First Sentry Bancshares, Inc. - FORM 10-K

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EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - First Sentry Bancshares, Inc.	ex-31_1.htm
EX-32.1 - CERTIFICATION PURSUANT TO SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - First Sentry Bancshares, Inc.	ex-32_1.htm
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United States

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

For the Fiscal Year Ended December 31, 2011

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to ______________________

Commission File No. 000-53790

First Sentry Bancshares, Inc.

(Exact name of registrant as specified in its charter)

West Virginia		03-0398338
(State or other jurisdiction of		Identification Number)
(I.R.S. Employer		incorporation or organization)

823 Eighth Street, Huntington, West Virginia		25701
(Address of Principal Executive Offices)		Zip Code

(304) 522-6400

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $1.00 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES £ NO S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES £ NO S

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES S NO £

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 preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES S NO £

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 Registrant’s 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. £.

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £

Accelerated filer £

Non-accelerated filer £

Smaller reporting company S

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES £ NO S

As of March 29, 2012, there were issued and outstanding 1,437,651 shares of the Registrant’s Common Stock.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sales price on June 30, 2011 was $26.1 million.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the 2011 Annual Meeting of Stockholders of the Registrant (Part III).

Table of Contents

First Sentry Bancshares, Inc.

Annual Report on Form 10-K

For The Year Ended

December 31, 2011

Table of Contents

ITEM 1.	Business	1
ITEM 1A.	Risk Factors	29
ITEM 1B.	Unresolved Staff Comments	30
ITEM 2.	Properties	30
ITEM 3.	Legal Proceedings	30
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
ITEM 6.	Selected Financial Data	31
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
ITEM 8.	Financial Statements and Supplementary Data	47
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	83
ITEM 9A.	Controls and Procedures	83
ITEM 9B.	Other Information	84
ITEM 10.	Directors, Executive Officers and Corporate Governance	84
ITEM 11.	Executive Compensation	84
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	84
ITEM 14.	Principal Accountant Fees and Services	84
ITEM 15.	Exhibits and Financial Statement Schedules	85
Signatures		86

Table of Contents

PART I

ITEM 1.

Business

Forward Looking Statements

This Annual Report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:

	•	statements of our goals, intentions and expectations;

	•	statements regarding our business plans and prospects and growth and operating strategies;

	•	statements regarding the asset quality of our loan and investment portfolios; and

	•	estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:

	•	our ability to manage the risk in our loan portfolio;

	•	significantly increased competition among depository and other financial institutions;

	•	our ability to execute our plan to grow our assets on a profitable basis;

	•	the expected growth opportunities and cost savings from our recent merger may not be fully realized or may take longer to realize than expected;

	•	our ability to execute on a favorable basis any plan we may have to acquire other institutions or branches or establish new offices;

	•	changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments and inflation;

	•	general economic conditions, either nationally or in our market area;

	•	adverse changes in the securities and national and local real estate markets (including real estate values);

	•	legislative or regulatory changes that adversely affect our business, including regulatory changes imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations;

	•	our ability to enter new markets successfully and take advantage of growth opportunities;

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	•	changes in consumer spending, borrowing and savings habits;

	•	the effect of a weak economy on our lending portfolio;

	•	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the authoritative accounting and auditing bodies; and

	•	changes in our organization, compensation and benefit plans.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

First Sentry Bancshares, Inc. and First Sentry Bank

In 2002, First Sentry Bancshares, Inc. (the “Company”) became the bank holding company of First Sentry Bank (the “Bank”). On September 25, 2009, we completed our merger with Guaranty Financial Services, Inc. and became an SEC reporting company. We do not have any business activities other than our ownership of First Sentry Bank common stock and our two business trusts relating to trust preferred securities. As the holding company of First Sentry Bank, we are authorized to pursue other business activities permitted by applicable laws and regulations for bank holding companies. Our executive office is located at 823 Eighth Street, Huntington, West Virginia. Our telephone number is (304) 522-6400. At December 31, 2011, we had $496.1 million in consolidated assets, $401.8 million in deposits and $31.6 million in consolidated stockholders’ equity. We are subject to extensive regulation by the Board of Governors of the Federal Reserve System.

All of our officers and directors are also officers and directors of First Sentry Bank. In addition, we use the support staff of First Sentry Bank from time to time.

General

We were organized in 1996 to provide residents of Cabell County, West Virginia, and particularly the Huntington, West Virginia market area with a local community bank. Our principal business consists of accepting deposits, originating commercial real estate loans, commercial loans, one- to four-family residential mortgage loans and, to a lesser extent, originating consumer loans. We also invest in investment securities. We operate from our main office in Huntington, West Virginia and three branch offices located in Cabell and Lincoln counties, West Virginia.

We attract retail deposits from the general public in the communities surrounding our main office and our branch offices. We also accept brokered deposits as well as deposits via our participation in the CDARS network which are considered brokered deposits. A significant portion of our commercial real estate, residential real estate and commercial loans are generated by referrals from brokers, current customers, professional contacts and through a general marketing campaign. We generally retain in our portfolio all adjustable-rate loans we originate, as well as fixed-rate loans with terms of five years or less. For customers who are interested in longer term loans, such as traditional fixed rate 30 year one- to four-family residential mortgage loans, we function as a conduit by acting as a mortgage broker with other financial institutions and receive a fee from the other financial institutions for this service. We have entered into limited loan participations in recent years.

Our revenues are derived primarily from interest on loans and investment securities, and to a lesser extent, cash and due from banks. We also generate revenues from fees and service charges. Our primary sources of funds are deposits, borrowings in the form of securities sold under agreements to repurchase and FHLB advances and principal and interest payments on securities and loans.

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Our website address is www.firstsentry.com. Information on our website is not and should not be considered a part of this annual report.

Market Area

Our primary market area is Cabell County, West Virginia, and we also operate a full service branch in Lincoln County, West Virginia. According to the 2010 U.S. Census Bureau data, Cabell County experienced a (0.5%) population decrease from 2000 to 2010 while Lincoln County experienced a (1.8%) population decrease from 2000 to 2010. Our market area is projected to continue to experience declining demographic trends. According to the 2010 U.S. Census Bureau, Cabell County is the 3rd most populous county in the state of West Virginia and Lincoln County is the 32nd most populous county. The top three business segments in Cabell County are health care, railroad, and manufacturing while the top three business segments in Lincoln County are natural resource extraction, education, and retail.

2010 U.S. Census Bureau data shows a total population in Cabell County of 96,319 and a total population in Lincoln County of 21,720, with little to no growth projected for 2011 in either county. The 2010 median household income for Cabell County and Lincoln County was $34,492 and $30,868, respectively. The 2010 median household income for the State of West Virginia was $38,380.

Cabell County is home to top corporate sector employers such as CSX, Special Metals Corp., St. Mary’s Regional Medical Center, Cabell Huntington Hospital, Steel of West Virginia, Alcon and GC Services. Some of the top employers in Lincoln County are Coal River Mining, Stowers & Sons Trucking, Chesapeake Energy, and the Lincoln County Board of Education. According to 2010 U.S. Census Bureau data, 33.5% of the population in Cabell County is employed in management/professional positions, 27.7% in sales/office, and 20.6% in the service industry. In Lincoln County, 24.4% of the population is employed in natural resource extraction and related occupations, 22.3% in sales/office occupations, and 19.8% in the service industry.

Competition

We offer a variety of financial products and services to meet the needs of the communities we serve. Our retail banking offices consist of multiple delivery channels, including full-service banking offices, automated teller machines and telephone and internet banking capabilities. We consider our reputation for superior customer service and financial strength as our major strengths in attracting and retaining customers in our market areas.

We face intense competition in our market area both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks and credit unions. We face additional competition for deposits from money market funds, brokerage firms, mutual funds and insurance companies. Some of our competitors offer products and services that we do not offer, such as trust and retail brokerage services.

Our deposit sources are primarily concentrated in the communities surrounding our banking offices in Cabell and Lincoln Counties, West Virginia. As of June 30, 2011 (the latest date for which information is publicly available), we ranked first in deposit market share, with a 15.3% market share in the Cabell County market area and ranked fifth in deposit market share, with a 7.3% market share in the Lincoln County market area.

Lending Activities

Our principal lending activity has been the origination of commercial real estate, one- to four-family residential mortgage and commercial loans. We also originate to a lesser extent consumer loans.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio and by type of loan at the dates indicated. We do not have any loans held for sale at the dates presented.

	At December 31,
	2011						2010						2009						2008						2007
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Loans:
Commercial real estate	$	179,778			50.24	%	$	173,898			48.71	%	$	170,515			46.64	%	$	107,458			47.93	%	$	98,583			47.55	%
Commercial		104,271			29.14			107,388			30.08			115,996			31.73			68,116			30.38			64,103			30.92
Residential real estate		54,941			15.35			55,406			15.52			55,332			15.13			35,543			15.85			31,341			15.12
Consumer		18,865			5.27			20,308			5.69			23,767			6.50			13,091			5.84			13,297			6.41
Total loans		357,855			100.00	%		357,000			100.00	%		365,610			100.00	%		224,208			100.00	%		207,324			100.00	%

Other items:
Unearned fees and discounts, net		(88	)					(94	)					(64	)					(36	)					(34	)
Undisbursed loan funds		—						—						—						—						—
Allowance for loan losses		(5,855	)					(5,005	)					(4,785	)					(3,227	)					(2,852	)

Total loans, net	$	351,912					$	351,901					$	360,761					$	220,945					$	204,438

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2011. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	Commercial real estate					Commercial					Residential real estate					Consumer					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Due During the Years Ending December 31,
2012	$	42,563		5.57	%	$	31,891		4.65	%	$	7,820		5.70	%	$	3,385		5.25	%	$	85,659		5.23	%
2013 to 2014		52,122		5.83			20,483		5.24			11,260		5.53			4,907		7.28			88,772		5.74
2015 to 2016		59,802		5.54			10,164		5.57			10,357		4.97			5,092		6.84			85,415		5.55
2017 to 2021		9,865		4.79			12,742		4.67			22,817		4.73			5,328		7.30			50,752		5.00
2022 and beyond		15,426		4.83			28,991		4.13			2,687		6.27			153		7.06			47,257		4.49

Total	$	179,778		5.53	%	$	104,271		4.71	%	$	54,941		5.15	%	$	18,865		6.80	%	$	357,855		5.30	%

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The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2011 that are contractually due after December 31, 2012.

	Due After December 31, 2012
	Fixed		Adjustable		Total
	(In thousands)

Loans:
Commercial real estate	$	92,854	$	44,361	$	137,215
Commercial		24,156		48,224		72,380
Residential real estate		32,781		14,340		47,121
Consumer		14,744		736		15,480

Total loans	$	164,535	$	107,661	$	272,196

Commercial Real Estate Loans. Commercial real estate loans totaled $179.8 million, or 50.2% of our loan portfolio as of December 31, 2011. Our commercial real estate loans are generally secured by such collateral as apartment buildings, office buildings and shopping centers. We occasionally enter into commercial real estate loan participations and Small Business Administration guaranteed loans. At December 31, 2011, our commercial real estate loan portfolio consisted of 774 loans outstanding. For the year ended December 31, 2011 the average commercial real estate loan balance was approximately $232,000. Our largest commercial real estate loan had a principal balance of $4.0 million at December 31, 2011, and was secured by townhomes. This loan was performing in accordance with its terms at December 31, 2011. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.

Our commercial real estate loans typically amortize over 15- to 20-year payout schedules, with interest rates that are fixed or adjustable for up to five years and contain a balloon payment feature at the end of the term. Our fixed rate commercial real estate loans are typically based on a margin over the five-year treasury securities interest rate while our adjustable rate commercial real estate loans float with the prime rate as reported in The Wall Street Journal. We will also offer one year renewable adjustable rate lines of credit secured by commercial real estate that float with the prime rate. At December 31, 2011, we had $17.0 million in lines of credit secured by commercial real estate. On occasion, we make development loans for the construction of apartment buildings. At December 31, 2011, we had one such loan outstanding with a principal balance of $1.2 million.

In the underwriting of commercial real estate loans, we lend up to the lesser of 80% of the property’s appraised value or purchase price. We base our decision to lend primarily on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 125%), computed after deduction for a vacancy factor and property expenses we deem appropriate. Personal guarantees are generally obtained from commercial real estate borrowers. We require title insurance or a title opinion, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying property. Although a portion of our commercial real estate loans are referred by brokers, we underwrite all commercial real estate loans in accordance with our own underwriting guidelines.

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Commercial real estate loans generally carry higher interest rates and have shorter terms than one- to four-family residential mortgage loans. Commercial real estate loans, however, entail greater credit risks, compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties.

Commercial Loans. We make various types of secured and unsecured commercial loans to customers in our market area. The terms of these loans generally range from less than one year to a maximum of five years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates that are subject to change periodically and are indexed to the prime rate as reported in The Wall Street Journal. At December 31, 2011, we had 949 commercial loans outstanding, with an aggregate balance of $104.3 million, or 29.1% of the total loan portfolio. For the year ended December 31, 2011, the average commercial loan balance was approximately $110,000. At December 31, 2011, our largest commercial loan had a principal balance of $3.2 million and was secured by inventory, accounts receivable and equipment. At December 31, 2011, this loan was performing in accordance with its terms.

Commercial credit decisions are based upon our credit assessment of the loan applicant. We evaluate the applicant’s ability to repay in accordance with the proposed terms of the loan and we assess the risks involved. Commercial loans are underwritten on the basis of the borrower’s ability to service such debt from income (generally requiring a minimum ratio of 125%). Personal guarantees of the principals are typically obtained. Our underwriting standards include an evaluation of the loan applicant’s financial statements, tax returns, the adequacy of the primary and secondary sources of repayment for the loan and credit agency reports of the applicant’s personal credit history. Collateral supporting a secured transaction is also analyzed to determine its marketability. Collateral that typically secures our commercial loans consist of equipment, accounts receivable and inventory of a business.

Commercial loans generally have higher interest rates than residential loans of like duration because they have a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral.

One- to Four-Family Residential Mortgage Loans. At December 31, 2011, $54.9 million, or 15.4% of our total loan portfolio, consisted of one- to four-family residential mortgage loans, including home equity loans. We currently only originate short term fixed rate one- to four-family residential mortgage loans, although we have offered adjustable rate one- to four-family residential mortgage loans in the past. We offer conforming and non-conforming, fixed-rate residential mortgage loans that amortize up to a 30-year payout schedule, with maturities of up to 5 or 7 years that contain a balloon payment feature at the end of the term. For customers who are interested in longer term loans, such as traditional fixed rate 30-year one- to four-family residential mortgage loans, we function as a conduit by acting as a mortgage broker with other financial institutions and receive a fee from the other financial institutions for this service. We also offer home equity loans with a 10-year term that generally float with the prime rate as reported in The Wall Street Journal. At December 31, 2011, we had $15.1 million in home equity loans outstanding.

One- to four-family residential mortgage loans are generally underwritten according to Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate fixed-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Office of Federal Housing Enterprise Oversight, which is currently $417,000 for single-family homes. We also originate loans above the lending limit for conforming loans, which are referred to as “jumbo loans.” We originate fixed-rate jumbo loans that amortize up to a 30-year payout schedule, with maturities of up to 5 or 7 years that contain a balloon payment feature at the end of the term. We generally underwrite jumbo loans in a manner similar to conforming loans.

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We will originate one- to four-family residential loans with loan-to-value ratios up to and including a loan-to-value ratio of 89%. As of December 31, 2011, we had $2.1 million of loans in our loan portfolio with loan-to-value ratios in excess of 90%. We do not offer “interest only” mortgage loans on one- to four-family residential properties, where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan. We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories, typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity, as evidenced by low credit scores or high debt-burden ratios).

Consumer Loans. To date, our consumer lending has been relatively modest. We will originate a variety of consumer and other loans, including automobiles, loans secured by deposits and other personal unsecured loans. We do not originate indirect automobile loans. As of December 31, 2011, consumer loans totaled $18.9 million, or 5.3% of the total loan portfolio.

Most of our consumer loans consist of secured and unsecured installment loans, including automobile loans and loans secured by certificates of deposit. Unsecured installment loans generally have shorter terms than secured consumer loans and generally have higher interest rates than rates charged on secured installment loans with comparable terms.

The procedures for underwriting consumer loans include an assessment of an applicant’s credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral security, if any, to the proposed loan amount.

Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that tend to depreciate rapidly. In addition, the repayment of consumer loans depend on the borrower’s continued financial stability as their repayment is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy than a single family mortgage loan.

Loan Originations, Purchases, Sales, Participations and Servicing. Lending activities are conducted primarily by our loan personnel operating at our main office and our branch office locations. All loans that we originate are underwritten pursuant to our policies and procedures, which incorporate standard underwriting guidelines, including those of Freddie Mac, to the extent applicable. We originate both adjustable-rate and fixed-rate loans. Our ability to originate fixed- or adjustable-rate loans is dependent upon the relative customer demand for such loans, which is affected by current market interest rates as well as anticipated future market interest rates and local economic conditions. In the event that local economic conditions deteriorate or interest rates begin to rise from their relatively low levels, loan demand may decrease and consequently our loan origination and sales activity may be adversely affected. A significant portion of our commercial real estate, residential real estate and commercial loans are generated by referrals from brokers, current customers, professional contacts and through a general marketing campaign. We also advertise throughout our market area.

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We generally retain in our portfolio all adjustable-rate loans that we originate, as well as short-term, fixed-rate residential mortgage loans (terms of 5 years or less). We generally do not sell any of the loans that we originate. We have entered into a limited number of loan participations in recent years.

Loan Approval Procedures and Authority. First Sentry Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by First Sentry Bank’s Board of Directors. The loan approval process is intended to assess the borrower’s ability to repay the loan and value of the property that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s employment and credit history and information on the historical and projected income and expenses of the borrower.

First Sentry Bank’s policies and loan approval limits are established by the Board of Directors. Aggregate lending relationships in amounts up to $250,000 that are secured by conforming real estate mortgage loans can be approved by designated officers with specific lending approval authority. Relationships in excess of $250,000 can be approved by our President and Chief Executive Officer, up to $500,000 for loans secured by conforming real estate mortgage loans, and up to $1.5 million when combined with the lending authority of the Chairman of the Board. In practice, our Senior Loan Officer is involved in the approval of all loans. Certain of our officers can approve loans in amounts up to $25,000 that are not secured by real estate, and loans in excess of that amount, up to $200,000, can be approved by our President and Chief Executive Officer. Loans in excess of the prescribed lending authorities may be approved by the Executive Loan Committee. All loans are reported to the Executive Loan Committee and the Board of Directors in the month following the closing.

Applications for loan amounts in excess of the conforming loan limit may only receive a credit approval, subject to an appraisal of the subject property. We require appraisals by independent, licensed, third-party appraisers of all real property securing loans in excess of $250,000. Selection of appraisers is now administered by an independent third party.

Non-performing and Problem Assets

When a loan is 10 days past due, we send the borrower a late notice. When the loan is 15 to 30 days past due, we attempt personal, direct contact with the borrower to determine the reason for the delinquency, to ensure that the borrower correctly understands the terms of the loan and to emphasize the importance of making payments on or before the due date. After 30 days, we mail the borrower a letter reminding the borrower of the delinquency and the loan officer may make personal contact. If necessary, subsequent late charges and delinquency notices are issued and the account will be monitored on a regular basis thereafter. If a loan remains delinquent at 90 days, we will send the borrower a final demand for payment and if unsuccessful we then will refer the loan to legal counsel to commence foreclosure proceedings. Any of our loan officers can shorten these time frames in consultation with the senior lending officer.

Loans are generally placed on non-accrual status when payment of principal or interest is more than 90 days delinquent unless the loan is considered well-secured and in the process of collection. Loans are also placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed unless full payment of principal and remaining accrued interest is expected, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current and factors indicating doubtful collection no longer exist. Loans, or portions of such loans, are charged off when we determine that a realized loss has occurred. Until such time, an allowance for loan losses is maintained for estimated losses. Our Senior Loan Officer reports monitored loans, including all loans rated Special Mention, Substandard, Doubtful or Loss, to the Executive Loan Committee and the Board of Directors on a monthly basis. At December 31, 2011, we had $8.5 million in non-accruing loans. Our largest exposure of non-performing loans consisted of a nursing home relationship secured by all business assets including furniture, fixtures and leasehold improvements, additional commercial real estate, and guaranteed by the owners that had an aggregate principal balance of $2.8 million. We believe that we have adequate reserves on these loans and that based on our internal evaluation of the value of the collateral securing the loans, we do not anticipate further losses on these loans.

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Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. At each date presented, we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates).

	At December 31,
	2011			2010			2009			2008			2007
	(Dollars in thousands)

Non-accrual loans:
Loans:
Commercial real estate	$	4,915		$	1,500		$	1,783		$	911		$	883
Commercial		2,709			1,190			—			14			—
Residential real estate		727			1			5			155			12
Consumer		112			4			99			9			15

Total non-accrual loans		8,463			2,695			1,887			1,089			910

Loans delinquent 90 days or greater and still accruing:
Loans:
Commercial real estate		—			1,059			—			—			57
Commercial		—			136			—			14			—
Residential real estate		—			401			523			—			302
Consumer		—			164			26			8			29
Total loans delinquent 90 days or greater and still accruing		—			1,760			549			22			388

Total non-performing loans		8,463			4,455			2,436			1,111			1,298

Other real estate owned:
Loans:
Commercial real estate		1,774			1,783			1,774			1,306			1,249
Commercial		—			—			—			—			—
Residential real estate		225			320			495			185			450
Consumer		—			—			—			—			—
Total real estate owned		1,999			2,103			2,269			1,491			1,699

Total non-performing assets	$	10,462		$	6,558		$	4,705		$	2,602		$	2,997

Ratios:
Non-performing loans to total loans		2.36	%		1.25	%		0.67	%		0.50	%		0.66	%
Non-performing assets to total assets		2.11	%		1.34	%		0.96	%		0.77	%		1.11	%

Total non-performing loans increased to $8.5 million at December 31, 2011 from $4.5 million at December 31, 2010, primarily as a result of two loan relationships deteriorating during 2011. Total non-performing commercial real estate loans and non-performing commercial loans increased $3.7 million to $7.6 million at December 31, 2011 from $3.9 million at December 31, 2010, primarily due to a $2.8 million loan relationship with a nursing home facility and a $840,000 golf course loan. The nursing home relationship and the golf course loan were transferred to non-accrual status during 2011.

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For the years ended December 31, 2011 and 2010, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was $208,113 and $103,148, respectively. Interest income recognized on such loans for the years ended December 31, 2011 and 2010 was $28,078 and $3,236, respectively.

Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated.

	Loans Delinquent For
	60-89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)

At December 31, 2011
Loans:
Commercial real estate		2	$	1,611		15	$	4,915		17	$	6,526
Commercial		2		14		17		2,709		19		2,723
Residential real estate		4		198		11		727		15		925
Consumer		10		76		12		112		22		188
Total loans		18	$	1,899		55	$	8,463		73	$	10,362

At December 31, 2010
Loans:
Commercial real estate		1	$	365		6	$	2,559		7	$	2,924
Commercial		3		47		9		1,326		12		1,373
Residential real estate		3		228		7		402		10		630
Consumer		17		126		23		168		40		294
Total loans		24	$	766		45	$	4,455		69	$	5,221

At December 31, 2009
Loans:
Commercial real estate		1	$	465		5	$	1,783		6	$	2,248
Commercial		—		—		—		—		—		—
Residential real estate		2		31		8		528		10		559
Consumer		12		94		21		125		33		219
Total loans		15	$	590		34	$	2,436		49	$	3,026

At December 31, 2008
Loans:
Commercial real estate		—	$	—		5	$	911		5	$	911
Commercial		1		196		2		28		3		224
Residential real estate		2		119		3		155		5		274
Consumer		2		23		3		17		5		40
Total loans		5	$	338		13	$	1,111		18	$	1,449

At December 31, 2007
Loans:
Commercial real estate		1	$	1		5	$	940		6	$	941
Commercial		2		78		—		—		2		78
Residential real estate		1		74		6		314		7		388
Consumer		4		24		6		44		10		68
Total loans		8	$	177		17	$	1,298		25	$	1,475

Other Real Estate Owned. Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned. When such property is acquired it is recorded on our financial statements at the lower of cost or estimated fair market value at the date of foreclosure. Estimated fair value generally represents the sale price a buyer would be willing to pay on the basis of current market conditions, including normal terms from other financial institutions, less the estimated costs to sell the property. After acquisition, holding costs and declines in estimated fair market value result in charges to operations in the period in which the decline occurs. At December 31, 2011, we had $2.0 million of other real estate owned.

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Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention. As of December 31, 2011, we had $8.1 million of assets designated as special mention.

The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. Our determination as to the classification of our assets and the amount of our loss allowances will be subject to review by our principal regulators, the Federal Deposit Insurance Corporation and the West Virginia Division of Banking, which can require that we establish additional loss allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets at December 31, 2011, classified assets consisted of substandard assets of $14.8 million and no doubtful or loss assets. As of December 31, 2011, our largest substandard asset was a $2.9 million commercial real estate loan secured by a golf course, club house and residential development. The classified assets total includes $8.5 million of nonperforming loans at December 31, 2011.

Allowance for Loan Losses

We provide for loan losses based upon the consistent application of our documented allowance for loan loss methodology. All loan losses are charged to the allowance for loans losses and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating probable losses. We review the loan portfolio on a quarterly basis and make provisions for loan losses in order to maintain the allowance for loan losses in accordance with GAAP.

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions, and other risks inherent in the portfolio. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is determined by establishing a reserve rate based on the type of loan, the collateral securing the loan and the loan’s risk rating. Loans that are classified as substandard or doubtful are individually analyzed. The reserve rate is then calculated and applied to the outstanding balances of loans to determine the allocated portion of the allowance for loan losses. Any unallocated portion of the allowance for loan losses is determined by general changes in the size or composition of our loan portfolio.

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Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. In addition, the Federal Deposit Insurance Corporation and the West Virginia Division of Banking, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to them at the time of their examination.

Commercial real estate loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Commercial loans involve a higher risk of default than residential mortgage loans of like duration since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans.

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The following table sets forth activity in our allowance for loan losses for the years indicated.

	At or For the Years Ended December 31,
	2011			2010			2009			2008			2007
	(Dollars in thousands)

Balance at beginning of year	$	5,005		$	4,785		$	3,227		$	2,852		$	2,659

Charge-offs:
Loans:
Commercial real estate		1,257			199			1,036			50			161
Commercial		1,060			4,720			295			692			1,127
Residential real estate		331			24			58			48			24
Consumer		218			58			117			35			78
Total charge-offs		2,866			5,001			1,506			825			1,390

Recoveries:
Loans:
Commercial real estate		35			2			—			1			9
Commercial		44			36			33			5			5
Residential real estate		42			40			3			5			12
Consumer		28			31			3			—			14
Total recoveries		149			109			39			11			40

Net (charge-offs)		(2,717	)		(4,892	)		(1,467	)		(814	)		(1,350	)
Provision for loan losses		3,567			5,112			3,025			1,189			1,543

Balance at end of year	$	5,855		$	5,005		$	4,785		$	3,227		$	2,852

Ratios:
Net charge-offs to average loans outstanding		0.76	%		1.35	%		0.55	%		0.38	%		0.67	%
Allowance for loan losses to non-performing loans at end of year		69.18	%		112.35	%		196.43	%		290.46	%		219.72	%
Allowance for loan losses to total loans at end of year		1.64	%		1.40	%		1.31	%		1.44	%		1.38	%

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Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2011					2010					2009
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Loans:
Commercial real estate	$	1,467		50.24	%	$	1,215		48.71	%	$	1,214		46.64	%
Commercial		3,801		29.14			3,252		30.08			2,993		31.73
Residential real estate		445		15.35			331		15.52			351		15.13
Consumer		141		5.27			135		5.69			105		6.50
Total allocated allowance		5,854		100.00	%		4,933		100.00	%		4,663		100.00	%
Unallocated		1					72					122
Total	$	5,855				$	5,005				$	4,785

	At December 31,
	2008					2007
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Loans:
Commercial real estate	$	1,144		47.93	%	$	939		47.55	%
Commercial		1,730		30.38			1,567		30.92
Residential real estate		225		15.85			225		15.12
Consumer		114		5.84			119		6.41
Total allocated allowance		3,213		100.00	%		2,850		100.00	%
Unallocated		14					2
Total	$	3,227				$	2,852

Investments

Our Board of Directors has primary responsibility for establishing and overseeing our investment policy. The investment policy is reviewed at least annually by the Board of Directors. This policy dictates that investment decisions give consideration to the safety of the investment, liquidity requirements, potential returns, the ability to provide collateral for pledging requirements, consistency with our interest rate risk management strategy and support of the local community through the purchase of local bonds. Our Chief Financial Officer or President and Chief Executive Officer execute First Sentry Bank’s securities portfolio transactions. All purchase and sale transactions are formally reviewed by the Board of Directors monthly.

Our current investment policy permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The investment policy also permits, with certain limitations, investments in debt securities issued by the United States Government, agencies of the United States Government or United States Government-sponsored enterprises, commercial paper, money market funds, federal funds, investment grade corporate bonds, municipal bonds and certificates of deposit.

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Our current investment policy does not permit investment in most equity securities other than limited exceptions such as our required investment in the common stock of the Federal Home Loan Bank of Pittsburgh along with stripped mortgage backed securities, mortgaged backed residuals and mutual funds. As of December 31, 2011, we held no asset-backed securities other than mortgage-backed securities.

Our current investment policy does not permit hedging through the use of such instruments as financial futures, interest rate options and swaps.

GAAP requires that, at the time of purchase, we designate a security as either held to maturity, available-for-sale, or trading, based upon our ability and intent. Securities available-for-sale are reported at estimated market value, trading securities are reported at estimated fair value and securities held to maturity are reported at amortized cost. A periodic review and evaluation of the available-for-sale and held-to-maturity securities portfolios is conducted to determine if the fair value of any security has declined below its carrying value and whether such decline is other-than-temporary. If such decline is deemed to be other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged against earnings. The fair values of our securities, which, at December 31, 2011, consisted primarily of U.S. agency securities, mortgage-backed-securities and state and political securities, are based on published or securities dealers’ market values. The market for these securities primarily consists of other financial institutions, insurance companies, real estate investment trusts, and mutual funds.

Our available-for-sale securities portfolio at December 31, 2011, consisted of securities with the following amortized cost: $57.2 million of U.S. agency securities, $19.1 million of pass-through mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae, $14.1 million of state and political securities, consisting of general obligation and revenue municipals, and $500,000 of corporate bonds.

Our held-to-maturity securities portfolio at December 31, 2011, consisted of securities with the following amortized cost: $19.3 million of state and political subdivision securities, consisting of general obligation and revenue municipals.

At December 31, 2011, we had no securities classified as trading securities.

U.S. Government and Federal Agency Obligations. While U.S. Government and federal agency securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and as an interest rate risk hedge in the event of significant mortgage loan prepayments.

Mortgage-Backed Securities. We purchase mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae.

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Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including servicing and guarantee fees. Mortgage-backed securities typically are collateralized by pools of one- to four-family or multifamily mortgages, although we invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as First Sentry Bank. The interest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and guaranty fees. Ginnie Mae, a United States Government agency, and government sponsored enterprises, such as Fannie Mae and Freddie Mac, either guarantee the payments or guarantee the timely payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. In addition, mortgage-backed securities may be used to collateralize our specific liabilities and obligations. Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.

State and Political Securities. State and political securities consist primarily of general obligation bonds, with some revenue bonds, of state and political subdivisions located throughout the United States. All the bonds are bank qualified with either underlying investment grade ratings or investment grade ratings provided through insurance. When available and appropriate for our investment portfolio, West Virginia municipal bonds are purchased, providing support for local government. The bonds generally have longer maturities, including longer call features, and provide a tax equivalent yield greater than our agency and mortgage backed securities. The longer average life and superior yield of these bonds help offset declines in our interest margin during a falling interest rate cycle.

Corporate Bonds. Our corporate bond portfolio consists one bond in the manufacturing industry. Although corporate bonds may offer higher yields than U.S. Government Agencies of comparable duration, corporate bonds also have a higher risk of default due to possible adverse changes in the credit-worthiness of the issuer.

The following table sets forth the amortized cost and estimated fair value of our available-for-sale and held-to-maturity securities portfolios (excluding Federal Home Loan Bank of Pittsburgh common stock) at the dates indicated. We did not have any trading portfolio at any of the indicated dates.

	At December 31,
	2011				2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Investment securities available-for-sale:
Mortgage backed securities	$	19,144	$	19,371	$	14,698	$	14,680	$	15,536	$	16,006
U.S. agency securities		57,154		57,184		35,533		35,353		39,284		39,399
State and political		14,105		14,495		11,542		11,515		10,306		10,299
Corporate bonds		500		497		—		—		97		97
Total investment securities available-for-sale	$	90,903	$	91,547	$	61,773	$	61,548	$	65,223	$	65,801

Investment securities held-to-maturity:
Mortgage backed securities	$	—	$	—	$	—	$	—	$	—	$	—
U.S. agency securities		—		—		—		—		—		—
State and political		19,274		20,084		21,626		21,260		14,778		14,873
Corporate bonds		—		—		1,384		1,526		1,356		1,497
Total investment securities held-to-maturity	$	19,274	$	20,084	$	23,010	$	22,786	$	16,134	$	16,370

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Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2011 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have been adjusted to a tax-equivalent basis in the footnote below.

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)

Investment securities available-for-sale:
Mortgage backed securities	$	—		—%		$	—		—%		$	2,807		2.04	%	$	16,337		2.09	%	$	19,144	$	19,371		2.08	%
U.S. agency securities		399		4.35			1,554		1.32			4,523		1.41			50,678		1.93			57,154		57,184		1.89
State and political⁽¹⁾		712		1.64			3,091		2.51			5,815		4.11			4,487		3.54			14,105		14,495		3.45
Corporate bonds		—		—			500		1.50			—		—			—		—			500		497		1.50
Total investment securities available- for-sale	$	1,111		2.61	%	$	5,145		2.05	%	$	13,145		2.74	%	$	71,502		2.07	%	$	90,903	$	91,547		2.19	%


Investment securities held-to-maturity:
State and political⁽²⁾	$	157		2.07	%	$	848		4.18	%	$	7,968		3.51	%	$	10,301		3.94	%	$	19,274	$	20,084		3.77	%
Corporate bonds		—		—			—		—			—		—			—		—			—		—		—
Total investment securities held-to-maturity	$	157		2.07	%	$	848		4.18	%	$	7,968		3.51	%	$	10,301		3.94	%	$	19,274	$	20,084		3.77	%

(1)	The tax equivalent yield of the state and political securities portfolio was 2.29% for maturities of one year or less, 3.60% for maturities of more than one year through five years, 6.03% for maturities of more than five years through 10 years, 5.17% for maturities of more than 10 years and 5.03% for the total state and political securities portfolio at December 31, 2011.

(2)	The tax equivalent yield of the state and political securities portfolio was 2.94% for maturities of one year or less, 6.14% for maturities of more than one year through five years, 5.12% for maturities of more than five years through 10 years, 5.76% for maturities of more than 10 years and 5.51% for the total state and political securities portfolio at December 31, 2011.

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Sources of Funds

General. Deposits traditionally have been our primary source of funds for our investment and lending activities. We also borrow, primarily from the Federal Home Loan Bank of Pittsburgh and through securities sold under agreements to repurchase, to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management purposes and to manage our cost of funds. Our additional sources of funds are scheduled loan payments, maturing investments, loan prepayments, retained earnings and income on other earning assets.

Deposits. We accept deposits from the areas in which our offices are located. We rely on our competitive pricing, convenient locations and customer service to attract and retain deposits. We offer deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, money market accounts, NOW accounts and non-interest bearing checking accounts. Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals.

We accept brokered deposits. At December 31, 2011, we had $70.5 million of brokered deposits. We participate in the CDARS network which comprised $13.7 million of our brokered deposits at December 31, 2011. When a customer gives us a deposit and requests the full protection of Federal Deposit Insurance Corporation insurance where such deposit exceeds applicable limits, we use the CDARS network to place the funds into certificates of deposit issued by banks in the network. This occurs in increments of less than $250,000 to ensure that both principal and interest are eligible for full Federal Deposit Insurance Corporation insurance. The CDARS network matching system allows network members to exchange funds. This exchange occurs on a dollar-for-dollar basis, so that the equivalent of the original deposit comes back to us. We also participate in the Insured Network Deposits (“IND”) program which comprised $28.5 million of our brokered deposits at December 31, 2011. The program provides stable, floating rate funding as a partial hedge for our floating rate loans. The IND accounts are approximately 99% money market accounts and 1% NOW accounts that come from brokerage accounts across the nation in increments of $250,000 or less in order to provide full Federal Deposit Insurance Corporation insurance. Both programs have greatly assisted our deposit gathering activities.

At December 31, 2011, we had a total of $210.9 million in certificates of deposit, of which $112.4 million had remaining maturities of one year or less. Based on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

The following tables set forth the distribution of our total deposit accounts, by account type, for the periods indicated.

		For the Years Ended
		2011								2010								2009
		Average Outstanding Balance		Percent			Weighted Average Rate			Average Outstanding Balance		Percent			Weighted Average Rate			Average Outstanding Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Savings accounts		$	20,175		5.01	%		0.13	%	$	19,334		4.79	%		0.18	%	$	14,037		4.66	%		0.20	%
Certificates of deposit			212,522		52.76			2.07			222,753		55.18			2.40			171,847		57.02			3.46
Money market			62,522		15.52			0.40			59,489		14.74			0.45			33,521		11.12			0.50
NOW			50,791		12.61			0.30			48,877		12.11			0.35			40,139		13.32			0.30
Checking			56,786		14.10			—			53,195		13.18			—			41,839		13.88			—

Total deposits		$	402,796		100.00	%		1.20	%	$	403,648		100.00	%		1.44	%	$	301,383		100.00	%		2.08	%

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As of December 31, 2011, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $114.9 million. The following table sets forth the maturity of those certificates as of December 31, 2011.

	At December 31, 2011
	(In thousands)

Three months or less	$	26,170
Over three months through six months		12,335
Over six months through one year		29,474
Over one year to three years		28,119
Over three years		18,799

Total	$	114,897

Borrowings. Our borrowings consist primarily of securities sold under agreements to repurchase (repurchase agreements) as well as advances from the Federal Home Loan Bank of Pittsburgh, borrowings from our other correspondent banking relationships and trust preferred securities. As of December 31, 2011, our repurchase agreements totalled $21.3 million, or 4.7% of total liabilities, and our Federal Home Loan Bank advances totalled $31.2 million, or 6.9% of total liabilities. At December 31, 2011, we had the ability to borrow an additional $86.5 million under our credit facilities with the Federal Home Loan Bank of Pittsburgh. Repurchase agreements are secured by agency and mortgage-backed securities. Advances from the Federal Home Loan Bank of Pittsburgh are secured by our investment in the common stock of the Federal Home Loan Bank of Pittsburgh as well as by a blanket pledge of our collateral eligible loan portfolio not otherwise pledged.

The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank of Pittsburgh borrowings at and for the periods shown:

	At or For the Years Ended December 31,
	2011			2010			2009
	(Dollars in thousands)

Balance at end of year	$	31,221		$	33,721		$	39,891
Average balance during year	$	28,223		$	28,647		$	37,247
Maximum outstanding at any month end	$	41,221		$	36,221		$	49,184
Weighted average interest rate at end of year		1.70	%		2.03	%		2.30	%
Average interest rate during year		2.03	%		2.44	%		3.05	%

The following table sets forth information concerning balances and interest rates on our repurchase agreements at the dates and for the periods indicated.

	At or For the Years Ended December 31,
	2011			2010			2009
	(Dollars in thousands)

Balance at end of year	$	21,262		$	19,375		$	20,730
Average balance during year	$	20,791		$	19,191		$	14,667
Maximum outstanding at any month end	$	24,402		$	20,675		$	25,204
Weighted average interest rate at end of year		1.63	%		1.96	%		1.96	%
Average interest rate during year		1.81	%		2.07	%		2.84	%

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At December 31, 2011, our borrowings also consisted of $9.0 million in Floating Rate Trust Preferred Securities. Of the total, $5.0 million was issued on April 23, 2007 and $4.0 million was issued on June 26, 2003, by way of two distinct special purpose subsidiaries. The $5.0 million Floating Rate Trust Preferred Security bears interest at a floating rate that adjusts quarterly by 158 basis points above the LIBOR rate. The $5.0 million Floating Rate Trust Preferred Security is callable at the option of First Sentry Bancshares, Inc. on or after June 15, 2012, and will fully mature on June 15, 2037.At December 31, 2011, and December 31, 2010, the interest rate on the $5.0 million Floating Rate Trust Preferred Security was 2.13% and 1.88%, respectively.On September 25, 2009, in connection with the merger of Guaranty Financial Services, Inc., we assumed a $4.0 million Floating Rate Trust Preferred Security that is callable at the option of First Sentry Bancshares, Inc. after June 26, 2008 and has a final maturity of June 26, 2033. The $4.0 million Floating Rate Trust Preferred Security bears interest at a floating rate that adjusts quarterly by 310 basis points above the LIBOR rate. At December 31, 2011, and December 31, 2010, the interest rate on the $4.0 million Floating Rate Trust Preferred Security was 3.67% and 3.40%, respectively.

Subsidiary Activities

First Sentry Bancshares, Inc. has three subsidiaries, First Sentry Bank, a West Virginia chartered commercial bank, First Sentry Bancshares Capital Trust II, a Delaware statutory business trust whose sole asset is the $5.0 million Floating Rate Trust Preferred Security and Guaranty Financial Statutory Trust I, a Connecticut trust whose sole asset is the $4.0 million Floating Rate Trust Preferred Security.

Personnel

As of December 31, 2011, we had 73 full-time employees and 7 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees.

FEDERAL AND STATE TAXATION

Federal Taxation

General. First Sentry Bancshares, Inc. and First Sentry Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. First Sentry Bancshares, Inc. files consolidated tax returns with First Sentry Bank, its wholly-owned subsidiary.

First Sentry Bancshares, Inc.’s consolidated federal tax returns are not currently under audit, and have not been audited during the past five years. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to First Sentry Bancshares, Inc. or First Sentry Bank.

Method of Accounting. For federal income tax purposes, First Sentry Bancshares, Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the regular income tax. Net operating losses can offset no more than 90% of alternative taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. At December 31, 2011, First Sentry Bancshares, Inc.’s consolidated group has an alternative minimum tax carryover of approximately $84,000.

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Net Operating Loss Carryovers. A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years, as allowed by Internal Revenue Code Section 381. At the date of the merger, Guaranty Financial Services, Inc. had approximately $2.5 million in net operating losses available for carryforward that First Sentry Bancshares, Inc., as the surviving company in the merger, assumed. For the year ended December 31, 2010, First Sentry Bancshares, Inc. utilized the remaining carryforward of approximately $2.0 million, and at December 31, 2011, First Sentry Bancshares, Inc.’s consolidated group had no net operating loss carryforwards for federal income tax purposes.

Corporate Dividends-Received Deduction. First Sentry Bancshares, Inc. may exclude from its federal taxable income 100% of dividends received from First Sentry Bank as a wholly-owned subsidiary. The corporate dividends-received deduction is 80% when the corporation receiving the dividend owns at least 20% of the stock of the distributing corporation.

State Taxation

General. First Sentry Bancshares, Inc. and First Sentry Bank are subject to state income taxations in the same general manner as other West Virginia corporations, with some exceptions discussed below. First Sentry Bancshares, Inc. files consolidated state income tax returns with First Sentry Bank, its wholly owned subsidiary. Current state income tax rates are 8.50%.

First Sentry Bancshares, Inc.’s consolidated state income tax returns are not currently under audit, and have not been during the past five years. The following is not a comprehensive description of the state income tax rules applicable to First Sentry Bancshares, Inc. or First Sentry Bank.

Method of Accounting. For state income tax purposes, the same method of accounting for federal income tax purposes is used. State taxable income calculation begins with the federal taxable income reported, further adjusted for modifications increasing or decreasing federal taxable income.

Modifications. Items added back to federal taxable income for state income tax purposes include items such as interest and dividends from any state or local government bonds and securities that was excluded from federal taxable income, and income taxes imposed by the State of West Virginia, based upon net income that were expensed for federal income tax purposes. Deductions from federal taxable income for state purposes include items such as interest expense on obligations or securities of any state or local political subdivisions disallowed in determining federal taxable income, and the calculated allowance for U.S. obligations and obligations secured by real estate.

Net Operating Loss Carryovers. West Virginia law allows certain tax provisions to be in conformity with the application of federal tax laws. Net operating loss carryovers and carrybacks are treated in the same manner as for federal income tax purposes and are adjusted for current year modifications in determining the amount for state carryback or carryover losses. At December 31, 2011, First Sentry Bancshares, Inc.’s consolidated group had no remaining net operating loss carryforwards for state income tax purposes.

Regulation and Supervision

Set forth below is a brief description of various laws, regulatory authorities and associated regulations affecting First Sentry Bancshares, Inc.’s operations. The description of laws and regulations contained in this document does not purport to be complete and is qualified in its entirety by reference to such laws and regulations.

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New Federal Legislation. Congress has enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which has significantly changed the current bank regulatory structure and affected the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act has eliminated the Office of Thrift Supervision. The Dodd-Frank Act also authorized the Board of Governors of the Federal Reserve System to supervise and regulate all savings and loan holding companies, in addition to bank holding companies which it currently regulates. The Dodd-Frank Act also requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Bank holding companies with assets of less than $500 million are exempt from these capital requirements. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. The legislation also established a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakened the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

The legislation also broadened the base for Federal Deposit Insurance Corporation insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012. The Dodd-Frank Act also increased stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not. Further, the legislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination. Many of the provisions of Dodd-Frank involve delayed effective dates and/or require implementing regulations. Accordingly, it will be some time before management can assess the full impact on operations. However, there is a significant possibility that the Dodd-Frank Act will, at a minimum, result in an increased regulatory burden and compliance, operating and interest expense for First Sentry Bank and First Sentry Bancshares, Inc.

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First Sentry Bancshares, Inc. and Bank Holding Company Regulation. First Sentry Bancshares, Inc. is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended. As such, it is subject to regulation, examination, supervision and reporting requirements of the Federal Reserve Board. The Federal Reserve Board also has enforcement authority over any non-bank subsidiaries, and the Federal Deposit Insurance Corporation and the West Virginia Division of Banking have enforcement authority over First Sentry Bank. Among other things, this authority permits the Federal Reserve Board, the Federal Deposit Insurance Corporation or the West Virginia Division of Banking to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of First Sentry Bank. Additionally, the Federal Reserve Board imposes capital requirements on bank holding companies with more than $500 million in consolidated assets, which may apply to First Sentry Bancshares, Inc. in the future. These capital requirements generally parallel the capital requirement for First Sentry Bank. See “Regulation and Supervision – Capital Ratios.”

As a bank holding company, First Sentry Bancshares, Inc. may engage, subject to prior notice to or approval of the Federal Reserve Board, in certain activities determined by the Federal Reserve Board to be closely related to banking, or acquire directly or indirectly more than 5% of another bank or non-banking company. Additionally, the Federal Reserve Board permits bank holding companies that meet certain capital, management and regulatory standards to engage in a broader range of non-banking activities by electing to be treated as a “financial holding company.” Generally, financial holding companies may engage in activities such as banking, insurance and securities activities, as well as merchant banking activities under certain circumstances. At this time, First Sentry Bancshares, Inc. has not elected to make the financial holding company election because it does not engage in any of the expanded activities.

The Change in Bank Control Act, as amended, provides that no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire control of First Sentry Bancshares, Inc. unless the Federal Reserve Board has been given 60 days prior written notice. The Bank Holding Company Act provides that no company may acquire control of a bank without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a bank holding company subject to registration, examination and regulation by the Federal Reserve Board. Control of a bank holding company is conclusively deemed to have been acquired by, among other things, the acquisition of 25% or more of any class of voting stock of the company or the ability to control the election of a majority of the directors of the company. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more than 10% of any class of voting stock, but less than 25% of any class of stock of a bank holding company, where certain enumerated control factors are also present in the acquisition. The Federal Reserve Board may prohibit an acquisition of control if it would result in a monopoly or substantially lessen competition, the financial condition of the acquiring person might jeopardize the financial stability of the bank or the bank holding company, or the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person.

The Federal Reserve Board has issued a policy statement regarding the payment of cash dividends by bank holding companies. This policy statement expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that a company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve Board also indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. In addition, Federal Reserve Board policy, as recently codified by the Dodd-Frank Act, requires a bank holding company to serve as a “source of strength” to its subsidiary institutions by providing capital, liquidity and other resources in times of financial stress. Under the prompt corrective action regulations adopted by the Federal Reserve Board, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.” See “Regulation and Supervision – Capital Ratios.”

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Bank holding companies are required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve Board order, or any condition imposed by, or written agreement with, the Federal Reserve Board. This notification requirement does not apply to any bank holding company that is well-capitalized, well managed and is not subject to any unresolved supervisory issues.

The USA Patriot Act was signed into law on October 26, 2001. The USA Patriot Act gave the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA Patriot Act also requires the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application of a member institution.

The Sarbanes-Oxley Act of 2002 was signed into law on July 30, 2002. The Sarbanes-Oxley Act of 2002 is a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by Section 302(a) of Sarbanes-Oxley Act of 2002, First Sentry Bancshares, Inc.’s Chief Executive Officer and Chief Financial Officer are each required to certify that First Sentry Bancshares, Inc.’s quarterly and annual reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation. First Sentry Bancshares, Inc. has been subject to further reporting and audit requirements beginning with the annual report for the year ended December 31, 2010 under the requirements of Sarbanes-Oxley. First Sentry Bancshares, Inc. has policies, procedures and systems designed to comply with these regulations.

Bank Operations. First Sentry Bank is subject to extensive regulation, examination and supervision by the Federal Deposit Insurance Corporation, as their primary federal regulator, and the West Virginia Division of Banking. Such regulation and supervision:

	•	establishes a comprehensive framework of activities in which the Bank can engage;

	•	limits the types and amounts of investments permissible for the Bank;

	•	limits the ability of the Bank to extend credit to any given borrower;

	•	significantly limits the transactions in which the Bank may engage with its affiliates;

	•	places limitations on capital distributions by the Bank;

	•	imposes assessments to the West Virginia Division of Banking to fund its operations;

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	•	establishes a continuing and affirmative obligation, consistent with the bank’s safe and sound operation, to help meet the credit needs of its community, including low- and moderate-income neighborhoods;

	•	requires the Bank to maintain certain non-interest-bearing reserves against its transaction accounts;

	•	establishes various capital categories resulting in various levels of regulatory scrutiny applied to the institution in a particular category; and

	•	establishes standards for safe and sound operations.

First Sentry Bank must submit annual financial reports audited by independent auditors to the Federal Deposit Insurance Corporation and the West Virginia Division of Banking. Auditors must receive examination reports, supervisory correspondence and reports of enforcement actions. In addition, an attestation by the auditor regarding the statements of management relating to the internal controls must be submitted to the Federal Deposit Insurance Corporation and the West Virginia Division of Banking. The audit committee of First Sentry Bank must include members with experience in banking or financial management, must have access to outside counsel and must not include representatives of large customers. The regulatory structure is designed primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities. Any change in these regulations, whether by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the West Virginia Division of Banking or the U.S. Congress, could have a material impact on First Sentry Bank and its operations.

Transactions with Affiliates. Sections 23A and 23B of the Federal Reserve Act and its implementing regulations, govern transactions between depository institutions and their affiliates. In a holding company structure, the parent holding company of a bank and any companies that are controlled by the parent holding company are affiliates of the bank. Section 23A limits the extent to which the bank or its subsidiaries may engage in certain transactions with its affiliates. These transactions include, among other things, the making of loans or other extensions of credit to an affiliate and the purchase of assets from an affiliate. Generally, these transactions between the bank and any one affiliate cannot exceed 10% of the bank’s capital stock and surplus, and these transactions between the bank and all of its affiliates cannot, in the aggregate, exceed 20% of the bank’s capital stock and surplus. Section 23A also establishes specific collateral requirements for loans or extensions of credit to an affiliate, and for guarantees or acceptances on letters of credit issued on behalf of an affiliate. Applicable regulations prohibit a bank from lending to any affiliate engaged in activities not permissible for a bank holding company or for the purpose of acquiring the securities of most affiliates. Section 23B requires that transactions covered by Section 23A and a broad list of other specified transactions be on terms and under circumstances substantially the same, or no less favorable to the bank or its subsidiary, as similar transactions with non-affiliates.

Loans to Insiders. Any loans to executive officers, directors, any owner of 10% or more of stock (each, an insider) and any of certain entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and the Federal Reserve Board’s Regulation O thereunder. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks. All loans to insiders and insiders’ related interests in the aggregate may not exceed either bank’s unimpaired capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the greater of $25,000 or 2.5% of either bank’s capital and unimpaired surplus, provided that such number is equal to or less than $100,000. Regulation O also requires that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the Board of Directors of the bank, with any interested director not participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests, would exceed either $500,000 or the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus. Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those that are prevailing at the time for comparable transactions with other persons.

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An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.

Insurance of Deposit Accounts. First Sentry Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. Deposit accounts in the Bank are insured by the Federal Deposit Insurance Corporation. In view of the recent economic crisis, the Federal Deposit Insurance Corporation temporarily increased the general individual deposit insurance available on deposit accounts from $100,000 to $250,000. The Dodd-Frank Act made that level of coverage permanent retroactive to January 1, 2008. In addition, pursuant to a provision of the Dodd-Frank Act, certain non-interest-bearing transaction accounts are fully insured regardless of the dollar amount until December 31, 2012.

The Federal Deposit Insurance Corporation imposes an assessment for deposit insurance on all depository institutions. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by Federal Deposit Insurance Corporation regulations, with institutions deemed less risky paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2 ½ to 45 basis points of each institution’s total assets less tangible capital. The Federal Deposit Insurance Corporation may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking. The Federal Deposit Insurance Corporation’s current system represents a change, effective April 1, 2011 and required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s volume of deposits.

In 2009, the Federal Deposit Insurance Corporation, in response to pressures on the Deposit Insurance Fund caused by bank and savings association failures, required all insured depository institutions to prepay their estimated assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. The estimated assessments were based on assumptions established by the Federal Deposit Insurance Corporation, including an assumed 5% annual growth rate and certain assumed assessment rate increases. That pre-payment, which was due on December 30, 2009 and amounted to $1.6 million for First Sentry Bank, was recorded as a prepaid expense at December 31, 2009 and is being amortized to expense over three years. Any unused prepaid assessments would be returned to the institution in June 2013.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation and the Federal Deposit Insurance Corporation has exercised that discretion by establishing a long term fund ratio of 2%.

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The Federal Deposit Insurance Corporation has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of First Sentry Bank. Management cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

In addition to the Federal Deposit Insurance Corporation assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended December 31, 2011, the annualized FICO assessment was equal to 0.66 basis points for each $100 in domestic deposits maintained at an institution.

Capital Requirements. Under Federal Deposit Insurance Corporation regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as First Sentry Bank, are required to comply with minimum leverage capital requirements. For an institution determined by the Federal Deposit Insurance Corporation to not be anticipating or experiencing significant growth and to be, in general, a strong banking organization rated composite 1 under the Uniform Financial Institutions Ranking System established by the Federal Financial Institutions Examination Council, the minimum capital leverage requirement is a ratio of Tier 1 capital to total assets of 3.0%. For all other institutions, the minimum leverage capital ratio is not less than 4.0%. Tier 1 capital is the sum of common stockholders’ equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights and credit card relationships) and certain other specified items.

The Federal Deposit Insurance Corporation regulations require state non-member banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations, direct credit substitutes and residual interests) to four risk-weighted categories ranging from 0.0% to 100.0%, with higher levels of capital being required for the categories perceived as representing greater risk.

State non-member banks must maintain a minimum ratio of total capital to risk-weighted assets of at least 8.0%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital instruments, and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s Tier 1 capital. Banks that engage in specified levels of trading activities are subject to adjustments in their risk based capital calculation to ensure the maintenance of sufficient capital to support market risk.

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The Federal Deposit Insurance Corporation Improvement Act (the “FDICIA”) required each federal banking agency to revise its risk-based capital standards for insured institutions to ensure that those standards take adequate account of interest-rate risk, concentration of credit risk, and the risk of nontraditional activities, as well as to reflect the actual performance and expected risk of loss on multi-family residential loans. The Federal Deposit Insurance Corporation, along with the other federal banking agencies, has adopted a regulation providing that the agencies will take into account the exposure of a bank’s capital and economic value to changes in interest rate risk in assessing a bank’s capital adequacy. The Federal Deposit Insurance Corporation also has authority to establish individual minimum capital requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances.

Capital Ratios. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

The Federal Deposit Insurance Corporation has adopted regulations to implement the prompt corrective action legislation. An institution is deemed to be:

	•	“well capitalized” if it has a total risk-based capital ratio of 10% or greater and a leverage ratio of 5% or greater;

	•	“adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or greater and generally a leverage ratio of 4% or greater;

	•	“undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a leverage ratio of less than 4%;

	•	“significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; and

	•	“critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.

As of December 31, 2011, First Sentry Bank was a “well capitalized” institution, with a total risk-based capital ratio of 12.20% and a leverage ratio of 7.36%.

“Undercapitalized” institutions must adhere to growth, capital distribution and dividend and other limitations and are required to submit a capital restoration plan with the Federal Deposit Insurance Corporation within 45 days after the bank receives notice of such undercapitalization. A bank’s compliance with its capital restoration plan is required to be guaranteed by any company that controls the “undercapitalized” institution in an amount equal to the lesser of 5% of total assets when deemed “undercapitalized” or the amount necessary to achieve the status of “adequately capitalized.” If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” institutions must comply with one or more of a number of additional restrictions, including an order by the Federal Deposit Insurance Corporation to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restriction on interest rates paid on deposits, compensation of executive officers and capital distributions to the parent holding company. “Critically undercapitalized” institutions must comply with additional sanctions, including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains this status.

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Dividend Limitations. First Sentry Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under West Virginia Banking law, First Sentry Bank may not pay a cash dividend until its surplus fund equals its common stock, unless there has been carried to the surplus fund not less than 1/10^th of net profits of the preceding half year in the case of quarterly dividends. Prior approval of the Commissioner is required if the total of all dividends in any calendar year exceeds the total of net profits of that year combined with its retained net profits of the preceding two years. In addition, First Sentry Bank cannot pay dividends in amounts that would reduce its capital below regulatory imposed minimums.

Federal Reserve System. The Federal Reserve Board regulations require all depository institutions to maintain non-interest earning reserves at specified levels against their transaction accounts (primarily NOW and regular checking accounts). At December 31, 2011, First Sentry Bank was in compliance with the Federal Reserve Board’s reserve requirements. Depository institutions, such as First Sentry Bank, are authorized to borrow from the Federal Reserve Bank “discount window.” First Sentry Bank is deemed by the Federal Reserve Board to be generally sound and thus eligible to obtain primary credit from its Federal Reserve Bank. Generally, primary credit is extended on a very short-term basis to meet the liquidity needs of the institution. Loans must be secured by acceptable collateral and carry a rate of interest of 100 basis points above the Federal Open Market Committee’s federal funds target rate.

Check Clearing for the 21st Century Act. This law, which became effective in October 2003, gives the same legal weight to a digital image of a check as to the actual check. First Sentry Bank processes customer checks in compliance with the requirements of this law.

Federal Securities Laws

First Sentry Bancshares, Inc. filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the shares of common stock issued pursuant to the merger with Guaranty Financial Services, Inc. First Sentry Bancshares, Inc. common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. First Sentry Bancshares, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of common stock issued in the merger does not cover the resale of those shares. Shares of common stock received by persons who are not affiliates of First Sentry Bancshares, Inc. may be resold without registration. Shares received by an affiliate of First Sentry Bancshares, Inc. will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If First Sentry Bancshares, Inc. meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of First Sentry Bancshares, Inc. that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of First Sentry Bancshares, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, First Sentry Bancshares, Inc. may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

ITEM 1A.

Risk Factors

Not applicable to a smaller reporting company.

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ITEM 1B.

Unresolved Staff Comments

Not applicable to a smaller reporting company.

ITEM 2.

Properties

As of December 31, 2011, the net book value of our properties was $4.0 million. The following is a list of our current offices:

Location	Leased or Owned	Year Acquired or Leased		Square Footage		Net Book Value of Real Property
						(In thousands)
Main Office:

823 Eighth Street, Huntington, West Virginia	Owned		1998		16,800	$	3,045

Branch Offices:

6501 Mud River Road, Barboursville, West Virginia	Land lease		2004		3,200		903

5604 US Route 60 East, Huntington, West Virginia	Leased		2009		3,161		—

5 Second Street, Hamlin, West Virginia	Land lease		2009		1,440		36

We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.

ITEM 3.

Legal Proceedings

From time to time, we are involved as plaintiff or defendant in various legal proceedings arising in the ordinary course of business. At December 31, 2011, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

ITEM 4.

Mine Safety Disclosures

Not applicable.

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)Trades in our common stock are reported on the Pink Sheets under the symbol “FTSB.PK.” The approximate number of holders of record of First Sentry Bancshares, Inc.’s common stock as of December 31, 2011 was 738. Certain shares of First Sentry Bancshares, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The following table presents quarterly market information for First Sentry Bancshares, Inc.’s common stock for the last two years. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The following information was based on trades reported to us.

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Fiscal 2011	High Bid		Low Bid		Dividends
Quarter ended December 31, 2011	$	25.00	$	25.00	$	0.20
Quarter ended September 30, 2011		25.00		25.00		0.20
Quarter ended June 30, 2011		25.00		25.00		0.20
Quarter ended March 31, 2011		25.00		25.00		0.20

Fiscal 2010	High Bid		Low Bid		Dividends
Quarter ended December 31, 2010	$	25.00	$	24.50	$	0.20
Quarter ended September 30, 2010		25.00		25.00		0.20
Quarter ended June 30, 2010		25.00		25.00		0.20
Quarter ended March 31, 2010		25.00		25.00		0.20

Dividend payments by First Sentry Bancshares, Inc. are dependent primarily on dividends it receives from First Sentry Bank, because First Sentry Bancshares, Inc. will have no source of income other than dividends from First Sentry Bank. For a discussion of the restrictions on the ability of First Sentry Bank to pay dividends to First Sentry Bancshares, Inc., please see “Item 1. Business―Supervision and Regulation ―Dividend Limitations.”

(b) Not applicable.

ITEM 6.

Selected Financial Data

The summary information presented below at the dates or for each of the years presented is derived in part from First Sentry Bancshares, Inc.’s audited consolidated financial statements. The following information is only a summary, and should be read in conjunction with First Sentry Bancshares, Inc. consolidated financial statements and notes beginning on page 47 of this Annual Report.

	At December 31,
	2011		2010		2009		2008		2007
	(In thousands)
Selected Financial Condition Data:

Total assets	$	496,106	$	490,684	$	488,500	$	338,496	$	269,025
Cash and cash equivalents		10,438		21,120		17,943		7,534		7,129
Interest-earning deposits		3,687		12,331		5,832		18,677		2,000
Trading assets		—		—		—		—		3,996
Investment securities available for sale		91,547		61,548		65,801		70,659		41,346
Investment securities held to maturity		19,274		23,010		16,134		9,286		—
Federal Home Loan Bank stock, at cost		2,931		2,886		3,038		2,177		1,176
Loans, net of allowance		351,912		351,901		360,761		220,945		204,438
Deposits		401,848		398,672		389,471		265,200		214,895
Securities sold under agreements to repurchase		21,262		19,375		20,730		12,498		10,922
Federal Home Loan Bank advances		31,221		33,721		39,891		35,560		19,221
Trust Preferred Securities		9,000		9,000		9,000		5,000		5,000
Stockholders’ equity		31,578		29,009		28,110		18,684		17,837

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	Years Ended December 31,
	2011		2010		2009		2008		2007
	(In thousands, except per share amounts)
Selected Operating Data:

Interest income	$	22,198	$	23,533	$	19,684	$	17,845	$	17,947
Interest expense		6,010		7,160		7,979		8,999		9,049
Net interest income		16,188		16,373		11,705		8,846		8,898
Provision for loan losses		3,567		5,112		3,025		1,189		1,543
Net interest income after provision for loan losses		12,621		11,261		8,680		7,657		7,355
Other income		1,552		2,203		761		735		1,121
Other expenses		9,887		9,907		8,620		5,661		5,137
Income before income tax		4,286		3,557		821		2,731		3,339
Income tax expense		1,272		1,006		93		876		1,185
Net income	$	3,014	$	2,551	$	728	$	1,855	$	2,154
Income per common share	$	2.10	$	1.77	$	0.63	$	1.76	$	2.04

	At or For the Years Ended December 31,
	2011			2010			2009			2008			2007

Selected Financial Ratios and Other Data:

Performance Ratios:
Return on average assets (ratio of net income to average total assets)		0.61	%		0.52	%		0.19	%		0.62	%		0.84	%
Return on average equity (ratio of net income to average equity)		9.72	%		8.63	%		3.32	%		9.97	%		12.65	%
Dividend payout ratio⁽¹⁾		38.16	%		45.08	%		126.51	%		45.55	%		29.42	%
Interest rate spread⁽²⁾		3.32	%		3.34	%		2.85	%		2.52	%		2.87	%
Net interest margin⁽³⁾		3.51	%		3.55	%		3.19	%		3.05	%		3.64	%
Efficiency ratio ⁽⁴⁾		55.73	%		53.33	%		66.48	%		59.09	%		51.27	%
Non-interest expense to average total assets		2.01	%		2.02	%		2.25	%		1.88	%		2.01	%
Average interest-earning assets to average interest-bearing liabilities		114.31	%		113.22	%		115.62	%		117.11	%		120.65	%
Average equity to average total assets		6.29	%		6.02	%		5.72	%		6.19	%		6.67	%

Asset Quality Ratios:
Non-performing assets to total assets		2.11	%		1.34	%		0.96	%		0.77	%		1.11	%
Non-performing loans to total loans		2.36	%		1.25	%		0.67	%		0.50	%		0.63	%
Allowance for loan losses to non-performing loans		69.18	%		112.35	%		196.43	%		290.46	%		219.72	%
Allowance for loan losses to total loans		1.64	%		1.40	%		1.31	%		1.44	%		1.38	%

Capital Ratios:
Total capital (to risk-weighted assets)		12.24	%		11.65	%		10.88	%		11.90	%		12.70	%
Tier I capital (to risk-weighted assets)		10.99	%		10.39	%		9.63	%		10.65	%		11.45	%
Tier I capital (to average assets)		7.60	%		7.23	%		6.90	%		7.24	%		8.63	%

Other Data:
Number of full service offices		4			4			4			2			2
Full time equivalent employees		77			80			77			54			51

(1)	The dividend payout ratio is calculated using dividends declared divided by net income.
(2)	The average interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities for the year.
(3)	The net interest margin represents net interest income as a percent of average interest-earning assets for the year.
(4)	The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.

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ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section is intended to help potential investors understand our financial performance through a discussion of the factors affecting our financial condition at December 31, 2011 and 2010 and our consolidated results of operations for the years ended December 31, 2011 and 2010. This section should be read in conjunction with the consolidated financial statements and notes to the financial statements that appear elsewhere in this Annual Report.

Overview

Our results of operations depend primarily on our net interest income and controlling our non-interest expense. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including U.S. agency securities and other securities) and other interest-earning assets and the interest paid on our interest-bearing liabilities, consisting primarily of certificates of deposit, long- and short-term borrowings, Federal Home Loan Bank advances, securities sold under agreements to repurchase, savings accounts, money market accounts, transaction accounts and trust preferred securities. Our results of operations also are affected by our provisions for loan losses, other income and other expenses. Other income currently consists primarily of service fees, securities gains and other charges, commissions and fees. Other expenses currently consist primarily of salaries and employee benefits, equipment and occupancy expenses, data processing, professional fees, taxes, insurance and other expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Critical Accounting Policies

Critical accounting policies are defined as those that involve significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are the following:

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover probable and reasonably estimatable credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. In determining the allowance for loan losses, we make significant estimates and, therefore, have identified the allowance as a critical accounting policy. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

The allowance for loan losses has been determined in accordance with GAAP. The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions, and other risks inherent in the portfolio. Allowances for impaired loans are generally determined, based on collateral values or the present value of estimated cash flows. The allowance is determined by establishing a reserve rate based on the type of loan, the collateral securing the loan and the loan’s risk rating. Loans that are classified as substandard or doubtful are individually analyzed. The reserve rate is then calculated and applied to the outstanding balances of loans to determine the allocated portion of the allowance for loan losses. Any unallocated portion of the allowance for loan losses is determined by general changes in the size or composition of our loan portfolio.

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Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. In addition, the Federal Deposit Insurance Corporation and the West Virginia Division of Banking, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance, based on its judgments about information available to them at the time of their examination.

The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses.

This monthly process is performed by credit administration and approved by the Senior Loan Officer. The Chief Financial Officer performs a final review of the calculation. All supporting documentation with regard to the evaluation process is maintained by credit administration. A summary of the allowance for loan losses is presented by the Senior Loan Officer to the Executive Loan Committee, which consists of five directors, including the Chief Executive Officer and the Senior Loan Officer, Chief Financial Officer and Senior Credit Analyst. The Board of Directors also reviews and approves the allowance for loan losses on a monthly basis.

We have a concentration of loans secured by real property located in Cabell County, West Virginia. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the collateral. Based on the composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the economy generally, and a decline in real estate market values in West Virginia. Any one or combination of these events may adversely affect our loan portfolio, resulting in increased delinquencies, loan losses and future levels of loan loss provisions.

Income Taxes. Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of the allowance for loan losses and accumulated depreciation. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

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Business Strategy

Our business strategy is to operate as a profitable community-oriented financial institution dedicated to providing personal service to our individual and business customers. Over the past few years, we have emphasized the origination of commercial real estate loans and commercial loans, and we intend to increase our origination of these loans in the future. We cannot assure you that we will successfully implement our business strategy.

Highlights of our business strategy are as follows:

	•	*Maintaining a community focus.* Our management and Board of Directors have strong ties to the Huntington and Barboursville, West Virginia communities. Many members of the management team are Huntington natives and are active in the community through non-profit board membership, local business development organizations, and industry associations. In addition, our Board members are well established professionals and respected business people in the Huntington area and throughout West Virginia. Management and the Board are interested in making a lasting contribution to the Huntington community and have succeeded in attracting deposits and loans through attentive and personalized service. To better serve our customers, we have also expanded our products and services by introducing such products as internet and telephone banking, ATM debit cards and CDARS (a type of brokered certificate of deposit that allows a bank to gather large local certificates of deposit that may exceed Federal Deposit Insurance Corporation insurance limits and trade portions of such certificates of deposit with other network members to lower such balances to below Federal Deposit Insurance Corporation insurance limits). On September 25, 2009, in connection with the merger of Guaranty Financial Services, Inc., we acquired a full service branch in Hamlin, West Virginia, located in Lincoln County. We continue to operate at this location as we look to increase our customer base in Lincoln County.

	•	*Continuing our Focus on Commercial Real Estate Lending and Commercial Lending.* We intend to continue to increase our origination of higher-yielding commercial real estate loans and commercial loans. These loans generally are originated with adjustable interest rates and/or shorter terms, which assists us in managing our interest rate risk. To support this initiative, we have built an infrastructure of seasoned lenders, business developers and underwriters. We originated $36.1 million of commercial real estate loans and $26.7 million of commercial loans during the year ended December 31, 2011. At December 31, 2011, our commercial real estate loans totaled $179.8 million, or 50.2% of total loans, compared to $173.9 million, or 48.7% of total loans at December 31, 2010, and $170.5 million, or 46.6% of total loans at December 31, 2009. Our commercial loans totaled $104.3 million, or 29.1% at December 31, 2011, and $107.4 million, or 30.1% and $116.0 million, or 31.7% at December 31, 2010 and 2009, respectively. Our commercial loans decreased in 2011 and 2010 due to the weak economy and tightened credit standards.

	•	*Maintaining High Asset Quality.* We have emphasized maintaining strong asset quality by following conservative underwriting guidelines, and originating a substantial amount of our loans secured by real estate. We will continue to emphasize high quality assets as we continue to strive to meet the credit needs of the communities we serve. Our asset quality remains better than many of our peers. At December 31, 2011, our non-performing assets were $10.5 million, or 2.11% of total assets, compared to $6.6 million or 1.34% of total assets at December 31, 2010, and $4.7 million or 0.96% of total assets at December 31, 2009.

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•

Controlling and Managing Operating Expenses. We intend to continue to manage our operating expenses to maximize our growth in a challenging financial market. Historically, we have maintained a low efficiency ratio as compared to our peers. An efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income. For the year ended December 31, 2011, our efficiency ratio was 55.73% and for the years ended December 31, 2010 and 2009, our efficiency ratio was 53.33% and 66.48%, respectively. This means, for example, that we had to spend approximately $0.56 in order to generate $1.00 of income during the year ended December 31, 2011.

Comparison of Financial Condition at December 31, 2011 and 2010

Total assets increased $5.4 million, or 1.1%, to $496.1 million at December 31, 2011, from $490.7 million at December 31, 2010. The increase was primarily the result of an increase in investment securities partially offset by a decrease in cash and cash equivalents and interest-earning deposits.

Cash and cash equivalents decreased $10.7 million or 50.6% to $10.4 million at December 31, 2011, from $21.1 million at December 31, 2010. The decrease in cash and cash equivalents was a result of investing excess cash from deposits into investment securities throughout 2011.

Interest-earning deposits decreased $8.6 million or 70.1% to $3.7 million at December 31, 2011, from $12.3 million at December 31, 2010. The decrease in interest-earning deposits was the result of one- to two-year term certificates of deposit maturing during 2011, which funds were reinvested in higher yielding investment securities.

Investments classified as available for sale increased $30.0 million, or 48.7%, to $91.5 million at December 31, 2011, from $61.5 million at December 31, 2010. Investments classified as held to maturity were $19.3 million at December 31, 2011, as compared to $23.0 million at December 31, 2010, a decrease of $3.7 million, or 16.2%. We purchased $79.1 million of securities during the year ended December 31, 2011. Purchases of investment securities were primarily shorter-term U.S. agency securities, with maturities up to five years or longer-term maturity step bonds, and, to a lesser extent, medium-term mortgage-backed securities, with average remaining lives of less than five years as well as purchases of municipal bonds.

Loans, net of allowance, increased $11,000 to $351.9 million at December 31, 2011. During the year ended December 31, 2011 customer demand for many of our loan products weakened as the economy slowed in our general market area. Commercial real estate loans increased $5.9 million, or 3.4%, to $179.8 million at December 31, 2011, from $173.9 million at December 31, 2010. The $5.9 million increase in commercial real estate loans was due to our continued emphasis on commercial real estate loan growth in response to customer demand. Commercial loans decreased $3.1 million, or 2.9%, to $104.3 million at December 31, 2011, from $107.4 million at December 31, 2010. The $3.1 million decrease in commercial loans was due to tightened credit standards during 2011. Residential real estate loans decreased $465,000, or 0.8%, to $54.9 million at December 31, 2011, from $55.4 million at December 31, 2010 due to a slowdown in the local housing market. Consumer loans decreased $1.4 million, or 7.1%, to $18.9 million at December 31, 2011, from $20.3 million at December 31, 2010 due to a weakened local economy.

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Deposits increased $3.2 million, or 0.8%, to $401.8 million at December 31, 2011, from $398.7 million at December 31, 2010 primarily due to an increase in customers’ non-interest bearing checking accounts, NOW accounts and savings deposits, partially offset by a decrease in money market deposits. Certificates of deposit decreased $125,000, or 0.1%, to $210.9 million at December 31, 2011, from $211.0 million at December 31, 2010. The $125,000 decrease in certificates of deposit was due to weakened demand for certificates of deposit in our general market area. Our core deposits (consisting of checking accounts, NOW accounts, money market accounts and savings accounts) increased $3.3 million, or 1.8%, to $191.0 million at December 31, 2011, from $187.7 million at December 31, 2010. The $3.3 million increase in our core deposits was due to a $13.3 million increase in our local deposit base that was partially offset by a $10.0 million decrease in our participation in the nation-wide Insured Network Deposits program.

Federal Home Loan Bank borrowings decreased $2.5 million, or 7.4%, to $31.2 million at December 31, 2011, from $33.7 million at December 31, 2010 due to weakened loan demand. Securities sold under agreements to repurchase increased $1.9 million, or 9.7% to $21.3 million at December 31, 2011, from $19.4 million at December 31, 2010. The $1.9 million increase in our securities sold under agreements to repurchase was due to increases in daily customer balances.

Stockholders’ equity increased $2.6 million, or 8.9%, to $31.6 million at December 31, 2011, from $29.0 million at December 31, 2010. This increase in stockholders’ equity was the result of an increase in retained earnings of $1.9 million and an increase in accumulated other comprehensive income (loss) of $705,000, reflecting market value fluctuations in available for sale investments, net of tax, for 2011. The increase in retained earnings of $1.9 million reflected net income of $3.0 million for 2011, offset by the payment of $1.1 million in cash dividends to stockholders during the year.

Comparison of Operating Results for the Years Ended December 31, 2011 and 2010

General. Net income increased $463,000, or 18.1%, to $3.0 million for the year ended December 31, 2011, from $2.6 million for the year ended December 31, 2010. The increase reflected a decrease in our provision for loan losses for the year ended December 31, 2011 when compared to the prior year due to a decrease in net charge-offs during 2011 when compared to 2010.

Interest Income. Interest income decreased $1.3 million, or 5.7%, to $22.2 million for the year ended December 31, 2011, from $23.5 million for the year ended December 31, 2010. The decrease resulted from a decline in the average yield on interest-earning assets of 29 basis points to 4.81% for the year ended December 31, 2011, from 5.10% for the year ended December 31, 2010, offset in part by a slight increase in the average balance of interest-earning assets, which increased $719,000, or 0.2%, to $461.8 million for the year ended December 31, 2011, from $461.1 million for the year ended December 31, 2010. The decline in our average yield on interest-earning assets during the year ended December 31, 2011, as compared to the prior year, was due to the general low market interest rates as a result of the Federal Reserve Board’s ongoing policy to maintain low interest rates. The increase in the average balance of interest-earning assets was primarily the result of an increase in investment securities partially offset by a decrease in interest-earning deposits and cash equivalents and a decrease in average loan balances.

Interest income on loans decreased $1.0 million, or 5.1%, to $19.4 million for the year ended December 31, 2011, from $20.4 million for the year ended December 31, 2010. The average yield on our loan portfolio decreased 23 basis points, to 5.41%, for the year ended December 31, 2011, from 5.64% for the year ended December 31, 2010, primarily as a result of the general low interest rates. The average balance of loans decreased $3.7 million, or 1.0%, to $358.4 million for the year ended December 31, 2011, from $362.1 million for the year ended December 31, 2010, reflecting weakened customer loan demand as the economy slowed in our general market area.

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Interest income on investments, including interest-earning cash and cash equivalents, decreased $299,000, or 9.6%, to $2.8 million for the year ended December 31, 2011, from $3.1 million for the year ended December 31, 2010. The decrease resulted primarily from a decrease in the average yield on our securities portfolio of 71 basis points, to 2.87% for the year ended December 31, 2011, from 3.58% for the year ended December 31, 2010, due to low market interest rates. The average yield on our interest-earning cash and cash equivalents increased 39 basis points, to 1.44% for the year ended December 31, 2011, from 1.05% for the year ended December 31, 2010, due to a reduction of cash invested overnight in lower yielding federal funds when compared to the balance of cash invested in higher yielding short-term certificates of deposit. The average balance of our securities portfolio and interest-earning cash and cash equivalents increased $4.7 million, or 4.9%, to $100.7 million for the year ended December 31, 2011, from $96.0 million for the year ended December 31, 2010, primarily as a result of slowed loan demand.

Interest Expense. Interest expense decreased by $1.2 million, or 16.1%, to $6.0 million for the year ended December 31, 2011, from $7.2 million for the year ended December 31, 2010. The decrease resulted primarily from a decrease in interest expense on deposits, Federal Home Loan Bank advances and securities sold under agreements to repurchase, reflecting the general low market interest rates. The average rate we paid on deposits decreased 26 basis points to 1.40% for the year ended December 31, 2011, from 1.66% for the year ended December 31, 2010. The average balance of interest-bearing deposits decreased $4.4 million, or 1.3%, to $346.0 million for the year ended December 31, 2011, from $350.4 million for the year ended December 31, 2010. The $4.4 million decline in our average interest-bearing deposits was partially offset by an increase in our average non-interest bearing checking deposits, which increased $3.6 million, or 6.8%, to $56.8 million for the year ended December 31, 2011, from $53.2 million for the year ended December 31, 2010, reflecting an increase in business deposits.

Interest expense on certificates of deposit decreased $954,000, or 17.8%, to $4.4 million for the year ended December 31, 2011, from $5.4 million for the year ended December 31, 2010. The decrease reflected a decline in the average rate paid on certificates of deposit and a decrease in the average balance of certificates of deposit during 2011. The average rate paid on certificates of deposit decreased 33 basis points to 2.07% for the year ended December 31, 2011, from 2.40% for the year ended December 31, 2010, reflecting lower market rates. The average balance of certificates of deposit decreased $10.2 million, or 4.6%, to $212.5 million for the year ended December 31, 2011, from $222.7 million for the year ended December 31, 2010, reflecting a $10.9 million decrease during 2011 of our non-reciprocal (deposits from customers of other banks in the network) CDARS certificates of deposit. Interest expense on our core deposits (consisting of checking accounts, NOW accounts, money market accounts and savings accounts) decreased $41,000 to $430,000 for the year ended December 31, 2011, from $471,000 for the prior year, due to decreases in the average rates paid on these core deposits of 5 basis points, partially offset by an increase in our average balance of core deposits of $5.8 million, or 4.5%, to $133.5 million for the year ended December 31, 2011, from $127.7 million for the year ended December 31, 2010.

Interest expense on FHLB advances decreased by $126,000 to $573,000 for the year ended December 31, 2011, from $699,000 for the prior year, reflecting a decrease in the average rate paid on FHLB advances of 41 basis points to 2.03% for the year ended December 31, 2011, from 2.44% for the year ended December 31, 2010, reflecting lower advance rates. Interest expense on securities sold under agreements to repurchase decreased by $22,000 to $376,000 for the year ended December 31, 2011, from $398,000 for the prior year, due to a decrease in the average rate paid on securities sold under agreements to repurchase of 26 basis points to 1.81% for the year ended December 31, 2011, from 2.07% for the prior year. Partially offsetting the decrease in the average rate paid on securities sold under agreements to repurchase was an increase in the average balance of securities sold under agreements to repurchase of $1.6 million, or 8.3%, to $20.8 million for the year ended December 31, 2011, from $19.2 million for the year ended December 31, 2010. Interest expense on trust preferred securities decreased by $8,000 during the year ended December 31, 2011, as compared to the prior year, reflecting a decrease in the average interest rate paid on trust preferred securities.

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Net Interest Income. Net interest income decreased by $185,000, or 1.1%, to $16.2 million for the year ended December 31, 2011, from $16.4 million for the year ended December 31, 2010. Our net interest rate spread decreased 2 basis points to 3.32% for the year ended December 31, 2011, from 3.34% for the year ended December 31, 2010, and our net interest margin decreased 4 basis points to 3.51% for the year ended December 31, 2011, from 3.55% for the year ended December 31, 2010. The decrease in our net interest rate spread and net interest margin reflected a small decrease in our net interest income due to a lower average yield on interest-earning assets that was partially offset by a decrease in our average funding costs.

Provision for Loan Losses. We recorded a provision for loan losses of $3.6 million for the year ended December 31, 2011, compared to a provision for loan losses of $5.1 million for the year ended December 31, 2010. Net charge-offs decreased to $2.7 million for the year ended December 31, 2011, from $4.9 million for the year ended December 31, 2010. The allowance for loans losses was $5.9 million, or 1.64% of total loans receivable at December 31, 2011, compared to $4.8 million, or 1.40% of total loans receivable at December 31, 2010.

The $1.5 million decrease in the provision for loan losses for the year ended December 31, 2011, as compared to the prior year reflects a decrease of $2.2 million in net charge-offs for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The $850,000 increase in our allowance for loan losses was based on an increase in total non-performing loans of $4.0 million to $8.5 million at December 31, 2011, from $4.5 million at December 31, 2010 reflecting continued weak economic conditions in our local market. The allowance for loan losses as a percentage of non-performing loans was 69.18% at December 31, 2011, as compared to 112.35% at December 31, 2010. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at December 31, 2011 and 2010.

Other Income. Other income decreased $651,000, or 29.6%, to $1.6 million for the year ended December 31, 2011, from $2.2 million for the year ended December 31, 2010. In July 2011, we recognized a $248,000 gain from the sale of $8.0 million of agency bonds, mortgage-backed securities and municipal bonds. The agency and municipal bonds were of a shorter duration in which they were callable or maturing within the next 4.5 years while the mortgage-backed securities had remaining par values of less than $300,000. In contrast to this gain in 2011, during the third quarter of 2010 we recognized a $682,000 gain from the sale of $18.1 million of agency bonds and mortgage-backed securities during a bond swap transaction in which we purchased $8.9 million of agency bonds, agency mortgage-backed securities and municipal bonds. The remaining decrease in other income from 2010 to 2011 was due to a decrease in other charges, commissions and fees that was partially the result of our compliance with new overdraft payment program supervisory guidance issued by the FDIC that became effective July 1, 2011.

Other Expenses. Other expenses decreased slightly by $20,000, or 0.2%, and were $9.9 million for both years ended December 31, 2011 and 2010. A decrease of $208,000 in insurance expense to $580,000 for the year ended December 31, 2011, from $788,000 for the year ended December 31, 2010, was primarily the result of a $185,000 decrease in FDIC deposit insurance premiums from changes to the assessment base enacted as part of the Dodd-Frank Act that became effective beginning in the second quarter of 2011. Also contributing to the decrease in other expenses were synergies fully realized during 2011 from the merger with Guaranty Bank on September 25, 2009. Partially offsetting an overall decrease in other expenses for 2011 was an increase of $248,000 in salaries and employee benefits expense to $4.4 million for the year ended December 31, 2011, from $4.1 million for the year ended December 31, 2010, due primarily to increased personnel costs.

Income Tax Expense. The provision for income taxes was $1.3 million for the year ended December 31, 2011, compared with $1.0 million for 2010, reflecting the increase in income before income tax between the comparative periods. Our effective tax rate was 29.7% for the year ended December 31, 2011, compared to 28.3% for the year ended December 31, 2010.

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Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	For the Years Ended December 31,
	2011								2010								2009
	Average Outstanding Balance			Interest		Yield/ Rate			Average Outstanding Balance			Interest		Yield/ Rate			Average Outstanding Balance			Interest		Yield/ Rate
	(Dollars in thousands)

Interest-earning assets:
Loans	$	358,364		$	19,398		5.41	%	$	362,096		$	20,434		5.64	%	$	267,281		$	15,788		5.91	%
Investment securities		94,606			2,712		2.87	⁽¹⁾		82,720			2,959		3.58	⁽¹⁾		83,054			3,404		4.10	⁽¹⁾
Cash and cash equivalents		6,112			88		1.44			13,302			140		1.05			14,363			492		3.43
Federal Home Loan Bank stock		2,766			—		—			3,011			—		—			2,423			—		—
Trading assets		—			—		—			—			—		—			—			—		—
Total interest-earning assets		461,848			22,198		4.81			461,129			23,533		5.10			367,121			19,684		5.36
Non-interest-earning assets		31,245								30,289								15,448
Total assets	$	493,093							$	491,418							$	382,569

Interest-bearing liabilities:
Savings accounts	$	20,175			26		0.13		$	19,334			35		0.18		$	14,037			28		0.20
Certificates of deposit		212,522			4,400		2.07			222,753			5,354		2.40			171,847			5,948		3.46
Money market		62,522			250		0.40			59,489			267		0.45			33,521			167		0.50
NOW		50,791			154		0.30			48,877			169		0.35			40,139			119		0.30
Total interest-bearing deposits		346,010			4,830		1.40			350,453			5,825		1.66			259,544			6,262		2.41
Federal Home Loan Bank advances		28,223			573		2.03			28,647			699		2.44			37,247			1,136		3.05
Securities sold under agreements to repurchase		20,791			376		1.81			19,191			397		2.07			14,667			417		2.84
Trust preferred securities		9,000			231		2.57			9,000			239		2.66			6,074			164		2.70
Total interest-bearing liabilities		404,024			6,010		1.49			407,291			7,160		1.76			317,532			7,979		2.51
Non-interest-bearing checking		56,786								53,195								41,839
Other non-interest-bearing liabilities		1,275								1,363								1,301
Total liabilities		462,085								461,849								360,672
Stockholders’ equity		31,008								29,569								21,897
Total liabilities and stockholders’ equity	$	493,093							$	491,418							$	382,569

Net interest income				$	16,188							$	16,373							$	11,705
Net interest rate spread ⁽²⁾							3.32	%							3.34	%							2.85	%
Net interest-earning assets ⁽³⁾	$	57,824							$	53,838							$	49,589
Net interest margin ⁽⁴⁾							3.51	%							3.55	%							3.19	%
Average interest-earning assets to interest-bearing liabilities		114.31	%							113.22	%							115.62	%

(1)	The tax equivalent yield of the investment securities portfolio was 3.49%, 4.86% and 5.40% for the years ended December 31, 2011, 2010 and 2009, respectively.
(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	Years Ended December 31, 2011 vs. 2010									Years Ended December 31, 2010 vs. 2009
	Increase (Decrease) Due to						Total Increase			Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(In thousands)

Interest-earning assets:
Loans	$	(202	)	$	(834	)	$	(1,036	)	$	5,362		$	(716	)	$	4,646
Investment securities		341			(588	)		(247	)		(12	)		(433	)		(445	)
Cash and cash equivalents		(104	)		52			(52	)		(11	)		(341	)		(352	)
Federal Home Loan Bank stock		—			—			—			—			—			—
Trading assets		—			—			—			—			—			—

Total interest-earning assets		35			(1,370	)		(1,335	)		5,339			(1,490	)		3,849

Interest-bearing liabilities:
Savings accounts		1			(10	)		(9	)		10			(3	)		7
Certificates of deposit		(214	)		(740	)		(954	)		1,224			(1,818	)		(594	)
Money market		12			(29	)		(17	)		117			(17	)		100
NOW		6			(21	)		(15	)		30			20			50
Total deposits		(195	)		(800	)		(995	)		1,381			(1,818	)		(437	)
Federal Home Loan Bank advances		(9	)		(117	)		(126	)		(210	)		(227	)		(437	)
Securities sold under agreement to repurchase		29			(50	)		(21	)		94			(114	)		(20	)
Trust preferred securities		—			(8	)		(8	)		77			(2	)		75

Total interest-bearing liabilities		(175	)		(975	)		(1,150	)		1,342			(2,161	)		(819	)

Change in net interest income	$	210		$	(395	)	$	(185	)	$	3,997		$	671		$	4,668

Liquidity and Capital Resources

Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, repurchase agreements with and advances from the Federal Home Loan Bank of Pittsburgh, lines of credit with other financial institutions and maturities and sales of securities. In addition, we have the ability to collateralize borrowings in the wholesale markets. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Board of Directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (not subject to pledge) as a percentage of deposits and borrowings (not subject to pledge) of 20% or greater. At December 31, 2011, this ratio was 23.0%, slightly above our recommended level, due to an increase in investment securities available for sale during the year. We believe that we have sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2011.

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We regularly adjust our investments in liquid assets based upon our assessment of:

	(i)	expected loan demand and repayment;

	(ii)	expected deposit flows;

	(iii)	yields available on interest-earning deposits and securities; and

	(iv)	the objectives of our asset/liability management program.

Excess cash is invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and investing activities during any given period. At December 31, 2011, cash and cash equivalents totaled $10.4 million. At December 31, 2011, we had no loans classified as held for sale. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $91.5 million at December 31, 2011, and we had $52.5 million in outstanding borrowings at December 31, 2011.

At December 31, 2011, we had $11.4 million in outstanding loan commitments. In addition to outstanding loan commitments, we had $49.9 million in unused lines of credit to borrowers. Certificates of deposit due within one year of December 31, 2011 totalled $112.4 million, or 28.0% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements) and advances from the Federal Home Loan Bank of Pittsburgh and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2012. We believe, however, based on past experience, that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.

Our primary investing activities are purchasing securities and originating loans. During the years ended December 31, 2011 and 2010, we purchased securities classified as available for sale totaling $63.6 million and $79.1 million, respectively. During the year ended December 31, 2011 we did not purchase any securities classified as held to maturity. During the year ended December 31, 2010 we purchased securities classified as held to maturity totaling $8.1 million. During the years ended December 31, 2011 and 2010, we originated $82.5 million and $111.0 million of loans, respectively.

Financing activities consist primarily of activity in deposit accounts and borrowings (repurchase agreements and Federal Home Loan Bank of Pittsburgh advances). We experienced a net increase in total deposits of $3.2 million for the year ended December 31, 2011 and a net increase in total deposits of $9.2 million for the year ended December 31, 2010. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, seasonality with respect to certain government deposits, and by other factors.

We experienced a net decrease in borrowings of $612,000 for the year ended December 31, 2011 and a net increase in borrowings of $7.5 million for the year ended December 31, 2010. At December 31, 2011, we had the ability to borrow an additional $86.5 million from the Federal Home Loan Bank of Pittsburgh and up to $21.5 million from lines of credit with other financial institutions.

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First Sentry Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2011, First Sentry Bank exceeded all regulatory capital requirements. First Sentry Bank is considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision—Capital Ratios” and Note 15 of the Notes to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we originate. For additional information, see Note 14 of the Notes to the Consolidated Financial Statements.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments.

Recent Accounting Pronouncements

In January 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defers the effective date for interim and annual periods ending after June 15, 2011, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. The deferral in this amendment is effective upon issuance and is not expected to have a significant impact on the Company.

In April, 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This update provides additional guidance and amendments to Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist; the restructuring constitutes a concession, and the debtor is experiencing financial difficulties. The amendments clarify the guidance on a creditor’s evaluation of whether it has granted a concession, and on a creditor’s evaluation of whether a debtor is experiencing financial difficulties.

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The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies—Loss Contingencies. An entity should disclose the information required by paragraphs 310-10-50-33 through 50-34, which was deferred by Accounting Standards Update No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. The amendments are not expected to have a significant impact on the Company.

In April, 2011 the Financial Accounting Standards Board issued Accounting Standards Update 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update. Those criteria indicate that the transferor is deemed to have maintained effective control over the financial assets transferred (and thus must account for the transaction as a secured borrowing) for agreements that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity when all of the listed conditions have been met. The amendments are not expected to have a significant impact on the Company.

In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S GAAP and IFRSs. The amendments in this update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The amendments are not expected to have a significant impact on the Company.

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income. This update seeks to improve comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this update. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The amendments are not expected to have a significant impact on the Company.

In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-08, Intangibles – Goodwill and Other Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two step goodwill impairment test as described in previous guidance under Topic 350. The amendments are effective for fiscal years beginning December 15, 2011. Early adoption is permitted. The amendments are not expected to have a significant impact on the Company.

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In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-09, Compensation – Retirement Benefits – Multiemployer Plans. This update addresses concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. A unique characteristic of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked only for its employees. If a participating employer fails to make its required contributions, the unfunded obligations of the plan may be borne by the remaining participating employers. Similarly, in some cases, if an employer chooses to stop participating in a multiemployer plan, the withdrawing company may be required to pay to the plan a final payment (the withdrawal liability). Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this update require additional disclosures about an employer’s participation in a multiemployer pension plan.

Previously, disclosures were limited primarily to the historical contributions made to the plans. In developing the new guidance, the FASB’s goal was to help users of financial statements assess the potential future cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. For public entities, the amendments in this update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for annual periods for fiscal years ending after December 15, 2012, with early adoption permitted. The amendments should be applied retrospectively for all periods presented. The amendments are not expected to have a significant impact on the Company.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-10, Property, Plant and Equipment. Under the amendments in the Update, when a parent ceases to have a controlling interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidate financial statements until legal title to the real estate is transferred to legally satisfy the debt. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. The amendments are not expected to have any impact on the Company.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet. Offsetting (netting) assets and liabilities is an important aspect of presentation in financial statements. The differences in the offsetting requirements in U.S. gene4rally accepted accounting principles (U.S GAAP) and International Financial Reporting Standards (IFRS) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and the amounts presented in those statements prepared in accordance with IFRS for certain institutions. The difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on financial position. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The amendments are not expected to have a significant impact on the Company.

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In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-12, Comprehensive Income. This Update defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments, and supersedes certain pending paragraphs in Update 2011-05. The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and the other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments are not expected to have a significant impact on the Company.

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 Company’s financial position, results of operations or cash flows.

Impact of Inflation and Changing Prices

Our consolidated financial statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on our performance than the effects of inflation.

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable to a smaller reporting company.

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ITEM 8.

Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

First Sentry Bancshares, Inc.

Huntington, West Virginia

We have audited the accompanying consolidated balance sheets of First Sentry Bancshares, Inc. and Subsidiary as of December 31, 2011 and 2010, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the 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 First Sentry Bancshares, Inc. and Subsidiary as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the three years ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of First Sentry Bancshares, Inc. and Subsidiary’s internal control over financial reporting as of December 31, 2011, included in Form 10-K and, accordingly, we do not express an opinion thereon.

/s/ Hess, Stewart & Campbell, PLLC

Beckley, West Virginia
March 29, 2012

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010

ASSETS	2011			2010
Cash and due from banks	$	10,182,673		$	16,700,486
Federal funds sold		255,000			4,420,000
Cash and cash equivalents		10,437,673			21,120,486
Interest-earning deposits		3,687,000			12,331,000
Investments available-for-sale		91,546,636			61,548,052
Investments held-to-maturity (fair value approximates $20,084,207 and $22,785,603 at December 31, 2011 and 2010, respectively)		19,274,227			23,010,026
Federal Home Loan Bank stock, at cost		2,931,400			2,885,900

Total loans		357,766,852			356,905,826
Allowance for loan losses		(5,855,000	)		(5,005,000	)
Net loans		351,911,852			351,900,826
Interest receivable		2,035,431			1,964,514
Bank premises and equipment, net		6,416,876			6,695,002
Other assets		7,865,392			9,228,511
TOTAL ASSETS	$	496,106,487		$	490,684,317

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest-bearing	$	63,396,564		$	56,661,811
Interest-bearing		338,451,484			342,009,960
Total deposits		401,848,048			398,671,771
Securities sold under agreements to repurchase		21,262,542			19,374,521
Federal Home Loan Bank advances		31,220,578			33,720,577
Interest payable		446,272			506,336
Other liabilities		750,680			402,053
		455,528,120			452,675,258

TRUST PREFERRED SECURITIES		9,000,000			9,000,000

Commitments and contingencies		—			—

STOCKHOLDERS’ EQUITY
Common stock, $1 par value, 5,280,000 shares authorized, 1,437,651 issued and outstanding at December 31, 2011 and 2010		1,437,651			1,437,651
Additional paid-in capital		15,293,748			15,293,748
Retained earnings		14,522,662			12,658,288
Accumulated other comprehensive income (loss)		324,306			(380,628	)
		31,578,367			29,009,059
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	496,106,487		$	490,684,317

See Notes to Consolidated Financial Statements

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2011 and 2010

		2011		2010
INTEREST INCOME
Loans, including fees	$	19,397,527	$	20,433,823
Investment securities:
Taxable		1,564,341		1,902,096
Tax-exempt		1,148,128		1,057,204
Federal funds sold and interest-earning deposits		88,341		140,015
		22,198,337		23,533,138
INTEREST EXPENSE
Deposits		4,829,733		5,824,255
Securities sold under agreements to repurchase		376,111		397,593
Trust preferred securities		231,684		239,040
Advances		572,870		698,789
		6,010,398		7,159,677

NET INTEREST INCOME		16,187,939		16,373,461

PROVISION FOR LOAN LOSSES		3,566,705		5,112,101
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		12,621,234		11,261,360

OTHER INCOME
Service fees		79,813		83,752
Securities gains		178,213		643,510
Other charges, commissions and fees		1,294,458		1,475,772
		1,552,484		2,203,034
OTHER EXPENSES
Salaries and employee benefits		4,357,280		4,109,524
Equipment and occupancy expenses		1,351,217		1,367,561
Data processing		431,704		394,962
Professional fees		830,256		790,320
Taxes, other than payroll, property and income		250,448		272,615
Insurance		579,409		787,645
Other expenses		2,087,096		2,184,316
		9,887,410		9,906,943

INCOME BEFORE INCOME TAX		4,286,308		3,557,451

INCOME TAX EXPENSE		1,271,814		1,006,203

NET INCOME	$	3,014,494	$	2,551,248

EARNINGS PER SHARE	$	2.10	$	1.77

See Notes to Consolidated Financial Statements

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2011 and 2010

	2011			2010

NET INCOME	$	3,014,494		$	2,551,248

Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		1,046,816			(159,695	)
Reclassification adjustment for gains included in net income		(178,213	)		(643,510	)
		868,603			(803,205	)

Cumulative-effect adjustment to apply
GAAP for transfer of securities from available-for-sale to held-to-maturity		166,400			(1,561	)

Less income tax expense (benefit)		330,069			(303,079	)

Other comprehensive income (loss), net of tax		704,934			(501,687	)

COMPREHENSIVE INCOME	$	3,719,428		$	2,049,561

See Notes to Consolidated Financial Statements

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 31, 2011 and 2010

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity

BALANCE, December 31, 2009	$	1,437,651	$	15,293,748	$	11,257,159		$	121,059		$	28,109,617

Net income		—		—		2,551,248			—			2,551,248
Change in unrealized loss on securities		—		—		—			(500,126	)		(500,126	)
Change in unrealized loss on securities transferred from available-for-sale to held-to-maturity		—		—		—			(54,259	)		(54,259	)
Accretion under GAAP for transferred securities to help-to-maturity		—		—		—			52,698			52,698
Dividends, $0.80 per share		—		—		(1,150,119	)		—			(1,150,119	)

BALANCE, December 31, 2010		1,437,651		15,293,748		12,658,288			(380,628	)		29,009,059

Net income		—		—		3,014,494			—			3,014,494
Change in unrealized gain on securities		—		—		—			538,534			538,534
Amortization under GAAP for transferred securities held-to-maturity		—		—		—			166,400			166,400
Dividends, $0.80 per share		—		—		(1,150,120	)		—			(1,150,120	)

BALANCE, December 31, 2011	$	1,437,651	$	15,293,748	$	14,522,662		$	324,306		$	31,578,367

See Notes to Consolidated Financial Statements

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2011 and 2010

		2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,014,494		$	2,551,248
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,566,705			5,112,101
Depreciation and amortization		605,114			573,576
Subsequent write-downs on other real estate		231,100			204,779
Investment securities amortization net of accretion		439,888			483,494
Amortization of core deposit intangible		34,867			34,867
Securities and trading asset gains		(178,213	)		(643,510	)
Loss on sale of assets		16,102			40,751
Deferred income taxes		(493,897	)		630,446
Changes in:
Interest receivable		(70,917	)		187,801
Other assets		1,514,516			(64,728	)
Interest payable		(60,064	)		(83,436	)
Other liabilities		348,627			(307,778	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		8,968,322			8,719,611

CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-earning deposits		8,644,000			(6,499,000	)
Maturities of investments available-for-sale		2,010,000			945,000
Redemptions of investments available-for-sale		39,421,036			47,794,493
Sales of investments available-for-sale		8,310,364			18,799,721
Maturities of investments held-to-maturity		1,785,000			760,000
Redemptions of investments held-to-maturity		1,461,164			362,888
Purchase of investments available-for-sale		(79,072,874	)		(63,652,014	)
Purchase of investments held-to-maturity		—			(8,068,974	)
Sale (purchase) of Federal Home Loan Bank Stock		(45,500	)		151,900
Net (increase) decrease in loans		(3,734,139	)		3,418,428
Proceeds from sale of foreclosed properties		482,621			260,000
Purchases of premises and equipment		(326,986	)		(339,894	)
NET CASH USED IN INVESTING ACTIVITIES		(21,065,314	)		(6,067,452	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		3,176,277			9,200,773
Net change in agreements to repurchase securities		1,888,021			(1,354,980	)
Net decrease in FHLB advances		(2,499,999	)		(6,170,020	)
Cash dividends paid		(1,150,120	)		(1,150,119	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,414,179			525,654

NET CHANGE IN CASH AND CASH EQUIVALENTS		(10,682,813	)		3,177,813

CASH AND CASH EQUIVALENTS, BEGINNING		21,120,486			17,942,673

CASH AND CASH EQUIVALENTS, ENDING	$	10,437,673		$	21,120,486

See Notes to Consolidated Financial Statements

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2011 and 2010

		2011		2010

SUPPLEMENTAL DISCLOSURES

Cash paid for interest on deposits and borrowings	$	6,266,178	$	7,243,113
Cash paid for income taxes		849,990		1,144,303

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES

Loans transferred to foreclosed properties	$	619,204	$	330,000

See Notes to Consolidated Financial Statements

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Date of management’s review: Management has evaluated subsequent events through the date which the financial statements were available to be issued.

Nature of operations: Effective January 1, 2002, First Sentry Bank, Inc. (the Bank) merged into First Sentry Bancshares, Inc. (the Company) and became a wholly-owned subsidiary. The shareholders of First Sentry Bank, Inc. became the shareholders of First Sentry Bancshares. Effective September 25, 2009, the Company acquired all of the stock of Guaranty Financial Services, Inc. and Subsidiary (Guaranty). The subsidiary bank, Guaranty Bank and Trust Company (Guaranty Bank), was merged into First Sentry Bank, Inc. First Sentry Bancshares, Inc. is a bank holding company whose principal activity is the ownership and management of First Sentry Bank, Inc. The Bank generates commercial, mortgage and consumer loans and receives deposits from customers in Huntington, West Virginia and the surrounding area. The bank operates under a state bank charter and provides full banking services. As a state bank, the Bank is subject to regulation by the West Virginia State Division of Banking and the Federal Deposit Insurance Corporation (FDIC).

Principles of consolidation: The consolidated statements include the accounts of the Company and its wholly-owned subsidiary, First Sentry Bank, Inc. All significant inter-company balances have been eliminated in consolidation.

Business segments: The Company reports its activities as a single business segment. In determining proper segment definition, the Company considers the materiality of the potential segment and components of the business about which financial information is available and regularly evaluated, relative to resource and performance assessment.

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in the application of certain accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. As a result of unanticipated events or circumstances, actual results could differ from those estimates.

The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.

The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.

While management uses available information to recognize losses on loans, future reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Cash and cash equivalents: For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and cash on hand, amounts due from banks, and federal funds sold.

Interest-bearing deposits: Interest-bearing deposits in banks mature within one or two years and are carried at cost.

Trading activities: The Company did not hold securities for short-term resale for the years ended December 31, 2011 and 2010, and therefore did not maintain a trading securities portfolio.

Investment securities: Debt securities are classified as held-to-maturity when the Bank has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity. Debt securities not classified as held-to-maturity are classified as available-for-sale. Securities available-for-sale are carried at fair value with unrealized gains and losses reported separately, net of tax, in other comprehensive income. Realized gains and losses on securities available-for-sale are included in other income, and when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on sales of securities are determined on the specific identification method.

Declines that are other than temporary in the fair value of individual held-to-maturity and available-for-sale securities below their cost result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans: The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout West Virginia, Ohio, and Kentucky. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas. Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income on loans is recognized on the accrual basis except for those loans in a nonaccrual income status. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, unless a nonaccrual loan is well secured and collection of all principal and remaining accrued interest is anticipated from the disposition of collateral. The interest on nonaccrual loans is accounted for on-the-cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all 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 established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to revision as more information becomes available.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Premises and equipment: Land is carried at cost. Other premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

Other real estate owned: Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of the Bank’s carrying amount or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Comprehensive income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains on securities available-for-sale, and unrealized losses related to other credit factors on debt securities available-for-sale.

Income taxes: Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of the allowance for loan losses and accumulated depreciation. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

When tax returns are filed, it is highly certain that some positions would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Management is not aware of any material uncertain tax positions and no liability has been recognized at December 31, 2011. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income.

The Company files consolidated income tax returns with its subsidiary.

Advertising costs: Advertising costs are expensed as incurred. Advertising expense for the years presented is not material to the financial statements.

Earnings per share: Earnings per share are computed on the weighted average number of shares outstanding.

Fair value of instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully described in Note 2. Fair value estimates involve uncertainties and matters of judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Retirement plan: The Company funds retirement costs as incurred.

Current accounting developments: In January 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defers the effective date for interim and annual periods ending after June 15, 2011, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. The deferral in this amendment is effective upon issuance and is not expected to have a significant impact on the Company.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

In April, 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This update provides additional guidance and amendments to Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist; the restructuring constitutes a concession, and the debtor is experiencing financial difficulties. The amendments clarify the guidance on a creditor’s evaluation of whether it has granted a concession, and on a creditor’s evaluation of whether a debtor is experiencing financial difficulties.

The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies—Loss Contingencies. An entity should disclose the information required by paragraphs 310-10-50-33 through 50-34, which was deferred by Accounting Standards Update No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. The amendments are not expected to have a significant impact on the Company.

In April, 2011 the Financial Accounting Standards Board issued Accounting Standards Update 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in this Update. Those criteria indicate that the transferor is deemed to have maintained effective control over the financial assets transferred (and thus must account for the transaction as a secured borrowing) for agreements that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity when all of the listed conditions have been met. The amendments are not expected to have a significant impact on the Company.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income. This update seeks to improve comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this update. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The amendments are not expected to have a significant impact on the Company.

In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-08, Intangibles – Goodwill and Other Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two step goodwill impairment test as described in previous guidance under Topic 350. The amendments are effective for fiscal years beginning December 15, 2011. Early adoption is permitted. The amendments are not expected to have a significant impact on the Company.

In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-09, Compensation – Retirement Benefits – Multiemployer Plans. This update addresses concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. A unique characteristic of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked only for its employees. If a participating employer fails to make its required contributions, the unfunded obligations of the plan may be borne by the remaining participating employers. Similarly, in some cases, if an employer chooses to stop participating in a multiemployer plan, the withdrawing company may be required to pay to the plan a final payment (the withdrawal liability). Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this update require additional disclosures about an employer’s participation in a multiemployer pension plan.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-10, Property, Plant and Equipment. Under the amendments in the Update, when a parent ceases to have a controlling interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidate financial statements until legal title to the real estate is transferred to legally satisfy the debt. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. The amendments are not expected to have any impact on the Company.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet. Offsetting (netting) assets and liabilities is an important aspect of presentation in financial statements. The differences in the offsetting requirements in U.S. generally accepted accounting principles (U.S GAAP) and International Financial Reporting Standards (IFRS) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and the amounts presented in those statements prepared in accordance with IFRS for certain institutions. The difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on financial position. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The amendments are not expected to have a significant impact on the Company.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-12, Comprehensive Income. This Update defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments, and supersedes certain pending paragraphs in Update 2011-05. The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and the other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments are not expected to have a significant impact on the Company.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 2. FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the fair value measurements and disclosures of GAAP, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments.

Under GAAP, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1	Valuation is based upon quoted prices in active markets 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 generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments carried on the consolidated financial statements at cost and are not measured or recorded at fair value on a recurring basis, unless otherwise noted:

Cash and cash equivalents: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Federal funds sold: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Interest-earning deposits: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Available-for-sale and trading securities: Prices for these securities are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of investment securities. Benchmarks and other comparable securities are also used in estimating the values of these investment securities.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Trading assets: For trading assets, fair values are based on quoted market prices or quoted market prices of comparable instruments.

Held-to-maturity securities: Fair values are based on quoted market prices.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate and rental property mortgage loans and commercial and industrial loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Deposits: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities.

Securities sold under agreements to repurchase: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Advances: Rates currently available to the Bank for advances with similar terms and remaining maturities are used to estimate fair value of existing debt.

Commitments to extend credit and standby letters of credit: Commitments to extend credit and standby letters of credit represent agreements to lend to a customer at the market rate when the loan is extended, thus the commitments and letters of credit are not considered to have a fair value.

The following table presents the assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as reported at December 31, 2011 and 2010.

As required by GAAP, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

				Fair Value Measurements at Reporting Date Using:
				Quoted
				Prices Active Markets	Significant Other			Significant
				for Identical	Observable			Unobservable
				Assets	Inputs			Inputs
	Balance			(Level 1)	(Level 2)			(Level 3)

December 31, 2011:
Assets:
Investment securities:
Available-for-sale	$	91,546,636	$	—	$	91,546,636	$	—

December 31, 2010:
Assets:
Investment securities:
Available-for-sale	$	61,548,052	$	—	$	61,548,052	$	—

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. GAAP excluded certain financial instruments and all nonfinancial disclosure requirements. Accordingly, aggregate fair value estimates do not represent the underlying value of the Bank.

The estimated fair values of the Bank’s financial instruments at December 31, 2011 and 2010 do not significantly differ from their carrying amounts as reported in the balance sheet.

NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain reserve funds in cash or on deposit with the Federal Reserve Bank. The required reserve at December 31, 2011 and 2010 was $3,247,000 and $4,432,000, respectively.

NOTE 4. INVESTMENT SECURITIES

The amortized cost of investment securities and their fair values at December 31, 2011 and 2010, are as follows:

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2011:
Held-to-maturity:
State and political	$	19,274,227	$	810,115	$	135	$	20,084,207

Available-for-sale:
Mortgage-backed securities		19,143,681		252,795		26,006		19,370,470
U.S. agency securities		57,153,941		111,034		81,064		57,183,911
State and political		14,105,541		393,111		3,757		14,494,895
Corporate securities		500,000		—		2,640		497,360
		90,903,163		756,940		113,467		91,546,636

	$	110,177,390	$	1,567,055	$	113,602	$	111,630,843
December 31, 2010:
Held-to-maturity:
State and political	$	21,626,024	$	148,718	$	514,679	$	21,260,063
Corporate securities		1,384,002		141,538		—		1,525,540
		23,010,026		290,256		514,679		22,785,603

Available-for-sale:
Mortgage-backed securities		14,697,482		205,400		222,918		14,679,964
U.S. agency securities		35,533,382		241,896		422,044		35,353,234
State and political		11,542,318		66,154		93,618		11,514,854
		61,773,182		513,450		738,580		61,548,052

	$	84,783,208	$	803,706	$	1,253,259	$	84,333,655

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The amortized cost and estimated fair value of securities at December 31, 2011 and 2010, by contractual maturity, are as follows:

	Held-to-Maturity				Available-for-Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

December 31, 2011:
One year or less	$	156,911	$	158,294	$	1,111,387	$	1,126,092
After one year through five years		848,449		853,549		5,144,886		5,185,631
After five years through ten years		7,967,532		8,334,611		13,144,937		13,341,003
After ten years		10,301,335		10,737,753		71,501,953		71,893,910

	$	19,274,227	$	20,084,207	$	90,903,163	$	91,546,636

December 31, 2010:
One year or less	$	2,118,579	$	2,132,573	$	2,250,793	$	2,263,560
After one year through five years		1,605,499		1,604,434		8,148,803		8,174,152
After five years through ten years		8,164,296		8,098,597		10,088,730		10,183,000
After ten years		11,121,652		10,949,999		41,284,856		40,927,340

	$	23,010,026	$	22,785,603	$	61,773,182	$	61,548,052

During the fourth quarter of 2010, management transferred certain securities from the classification of “available-for-sale” to “held-to-maturity” after evaluating the Company’s security investment classifications. The securities transferred included fourteen municipal securities acquired during 2010 with a book value of $8,059,384 and a fair value of $8,005,125 at October 31, 2010. The securities have been transferred under GAAP, and the unrealized losses totaling $54,259 are recorded in other comprehensive income and are being amortized over the life of the securities in a manner consistent with the amortization of any premium or discount. Management’s decision to reclass the securities was based on the change in the Company’s ability and intent to hold these securities to maturity. At October 31, 2010, the Company determined that it had a positive intent to hold to maturity the available-for-sale securities reclassed. Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding. The Company does not intend to dispose of these securities in response to needs for liquidity or use as an additional funding source.

Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to its scheduled maturity.

Proceeds and redemptions of available-for-sale securities for the years ended December 31, 2011 and 2010, totaled $49,741,400 and $67,539,214, respectively. Net gains on redemptions of available-for-sale securities totaled $168,681 and $643,510 for the years ended December 31, 2011 and 2010, respectively. Proceeds and redemptions of held-to-maturity securities for the years ended December 31, 2011 and 2010, totaled $3,246,164 and $1,122,888, respectively. Net gains on redemptions of held-to-maturity securities totaled $9,532 and $-0- for the years ended December 31, 2011 and 2010, respectively.

Securities with a carrying value of $55,296,000 and $47,144,000 were pledged at December 31, 2011 and 2010, respectively, to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Information pertaining to securities held-to-maturity and securities available-for-sale with gross unrealized losses at December 31, 2011 and 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

	Less Than Twelve Months				Over Twelve Months
	Gross		Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
December 31, 2011:
Held-to-maturity
State and political securities	$	135	$	200,008	$	—	$	—
Available-for-sale
U.S. Agencies		26,006		22,447,027		—		—
Mortgage-backed securities		81,064		4,836,559		—
State and political securities		3,757		737,401		—		—
Corporate securities		2,640		497,360		—		—

	$	113,602	$	28,718,355	$	—	$	—

December 31, 2010:
Held-to-maturity
State and political securities	$	514,679	$	10,570,280	$	—	$	—
Available-for-sale
U.S. Agencies		422,044		23,709,073		—		—
Mortgage-backed securities		222,918		7,644,311		—		—
State and political securities		93,618		3,480,664		—		—

	$	1,253,259	$	45,404,328	$	—	$	—

At December 31, 2011, thirty-one debt securities with unrealized losses had depreciated 0.39% from the Company’s amortized cost basis. At December 31, 2010, sixty-two debt securities with unrealized losses had depreciated 2.69% from the Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government or other governments. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether the downgrades by bond-rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary. Management does not believe that any individual unrealized loss as of December 31, 2011, included in the table on previous page represents an other-than-temporary impairment as management mainly attributes the declines in value to changes in interest rates and lack of liquidity in the market place, not credit quality or other factors. Management does not believe it is probable that the Company will not receive all principal and interest payments in accordance with the contractual terms of these securities. The Company has the intent and ability to hold the securities contained in the table on previous page until maturity.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Federal Home Loan Bank Stock, which represents a required investment in the common stock of the Federal Home Loan Bank of Pittsburgh (FHLB), is carried at cost as a restricted long-term investment at December 31, 2011 and 2010.

Management evaluates the FHLB stock for impairment in accordance with GAAP. When determining if any impairment has occurred, management bases its decision on the ultimate recoverability of the cost rather than recognizing temporary declines in value. Factors that are considered are 1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, 2) commitment by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and 3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management does not believe an impairment charge is required as it relates to FHLB stock as of December 31, 2011.

NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans are as follows:

	December 31,
	2011			2010
Loans
Commercial	$	104,271,585		$	107,388,340
Commercial real estate		179,777,939			173,897,754
Residential real estate		54,940,668			55,405,724
Consumer		18,865,043			20,307,622
Gross loans		357,855,235			356,999,440
Less deferred loan fees		(88,383	)		(93,614	)

Total loans	$	357,766,852		$	356,905,826

As disclosed in Note 11, the commercial, commercial real estate and residential real estate loans secure the Federal Home Loan Bank advances. Overdraft deposit accounts that have been reclassed as loans as of December 31, 2011 and 2010, totaled $386,353 and $362,528, respectively.

As of December 31, 2011, the scheduled maturities of loans are as follows:

	2011

Three months or less	$	49,602,751
Over three months through twelve months		36,056,404
Over one year through three years		88,771,813
Over three years through five years		85,415,392
Over five years through ten years		50,752,098
Over ten years		47,256,777

	$	357,855,235

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

In the ordinary course of business, the Bank has, and expects to continue to have, transactions, including loans, with its executive officers, directors, principal shareholders and their related interests. In the opinion of management, such transactions are on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than a normal risk of collectability or present any other unfavorable features to the Bank. Loans to such related parties are summarized as follows:

	December 31,
	2011		2010

Beginning balance	$	12,445,373	$	9,054,520
New loans		1,325,000		4,889,903
		13,770,373		13,944,423
Less payments		848,069		1,499,050

Ending balance	$	12,922,304	$	12,445,373

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the years ended December 31, 2011 and 2010. The allocation portion of the allowance to one category of loans does not preclude its ability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.

	Beginning Balance		Charge-Offs		Recoveries		Provision			Ending Balance
December 31, 2011:
Commercial	$	3,251,761	$	1,060,029	$	44,361	$	1,565,021		$	3,801,114
Commercial real estate		1,214,479		1,257,076		35,120		1,474,229			1,466,752
Residential real estate		331,221		331,078		41,821		403,482			445,446
Consumer		135,459		217,606		27,782		195,367			141,002
Unallocated		72,080		—		—		(71,394	)		686

	$	5,005,000	$	2,865,789	$	149,084	$	3,566,705		$	5,855,000

December 31, 2010:
Commercial	$	2,993,000	$	4,719,746	$	35,821	$	4,942,686		$	3,251,761
Commercial real estate		1,214,000		199,031		2,318		197,192			1,214,479
Residential real estate		351,000		23,879		39,828		(35,728	)		331,221
Consumer		105,000		58,179		30,767		57,871			135,459
Unallocated		122,000		—		—		(49,920	)		72,080

	$	4,785,000	$	5,000,835	$	108,734	$	5,112,101		$	5,005,000

As a part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade assigned to commercial and consumer loans, (ii) the level of classified commercial loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions in the Company’s geographic markets.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The Bank uses a risk grading system to assign a risk grade to each of its loans and assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Bank’s credit position at some future date. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. A loan is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. At December 31, 2011 and December 31, 2010, the Bank had no loans classified as doubtful.

The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31, 2011 and December 31, 2010.

			Special		Sub-				Total
	Pass		Mention		Standard		Doubtful		Loans
December 31, 2011:
Commercial	$	99,102,265	$	1,376,835	$	3,792,485	$	—	$	104,271,585
Commercial real estate		164,741,613		6,019,667		9,016,659		—		179,777,939
Residential real estate		52,396,373		695,694		1,848,601		—		54,940,668
Consumer		18,697,411		35,852		131,780		—		18,865,043

	$	334,937,662	$	8,128,048	$	14,789,525	$	—	$	357,855,235

December 31, 2010:
Commercial	$	103,532,236	$	1,355,967	$	2,500,137	$	—	$	107,388,340
Commercial real estate		160,165,443		7,891,920		5,840,391		—		173,897,754
Residential real estate		53,650,624		661,292		1,093,808		—		55,405,724
Consumer		20,245,843		55,170		6,609		—		20,307,622

	$	337,594,146	$	9,964,349	$	9,440,945	$	—	$	356,999,440

A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of special mention or below are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans which are not considered impaired.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011 and December 31, 2010.

	Allowance for Loan Losses						Loan Balances
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated				Evaluated		Evaluated
	for		for				for		for
	Impairment		Impairment		Total		Impairment		Impairment		Total
December 31, 2011:
Commercial	$	2,251,407	$	1,549,707	$	3,801,114	$	4,944,325	$	99,327,260	$	104,271,585
Commercial real estate		383,241		1,083,511		1,466,752		7,701,848		172,076,091		179,777,939
Residential real estate		396,023		49,423		445,446		2,035,690		52,904,978		54,940,668
Consumer		21,538		119,464		141,002		107,665		18,757,378		18,865,043
Unallocated		—		686		686		—		—		—

	$	3,052,209	$	2,802,791	$	5,855,000	$	14,789,528	$	343,065,707	$	357,855,235

December 31, 2010:
Commercial	$	1,866,032	$	1,385,729	$	3,251,761	$	2,500,137	$	104,888,203	$	107,388,340
Commercial real estate		212,921		1,001,558		1,214,479		5,840,391		168,057,363		173,897,754
Residential real estate		285,425		45,796		331,221		1,093,808		54,311,916		55,405,724
Consumer		—		135,459		135,459		6,609		20,301,013		20,307,622
Unallocated		—		72,080		72,080		—		—		—

	$	2,364,378	$	2,640,622	$	5,005,000	$	9,440,945	$	347,558,495	$	356,999,440

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of loans, as of December 31, 2011 and December 31, 2010.

	Accruing Loans
					Total
	30-89		90 Days		Accruing
	Days		or More		Loans		Nonaccrual				Total
	Past Due		Past Due		Past Due		Loans		Current		Loans
December 31, 2011:
Commercial	$	159,263	$	—	$	159,263	$	2,709,123	$	101,403,199	$	104,271,585
Commercial real estate		1,617,503		—		1,617,503		4,914,914		173,245,522		179,777,939
Residential real estate		1,180,194		—		1,180,194		727,455		53,033,019		54,940,668
Consumer		462,073		—		462,073		111,166		18,291,804		18,865,043

	$	3,419,033	$	—	$	3,419,033	$	8,462,658	$	345,973,544	$	357,855,235

December 31, 2010:
Commercial	$	198,544	$	1,059,213	$	1,257,757	$	1,499,531	$	104,631,052	$	107,388,340
Commercial real estate		1,247,931		135,565		1,383,496		1,190,000		171,324,258		173,897,754
Residential real estate		1,189,174		400,978		1,590,152		1,441		53,814,131		55,405,724
Consumer		410,468		163,789		574,257		3,952		19,729,413		20,307,622

	$	3,046,117	$	1,759,545	$	4,805,662	$	2,694,924	$	349,498,854	$	356,999,440

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Bank does not consider loans for impairment unless a sustained period of delinquency (i.e. 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent foreclosure proceedings, etc.). Impaired loans, or portions thereof, are charged-off when deemed uncollectible. At December 31, 2011, there were no commitments to lend additional funds to customers whose loans are classified as nonaccrual.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The following tables detail impaired loan data as of December 31, 2011 and December 31, 2010:

					Average		Interest		Interest
	Impaired		Related		Recorded		Income		Income
December 31, 2011:	Balance		Allowance		Investment		Recorded		Collected
With No Related Allowance Recorded:
Commercial	$	489,097	$	—	$	171,824	$	20,929	$	—
Commercial real estate		3,270,413		—		2,817,606		17,920		28,078
Residential real estate		532,952		—		420,047		3,361		—
Consumer		111,166		—		182,458		1,141		—
		4,403,628		—		3,591,935		43,351		28,078
With an Allowance Recorded:
Commercial		2,220,026		1,101,062		299,220		—		—
Commercial real estate		1,644,501		509,779		729,383		—		—
Residential real estate		194,503		27,277		333,012		—		—
Consumer		—		—		—		—		—
		4,059,030		1,638,118		1,361,615		—		—
Total:
Commercial		2,709,123		1,101,062		471,044		20,929		—
Commercial real estate		4,914,914		509,779		3,546,989		17,920		28,078
Residential real estate		727,455		27,277		753,059		3,361		—
Consumer		111,166		—		182,458		1,141		—
	$	8,462,658	$	1,638,118	$	4,953,550	$	43,351	$	28,078

December 31, 2010:
With No Related Allowance Recorded:
Commercial	$	44,454	$	—	$	1,008,000	$	8,120	$	7,578
Commercial real estate		1,890,873		—		1,275,000		20,749		20,749
Residential real estate		28,188		—		296,000		—		—
Consumer		167,741		—		137,000		1,909		1,878
		2,131,256		—		2,716,000		30,778		30,205
With an Allowance Recorded:
Commercial		1,281,111		1,218,646		504,000		—		—
Commercial real estate		667,872		35,216		1,044,000		10,261		10,261
Residential real estate		374,230		55,435		197,000		—		—
Consumer		—		—		—		—		—
		2,323,213		1,309,297		1,745,000		10,261		10,261
Total:
Commercial		1,325,565		1,218,646		1,512,000		8,120		7,578
Commercial real estate		2,558,745		35,216		2,319,000		31,010		31,010
Residential real estate		402,418		55,435		493,000		—		—
Consumer		167,741		—		137,000		1,909		1,878
	$	4,454,469	$	1,309,297	$	4,461,000	$	41,039	$	40,466

Table of Contents

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

A troubled debt restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Bank would not otherwise have considered due to a borrower’s financial difficulties. Most of the Bank’s loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months. These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment. The following table presents TDR’s as of December 31, 2011:

	TDRs on		TDRs on
	Non-Accrual		Accrual		Total
December 31, 2011:	Status		Status		TDRs
Commercial	$	—	$	294,891	$	294,891
Commercial real estate		1,515,266		—		1,515,266
Residential real estate		20,000		819,548		839,548
Consumer		15,000		77,398		92,398
	$	1,550,266	$	1,191,837	$	2,742,103

During the twelve months ended December 31, 2011, the Bank modified six loan relationships that were considered to be troubled debt restructurings. We extended the maturity date term for all of these loans. At December 31, 2011, 18% of the Bank’s TDRs were performing according to their modified terms. A loan is considered to be in payment default once it is 31 days contractually past due under the modified terms. As of December 31, 2011, the TDRs on non-accrual status and $708,030 of the TDRs on accrual status that were 30-89 days past due were considered in default. The Bank allocated $51,512 of specific reserves to customers whose loan terms have been modified in TDRs as of December 31, 2011. The TDRs on non-accrual status are designated as impaired. The Bank has not committed to lend any additional amounts to its existing TDR relationships.

NOTE 6. PREMISES AND EQUIPMENT

A summary of the cost of premises and equipment and related accumulated depreciation follows:

	December 31,
	2011		2010

Land and improvements	$	3,432,966	$	3,260,569
Buildings		3,629,964		3,629,964
Furniture, fixtures, and equipment		2,531,744		2,547,082
Automobiles		58,080		51,234
		9,652,754		9,488,849
Less accumulated depreciation		3,235,878		2,793,847

	$	6,416,876	$	6,695,002

Depreciation expense for the years ended December 31, 2011 and 2010 was $605,114 and $573,576, respectively.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 7. OTHER REAL ESTATE OWNED

Activity for other real estate owned included in other assets for December 31, 2011 and 2010, is as follows:

	2011			2010

Balance at beginning of year	$	2,102,858		$	2,268,704
Properties acquired		562,204			330,000
Subsequent write-downs		(231,100	)		(204,779	)
Gross proceeds from sales		(431,862	)		(260,000	)
Gains (losses) recorded		(2,862	)		(31,067	)

	$	1,999,238		$	2,102,858

NOTE 8. OTHER ASSETS

As result of the merger with Guaranty Bank, goodwill was included in other assets in the amount of $2,368,278. Goodwill is reviewed annually for impairment in accordance with GAAP. Management has determined that no impairment to goodwill has occurred in 2011 or 2010. In addition, a core deposit intangible was recorded in the amount of $523,000 and is being amortized over a period of seven years using an accelerated method. The unamortized balance of the core deposit intangible at December 31, 2011 and 2010 was $444,550 and $479,417, respectively.

NOTE 9. DEPOSITS

Deposits consisted of the following:

	December 31,
	2011							2010
					Weighted							Weighted
					Average							Average
	Balance		%		Rate			Balance		%		Rate

Savings	$	21,945,695		5.46		0.13	%	$	18,699,236		4.69		0.18	%
Certificates of deposit		210,885,386		52.48		2.07			211,010,113		52.93		2.40
Money market		56,563,831		14.07		0.40			67,291,744		16.88		0.45
Now		49,056,572		12.21		0.30			45,008,867		11.29		0.35
Checking		63,396,564		15.78		—			56,661,811		14.21		—

	$	401,848,048		100.00		1.20		$	398,671,771		100.00		1.44

Interest expense on deposits for the years ended December 31, 2011 and 2010, consisted of the following:

	2011		2010

Savings	$	26,083	$	34,930
Certificates of deposits		4,399,858		5,353,127
Money market		249,417		267,210
Now		154,375		168,988

	$	4,829,733	$	5,824,255

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

Scheduled maturities of certificates of deposit at December 31, 2011, are as follows:

	2011

Three months or less	$	38,322,401
Over three months through twelve months		74,052,230
Over one year through three years		55,459,354
Over three years		43,051,401

	$	210,885,386

Deposits from related parties held by the Bank at December 31, 2011 and 2010, amounted to $5,009,142 and $8,931,789, respectively.

NOTE 10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase generally are held until canceled by either party. Information concerning securities sold under agreements to repurchase at December 31, 2011 and 2010 is summarized as follows:

	2011			2010

Average balance during the year	$	20,791,477		$	19,190,556
Average interest rate during the year		1.81	%		2.07	%
Maximum month-end balance during the year	$	24,402,084		$	20,675,303
U.S. agency securities underlying the agreements		22,897,061			28,614,911

NOTE 11. FEDERAL HOME LOAN BANK ADVANCES

The Bank owns stock of the Federal Home Loan Bank of Pittsburgh (FHLB) which allows the Bank to borrow funds from the FHLB. The Bank’s maximum borrowing capacity from FHLB was $135,742,000 and $140,718,000 at December 31, 2011 and 2010, respectively.

The Bank has advances of short- and long-term debt from the FHLB totaling $31,220,578 and $33,720,577 at December 31, 2011 and 2010, respectively, with various scheduled maturity dates beginning January 19, 2012, through May 19, 2022. The advances are secured by commercial, commercial real estate and residential real estate loans. The interest rate is determined at the time the advances are made and currently range from 0.15% to 4.57%. The FHLB advances are scheduled for repayment as follows:

Year		Amount

2012	$	20,000,000
2013		—
2014		—
2015		—
2016		—
Thereafter		11,220,578

	$	31,220,578

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 12. LINES OF CREDIT

The Bank has federal funds accommodations with four correspondent banks. The agreements allow the Bank to borrow for 14 days in a calendar month with interest due daily at variable rates. The amounts available for the Bank to borrow under these agreements total $21,500,000. At December 31, 2011 and 2010, no funds were advanced under these agreements.

NOTE 13. TRUST PREFERRED SECURITIES

On April 23, 2007, First Sentry Bancshares Capital Trust II (“Trust II”) issued $5,000,000 of Floating Rate Trust Preferred Securities. Trust II, a Delaware statutory business trust, is a wholly-owned consolidated subsidiary of the Company, with its sole asset being $5,000,000 aggregate principal amount of Floating Rate Junior Subordinated Debt Securities due June 15, 2037, of First Sentry Bancshares, Inc. (the trust debenture).

The trust preferred securities are non-voting, pay quarterly distributions at a variable rate, and carry a liquidation value of $1,000 per share. The variable interest rate is equal to a 3-month LIBOR plus 1.58% (2.13% at December 31, 2011). Distributions for the years ended December 31, 2011 and 2010, totaled $95,908 and $97,214, respectively. The Company has executed a guarantee with regard to the trust preferred securities. The guarantee, when taken together with the Company’s obligations under the trust debenture issued and the applicable trust document, provides a full and unconditional guarantee of the trust’s obligations under the trust preferred securities.

After June 15, 2012, the trust preferred securities are redeemable in part or whole, at the option of the Company, for a redemption price of $1,000 per trust preferred security. The trust preferred securities are subject to mandatory redemption on June 15, 2037, at a redemption price of $1,000 per trust preferred security. First Sentry Bancshares, Inc. may cause the trust to delay payment of distributions on the trust preferred securities for up to twenty consecutive quarterly periods. During such deferral periods, distributions to which holders of the trust preferred securities are entitled will compound quarterly at the applicable rate for each quarterly period.

In the merger with Guaranty Financial Services, Inc. the Company acquired Guaranty Financial Statutory Trust I (the Trust). The Company owns 100% of the common equity of the Trust. The Trust was formed for the purpose of issuing $4,000,000 of corporation-obligated, mandatorily-redeemable securities to third-party investors and investing the proceeds from the sale of the capital securities in junior subordinated debentures. Distributions on the capital securities issued by the Trust are payable quarterly bearing a variable interest rate equal to 3-month LIBOR plus 3.10% (3.67% at December 31, 2011), which is equal to the interest rate being earned by the Trust on the debentures held by the Trust and are recorded as interest expense by the Company. Distributions for the years ended December 31, 2011 and 2010, totaled $135,776 and $141,826, respectively. The Company has the option to defer payment of the distributions for an extended period up to five years, so long as the Company is not in default of the terms of the debentures.

The capital securities have a term of 30 years and have a final maturity at June 26, 2033. They are subject to mandatory redemption in whole or in part, upon repayment of the debentures. After June 26, 2008, the trust preferred securities are redeemable in part or whole, at the option of the Company, for a par value of $1,000 per trust preferred security. The Company has entered into agreements that fully and unconditionally guarantee the capital securities subject to the terms of the guarantee.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business, the Bank has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheet. Financial instruments whose contract amount represents credit risk at December 31, 2011 and 2010 are as follows:

	2011		2010

Commitments to extend credit	$	61,284,001	$	51,098,474
Standby letters of credit		8,292,126		7,800,962

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 customer’s creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Bank upon extension of credit, varies and is based on management’s credit evaluation of the counter party.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and generally require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

NOTE 15. STOCKHOLDERS’ EQUITY

Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, as defined, combined with the retained earnings of the preceding two years, subject to the capital requirements as defined below.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines 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 Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets (as defined in the regulations), and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 2011 and 2010, that the Bank meets all the capital adequacy requirements to which it is subject. As of July 21, 2011, the date of the most recent notification from the West Virginia Division of Banking, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. At December 31, 2011 and 2010, the Bank is categorized as well capitalized as disclosed in the following table.

Table of Contents

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The Bank’s actual and required capital amounts and ratios as of December 31, 2011 and 2010, are as follows:

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under The Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

December 31, 2011:
Total Risk-Based Capital
(to Risk-Weighted Assets)
Bank	$	41,668,000		12.20	%	$	27,323,000		8	%	$	34,154,000		10	%
Consolidated		41,721,000		12.24	%		27,269,000		8	%		34,086,000		10	%

Tier l Capital
(to Risk-Weighted Assets)
Bank		37,379,000		10.94	%		13,667,000		4	%		20,500,000		6	%
Consolidated		37,441,000		10.99	%		13,627,000		4	%		20,441,000		6	%

Tier l Capital
(to Adjusted Total Assets)
Bank		37,379,000		7.36	%		20,315,000		4	%		25,393,000		5	%
Consolidated		37,441,000		7.60	%		19,706,000		4	%		24,632,000		5	%

December 31, 2010:
Total Risk-Based Capital
(to Risk-Weighted Assets)
Bank	$	39,770,000		11.62	%	$	27,381,000		8	%	$	34,226,000		10	%
Consolidated		39,826,000		11.65	%		27,349,000		8	%		34,186,000		10	%

Tier l Capital
(to Risk-Weighted Assets)
Bank		35,484,000		10.37	%		13,688,000		4	%		20,531,000		6	%
Consolidated		35,542,000		10.39	%		13,684,000		4	%		20,525,000		6	%

Tier l Capital
(to Adjusted Total Assets)
Bank		35,484,000		7.19	%		19,741,000		4	%		24,676,000		5	%
Consolidated		35,542,000		7.23	%		19,664,000		4	%		24,580,000		5	%

Earnings per share are computed on the weighted average number of shares outstanding of 1,437,651 at December 31, 2011 and 2010.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 16. INCOME TAXES

The provision for income taxes consists of the following:

	Years Ended December 31,
	2011			2010
Current tax expense
Federal	$	1,458,325		$	274,802
State		307,386			100,955
Deferred tax expense (benefit)
Federal		(427,768	)		539,022
State		(66,129	)		91,424
	$	1,271,814		$	1,006,203

A reconciliation of the income tax expense at the Federal statutory rate of 34% is as follows:

	Years Ended December 31,
	2011			2010

Federal statutory income tax	$	1,457,345		$	1,209,533
State income tax, net of federal tax benefit		202,875			66,630
Tax exempt interest income		(365,324	)		(382,888	)
Other		(23,082	)		112,928
	$	1,271,814		$	1,006,203

The Company files income tax returns in the U.S. federal jurisdiction and the State of West Virginia. The Company has evaluated the tax positions taken or expected to be taken in its tax returns and does not believe it has any additional liability related to uncertain tax positions. Interest and penalties associated with any tax assessments are recorded as interest expense and noninterest expense, respectively. The years ended December 31, 2008 through December 31, 2011 remain open for audits by tax authorities.

For the year ended December 31, 2010, the Company utilized the remaining NOL carryforward of $1,656,152 that was available from the acquisition of Guaranty Bank.

Table of Contents

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

A cumulative net deferred tax asset is included in other assets. The components of the asset are as follows:

	December 31,
	2011		2010
Deferred tax assets:
Allowance for loan losses	$	1,222,787	$	965,631
Acquisition costs		137,731		137,731
OREO write-downs		430,609		374,004
Nonaccrual interest		180,815		54,940
AMT credit carryforward		83,942		83,942
OTTI securities		179,278		179,278
Unrealized loss on securities		—		85,549
		2,235,162		1,881,075

Deferred tax liabilities:
Depreciation		395,503		243,400
Accretion of discounts, net		56,108		54,477
Unrealized gain on securities		244,520		—
		696,131		297,877
Net deferred tax asset	$	1,539,031	$	1,583,198

NOTE 17. PROFIT SHARING PLAN

The Bank instituted a 401(k) profit sharing plan in 1999 covering all employees. The plan permits employee contributions up to the maximum allowed by Internal Revenue Service regulations ($16,500 for 2011). Employer contributions are discretionary and totaled $84,613 and $75,265 for the years ended December 31, 2011 and 2010, respectively.

NOTE 18. OPERATING LEASES

During November 2002, the Bank signed a ten-year lease for land on which a branch is located. Lease payments are $3,750 per month through October 2012. At that time, providing the lease is still in effect, the lease will be automatically renewed for a series of twelve renewals of five years each, plus a final thirteenth renewal for nineteen years. Upon each renewal, the lease provides for an increase in the rental payments of ten percent over the preceding term. The Bank intends to renew this lease and an additional five-year term is included in the following schedule of minimum rental payments with annual lease payments of $49,500. Lease payments totaled $45,000 each year for the years ended December 31, 2011 and 2010. Lease payments made during 2003 were included in other assets as prepaid rents and are being amortized over the original ten year term of the lease.

The Bank assumed a lease with a related party as the result of the merger with Guaranty Bank. Under the remaining terms of the twenty-year lease scheduled to expire in March 2020, monthly lease payments are $6,000 through March 2015, and in April 2015 the monthly lease payments will increase to $6,500 for the remaining term of the lease. Lease payments totaled $72,000 and $70,500 for the years ended December 31, 2011 and 2010, respectively.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

The following is a schedule by year of future minimum rental payments required under lease agreements:

Year Ending
December 31,		Amount

2012	$	117,750
2013		121,500
2014		121,500
2015		126,000
2016		127,500
Thereafter		294,750

	$	909,000

NOTE 19. CONCENTRATION OF CREDIT RISK

The Bank grants commercial, residential and consumer related loans to customers primarily located in Cabell, Wayne and the adjoining counties of West Virginia, Ohio, and Kentucky. Although the Bank has a diverse loan portfolio, a substantial portion of its debtors’ ability to repay is dependent on the economic conditions of the counties in which they operate.

NOTE 20. COMMITMENTS AND CONTINGENCIES

The Company and the Bank are subject to claims and lawsuits which arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated position of the Company or the Bank.

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 21. PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information of First Sentry Bancshares, Inc. (Parent Company) is presented below:

BALANCE SHEETS
	December 31,
	2011		2010
ASSETS
Investments in subsidiary	$	40,516,483	$	37,949,696
Other assets		73,351		71,369
	$	40,589,834	$	38,021,065

LIABILITIES
Total liabilities	$	9,011,467	$	9,012,006
Total stockholders’ equity		31,578,367		29,009,059
	$	40,589,834	$	38,021,065

STATEMENTS OF INCOME	Years Ended December 31,
	2011			2010
Income:
Dividends from subsidiary	$	1,133,901		$	899,735
Other income		30,207			31,627
		1,164,108			931,362
Expenses:
Other		—			—

Income before income taxes and equity in undistributed income of subsidiary		1,164,108			931,362

Federal and state income tax expense		(11,467	)		(12,006	)

Income before equity in undistributed income of subsidiary		1,152,641			919,356

Equity in undistributed income of subsidiary		1,861,853			1,631,892
	$	3,014,494		$	2,551,248

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FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2011 and 2010

NOTE 21. PARENT COMPANY FINANCIAL INFORMATION (continued)

STATEMENTS OF CASH FLOWS	Years Ended December 31,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,014,494		$	2,551,248
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in equity in undistributed income of subsidiary		(1,861,853	)		(1,631,892	)
(Increase) decrease in other assets		(1,982	)		228,339
(Decrease) increase in other liabilities		(539	)		2,424
NET CASH PROVIDED BY OPERATING ACTIVITIES		1,150,120			1,150,119

CASH FLOWS FROM INVESTING ACTIVITIES		—			—
NET CASH USED IN INVESTING ACTIVITIES		—			—

CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid		(1,150,120	)		(1,150,119	)
NET CASH USED IN FINANCING ACTIVITIES		(1,150,120	)		(1,150,119	)

NET CHANGE IN CASH		—			—

CASH, BEGINNING		—			—
CASH, ENDING	$	—		$	—

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ITEM 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined by the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Management’s Report on Internal Control over Financial Reporting

The management of First Sentry Bancshares, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on that assessment, management concludes that, as of December 31, 2011, the Company’s internal control over financial reporting is effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in the annual report.

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We maintain internal control over financial reporting. There have not been any significant changes in such internal control over the financial reporting in the last quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

Other Information

None.

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

First Sentry Bancshares, Inc. has adopted a Code of Ethics that applies to First Sentry Bancshares, Inc.’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics is filed as Exhibit 14 to the Form 10-K for the year ended December 31, 2009. A copy of the Code will be furnished without charge upon written request to the Secretary, First Sentry Bancshares, Inc., 823 Eighth Street, Huntington, West Virginia 25701.

Information concerning Directors and executive officers of First Sentry Bancshares, Inc. is incorporated herein by reference from our definitive Proxy Statement (the “Proxy Statement”), specifically the section captioned “Proposal I—Election of Directors.”

ITEM 11.

Executive Compensation

Information concerning executive compensation is incorporated herein by reference from our Proxy Statement, specifically the section captioned “Proposal I — Election of Directors.”

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain owners and management is incorporated herein by reference from our Proxy Statement, specifically the sections captioned “Voting Securities and Principal Holders Thereof” and “Proposal I — Election of Directors.”

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

Information concerning relationships and transactions is incorporated herein by reference from our Proxy Statement, specifically the section captioned “Transactions with Certain Related Persons.”

ITEM 14.

Principal Accountant Fees and Services

Information concerning principal accountant fees and services is incorporated herein by reference from our Proxy Statement, specifically the section captioned “Proposal II-Ratification of Appointment of Independent Registered Public Accounting Firm.”

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PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

3.1	Articles of Incorporation of First Sentry Bancshares, Inc.*
3.2	Bylaws of First Sentry Bancshares, Inc.*
4	Form of Common Stock Certificate of First Sentry Bancshares, Inc.*
10.1	Employment Agreement with Geoffrey S. Sheils*
10.2	Form of Consulting Agreement for Marc A. Sprouse*
10.3	Form of Retention Agreement for Larry E. Plantz*
14	Code of Ethics**
21	Subsidiaries of Registrant*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

_________________________

*	Incorporated by reference to the Registration Statement on Form S-4 of First Sentry Bancshares, Inc. (File No. 333-156180), originally filed with the Securities and Exchange Commission on December 16, 2008, as amended.
**	Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K of First Sentry Bancshares, Inc. filed with the Securities and Exchange Commission on March 31, 2010 (File No. 000-53790).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST SENTRY BANCSHARES, INC.

Date: March 29, 2012	By:	/s/ Geoffrey S. Sheils
		Geoffrey S. Sheils
		President and Chief Executive Officer
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Geoffrey S. Sheils	President and Chief Executive	March 29, 2012
Geoffrey S. Sheils	Officer (Principal Executive Officer)

/s/ Richard D. Hardy	Senior Vice President and	March 29, 2012
Richard D. Hardy	Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Robert H. Beymer	Chairman of the Board	March 29, 2012
Robert H. Beymer

/s/ Kerry P. Dillard	Director	March 29, 2012
Kerry P. Dillard

/s/ Jeffrey E. Hood	Director	March 29, 2012
Jeffrey E. Hood

/s/ Johnnie Jones	Director	March 29, 2012
Johnnie Jones

/s/ Nester S. Logan	Director	March 29, 2012
Nester S. Logan

/s/ Charles H. McKown, Jr. MD	Director	March 29, 2012
Charles H. McKown, Jr. MD

/s/ Robert L. Shell, Jr.	Director	March 29, 2012
Robert L. Shell, Jr.

/s/ Paul L. Turman, II	Director	March 29, 2012
Paul L. Turman, II

/s/ Joseph Williams	Director	March 29, 2012
Joseph Williams

/s/ S. Kenneth Wolfe, MD	Director	March 29, 2012
S. Kenneth Wolfe, MD

/s/ Marc A. Sprouse	Director	March 29, 2012
Marc A. Sprouse

/s/ David Fox, III	Director	March 29, 2012
David Fox, III

/s/ J. Grant McGuire	Director	March 29, 2012
J. Grant McGuire

/s/ Edward W. Morrison, Jr.	Director	March 29, 2012
Edward W. Morrison, Jr.

/s/ Sally C.B. Oxley	Director	March 29, 2012
Sally C.B. Oxley

/s/ George A. Patterson, III	Director	March 29, 2012
George A. Patterson, III

/s/ Paul B. Riedel	Director	March 29, 2012
Paul B. Riedel

/s/ J. Roger Smith	Director	March 29, 2012
J. Roger Smith

/s/ John Jay White	Director	March 29, 2012
John Jay White

Attached files

First Sentry Bancshares, Inc. Reports

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