##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For Quarterly Period Ended June 30, 2010
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 000-50151
 Allegheny Bancshares, Inc.
  West Virginia
    
    22-3888163(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 
 (Registrants Telephone Number)
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated Filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



PART I. CONSOLIDATED FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Unaudited Consolidated Statements of Income  Six Months ended June 30, 2010 and 2009
    
    
    2Unaudited Consolidated Statements of Income  Three Months ended June 30, 2010 and 2009
    
    
    3Consolidated Balance Sheets  June 30, 2010 (Unaudited) and December 31, 2009 (Audited)
    
    
    4Unaudited Consolidated Statements of Changes in Stockholders Equity  Six Months Ended
June 30, 2010 and 2009
    
    
    5Unaudited Consolidated Statements of Cash Flows  Six Months Ended June 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATION
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 2. Unregulated Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults upon Senior Securities
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21SIGNATURES
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Consolidated Financial Statements
 Allegheny Bancshares, Inc.
 
 Consolidated Statements of Income  (In thousands, except for share and per share information)
 Six Months EndedJune 30,2010
    
    
    2009Interest and Dividend Income:Loans and fees
    
    $
    5,914
    
    
    $
    5,566Investment securities  taxable
    
    
    230
    
    
    
    213Investment securities  nontaxable
    
    
    275
    
    
    
    306Deposits and federal funds sold
    
    
    56
    
    
    
    42Total Interest and Dividend Income
    
    
    6,475
    
    
    
    6,127Interest Expense:Deposits
    
    
    1,773
    
    
    
    1,990Borrowings
    
    
    116
    
    
    
    145Total Interest Expense
    
    
    1,889
    
    
    
    2,135Net Interest Income
    
    
    4,586
    
    
    
    3,992Provision for loan losses
    
    
    644
    
    
    
    167Net Interest Income After Provision for Loan Losses
    
    
    3,942
    
    
    
    3,825Noninterest Income:Service charges on deposit accounts
    
    
    513
    
    
    
    441Restricted equity security impairment
    
    
    
    
    
    
    (604
    )Gain on sale of securities
    
    
    
    
    
    
    64Other income
    
    
    374
    
    
    
    320Total Noninterest Income
    
    
    887
    
    
    
    221Noninterest Expense:Salaries and benefits
    
    
    1,709
    
    
    
    1,523Occupancy expenses
    
    
    213
    
    
    
    198Equipment expenses
    
    
    355
    
    
    
    307Other expenses
    
    
    1,083
    
    
    
    1,157Total Noninterest Expenses
    
    
    3,360
    
    
    
    3,185Income before Income Taxes
    
    
    1,469
    
    
    
    861Income Tax Expense
    
    
    396
    
    
    
    356Net Income
    
    $
    1,073
    
    
    $
    505Earnings Per ShareNet income
    
    $
    1.24
    
    
    $
    0.58Weighted Average Shares Outstanding
    
    
    867,459
    
    
    
    870,869
   2




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##### Table of Contents



Allegheny Bancshares, Inc.
 
 Consolidated Statements of Income  (In thousands, except for share and per share information)
 Three Months EndedJune 30,2010
    
    
    2009Interest and Dividend Income:Loans and fees
    
    $
    2,963
    
    
    $
    2,900Investment securities  taxable
    
    
    116
    
    
    
    110Investment securities  nontaxable
    
    
    134
    
    
    
    157Deposits and federal funds sold
    
    
    29
    
    
    
    14Total Interest and Dividend Income
    
    
    3,242
    
    
    
    3,181Interest Expense:Deposits
    
    
    869
    
    
    
    1,045Borrowings
    
    
    58
    
    
    
    71Total Interest Expense
    
    
    927
    
    
    
    1,116Net Interest Income
    
    
    2,315
    
    
    
    2,065Provision for loan losses
    
    
    324
    
    
    
    90Net Interest Income After Provision for Loan Losses
    
    
    1,991
    
    
    
    1,975Noninterest Income:Service charges on deposit accounts
    
    
    287
    
    
    
    252Restricted equity security impairment
    
    
    
    
    
    
    Gain on sale of securities
    
    
    
    
    
    
    74Other income
    
    
    183
    
    
    
    161Total Noninterest Income
    
    
    470
    
    
    
    487Noninterest Expense:Salaries and benefits
    
    
    849
    
    
    
    778Occupancy expenses
    
    
    101
    
    
    
    104Equipment expenses
    
    
    183
    
    
    
    160Other expenses
    
    
    543
    
    
    
    665Total Noninterest Expenses
    
    
    1,676
    
    
    
    1,707Income before Income Taxes
    
    
    785
    
    
    
    755Income Tax Expense
    
    
    216
    
    
    
    208Net Income
    
    $
    569
    
    
    $
    547Earnings Per ShareNet income
    
    $
    0.66
    
    
    $
    0.63Weighted Average Shares Outstanding
    
    
    867,459
    
    
    
    870,676
   3




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##### Table of Contents



Allegheny Bancshares, Inc.
 
 Consolidated Balance Sheets  (In thousands, except for share and per share information)
 June 30, 2010
    
    
    December 31, 2009Unaudited
    
    
    AuditedASSETSCash and due from banks
    
    $
    5,163
    
    
    $
    3,810Interest bearing deposits in banks
    
    
    6,332
    
    
    
    8,249Investment securities available for sale
    
    
    29,717
    
    
    
    31,338Restricted equity securities
    
    
    748
    
    
    
    748Loans receivable, net of allowance for loan losses of $2,204 and $1,790 respectively
    
    
    188,545
    
    
    
    182,864Bank premises and equipment, net
    
    
    6,783
    
    
    
    6,958Interest receivable
    
    
    1,323
    
    
    
    1,436Goodwill
    
    
    1,087
    
    
    
    1,087Bank owned life insurance
    
    
    3,949
    
    
    
    3,867Other assets
    
    
    2,760
    
    
    
    2,530Total Assets
    
    $
    246,407
    
    
    $
    242,887LIABILITIESDepositsNoninterest bearing demand
    
    $
    27,930
    
    
    $
    26,689Interest bearingDemand
    
    
    29,444
    
    
    
    28,005Savings
    
    
    26,948
    
    
    
    27,282Time deposits over $100,000
    
    
    46,148
    
    
    
    42,645Other time deposits
    
    
    80,957
    
    
    
    84,218Total Deposits
    
    
    211,427
    
    
    
    208,839Accrued expenses and other liabilities
    
    
    839
    
    
    
    814Short-term borrowings
    
    
    797
    
    
    
    931Long-term debt
    
    
    4,578
    
    
    
    4,695Total Liabilities
    
    
    217,641
    
    
    
    215,279STOCKHOLDERS EQUITYCommon stock; $1 par value, 2,000,000 sharesAuthorized, 900,000 issued, 867,459 outstanding
    
    
    900
    
    
    
    900Additional paid in capital
    
    
    900
    
    
    
    900Retained earnings
    
    
    28,255
    
    
    
    27,182Accumulated other comprehensive income
    
    
    528
    
    
    
    443Treasury stock (at cost, 32,541 shares in 2010 and 2009)
    
    
    (1,817
    )
    
    
    (1,817
    )Total Stockholders Equity
    
    
    28,766
    
    
    
    27,608Total Liabilities and Stockholders Equity
    
    $
    246,407
    
    
    $
    242,887
   4




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##### Table of Contents



Allegheny Bancshares, Inc.
 
 Consolidated Statements of Changes in Stockholders Equity  (In thousands)
 AccumulatedOtherCommon
    
    
    Additional
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryTotal
    
    
    Stock
    
    
    Paid In Capital
    
    
    Earnings
    
    
    Income
    
    
    StockBalance, December 31, 2009
    
    $
    27,608
    
    
    $
    900
    
    
    $
    900
    
    
    $
    27,182
    
    
    $
    443
    
    
    $
    (1,817
    )Comprehensive IncomeNet Income
    
    
    1,073
    
    
    
    
    
    
    
    
    
    
    
    1,073Change in unrealized
gain on
available for sale
securities, net of
income tax effect of
$44
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Total Comprehensive Income
    
    
    1,158Balance, June 30, 2010
    
    $
    28,766
    
    
    $
    900
    
    
    $
    900
    
    
    $
    28,255
    
    
    $
    528
    
    
    $
    (1,817
    )Balance, December 31, 2008
    
    $
    27,160
    
    
    $
    900
    
    
    $
    900
    
    
    $
    26,631
    
    
    $
    320
    
    
    $
    (1,591
    )Comprehensive IncomeNet income
    
    
    505
    
    
    
    
    
    
    
    
    
    
    
    505Change in unrealized
gain on
available for sale
securities, net of
income tax effect of
($93)
    
    
    (181
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (181
    )Total Comprehensive Income
    
    
    324Purchase of Treasury Stock
    
    
    (43
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )Balance, June 30, 2009
    
    $
    27,441
    
    
    $
    900
    
    
    $
    900
    
    
    $
    27,136
    
    
    $
    139
    
    
    $
    (1,634
    )
   5




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##### Table of Contents



Allegheny Bancshares, Inc.
 
 Consolidated Statements of Cash Flows  (In thousands)
 Six Months EndedJune 30,2010
    
    
    2009Cash Flows from Operating Activities:Net income
    
    $
    1,073
    
    
    $
    505Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    644
    
    
    
    167Depreciation and amortization
    
    
    250
    
    
    
    228Loss on disposal of fixed assets
    
    
    1
    
    
    
    Net amortization (accretion) of securities
    
    
    (11
    )
    
    
    22Gain on sale of securities
    
    
    
    
    
    
    (64
    )Loss on restricted equity other than temporary impairment
    
    
    
    
    
    
    604Deferred income tax benefit
    
    
    (144
    )
    
    
    (134
    )Income from life insurance investment
    
    
    (82
    )
    
    
    (85
    )Net change in:Accrued income
    
    
    113
    
    
    
    (87
    )Other assets
    
    
    (129
    )
    
    
    (439
    )Accrued expense and other liabilities
    
    
    25
    
    
    
    115Net Cash Provided by Operating Activities
    
    
    1,740
    
    
    
    832Cash Flows from Investing Activities:Net change in federal funds sold
    
    
    
    
    
    
    (430
    )Cash received from the acquisition of branch offices
    
    
    
    
    
    
    6,497Net change in interest bearing deposits in banks
    
    
    1,917
    
    
    
    (1,190
    )Proceeds from sales, calls and maturities of available for sale securities
    
    
    7,510
    
    
    
    6,104Purchase of securities available for sale
    
    
    (5,750
    )
    
    
    (7,550
    )Net increase in loans
    
    
    (6,325
    )
    
    
    (4,860
    )Purchase of bank premises and equipment
    
    
    (76
    )
    
    
    (93
    )Net Cash Used by Investing Activities
    
    
    (2,724
    )
    
    
    (1,522
    )Cash Flows from Financing Activities:Net change in:Demand and savings deposits
    
    
    2,345
    
    
    
    (1,794
    )Time deposits
    
    
    243
    
    
    
    9,195Short-term borrowings
    
    
    (134
    )
    
    
    (2,080
    )Curtailments of long-term borrowings
    
    
    (117
    )
    
    
    (111
    )Purchase of treasury stock
    
    
    
    
    
    
    (43
    )Net Cash Provided by Financing Activities
    
    
    2,337
    
    
    
    5,167Cash and due from banksNet increase in cash and due from banks
    
    
    1,353
    
    
    
    4,477Cash and due from banks, beginning of period
    
    
    3,810
    
    
    
    2,562Cash and due from banks, end of period
    
    $
    5,163
    
    
    $
    7,039Supplemental Disclosure of Cash Paid During the Period for:Interest
    
    $
    1,905
    
    
    $
    2,108Income taxes
    
    $
    585
    
    
    $
    336
   6




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##### Table of Contents



NOTE 1 ACCOUNTING PRINCIPLES:
   Recent Accounting Pronouncements 
  Subsequent events 
 NOTE 2 INVESTMENT SECURITIES:
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedJune 30, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSecurities available for sale:Mortgaged backed obligations of federal agencies
    
    $
    2,569
    
    
    $
    90
    
    
    $
    
    
    
    $
    2,659Government sponsored enterprises
    
    
    10,953
    
    
    
    270
    
    
    
    
    
    
    
    11,223Obligations of states and political subdivisions
    
    
    14,764
    
    
    
    412
    
    
    
    7
    
    
    
    15,169Corporate obligations
    
    
    501
    
    
    
    35
    
    
    
    
    
    
    
    536Other equities
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130Total
    
    $
    28,917
    
    
    $
    807
    
    
    $
    7
    
    
    $
    29,717
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedDecember 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSecurities available for sale:Mortgaged backed obligations of federal agencies
    
    $
    3,401
    
    
    $
    61
    
    
    $
    
    
    
    $
    3,462Government sponsored enterprises
    
    
    9,985
    
    
    
    164
    
    
    
    
    
    
    
    10,149Obligations of states and political subdivisions
    
    
    16,647
    
    
    
    470
    
    
    
    34
    
    
    
    17,083Corporate obligations
    
    
    501
    
    
    
    12
    
    
    
    
    
    
    
    513Other equities
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    131Total
    
    $
    30,665
    
    
    $
    707
    
    
    $
    34
    
    
    $
    31,338
  7




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##### Table of Contents



Less than 12 months
    
    
    12 Months or greaterUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    TotalJune 30, 2010
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueDescription of Securities:Mortgaged backed obligations of federal agencies
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Government sponsored enterprises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of states and political subdivisions
    
    
    738
    
    
    
    5
    
    
    
    564
    
    
    
    2
    
    
    
    1,302Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    738
    
    
    $
    5
    
    
    $
    564
    
    
    $
    2
    
    
    $
    1,302
 Less than 12 months
    
    
    12 Months or greaterUnrealized
    
    
    
    
    
    Unrealized
    
    
    TotalDecember 31, 2009
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueDescription of Securities:Mortgaged backed obligations of
federal agencies
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Government sponsored enterprises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of states and political
subdivisions
    
    
    1,540
    
    
    
    28
    
    
    
    560
    
    
    
    6
    
    
    
    2,100Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,540
    
    
    $
    28
    
    
    $
    560
    
    
    $
    6
    
    
    $
    2,100
  AmortizedCost
    
    
    Fair ValueDue:In one year or less
    
    $
    3,256
    
    
    $
    3,287After one year through five years
    
    
    18,478
    
    
    
    19,054After five years through ten years
    
    
    6,386
    
    
    
    6,568After ten years through fifteen years
    
    
    797
    
    
    
    808Total
    
    $
    28,917
    
    
    $
    29,717
   8




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##### Table of Contents



NOTE 3 RESTRICTED EQUITY SECURITIES:
  NOTE 4 LOANS RECEIVABLE:
  June 30,
    
    
    December 31,2010
    
    
    2009Real estate loans
    
    $
    83,478
    
    
    $
    83,465Commercial and industrial loans
    
    
    90,094
    
    
    
    83,169Loans to individuals, primarily collateralized by autos
    
    
    12,406
    
    
    
    12,913All other loans
    
    
    4,771
    
    
    
    5,107Total Loans
    
    
    190,749
    
    
    
    184,654Less allowance for loan losses
    
    
    2,204
    
    
    
    1,790Net Loans Receivable
    
    $
    188,545
    
    
    $
    182,864
 NOTE 5 ALLOWANCE FOR LOAN LOSSES:
  Six Months EndedJune 30,2010
    
    
    2009Balance, beginning of period
    
    $
    1,790
    
    
    $
    1,396Provision charged to operating expenses
    
    
    644
    
    
    
    168Recoveries of loans charged off
    
    
    69
    
    
    
    50Loans charged off
    
    
    (299
    )
    
    
    (242
    )Balance, end of period
    
    $
    2,204
    
    
    $
    1,372
  9




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##### Table of Contents



NOTE 6 LONG TERM DEBT:
  NOTE 7 BANK OWNED LIFE INSURANCE:
  NOTE 8 FAIR VALUE:
 Fair Value Measurements,
    
 Investment securities available for sale:
 Loans:
 Other Real Estate Owned:
  10




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##### Table of Contents



June 30, 2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets recorded at fair value on a recurring basis:Mortgaged backed obligations of federal agencies
    
    $
    
    
    
    $
    2,659
    
    
    $
    
    
    
    $
    2,659Government sponsored enterprises
    
    
    11,223
    
    
    
    
    
    
    
    
    
    
    
    11,223Obligations of states and political subdivisions
    
    
    
    
    
    
    15,169
    
    
    
    
    
    
    
    15,169Corporate obligations
    
    
    
    
    
    
    536
    
    
    
    
    
    
    
    536Other equities
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    130Total
    
    $
    11,223
    
    
    $
    18,494
    
    
    $
    
    
    
    $
    29,717Assets recorded at fair value on a non recurring basis:Impaired Consumer Real Estate Loans
    
    $
    
    
    
    $
    
    
    
    $
    490
    
    
    $
    490Impaired Commercial Loans
    
    
    
    
    
    
    
    
    
    
    3,666
    
    
    
    3,666Other real estate owned
    
    
    
    
    
    
    
    
    
    
    985
    
    
    
    985Total
    
    $
    
    
    
    $
    
    
    
    $
    5,141
    
    
    $
    5,141
   December 31, 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets recorded at fair value on a recurring basis:Mortgaged backed obligations of federal agencies
    
    $
    
    
    
    $
    3,462
    
    
    $
    
    
    
    $
    3,462Government sponsored enterprises
    
    
    10,149
    
    
    
    
    
    
    
    
    
    
    
    10,149Obligations of states and political subdivisions
    
    
    
    
    
    
    17,083
    
    
    
    
    
    
    
    17,083Corporate obligations
    
    
    
    
    
    
    513
    
    
    
    
    
    
    
    513Other equities
    
    
    
    
    
    
    131
    
    
    
    
    
    
    
    131Total
    
    $
    10,149
    
    
    $
    21,189
    
    
    $
    
    
    
    $
    31,338Assets recorded at fair value on a non recurring basis:Impaired Consumer Real Estate Loans
    
    $
    
    
    
    $
    
    
    
    $
    670
    
    
    $
    670Impaired Commercial Loans
    
    
    
    
    
    
    
    
    
    
    3,634
    
    
    
    3,634Other real estate owned
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800Total
    
    $
    
    
    
    $
    
    
    
    $
    5,104
    
    
    $
    5,104
 NOTE 9 GOODWILL:
 Goodwill and Other Intangible Assets,
  11




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##### Table of Contents



NOTE 10 BENEFIT PLANS:
 Executive Performance Driven Plan th
   Supplemental Retirement Agreement SERP
 NOTE 11 CAPITAL:
  NOTE 12 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
  Cash and short-term deposits:
 Investment securities:
 Restricted investments:
 Loans:
 Bank owned life insurance:
 Deposits:
  12




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##### Table of Contents



Short-term borrowings and interest payable or receivable:
 Long-term debt:
 Off-balance sheet items:
 June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    Carrying(In Thousands)
    
    Fair Value
    
    
    Value
    
    
    Fair Value
    
    
    ValueCash and due from banks
    
    $
    5,163
    
    
    $
    5,163
    
    
    $
    3,810
    
    
    $
    3,810Interest bearing deposits in banks
    
    
    6,332
    
    
    
    6,332
    
    
    
    8,249
    
    
    
    8,249Securities available for sale
    
    
    29,717
    
    
    
    29,717
    
    
    
    31,338
    
    
    
    31,338Restricted equity securities
    
    
    748
    
    
    
    748
    
    
    
    748
    
    
    
    748Loans
    
    
    190,676
    
    
    
    188,545
    
    
    
    184,753
    
    
    
    182,864Interest receivable
    
    
    1,087
    
    
    
    1,087
    
    
    
    1,436
    
    
    
    1,436Bank owned life insurance
    
    
    3,949
    
    
    
    3,949
    
    
    
    3,867
    
    
    
    3,867Demand deposits
    
    
    27,930
    
    
    
    27,930
    
    
    
    26,689
    
    
    
    26,689Interest bearing demand deposit
    
    
    29,444
    
    
    
    29,444
    
    
    
    28,005
    
    
    
    28,005Savings deposits
    
    
    26,948
    
    
    
    26,948
    
    
    
    27,282
    
    
    
    27,282Time deposits
    
    
    127,911
    
    
    
    127,105
    
    
    
    127,599
    
    
    
    126,862Short-term borrowings
    
    
    797
    
    
    
    797
    
    
    
    931
    
    
    
    931Accrued interest payable
    
    
    329
    
    
    
    329
    
    
    
    344
    
    
    
    344Long-term debt
    
    
    4,730
    
    
    
    4,578
    
    
    
    4,927
    
    
    
    4,695
  13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Forward Looking Statements
   
    
    General economic conditions, either nationally or within the Companys markets, could
be less favorable than expected;
 
    
    Changes in market interest rates could affect interest margins and profitability;
 
    
    Competitive pressures could be greater than anticipated; and
 
    
    Legal or accounting changes could affect the Companys results.
 Critical Accounting Policy
   Allowance for Loan Losses and Provision for Loan Losses
   14




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##### Table of Contents



Goodwill and Intangibles
  Results of Operations Overview
  Net Interest Income
     15




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##### Table of Contents



Allegheny Bancshares, Inc.
Net Interest Margin Analysis  (On a Fully Taxable Equivalent Basis) (Dollar Amounts in Thousands)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2009Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    RatesInterest IncomeLoans 1,2,3
    
    $
    187,016
    
    
    $
    5,978
    
    
    
    6.39
    %
    
    $
    165,764
    
    
    $
    5,610
    
    
    
    6.77
    %Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    586
    
    
    
    1
    
    
    
    0.34
    %Interest bearing deposits
    
    
    6,359
    
    
    
    56
    
    
    
    1.76
    %
    
    
    5,051
    
    
    
    42
    
    
    
    1.66
    %InvestmentsTaxable
    
    
    15,182
    
    
    
    230
    
    
    
    3.03
    %
    
    
    11,262
    
    
    
    213
    
    
    
    3.78
    %Nontaxable 2
    
    
    14,455
    
    
    
    416
    
    
    
    5.76
    %
    
    
    16,017
    
    
    
    463
    
    
    
    5.78
    %Total Earning Assets
    
    
    223,012
    
    
    
    6,680
    
    
    
    5.99
    %
    
    
    198,680
    
    
    
    6,329
    
    
    
    6.37
    %Interest ExpenseDemand deposits
    
    
    22,768
    
    
    
    130
    
    
    
    1.14
    %
    
    
    21,987
    
    
    
    105
    
    
    
    0.96
    %Savings
    
    
    33,785
    
    
    
    36
    
    
    
    .21
    %
    
    
    27,608
    
    
    
    39
    
    
    
    0.28
    %Time deposits
    
    
    127,181
    
    
    
    1,607
    
    
    
    2.53
    %
    
    
    109,010
    
    
    
    1,846
    
    
    
    3.39
    %Short-term borrowings
    
    
    1,029
    
    
    
    1
    
    
    
    0.19
    %
    
    
    1,562
    
    
    
    1
    
    
    
    0.13
    %Long-term debt
    
    
    4,645
    
    
    
    115
    
    
    
    4.95
    %
    
    
    6,372
    
    
    
    144
    
    
    
    4.52
    %Total Interest BearingLiabilities
    
    $
    189,408
    
    
    $
    1,889
    
    
    
    1.99
    %
    
    $
    166,539
    
    
    $
    2,135
    
    
    
    2.56
    %Net Interest Margin 1
    
    
    
    
    
    
    4,791
    
    
    
    
    
    
    
    
    
    
    
    4,194Net Yield on InterestEarning Assets
    
    
    
    
    
    
    
    
    
    
    4.30
    %
    
    
    
    
    
    
    
    
    
    
    4.22
    %
 1
    
    Interest on loans includes loan fees2
    
    An incremental tax rate of 34% was used to calculate the tax equivalent income3
    
    Nonaccrual loans are included in average loan balance Noninterest Income
   16




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##### Table of Contents



Noninterest Expenses
  Income Tax Expense
  Loans and Provision for Loan Loss
   Loan Portfolio Risk Factors
   17




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##### Table of Contents



June 30,2010
    
    
    December 31,2009Nonaccrual loans
    
    $
    3,387
    
    
    $
    104Restructured loans
    
    
    139
    
    
    
    133Loans delinquent 90 days or more
    
    
    985
    
    
    
    5,290Total Nonperforming Loans
    
    $
    4,511
    
    
    
    5,527Nonperforming loans as a percentage of total loans
    
    
    2.36
    %
    
    
    2.99
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    48.86
    %
    
    
    32.39
    %
 st
 Deposits
  Borrowings
  Capital
  Uncertainties and Trends
  Liquidity and Interest Sensitivity
   18




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##### Table of Contents



Allegheny Bancshares, Inc.
Interest Sensitivity Analysis  June 30, 2010
 0-3
    
    
    4-12
    
    
    1-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalUses of Funds:Loans
    
    $
    22,069
    
    
    $
    29,464
    
    
    $
    45,426
    
    
    $
    93,790
    
    
    $
    190,749Interest bearing deposits
    
    
    293
    
    
    
    3,001
    
    
    
    3,038
    
    
    
    
    
    
    
    6,332Investment securities
    
    
    1,017
    
    
    
    2,270
    
    
    
    17,095
    
    
    
    9,335
    
    
    
    29,717Restricted Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    748
    
    
    
    748Total
    
    
    23,379
    
    
    
    34,735
    
    
    
    65,559
    
    
    
    103,873
    
    
    
    227,546Sources of Funds:Deposits:Interest bearing demand
    
    
    29,444
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,444Savings
    
    
    26,948
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,948Time deposits over $100,000
    
    
    8,761
    
    
    
    13,119
    
    
    
    17,484
    
    
    
    6,784
    
    
    
    46,148Other time deposits
    
    
    21,210
    
    
    
    24,148
    
    
    
    28,498
    
    
    
    7,101
    
    
    
    80,957Short-term borrowings
    
    
    797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    797Long-term debt
    
    
    60
    
    
    
    1,155
    
    
    
    593
    
    
    
    2,770
    
    
    
    4,578Total
    
    $
    87,220
    
    
    $
    38,422
    
    
    $
    46,575
    
    
    $
    16,655
    
    
    $
    188,872Discrete Gap
    
    $
    (63,841
    )
    
    $
    (3,687
    )
    
    $
    18,984
    
    
    $
    87,218
    
    
    $Cumulative Gap
    
    $
    (63,841
    )
    
    $
    (67,528
    )
    
    $
    (48,544
    )
    
    $
    38,674
    
    
    $Ratio of Cumulative Gap To Total Earning Assets
    
    
    -28.05
    %
    
    
    -29.68
    %
    
    
    -21.33
    %
    
    
    17.00
    %
   19




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##### Table of Contents



Existence of Securities and Exchange Commission Web Site
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  
 Part II. Other Information
 
 Item 1. Legal Proceedings 
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 
 
 Item 3. Defaults Upon Senior Securities 
 
 Item 5. Other Information 
  20




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##### Table of Contents



Item 6. Exhibits
  No.
    
    Description31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).32
    
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
  No.
    
    Description
    
    Exhibit Number3.1
    
    Articles of Incorporation  Allegheny Bancshares,
Inc.
    
    E2
  No.
    
    Description
    
    Exhibit Number3.3
    
    Bylaws of Allegheny Bancshares, Inc.
    
    3.3
 
 SIGNATURES
  ALLEGHENY BANCSHARES, INC.By:
    /s/ William A. Loving, Jr.Name:
    William A. Loving, Jr.Title:
    Executive Vice President and Chief Executive Officer By:
    /s/ L. Kirk BillingsleyName:
    L. Kirk BillingsleyTitle:
    Senior Vice President and Chief Financial Officer   21