is holding an additional $3.1 million in interest
bearing deposits available immediately, and $3.7 million in interest bearing deposits due within
one year. Management believes that the Companys liquid assets are adequate at December 31, 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 under
established lines of credit of $15.4 million.
- 10 -
Table of Contents
The Company has relied on local deposits to fund loan growth in the past. And the Company plans
are to continue this. In 2009 deposit growth far outpaced loan growth in normal organic growth as
well as our purchase of the two branch offices, which resulted in a larger balance of deposits
being acquired than loans. This has allowed the bank to remain liquid during the past year of
financial uncertainty.
TABLE I
Allegheny Bancshares, Inc.
Net Interest Margin Analysis
(On a fully tax equivalent basis)
(In Thousands)
Net Interest Margin Analysis
(On a fully tax equivalent basis)
(In Thousands)
2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||||||||||||
Interest Income |
||||||||||||||||||||||||||||||||||||
Loans 1,2 |
$ | 173,394 | $ | 11,662 | 6,73 | % | $ | 152,367 | $ | 11,361 | 7.46 | % | $ | 139,365 | $ | 11,665 | 8.37 | % | ||||||||||||||||||
Fed Funds Sold |
586 | 0 | 0 | % | 1,210 | 33 | 2.73 | % | 2,755 | 139 | 5.05 | % | ||||||||||||||||||||||||
Int. Bearing Deposits |
7,477 | 91 | 1.22 | % | 6,167 | 189 | 3.06 | % | 293 | 15 | 5.12 | % | ||||||||||||||||||||||||
Investments |
||||||||||||||||||||||||||||||||||||
Taxable |
12,418 | 417 | 3.36 | % | 11,754 | 492 | 4.19 | % | 16,189 | 778 | 4.81 | % | ||||||||||||||||||||||||
Nontaxable 2 |
16,168 | 936 | 5.79 | % | 17,338 | 1,006 | 5.80 | % | 18,390 | 1,082 | 5.88 | % | ||||||||||||||||||||||||
Total Earning Assets |
$ | 210,043 | $ | 13,106 | 6.24 | % | 188,836 | $ | 13,081 | 6.93 | % | $ | 176,992 | $ | 13,679 | 7.73 | % | |||||||||||||||||||
Interest Expense |
||||||||||||||||||||||||||||||||||||
Demand deposits |
$ | 25,866 | $ | 238 | 0.92 | % | $ | 16,832 | $ | 173 | 1.03 | % | $ | 15,691 | $ | 259 | 1.65 | % | ||||||||||||||||||
Savings |
27,426 | 79 | 0.29 | % | 30,646 | 325 | 1.06 | % | 33,340 | 861 | 2.58 | % | ||||||||||||||||||||||||
Time deposits |
116,829 | 3,613 | 3.09 | % | 97,173 | 4,007 | 4.12 | % | 84,524 | 3,896 | 4.61 | % | ||||||||||||||||||||||||
Short-term borrowings |
1,322 | 2 | 0.15 | % | 1,783 | 23 | 1.29 | % | 2,399 | 108 | 4.50 | % | ||||||||||||||||||||||||
Long-term debt |
6,022 | 282 | 4.68 | % | 7,090 | 336 | 4.74 | % | 6,111 | 270 | 4.41 | % | ||||||||||||||||||||||||
Total interest bearing deposits |
$ | 177,465 | 4,214 | 2.37 | % | $ | 153,524 | 4,864 | 3.17 | % | $ | 142,065 | 5,394 | 3.80 | % | |||||||||||||||||||||
Net interest earnings |
$ | 8,892 | $ | 8,217 | $ | 8,285 | ||||||||||||||||||||||||||||||
Net yield on interest earning assets |
4.23 | % | 4.35 | % | 4.68 | % | ||||||||||||||||||||||||||||||
1 | Interest on loans includes
loan fees. |
|
2 | An incremental tax rate of
34% was used to calculate the tax equivalent income. |
Average noninterest bearing deposits for 2009, 2008 and 2007 were $22,741, $19,991 and $17,676
respectively.
- 11 -
Table of Contents
TABLE II
Allegheny Bancshares, Inc.
Effect of Rate-Volume Change on Net Interest Income
(On a fully tax equivalent basis)
(In Thousands)
Effect of Rate-Volume Change on Net Interest Income
(On a fully tax equivalent basis)
(In Thousands)
2009 Compared to 2008 | 2008 Compared to 2007 | |||||||||||||||||||||||
Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||
Interest Income |
||||||||||||||||||||||||
Loans |
$ | 1,569 | $ | (1,268 | ) | $ | 301 | $ | 1,088 | $ | (1,392 | ) | $ | (304 | ) | |||||||||
Federal funds sold |
(17 | ) | (16 | ) | (33 | ) | (78 | ) | (28 | ) | (106 | ) | ||||||||||||
Interest bearing deposits in banks |
40 | (138 | ) | (98 | ) | 301 | (127 | ) | 174 | |||||||||||||||
Investments |
||||||||||||||||||||||||
Taxable |
28 | (103 | ) | (75 | ) | (213 | ) | (73 | ) | (286 | ) | |||||||||||||
Nontaxable |
(68 | ) | (2 | ) | (70 | ) | (62 | ) | (14 | ) | (76 | ) | ||||||||||||
Total Earning Assets |
$ | 1,552 | (1,527 | ) | 25 | $ | 1,036 | (1,634 | ) | (598 | ) | |||||||||||||
Interest Expense |
||||||||||||||||||||||||
Demand deposits |
$ | 93 | $ | (28 | ) | $ | 65 | $ | 19 | (105 | ) | (86 | ) | |||||||||||
Savings |
(34 | ) | (212 | ) | (246 | ) | (70 | ) | (466 | ) | (536 | ) | ||||||||||||
Time deposits |
810 | (1,204 | ) | (394 | ) | 583 | (472 | ) | 111 | |||||||||||||||
Short-term borrowings |
(6 | ) | (15 | ) | (21 | ) | (28 | ) | (57 | ) | (85 | ) | ||||||||||||
Long-term borrowings |
(51 | ) | (3 | ) | (54 | ) | 43 | 23 | 66 | |||||||||||||||
Total interest bearing liabilities |
812 | (1,462 | ) | (650 | ) | 547 | (1,077 | ) | (530 | ) | ||||||||||||||
Net Interest Income |
$ | 740 | $ | (65 | ) | $ | 675 | $ | 489 | (557 | ) | (68 | ) |
NOTE: | Volume changes have been determined by multiplying the prior years average rate by the
change in balances outstanding. The rate change is the difference between the total change
and the volume. |
- 12 -
Table of Contents
TABLE III
Allegheny Bancshares, Inc.
Interest Sensitivity Analysis
(In Thousands)
December 31, 2009
Interest Sensitivity Analysis
(In Thousands)
December 31, 2009
0-3 | 4-12 | 1-5 | Over 5 | |||||||||||||||||
Months | Months | Years | Years | Total | ||||||||||||||||
Uses of Funds: |
||||||||||||||||||||
Loans |
$ | 17,435 | $ | 29,088 | $ | 51,119 | $ | 87,013 | $ | 184,655 | ||||||||||
Interest bearing deposits |
3,563 | 3,214 | 1,473 | 8.250 | ||||||||||||||||
Investment securities |
886 | 1,701 | 19,374 | 9,377 | 31,338 | |||||||||||||||
Restricted Investments |
748 | 748 | ||||||||||||||||||
Total Earning Assets |
21,884 | 34,003 | 71,966 | 97,138 | 224,991 | |||||||||||||||
Sources of Funds: |
||||||||||||||||||||
Interest bearing demand deposits |
28,005 | 28,005 | ||||||||||||||||||
Savings deposits |
27,282 | 27,282 | ||||||||||||||||||
Time deposits over $100,000 |
6,890 | 18,487 | 13,050 | 4,218 | 42,645 | |||||||||||||||
Other time deposits |
17,465 | 35,368 | 24,885 | 6,499 | 84,217 | |||||||||||||||
Short-term borrowings |
931 | | | | 931 | |||||||||||||||
Long-term debt |
58 | 1,179 | 607 | 2,851 | 4,695 | |||||||||||||||
Total Interest Bearing Liabilities |
$ | 80,631 | $ | 55,034 | $ | 38,542 | $ | 13,568 | $ | 187,775 | ||||||||||
Discrete Gap |
$ | (58,747 | ) | $ | (21,031 | ) | $ | 33,424 | $ | 83,570 | $ | 37,216 | ||||||||
Cumulative Gap |
$ | (58,747 | ) | $ | (79,778 | ) | $ | (46,354 | ) | $ | 37,216 | $ | ||||||||
Ratio of Cumulative Gap |
||||||||||||||||||||
To Total Earning Assets |
-26.11 | % | -35.46 | % | -20.60 | % | 16.54 | % | 16.54 | % | ||||||||||
Rate Risk: |
||||||||||||||||||||
Loans with predetermined rates |
$ | 6,088 | $ | 16,337 | $ | 35,482 | $ | 84,745 | $ | 142,652 | ||||||||||
Loans with variable/adjusted rates |
$ | 11,678 | $ | 14,292 | $ | 15,680 | $ | 353 | $ | 42,003 |
Table III reflects the earlier of the maturity or repricing dates for various assets and
liabilities. The above does not make any assumptions with respect to loan repayments 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. Proceeds from the redemption of investments and deposits are
included in the period of maturity.
- 13 -
Table of Contents
TABLE IV
Allegheny Bancshares, Inc.
Loan Loss Allowance Activity
(In Thousands)
Loan Loss Allowance Activity
(In Thousands)
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Balance at beginning of period |
$ | 1,396 | $ | 1,186 | $ | 1,258 | $ | 1,172 | $ | 1,094 | ||||||||||
Provision charged to expenses |
617 | 297 | 187 | 162 | 219 | |||||||||||||||
Loan losses: |
||||||||||||||||||||
Commercial |
128 | 39 | 142 | 0 | 17 | |||||||||||||||
Installment |
230 | 155 | 198 | 166 | 138 | |||||||||||||||
Real estate |
10 | 0 | 9 | 3 | 2 | |||||||||||||||
Total loan losses |
368 | 194 | 349 | 169 | 157 | |||||||||||||||
Recoveries: |
||||||||||||||||||||
Commercial |
40 | 2 | 2 | 3 | 1 | |||||||||||||||
Installment |
105 | 105 | 86 | 90 | 15 | |||||||||||||||
Real estate |
0 | 0 | 2 | 0 | 0 | |||||||||||||||
Total recoveries |
145 | 107 | 90 | 93 | 16 | |||||||||||||||
Net loan losses |
223 | 87 | 259 | 76 | 141 | |||||||||||||||
Balance at end of period |
$ | 1,790 | $ | 1,396 | $ | 1,186 | $ | 1,258 | $ | 1,172 | ||||||||||
Allowance for loan losses as a percentage of loans |
.97 | % | .88 | % | .80 | % | .93 | % | .93 | % | ||||||||||
Net loan losses to loans outstanding |
.13 | % | .06 | % | .19 | % | .06 | % | .11 | % |
Analysis of Ending Balance (In Thousands)
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | % of | ||||||||||||||||||||||||||||||||||||
Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | |||||||||||||||||||||||||||||||
Commercial |
$ | 958 | 48 | % | $ | 443 | 46 | % | $ | 340 | 47 | % | $ | 641 | 47 | % | $ | 401 | 45 | % | ||||||||||||||||||||
Consumer |
503 | 7 | % | 710 | 8 | % | 584 | 8 | % | 143 | 8 | % | 121 | 9 | % | |||||||||||||||||||||||||
Real estate |
136 | 45 | % | 243 | 46 | % | 262 | 45 | % | 472 | 45 | % | 610 | 46 | % | |||||||||||||||||||||||||
Unallocated |
193 | % | | % | | 2 | 40 | |||||||||||||||||||||||||||||||||
Total |
$ | 1,790 | 100 | % | $ | 1,396 | 100 | % | $ | 1,186 | 100 | % | $ | 1,258 | 100 | % | $ | 1,172 | 100 | % | ||||||||||||||||||||
- 14 -
Table of Contents
TABLE V
Allegheny Bancshares, Inc.
Time Deposit Maturities Over $100,000
(In Thousands)
Time Deposit Maturities Over $100,000
(In Thousands)
2009 | 2008 | |||||||
Maturity |
||||||||
Three months or less |
$ | 6,890 | $ | 5,876 | ||||
Over three to twelve months |
18,487 | 12,325 | ||||||
Over one to three years |
13,050 | 8,064 | ||||||
Over three years |
4,218 | 1,946 | ||||||
Total |
$ | 42,645 | $ | 28,211 | ||||
- 15 -
Table of Contents
Item 8. | Consolidated Financial Statements |
INDEX TO FINANCIAL STATEMENTS
Page | ||||
17 | ||||
18 | ||||
19 | ||||
20 | ||||
21 | ||||
23 | ||||
- 16 -
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors
Allegheny Bancshares, Inc.
Franklin, West Virginia
Allegheny Bancshares, Inc.
Franklin, West Virginia
We have audited the consolidated balance sheets of Allegheny Bancshares, Inc. and subsidiary as of
December 31, 2009 and 2008, and the related consolidated statements of income, changes in
stockholders equity and cash flows for each of the years. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Allegheny Bancshares, Inc. and subsidiary at December
31, 2009 and 2008, and the results of its operations and its cash flows for each of the years, in
conformity with U.S. generally accepted accounting principles.
We were not engaged to examine managements assertion about the effectiveness of Allegheny
Bancshares, Inc. and subsidiarys internal control over financial reporting as of December 31, 2009
included in the Form 10-K and, accordingly, we do not express an opinion thereon.
Galax, Virginia
March 25, 2010
March 25, 2010
- 17 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 3,809,923 | $ | 2,561,712 | ||||
Federal funds sold |
0 | 1,570,000 | ||||||
Cash and Cash Equivalents |
3,809,923 | 4,131,712 | ||||||
Interest bearing deposits in banks |
8,249,507 | 4,637,165 | ||||||
Investment securities available for sale |
31,337,948 | 25,684,622 | ||||||
Restricted equity securities |
747,700 | 1,351,215 | ||||||
Loans receivable, net of allowance for loan losses of $1,790,402 in 2009
and $1,396,074 in 2008 |
182,864,109 | 156,982,030 | ||||||
Bank premises and equipment, net |
6,958,318 | 6,249,434 | ||||||
Interest receivable |
1,436,269 | 1,276,128 | ||||||
Goodwill |
1,086,732 | 0 | ||||||
Bank owned life insurance |
3,866,589 | 3,692,887 | ||||||
Other assets |
2,529,646 | 725,025 | ||||||
Total Assets |
$ | 242,886,741 | $ | 204,730,218 | ||||
LIABILITIES |
||||||||
Deposits |
||||||||
Noninterest bearing |
$ | 26,689,067 | $ | 20,197,041 | ||||
Interest bearing |
||||||||
Demand |
28,005,239 | 18,984,791 | ||||||
Savings |
27,282,339 | 28,566,952 | ||||||
Time deposits over $100,000 |
42,644,586 | 28,211,057 | ||||||
Other time deposits |
84,217,375 | 71,279,714 | ||||||
Total Deposits |
208,838,606 | 167,239,555 | ||||||
Treasury tax and loan deposit note |
74,111 | 352,692 | ||||||
Securities sold under agreements to repurchase |
856,953 | 1,466,228 | ||||||
Accrued expenses and other liabilities |
813,830 | 841,742 | ||||||
Short-term debt |
0 | 1,750,000 | ||||||
Long-term debt |
4,694,956 | 5,920,041 | ||||||
Total Liabilities |
215,278,456 | 177,570,258 | ||||||
STOCKHOLDERS EQUITY |
||||||||
Common stock; $1 par value, 2,000,000 shares
Authorized, 900,000 issued |
900,000 | 900,000 | ||||||
Additional paid in capital |
900,000 | 900,000 | ||||||
Retained earnings |
27,181,635 | 26,630,674 | ||||||
Accumulated other comprehensive income |
443,517 | 320,543 | ||||||
Treasury stock (at cost, 32,191 shares in 2009 and 28,767 shares in 2008) |
(1,816,867 | ) | (1,591,257 | ) | ||||
Total Stockholders Equity |
27,608,285 | 27,159,960 | ||||||
Total Liabilities and Stockholders Equity |
$ | 242,886,741 | $ | 204,730,218 | ||||
The accompanying notes are an integral part of this statement.
- 18 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009, AND 2008
2009 | 2008 | |||||||
Interest Income: |
||||||||
Loans, including |
$ | 11,566,523 | $ | 11,231,103 | ||||
Federal funds sold |
21 | 32,812 | ||||||
Interest bearing deposits in banks |
90,703 | 188,559 | ||||||
Investment securities taxable |
425,445 | 491,251 | ||||||
Investment securities nontaxable |
617,560 | 664,259 | ||||||
Total Interest Income |
12,700,252 | 12,607,984 | ||||||
Interest Expense: |
||||||||
Interest on deposits |
3,930,065 | 4,504,926 | ||||||
Interest on borrowed money |
283,866 | 359,000 | ||||||
Total Interest Expense |
4,213,931 | 4,863,926 | ||||||
Net Interest Income |
8,486,321 | 7,744,058 | ||||||
Provision for loan losses |
616,649 | 297,140 | ||||||
Net Interest Income After Provision for Loan Losses |
7,869,672 | 7,446,918 | ||||||
Noninterest Income: |
||||||||
Service charges, fees and commissions |
1,003,302 | 871,900 | ||||||
Restricted equity security impairment |
(603,515 | ) | (804,600 | ) | ||||
Increase in cash value of bank owned life insurance |
173,702 | 174,501 | ||||||
Other income |
579,378 | 470,720 | ||||||
Total Noninterest Income |
1,152,867 | 712,521 | ||||||
Noninterest Expense: |
||||||||
Salaries and benefits |
3,051,901 | 2,848,785 | ||||||
Occupancy expenses |
418,292 | 400,639 | ||||||
Equipment expenses |
636,444 | 610,226 | ||||||
Directors fees |
186,840 | 196,650 | ||||||
Other expenses |
1,968,321 | 1,403,053 | ||||||
Total Noninterest Expenses |
6,261,798 | 5,459,353 | ||||||
Income before Income Taxes |
2,760,741 | 2,700,086 | ||||||
Income Tax Expense |
908,216 | 641,600 | ||||||
Net Income |
$ | 1,852,525 | $ | 2,058,486 | ||||
Net income per share |
$ | 2.13 | $ | 2.35 | ||||
Cash dividends paid per share |
$ | 1.50 | $ | 1.45 | ||||
Average Weighted Shares Outstanding |
869,933 | 877,442 |
The accompanying notes are an integral part of this statement.
- 19 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Accumulated Other | ||||||||||||||||||||||||
Common | Additional | Retained | Comprehensive | Treasury | ||||||||||||||||||||
Total | Stock | Paid In Capital | Earnings | Income (Loss) | Stock | |||||||||||||||||||
Balance, December 31, 2007 |
$ | 26,731,345 | $ | 900,000 | $ | 900,000 | $ | 25,836,201 | $ | 154,201 | $ | (1,059,057 | ) | |||||||||||
Comprehensive Income |
||||||||||||||||||||||||
Net Income |
2,058,486 | 2,058,486 | ||||||||||||||||||||||
Change in unrealized
gain on available
for sale securities,
net of income tax
effect of $85,691 |
166,342 | 166,342 | ||||||||||||||||||||||
Total Comprehensive Income |
2,224,828 | |||||||||||||||||||||||
Purchase of Treasury Stock |
(532,200 | ) | (532,200 | ) | ||||||||||||||||||||
Dividends Paid |
(1,264,013 | ) | (1,264,013 | ) | ||||||||||||||||||||
Balance, December 31, 2008 |
$ | 27,159,960 | $ | 900,000 | $ | 900,000 | $ | 26,630,674 | $ | 320,543 | $ | (1,591,257 | ) | |||||||||||
Comprehensive Income |
||||||||||||||||||||||||
Net income |
1,852,525 | 1,852,525 | ||||||||||||||||||||||
Change in unrealized
gain on
available for sale
securities, net of
income tax effect of $63,350 |
122,974 | 122,974 | ||||||||||||||||||||||
Total Comprehensive Income |
1,975,499 | |||||||||||||||||||||||
Purchase of Treasury Stock |
(225,610 | ) | (225,610 | ) | ||||||||||||||||||||
Dividends Paid |
(1,301,564 | ) | (1,301,564 | ) | ||||||||||||||||||||
Balance, December 31, 2009 |
$ | 27,608,285 | $ | 900,000 | $ | 900,000 | $ | 27,181,635 | $ | 443,517 | $ | (1,816,867 | ) | |||||||||||
The accompanying notes are an integral part of this statement.
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Table of Contents
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 1,852,525 | $ | 2,058,486 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
616,649 | 297,140 | ||||||
Depreciation and amortization |
471,137 | 465,506 | ||||||
Net amortization of securities |
38,764 | 18,874 | ||||||
Loss on restricted equity security impairment |
603,515 | 804,600 | ||||||
(Gain) on sale of available for sale securities |
(63,511 | ) | | |||||
(Gain) loss on sale of equipment |
| 17,423 | ||||||
Deferred income(tax) benefit |
(98,271 | ) | (292,293 | ) | ||||
Increase in bank owned life insurance |
(173,702 | ) | (174,501 | ) | ||||
Net change in: |
||||||||
Interest receivable |
(160,141 | ) | (51,273 | ) | ||||
Other assets |
(1,527,217 | ) | (182,818 | ) | ||||
Accrued expense and other liabilities |
(272,480 | ) | 88,729 | |||||
Net Cash Provided by Operating Activities |
1,287,268 | 3,049,873 | ||||||
Cash Flows from Investing Activities: |
||||||||
Net change in federal funds sold |
1,570,000 | (1,536,000 | ) | |||||
Cash received from the acquisition of branch offices |
6,496,560 | | ||||||
Net change in interest bearing deposits in banks |
(3,612,342 | ) | (4,378,145 | ) | ||||
Proceeds from sales, calls and maturities of available for sale securities |
7,930,588 | 9,885,415 | ||||||
Purchase of securities available for sale |
(13,372,843 | ) | (4,215,813 | ) | ||||
Proceeds from maturity of held to maturity security |
| 500,000 | ||||||
Purchase of restricted investments |
| (693,911 | ) | |||||
Proceeds from redemption of restricted investments |
| 205,100 | ||||||
Proceeds from sale of equipment |
| 500 | ||||||
Purchase of bank premises and equipment |
(311,253 | ) | (193,345 | ) | ||||
Net change in loans |
(12,766,320 | ) | (10,494,066 | ) | ||||
Net Cash Used in Investing Activities |
(14,065,610 | ) | (10,920,265 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Net change in: |
||||||||
Demand and savings deposits |
4,492,629 | 1,324,957 | ||||||
Time deposits |
14,924,039 | 8,802,550 | ||||||
Treasury tax and loan deposit note |
(278,581 | ) | 47,125 | |||||
Securities sold under agreements to repurchase |
(609,275 | ) | 54,623 | |||||
Proceeds (Curtailments) from short-term debt |
(1,750,000 | ) | 1,750,000 | |||||
Curtailments of long-term borrowings |
(1,225,085 | ) | (2,597,224 | ) | ||||
Purchase of treasury stock |
(225,610 | ) | (532,200 | ) | ||||
Cash dividends paid |
(1,301,564 | ) | (1,264,013 | ) | ||||
Net Cash Provided by Financing Activities |
14,026,553 | 7,585,818 | ||||||
Cash and due from banks |
||||||||
Net increase in cash and due from banks |
1,248,211 | (284,574 | ) | |||||
Cash and due from banks, January 1 |
2,561,712 | 2,846,286 | ||||||
Cash and due from banks, December 31 |
$ | 3,809,923 | $ | 2,561,712 | ||||
- 21 -
Table of Contents
Continued
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (continued)
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (continued)
2009 | 2008 | |||||||
Supplemental Disclosure of Cash Paid During the Year for: |
||||||||
Interest |
$ | 4,213,931 | $ | 4,863,926 | ||||
Income taxes |
$ | 1,080,473 | $ | 1,020,000 | ||||
Transactions related to acquisition of branches (in thousands): |
||||||||
Increase in assets and liabilities: |
||||||||
Loans |
$ | 13,732 | | |||||
Bank premises and equipment |
$ | 869 | | |||||
Other assets (Goodwill) |
$ | 1,087 | | |||||
Deposits |
$ | 22,182 | | |||||
Other liabilities |
$ | 2 |
The accompanying notes are an integral part of this statement.
- 22 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Allegheny Bancshares (Company) is a bank holding company and operates under a charter issued by
the state of West Virginia. The Company owns all of the outstanding stock of Pendleton Community
Bank (Bank), which operates under a charter issued by the State of West Virginia and provides
commercial banking services to customers located primarily in Pendleton County, West Virginia and
adjacent counties. As a state chartered bank, the Bank is subject to regulation by the Department
of Banking for the State of West Virginia and the Federal Deposit Insurance Corporation. The Bank
is engaged in the general commercial banking business offering a full range of banking services
focused primarily towards serving individuals, small businesses, the agricultural industry, local
government entities, and the professional community.
The Banks primary trade area includes the West Virginia localities of Pendleton, Grant, Hardy and
Pocahontas counties including the towns of Franklin, Marlinton, Moorefield, and Petersburg. In
addition the Bank has an office in Rockingham County, Virginia just outside the City of
Harrisonburg.
The accounting and reporting policies of the Company and its subsidiary conform to U.S. generally
accepted accounting principles and to accepted practice within the banking industry. A summary of
significant accounting policies is as follows:
Consolidation Policy The consolidated financial statements include Allegheny Bancshares, Inc. and
Pendleton Community Bank. All significant intercompany balances and transactions have been
eliminated.
Use of Estimates The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses and the valuation of real estate in connection with
foreclosures or in satisfaction of loans. In connection with the determination of the allowances
for loan and foreclosed real estate losses, management obtains independent appraisals for
significant properties.
While management uses available information to recognize loan losses, future additions to the
allowance may be necessary based on changes in local economic conditions. In addition, regulatory
agencies, as a part of their routine examination process, periodically review the Companys
allowances for loan losses. Such agencies may require the Company to recognize additions to the
allowances based on their judgments about information available to them at the time of their
examinations. Because of these factors, it is reasonably possible that the allowances for loan
losses may change materially in the near term.
Cash and Due From Banks Cash and due from banks as used in the balance sheet and cash flow
statements is defined as cash on hand and noninterest bearing funds at correspondent institutions.
Investment
Securities Investment securities which the Company intends to hold for indefinite
periods of time, including investment securities used as part of the Companys asset/liability
management strategy, are classified as available for sale. These investment securities are carried
at fair value.
Interest and dividends on securities and amortization of premiums and accretion of discounts on
securities are reported as interest income using the effective interest method. Gains and losses on
the sale of investment securities are determined using the specific identification method.
Loans Loans are intended to be held until maturity and are shown on the balance sheet net of the
allowance for loan losses. Interest is computed by effective interest method which generally
results in level rates of return on principal. Interest income generally is not recognized on loans
classified as nonaccrual loans. Payments received on such loans are applied as a reduction of the
loan principal balance. Interest income on other impaired loans is recognized only to the extent of
interest payments received. Loans will remain in nonaccrual status unless the loans are brought
current per the loan contract and financial conditions have improved to a point that the likelihood
of further loss is remote.
- 23 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
In the normal course of business, to meet the credit needs of its customers, the Company has made
commitments to extend credit. These commitments represent a credit risk, which is not recognized
in the Companys balance sheet. The Company uses the same credit policies in making commitments as
it does for other loans. Commitments to extend credit are generally made for a period of one year
or less and interest rates are determined when funds are disbursed. Collateral and other security
for the loans are determined on a case-by-case basis. Since some of the commitments are expected
to expire without being drawn upon, the contract or notional amounts do not necessarily represent
future cash requirements. See Note 19 for lending commitments as of December 31, 2009 and 2008.
The accrual of interest on all loans is discontinued when in managements opinion the borrower may
be unable to meet payments as they become due. These loans are considered nonaccrual loans, and all
interest accrued but not collected for loans that are placed on nonaccrual or charged off is
reversed against interest income. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Loans are charged against the allowance when
management believes the financial condition of the borrower is at a point that the payments on the
loan can not be expected through any of the any of the available repayment options. Subsequent
recoveries are added back to the allowance.
Managements quarterly evaluation of the adequacy of the allowance is based on the Companys past
loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect
the borrowers ability to repay, the estimated value of any underlying collateral, and current
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 FASB ASC 310-1, Accounting by Creditors for Impairment of a Loan.
The Bank 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. These
pools are based on grade of loans as determined by the Companys internal grading system, and the
type of loan. 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 dates.
Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is charged to income over the estimated useful lives of the assets
principally on a straight-line method. For buildings and improvements the estimated useful lives
are between 10 and 50 years, the estimated lives for furniture and equipment are 5 to 10 years.
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 require at least
annual impairment review or more often if certain impairment conditions exist. The Goodwill
resulted from a branch acquisition in 2009.
Income
Taxes Amounts shown as income tax expense are based on income reported on the financial
statements rather than amounts currently payable under state and federal tax laws. Deferred taxes,
which arise principally from the difference in timing of reporting certain income and expenses for
financial statements and for reporting these items for computation of income for tax purposes, are
included in the amounts reported as income taxes. Deferred income tax assets and liabilities arise
from these timing differences.
Net
Income per Share Net income per share is calculated by dividing income available to common
shareholders by the weighted average number of common shares outstanding during the period.
- 24 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accrued
interest receivable, demand deposits, savings deposits and short-term borrowings approximates fair
value. The fair value of securities is based upon a pricing model which takes into consideration
maturity, yields and quality. The remainder of the recorded financial instruments were valued
based on the present value of estimated future cash flows, discounted at various rates in effect
for similar instruments at year-end.
Fair values for off-balance-sheet lending commitments are deemed to be face value.
Recent
Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (FASB)
issued guidance which restructured generally accepted accounting principles (GAAP) and simplified
access to all authoritative literature by providing a single source of authoritative
nongovernmental GAAP. The guidance is presented in a topically organized structure referred to as
the FASB Accounting Standards Codification (ASC). The new structure is effective for interim or
annual periods ending after September 15, 2009. All existing accounting standards have been
superseded and all other accounting literature not included is considered nonauthoritative.
The FASB issued new accounting guidance on accounting for transfers of financial assets in June
2009. The guidance limits the circumstances in which a financial asset should be derecognized when
the transferor has not transferred the entire financial asset by taking into consideration the
transferors continuing involvement. The standard requires that a transferor recognize and
initially measure at fair value all assets obtained (including a transferors beneficial interest)
and liabilities incurred as a result of a transfer of financial assets accounted for as a sale.
The concept of a qualifying special-purpose entity is no longer applicable. The standard is
effective for the first annual reporting period that begins after November 15, 2009, for interim
periods within the first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The Company does not expect the guidance to have
any impact on the Companys financial statements. The ASC was amended in December, 2009, to
include this guidance.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting
bodies are not expected to have a material impact on the Companys financial position, results of
operations or cash flows.
NOTE 2 CASH AND DUE FROM BANKS:
The Company is required by the Federal Reserve to maintain reserve balance based upon a percentage
of deposits. The Company meets this requirement through cash on hand and balances held with its
correspondent bank. The reserve requirement at December 31, 2008 and 2009 were $856,000 and
$1,152,000 respectively. No amount was required to be on reserve with the Federal Reserve Bank at
year end.
NOTE 3 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 substantially all assets and liabilities of the branches.
The assets and liabilities were recorded at fair market values and are shown in the following
table (in thousands):
Cash |
$ | 6,494 | ||
Loans |
13,732 | |||
Real Estate |
869 | |||
Total Assets Acquired |
$ | 21,095 | ||
Deposit Liabilities Assumed |
22,182 | |||
Goodwill |
$ | 1,087 | ||
The Core deposit intangible is being amortized over the life of the core deposits assumed. The
net amortization amount in 2009 was $120,025.
- 25 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 4 INVESTMENT SECURITIES:
The amortized cost and fair values of securities are as follows:
(In Thousands)
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31, 2009 | Cost | Gains | Losses | Value | ||||||||||||
Securities available for sale: |
||||||||||||||||
Mortgaged backed obligations of federal agencies |
$ | 3,401 | $ | 61 | $ | | $ | 3,462 | ||||||||
Government sponsored enterprises |
9,985 | 164 | | 10,149 | ||||||||||||
Obligations of states and political subdivisions |
16,647 | 470 | 34 | 17,083 | ||||||||||||
Corporate obligations |
501 | 12 | | 513 | ||||||||||||
Other equities |
131 | | | 131 | ||||||||||||
Total |
$ | 30,665 | $ | 707 | $ | 34 | $ | 31,338 | ||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31, 2008 | Cost | Gains | Losses | 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 | ||||||||
For the years ended December 31, 2009, and 2008, proceeds from sales, calls and maturities of
securities available for sale amounted to $7,930,588 and $9,885,415, respectively. Gains on sale
of investment securities totaled $63,511 in 2009. No gains or losses were realized in 2008.
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 December 31, 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 believes it is more
likely than not that it will hold those investments until a recovery of fair value, which may be
maturity, the Company considers those 4 investments to be temporarily impaired at December 31,
2009.
Less than 12 months | 12 Months or greater | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Total | ||||||||||||||||
Value | Losses | Value | Losses | Fair Value | ||||||||||||||||
Description of Securities: |
||||||||||||||||||||
Mortgaged backed obligations of federal agencies |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Government sponsored enterprises |
| | | | | |||||||||||||||
Obligations of states and political subdivisions |
1,540 | 28 | 560 | 6 | 2,100 | |||||||||||||||
Corporate obligations |
| | | | | |||||||||||||||
Total |
$ | 1,540 | $ | 28 | $ | 560 | $ | 6 | $ | 2,100 | ||||||||||
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Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
A maturity schedule of securities in thousands as of December 31, 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 |
$ | 2,560 | $ | 2,587 | ||||
After one year through five years |
18,953 | 19,374 | ||||||
After five years through ten years |
6,809 | 6,984 | ||||||
After ten years through fifteen years |
2,343 | 2,393 | ||||||
$ | 30,665 | $ | 31,338 | |||||
The carrying value of securities pledged by the Company to secure deposits, repurchase
agreements and for other purposes amounted to $19,163,068 and $14,432,772 at December 31, 2009 and
2008, respectively. The fair value of these pledged securities approximates the carrying value.
NOTE 5 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 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 May
1st, 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. The carrying
value of the Companys Correspondent stock as of December 31, 2008 was approximately $603,515.
The OTTI charge for 2009 was $603,515, eliminating our carrying value of this stock. For 2008, the
Company had recognized a $804,600 OTTI charge as it wrote down this stock to estimated fair value
at December 31, 2008 due to poor operating results.
NOTE 6 LOANS RECEIVABLE:
Loans receivable outstanding as of December 31, are summarized as follows in thousands:
2009 | 2008 | |||||||
Loans secured by deeds of trust on real estate |
||||||||
Construction and land development |
$ | 20,264 | $ | 19,764 | ||||
Agribusiness |
16,483 | 15,451 | ||||||
1-4 family residential properties |
80,222 | 65,945 | ||||||
Multi family (5 or more) residential properties |
192 | 81 | ||||||
Non-farm non-residential properties |
33,539 | 25,359 | ||||||
Loans to finance agricultural production and other loans to farmers |
3,790 | 3,828 | ||||||
Commercial and industrial loans |
10,816 | 10,344 | ||||||
Personal installment loans |
12,825 | 11,779 | ||||||
All other loans |
6,523 | 5,827 | ||||||
Subtotal |
184,654 | 158,378 | ||||||
Less Allowance for loan losses |
1,790 | 1,396 | ||||||
Loans Receivable |
$ | 182,864 | $ | 156,982 | ||||
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Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
Demand deposit accounts that are overdrawn, have been reclassified as a loan since they
represent an amount owed to the bank. The amount of overdrawn accounts included in the loan
balance is $130,300 and $440,597 at December 31, 2009 and 2008, respectively.
Substantially all of our 1-4 family mortgages as well as our multi family residential
mortgages are covered under a blanket lien with the Federal Home Loan Bank for Borrowings.
A summary of transactions in the allowance for loan losses follows in thousands:
2009 | 2008 | |||||||
Balance at Beginning of Year |
$ | 1,396 | $ | 1,186 | ||||
Provision charged to operating expense |
617 | 297 | ||||||
Loan recoveries |
145 | 107 | ||||||
Loan charge-offs |
$ | (368 | ) | $ | (194 | ) | ||
Balance at End of Year |
$ | 1,790 | $ | 1,396 | ||||
The following is a summary of information pertaining to impaired loans at December 31, in
thousands:
2009 | 2008 | |||||||
Total Impaired Loans (Without a valuation allowance) |
$ | 1,110 | $ | 1,635 | ||||
Total Impaired Loans (All with a valuation allowance) |
4,941 | 1,524 | ||||||
Valuation allowance related to impaired loans |
637 | 225 |
The average annual recorded investment in impaired loans and interest income recognized on
impaired loans in thousands for the years ended December 31, 2009 and 2008 is summarized below:
2009 | 2008 | |||||||
Average investment in impaired loans |
$ | 3,608 | $ | 2,031 | ||||
Interest income recognized on impaired loans |
194 | 80 |
No additional funds are committed to be advanced in connection with impaired loans.
Loans accounted for on a nonaccrual basis were $104,269 and $659,366 at December 31, 2009 and 2008
(.06% and .42% of total loans), respectively. Accruing loans which are contractually past due 90
days or more as to principal or interest totaled $5,290,045 and $1,034,049 at December 31, 2009 and
2008 (2.86% and .65% of total loans), respectively. Past due status is determined based on the
contractual terms of the loan agreement.
Foreclosed and repossessed assets totaled $799,617 and $85,527 at December 31, 2009 and
2008 respectively.
NOTE 7 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are summarized as follows (in thousands):
December 31 | ||||||||
2009 | 2008 | |||||||
Bank buildings and improvements |
$ | 6,913 | $ | 6,072 | ||||
Furniture and equipment |
$ | 4,184 | $ | 3,963 | ||||
11,097 | 10,035 | |||||||
Less accumulated depreciation |
$ | 4,139 | $ | 3,786 | ||||
Bank Premises and Equipment |
$ | 6,958 | $ | 6,249 | ||||
Depreciation expense on these premises and equipment totaled $471,137 and $465,506 for the
years ended December 31, 2009, and 2008 respectively.
- 28 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 8 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 in 2009 of two Citizens National Bank branches there was a significant
amount of goodwill recorded. There are no indications this goodwill is impaired. Management
anticipates performing the initial impairment test as of March 31, 2010. The goodwill recognized
on the purchase of the two branch offices totaled $1,086,732.
NOTE 9 BANK OWNED LIFE INSURANCE:
The Bank, 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 Bank 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.
NOTE 10 TIME DEPOSITS:
At December 31, 2009, the scheduled maturities of time deposits in thousands are as follows:
2010 |
$ | 72,998 | ||
2011 |
26,910 | |||
2012 |
14,808 | |||
2013 |
6,859 | |||
2014 |
4,288 | |||
2015 |
492 | |||
Thereafter |
507 | |||
Total |
$ | 126,862 | ||
NOTE
11 SECURITES SOLD UNDER AGREEMENTS TO REPURCHASE:
Securities sold under agreements to repurchase generally mature within one day from the transaction
date, unless classified as a term repurchase agreement. For Year end 2009 and 2008 we had no term
repurchase agreements. Securities sold under agreements to repurchase are reflected at the amount
of cash received in connection with the transaction. The Company may be required to provide
additional collateral based on the fair value of the underlying securities. At year end 2009 the
Company has a total of $1,892,581 in market value of securities pledged to secure these
agreements. The weighted average interest rate on these agreements was 0.16% during 2009. The
highest month end balance during 2009 was $1,772,549. For 2008, the highest month end balance was
$1,720,040 and the average interest rate was 1.24%.
NOTE 12 LINES OF CREDIT:
The Bank has lines of credit with correspondent banks totaling $15,400,000. As of December 31,
2009, the Bank had no outstanding debt on these lines. These lines of credit are unsecured. These
borrowings will carry interest at prevailing federal funds rates when and if funds are borrowed.
The lenders may withdraw these lines at their discretion and without notice.
- 29 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 13 SHORT-TERM DEBT:
The Bank has borrowed money from the Federal Home Loan Bank of Pittsburgh (FHLB). Typically FHLB
debt has been used for long term funding, but in late 2008 we borrowed $1,000,000 for 2 month
maturity and $750,000 for 3 month maturity to correspond with interest bearing assets that were
maturing. The rates on these two loans were 0.87% and 0.93% respectively. The FHLB notes are
secured by FHLB Stock, as well as investment securities and mortgage loans. At December 31, 2009
the Company had no short term debt with FHLB or others.
NOTE 14 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 December 31, 2009 were fixed at the time of the advance and
fixed rates range from 4.22% 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 5.01% at December
31, 2009. The company has additional available borrowing capacity from the FHLB of 78,681,347.
Repayments of long-term debt are due monthly. Interest expense of $281,597 and $335,746 was
incurred on these debts in 2009 and 2008, respectively. The maturities of long term debt as of
December 31, 2009 in thousands, are as follows:
2010 |
$ | 1,237 | ||
2011 |
162 | |||
2012 |
141 | |||
2013 |
148 | |||
2014 |
156 | |||
2015 |
164 | |||
Thereafter |
2,687 | |||
Total |
$ | 4,695 | ||
NOTE 15 DIVIDEND LIMITATIONS:
The principal source of funds of Allegheny Bancshares, Inc. is dividends paid by its subsidiary
bank. The Code of West Virginia imposes certain restrictions on dividends paid by a state bank. A
state bank cannot pay dividends (without the consent of state banking authorities) in excess of the
total net profits of the current year and the combined retained profits of the previous two years.
As of January 1, 2010, the Bank could pay dividends of up to $1,148,211 without permission of the
authorities. Dividends paid by the Bank to the Company totaled $1,670,000 in 2009 and $2,214,013
in 2008.
NOTE 16 INCOME TAXES:
The current and deferred components of income tax expense in thousands are as follows:
2009 | 2008 | |||||||
Current component of income tax expense |
$ | 1,069 | $ | 1,020 | ||||
Net increase (decrease) resulting from deferred income taxes |
(161 | ) | (378 | ) | ||||
Income Tax Expense |
$ | 908 | $ | 642 |
- 30 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
A reconciliation between the provision for income taxes and the amount computed by multiplying
income by the statutory federal income tax rates is as follows (in thousands):
2009 | 2008 | |||||||
Income taxes computed at the applicable Federal income tax rate |
$ | 939 | $ | 918 | ||||
Increase (decrease) resulting from: |
||||||||
Tax exempt interest income |
(335 | ) | (370 | ) | ||||
Non-deductible interest expense |
25 | 36 | ||||||
State tax expense, net of federal taxes |
96 | 93 | ||||||
Excess capital loss not deductible |
191 | | ||||||
Prior year income tax refund |
| (38 | ) | |||||
Other |
(8 | ) | 3 | |||||
Income Tax Expense |
$ | 908 | $ | 642 | ||||
The net deferred tax asset arising from temporary differences in thousands as of December 31 is
summarized as follows:
2009 | 2008 | |||||||
Deferred Tax Asset: |
||||||||
Provision for loan losses |
$ | 591 | $ | 446 | ||||
Security impairment |
317 | 303 | ||||||
Accrued expenses on long term benefits |
40 | 21 | ||||||
Allowance for other real estate owned |
40 | | ||||||
FAS 91 deferred income |
13 | | ||||||
Interest on nonaccrual loans |
2 | 4 | ||||||
Total Assets |
1,003 | 774 | ||||||
Deferred Tax Liabilities: |
||||||||
Unrealized gain on securities available for sale |
229 | 166 | ||||||
Depreciation |
407 | 356 | ||||||
Goodwill amortization |
20 | |||||||
Other |
6 | 10 | ||||||
Total Liabilities |
662 | 532 | ||||||
Net Deferred Tax Asset |
$ | 341 | $ | 242 | ||||
NOTE 17 EMPLOYEE BENEFITS:
The Company has a defined contribution plan with 401(k) provisions that is funded with
discretionary contributions by the bank that covers substantially all full time employees at each
bank. There is a one year waiting period prior to admission into the plan. Contributions to the
plan are based on a percentage of each employees salary plus matching contributions. Investment
of employee balances is done through the direction of each employee. Plan contributions by the
employer are fully invested in the year of contribution. The amount of contributions by the
Company into employees accounts in the plan were: $111,558 and $109,163 for years ending December
31, 2009 and 2008 respectively.
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.
- 31 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
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 and 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 $6,206 during
2009 and for 2008 this amount was $8,925.
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 SERP assumes a 6.25% discount rate. The Company has accrued a liability and
incurred an employee benefit expense of $25,888 during 2009 for this plan and for 2008 this amount
was $22,936.
NOTE 18 RELATED PARTY TRANSACTIONS:
During the year, officers, directors, principal stockholders and their affiliates (related parties)
were customers of and had transactions with the Company in the ordinary course of business. In
managements opinion, these transactions were made on substantially the same terms as those
prevailing for other customers for comparable transactions and did not involve more than normal
risks.
Loan activity to related parties is as follows (in thousands):
2009 | 2008 | |||||||
Beginning of Year |
$ | 700 | $ | 521 | ||||
Loan balances increased due to new director |
192 | | ||||||
Additional borrowings |
383 | 394 | ||||||
Repayments |
(203 | ) | (215 | ) | ||||
End of Year |
$ | 1,072 | $ | 700 | ||||
- 32 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 19 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 December 31, 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.
- 33 -
Table of Contents
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 |
$ | 10,149 | $ | 21,189 | $ | | $ | 31,338 | ||||||||
Restricted equity securities |
| | 748 | 748 | ||||||||||||
Total |
$ | 10,149 | $ | 21,189 | $ | 748 | $ | 32,086 | ||||||||
Assets recorded at fair value on a non recurring basis: |
||||||||||||||||
Impaired Loans |
$ | | $ | | $ | 4,304 | $ | 4,304 | ||||||||
Other real estate owned and repossessed assets |
| | 800 | 800 | ||||||||||||
Total |
$ | | $ | | $ | 5,104 | $ | 5,104 | ||||||||
NOTE 20 REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements administered by the federal
banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Companys financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of the Companys assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The Companys capital
amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to
maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined).
As of April 3, 2007, the most recent notification from the institutions primary regulator
categorized the Company as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Company must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the institutions category.
The Companys actual capital amounts and ratios are presented below.
Actual | Regulatory Requirements | |||||||||||||||
Adequately | Well | |||||||||||||||
Amount | Ratio | Capitalized | Capitalized | |||||||||||||
As of December 31, 2009 |
||||||||||||||||
Total risk-based ratio |
$ | 27,868 | 16.31 | % | >8 | % | >10 | % | ||||||||
Tier 1 risk-based ratio |
26,078 | 15.26 | % | >4 | % | >6 | % | |||||||||
Tier 1 leverage ratio |
26,078 | 10.68 | % | >3 | % | >5 | % | |||||||||
As of December 31, 2008 |
||||||||||||||||
Total risk-based ratio |
$ | 28,235 | 19.24 | % | >8 | % | >10 | % | ||||||||
Tier 1 risk-based ratio |
26,839 | 18.28 | % | >4 | % | > 6 | % | |||||||||
Tier 1 leverage ratio |
26,839 | 13.27 | % | >3 | % | > 5 | % |
The amounts and ratios above are for the consolidated entity. The differences for the
subsidiary Bank individually are not significant.
- 34 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 21 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK:
The Company makes commitments to extend credit in the normal course of business and issue standby
letters of credit to meet the financing needs of their customers. The amount of the commitments
represents the Companys exposure to credit loss that is not included in the balance sheet.
The Company uses the same credit policies in making commitments and issuing letters of credit as
used for the loans reflected in the balance sheet. Commitments to extend credit are agreements to
lend to a customer as
long as there is no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Banks upon the extension of credit, is based on managements credit evaluation of the borrower.
Collateral held varies but may include accounts receivable, inventory, property, plant and
equipment, commercial and residential real estate.
As of December 31, 2009 and 2008, the Company had outstanding the following commitments (in
thousands of dollars):
2009 | 2008 | |||||||
Home equity lines of credit |
$ | 6,194 | $ | 4,946 | ||||
Commitments to fund commercial real estate and construction |
3,760 | 4,930 | ||||||
Other unused commitments |
13,713 | 12,448 | ||||||
Performance standby letters of credit |
1,205 | 278 | ||||||
$ | 24,872 | $ | 22,602 | |||||
NOTE 22 CONCENTRATIONS:
The Bank operates as a community bank in the areas that it serves. As such the loan portfolio
consists of commercial, residential real estate and consumer loans located to individuals and
businesses located primarily in the areas surrounding our four offices. In addition the collateral
for our loans is secured primarily by real estate and personal property located in this same area.
Although the Company has a diversified loan portfolio, a substantial portion of the borrowers
ability to honor their contracts is dependent upon the agribusiness economic sector. Loans for
agribusiness include loans directly related to poultry houses which amounted to $7,254,568 at
December 31, 2009 and $7,025,030 at December 31, 2008. The majority of these loans are
collateralized by deeds of trust on real estate. Farmers Home Administration (FHA) guarantees cover
ninety percent of the loan balance on $2,073,152 of these loans at December 31, 2009 and $1,606,654
at December 31, 2008.
NOTE 23 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
Cash and short-term deposits
For those short-term instruments, which includes interest bearing deposits and fed funds sold the
carrying amount is a reasonable estimate of fair value.
- 35 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
Investment securities
For securities, fair value equals quoted market prices, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar securities.
Restricted investments
The carrying value of restricted investments is a reasonable estimate of its fair value.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current
offering rates for similar loans to borrowers with similar credit ratings and for the same
remaining maturities.
Deposits
For demand, interest checking, regular savings, money market and any other account payable on
demand with no penalty the fair value is the carrying value. The fair value of certificates of
deposits is estimated using the rates currently offered for deposits of similar remaining
maturities.
Short term debt and interest payable or receivable:
Due to the short-term nature of these accounts the carrying value is estimated to be the same as
the carrying value.
Long-term debt
The fair value of long term debt is estimated using the rates currently offered by the Federal Home
Loan Bank for indebtedness with similar maturities.
Offbalance sheet items
Letters of credit, lines of credit, and loan commitments are deemed to be at face value.
December 31, 2009 | December 31, 2008 | |||||||||||||||
Fair | Carrying | Fair | Carrying | |||||||||||||
(In Thousands) | Value | Value | Value | Value | ||||||||||||
Cash and due from banks |
$ | 3,810 | $ | 3,810 | $ | 2,562 | $ | 2,562 | ||||||||
Interest bearing deposits in banks |
8,250 | 8,250 | 4,637 | 4,637 | ||||||||||||
Federal funds sold |
| | 1,570 | 1,570 | ||||||||||||
Securities available for sale |
31,338 | 31,338 | 25,685 | 25,685 | ||||||||||||
Restricted equity securities |
748 | 748 | 1,889 | 1,889 | ||||||||||||
Loans |
184,753 | 182,864 | 159,721 | 156,982 | ||||||||||||
Interest receivable |
1,436 | 1,436 | 1,276 | 1,276 | ||||||||||||
Bank owned life insurance |
3,867 | 3,867 | 3,693 | 3,693 | ||||||||||||
Demand deposits |
26,689 | 26,689 | 39,182 | 39,182 | ||||||||||||
Savings deposits |
27,282 | 27,282 | 28,567 | 28,567 | ||||||||||||
Time deposits |
127,599 | 126,862 | 100,621 | 99,491 | ||||||||||||
Short-term borrowings |
931 | 931 | 3,569 | 3,569 | ||||||||||||
Accrued interest payable |
344 | 344 | 371 | 371 | ||||||||||||
Short-term debt |
| | 1,750 | 1,750 | ||||||||||||
Long-term debt |
4,927 | 4,695 | 6,361 | 5,920 |
- 36 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 24 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
Assets |
||||||||
Cash |
$ | 45,621 | $ | 271 | ||||
Investment in subsidiary |
27,058,410 | 26,126,933 | ||||||
Restricted equity securities |
131,520 | 735,035 | ||||||
Other assets |
388,361 | 386,574 | ||||||
Total Assets |
$ | 27,623,912 | $ | 27,248,813 | ||||
Liabilities |
||||||||
Due to subsidiary |
15,627 | $ | 85,853 | |||||
Accrued expenses |
| 3,000 | ||||||
Total Liabilities |
15,627 | 88,853 | ||||||
Stockholders Equity |
||||||||
Common stock; $1 par value, 2,000,000 shares authorized, 900,000 issued |
900,000 | 900,000 | ||||||
Additional paid in capital |
900,000 | 900,000 | ||||||
Retained earnings |
27,181,635 | 26,630,674 | ||||||
Accumulated other comprehensive (loss) |
443,517 | 320,543 | ||||||
Less treasury stock (at cost, 32,541in 2009 and 28,767 in 2008) |
(1,816,867 | ) | (1,591,257 | ) | ||||
Total Stockholders Equity |
27,608,285 | 27,159,960 | ||||||
Total Liabilities and Stockholders |
$ | 27,623,912 | $ | 27,248,813 | ||||
- 37 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 24 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
INCOME |
||||||||
Dividends from subsidiary |
$ | 1,670,000 | $ | 2,214,013 | ||||
Restricted equity security impairment |
(603,515 | ) | (804,600 | ) | ||||
Interest from securities |
3,452 | 13,294 | ||||||
Total Income |
1,069,937 | 1,422,707 | ||||||
EXPENSES: |
||||||||
Professional fees |
39,845 | 28,656 | ||||||
Annual shareholder meeting |
15,772 | 18,630 | ||||||
Other expenses |
8,079 | 11,946 | ||||||
Total Expenses |
63,696 | 59,232 | ||||||
INCOME BEFORE UNDISTRIBUTED INCOME OF SUBSIDIARY |
1,006,241 | 1,363,475 | ||||||
Income tax benefit |
37,781 | 355,304 | ||||||
UNDISTRIBUTED INCOME OF SUBSIDIARY |
808,503 | 339,707 | ||||||
NET INCOME |
1,852,525 | $ | 2,058,486 | |||||
- 38 -
Table of Contents
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 24 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2009 | 2008 | |||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 1,852,525 | $ | 2,058,486 | ||||
Adjustments: |
||||||||
Undistributed subsidiary income |
(808,503 | ) | (339,707 | ) | ||||
Deferred income (tax) benefit |
(16,265 | ) | (303,333 | ) | ||||
Loss on restricted equity security impairment |
603,515 | 804,600 | ||||||
Increase (decrease) in other liabilities |
(73,226 | ) | 88,853 | |||||
(Increase) decrease in other assets |
14,478 | (49,832 | ) | |||||
Net Cash Provided by Operating Activities |
1,572,524 | 2,259,067 | ||||||
INVESTING ACTIVITIES |
||||||||
Purchase of investment securities |
| (463,211 | ) | |||||
Net Cash Used in Investing Activities |
| (463,211 | ) | |||||
FINANCING ACTIVITIES |
||||||||
Purchase of treasury stock |
(225,610 | ) | (532,200 | ) | ||||
Cash dividends paid |
(1,301,564 | ) | (1,264,013 | ) | ||||
Net Cash Used by Financing Activities |
(1,527,174 | ) | (1,796,213 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
45,350 | (357 | ) | |||||
Cash and equivalents, January 1 |
271 | 628 | ||||||
Cash and equivalents, December 31 |
$ | 45,621 | $ | 271 | ||||
- 39 -
Table of Contents
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
None.
Item 9A(T). | Controls and Procedures |
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The internal control process has been designed under our
supervision to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of the Companys financial statements for external reporting purposes in accordance
with accounting principles generally accepted in the United States of America.
Management has conducted an assessment of the effectiveness of the Companys internal control over
financial reporting as of December 31, 2009, utilizing the framework established by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment,
management has determined that the Companys internal controls over financial reporting as of
December 31, 2009 are effective.
We have established our disclosure controls and procedures to ensure that material information
related to Allegheny Bancshares, Inc. 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 report. Based on
this evaluation, Allegheny Bancshares, Inc.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.
This Annual Report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in the Annual Report.
Changes in Internal Controls
During the period reported upon, there were no significant changes in Allegheny Bancshares,
Inc.s internal controls pertaining to its financial reporting and control of its assets or in
other factors that could significantly affect these controls.
Item 9B. | Other Information None |
PART III
Item 10. | Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act |
Information regarding directors, executive officers and the audit committee financial expert is
incorporated by reference from the Companys definitive proxy statement from the Companys 2010
Annual Meeting of Shareholders to be held May 3, 2010 (Proxy Statement), under caption Election
of Directors.
Information on Section 16(a) beneficial ownership reporting compliance for the directors and
executive officers of the Company is incorporated by reference fro the Proxy Statement under the
caption Section 16(a) Beneficial Ownership Reporting Compliance.
Item 11. | Executive Compensation |
This information is incorporated by reference from the Proxy Statement under the caption
Executive Compensation and other Information.
- 40 -
Table of Contents
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
The information incorporated by reference from the Proxy Statement under the caption Security
Ownership of Certain Beneficial Owners and Management.
Item 13. | Certain Relationships and Related Transactions |
The information incorporated by reference from the Proxy Statement under the caption Certain
Transactions with Directors and Officers and Their Associates.
Item 14. | Principal Accountant Fees and Services |
The information incorporated by reference from the Proxy Statement under the caption Auditors.
PART IV
Item 15. | Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements
Reference is made to Part II, Item 8 of the Annual Report on Form 10-K
(a)(2) Financial Statement Schedules
All schedules are omitted since they are not required, are not applicable, or the required
information is shown on the consolidated financial statements or related notes.
(a)(3) Exhibits
The following Exhibits are attached.
No. | Description | |||
31.1 | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc.
Form 10-K filed March 31, 2007.
10.1 | Employment Agreement with William A. Loving, Jr. with modification |
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10.2 | Executive Severance Agreement with William A. Loving, Jr. with modification |
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc.
Form 10-K filed March 31, 2006.
No. | Description | |||
3.3 | By-Laws of Allegheny Bancshares, Inc. |
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Table of Contents
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc.
Form 10-KSB filed March 26, 2004.
No. | Description | |||
14 | Code of Ethics |
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21 | List of Subsidiaries of the Registrant |
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-KSB filed March
30, 2003.
No. | Description | |||
3.1 | Articles of Incorporation Allegheny Bancshares, Inc. |
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4.1 | Specimen Common Stock Certificate of Allegheny Bancshares, Inc. |
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. |
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By: | /s/ William A. Loving, Jr. | |||
William A. Loving, Jr. | ||||
Executive Vice-President and Chief Executive Officer | ||||
Date: March 12, 2010 | ||||
By: | /s/ L. Kirk Billingsley | |||
L. Kirk Billingsley | ||||
Chief Financial Officer | ||||
Date: March 12, 2010 |
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Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and as of
the date indicated.
Signature | Title | Date | ||
/s/ Thomas J. Bowman
|
Director | March 12, 2010 | ||
/s/ Roger D. Champ
|
Secretary Director |
March 12, 2010 | ||
/s/ John E. Glover
|
Vice Chairman of the Board Director |
March 12, 2010 | ||
/s/ Carole H. Hartman
|
Chairman of the Board Director |
March 12, 2010 | ||
/s/ Richard W. Homan
|
Director | March 12, 2010 | ||
/s/ Richard C. Phares
|
Director | March 12, 2010 | ||
/s/ William A. Loving, Jr.
|
Director | March 12, 2010 | ||
/s/ Dolan Irvine
|
Director | March 12, 2010 | ||
/s/ William G. Bosley, III
|
Director | March 12, 2010 | ||
/s/ Laura Simpson Evick
|
Director | March 12,2010 |
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