##### 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 September 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
 o 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  Nine Months ended September 30, 2010 and 2009
    
    
    2Unaudited Consolidated Statements of Income  Three Months ended September 30, 2010 and 2009
    
    
    3Consolidated Balance Sheets  September 30, 2010 (Unaudited) and December 31, 2009 (Audited)
    
    
    4Unaudited Consolidated Statements of Changes in Stockholders Equity  Nine Months Ended September 30, 2010 and 2009
    
    
    5Unaudited Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 4T Controls and Procedures
    
    
    21PART II. OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 2. Unregulated Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults upon Senior Securities
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    22Exhibit 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)
  Nine Months EndedSeptember 30,2010
    
    
    2009Interest and Dividend Income:Loans and fees
    
    $
    8,982
    
    
    $
    8,561Investment securities  taxable
    
    
    334
    
    
    
    309Investment securities  nontaxable
    
    
    403
    
    
    
    464Deposits and federal funds sold
    
    
    92
    
    
    
    63Total Interest and Dividend Income
    
    
    9,811
    
    
    
    9,397Interest Expense:Deposits
    
    
    2,600
    
    
    
    3,036Borrowings
    
    
    173
    
    
    
    216Total Interest Expense
    
    
    2,773
    
    
    
    3,252Net Interest Income
    
    
    7,038
    
    
    
    6,145Provision for loan losses
    
    
    971
    
    
    
    292Net Interest Income After Provision for Loan Losses
    
    
    6,067
    
    
    
    5,853Noninterest Income:Service charges on deposit accounts
    
    
    819
    
    
    
    723Restricted equity security impairment
    
    
    
    
    
    
    (604
    )Gain on sale of securities
    
    
    
    
    
    
    64Other income
    
    
    582
    
    
    
    509Total Noninterest Income
    
    
    1,401
    
    
    
    692Noninterest Expense:Salaries and benefits
    
    
    2,545
    
    
    
    2,322Occupancy expenses
    
    
    320
    
    
    
    304Equipment expenses
    
    
    522
    
    
    
    471Other expenses
    
    
    1,620
    
    
    
    1,699Total Noninterest Expenses
    
    
    5,007
    
    
    
    4,796Income before Income Taxes
    
    
    2,461
    
    
    
    1,749Income Tax Expense
    
    
    695
    
    
    
    586Net Income
    
    $
    1,766
    
    
    $
    1,163Earnings Per ShareNet income per share
    
    $
    2.04
    
    
    $
    1.34Weighted Average Shares Outstanding
    
    
    867,459
    
    
    
    870,675
   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 EndedSeptember 30,2010
    
    
    2009Interest and Dividend Income:Loans and fees
    
    $
    3,068
    
    
    $
    2,995Investment securities  taxable
    
    
    104
    
    
    
    96Investment securities  nontaxable
    
    
    128
    
    
    
    158Deposits and federal funds sold
    
    
    36
    
    
    
    21Total Interest and Dividend Income
    
    
    3,336
    
    
    
    3,270Interest Expense:Deposits
    
    
    827
    
    
    
    1,046Borrowings
    
    
    57
    
    
    
    71Total Interest Expense
    
    
    884
    
    
    
    1,117Net Interest Income
    
    
    2,452
    
    
    
    2,153Provision for loan losses
    
    
    327
    
    
    
    125Net Interest Income After Provision for Loan Losses
    
    
    2,125
    
    
    
    2,028Noninterest Income:Service charges on deposit accounts
    
    
    306
    
    
    
    282Restricted equity security impairment
    
    
    
    
    
    
    Gain on sale of securities
    
    
    
    
    
    
    Other income
    
    
    208
    
    
    
    189Total Noninterest Income
    
    
    514
    
    
    
    471Noninterest Expense:Salaries and benefits
    
    
    836
    
    
    
    799Occupancy expenses
    
    
    107
    
    
    
    106Equipment expenses
    
    
    167
    
    
    
    164Other expenses
    
    
    537
    
    
    
    542Total Noninterest Expenses
    
    
    1,647
    
    
    
    1,611Income before Income Taxes
    
    
    992
    
    
    
    888Income Tax Expense
    
    
    299
    
    
    
    230Net Income
    
    $
    693
    
    
    $
    658Earnings Per ShareNet income per share
    
    $
    0.80
    
    
    $
    0.76Weighted Average Shares Outstanding
    
    
    867,459
    
    
    
    870,294
   3




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##### Table of Contents



Allegheny Bancshares, Inc.
 
 Consolidated Balance Sheets
 (In thousands, except for share and per share information)
 September 30, 2010
    
    
    December 31, 2009Unaudited
    
    
    AuditedASSETSCash and due from banks
    
    $
    8,521
    
    
    $
    3,810Interest bearing deposits in banks
    
    
    9,471
    
    
    
    8,249Investment securities available for sale
    
    
    27,827
    
    
    
    31,338Restricted equity securities
    
    
    748
    
    
    
    748Loans receivable, net of allowance for loan losses of $2,389 and $1,790 respectively
    
    
    191,312
    
    
    
    182,864Bank premises and equipment, net
    
    
    6,812
    
    
    
    6,958Interest receivable
    
    
    1,369
    
    
    
    1,436Goodwill
    
    
    1,087
    
    
    
    1,087Bank owned life insurance
    
    
    3,991
    
    
    
    3,867Other assets
    
    
    2,770
    
    
    
    2,530Total Assets
    
    $
    253,908
    
    
    $
    242,887LIABILITIESDepositsNoninterest bearing demand
    
    $
    29,298
    
    
    $
    26,689Interest bearingDemand
    
    
    35,870
    
    
    
    28,005Savings
    
    
    28,260
    
    
    
    27,282Time deposits over $100,000
    
    
    46,890
    
    
    
    42,645Other time deposits
    
    
    77,382
    
    
    
    84,218Total Deposits
    
    
    217,700
    
    
    
    208,839Accrued expenses and other liabilities
    
    
    1,071
    
    
    
    814Short-term borrowings
    
    
    1,002
    
    
    
    931Long-term debt
    
    
    4,518
    
    
    
    4,695Total Liabilities
    
    
    224,291
    
    
    
    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
    
    
    28,948
    
    
    
    27,182Accumulated other comprehensive income
    
    
    686
    
    
    
    443Treasury stock (at cost, 32,541 shares in 2010 and 2009)
    
    
    (1,817
    )
    
    
    (1,817
    )Total Stockholders Equity
    
    
    29,617
    
    
    
    27,608Total Liabilities and Stockholders Equity
    
    $
    253,908
    
    
    $
    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
    
    
    1,766
    
    
    
    
    
    
    
    
    
    
    
    1,766Change in unrealized
gain on
available for sale
securities, net of
income tax effect of
$125
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243Total Comprehensive Income
    
    
    2,009Balance, September 30, 2010
    
    $
    29,617
    
    
    $
    900
    
    
    $
    900
    
    
    $
    28,948
    
    
    $
    686
    
    
    $
    (1,817
    )Balance, December 31, 2008
    
    $
    27,160
    
    
    $
    900
    
    
    $
    900
    
    
    $
    26,631
    
    
    $
    320
    
    
    $
    (1,591
    )Comprehensive IncomeNet income
    
    
    1,163
    
    
    
    
    
    
    
    
    
    
    
    1,163Change in unrealized
gain on
available for sale
securities, net of
income tax effect of
$131
    
    
    253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    253Total Comprehensive Income
    
    
    1,416Purchase of Treasury Stock
    
    
    (204
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204
    )Balance, September 30, 2009
    
    $
    28,372
    
    
    $
    900
    
    
    $
    900
    
    
    $
    27,794
    
    
    $
    573
    
    
    $
    (1,795
    )
   5




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##### Table of Contents



Allegheny Bancshares, Inc.
 
 Consolidated Statements of Cash Flows
 (In thousands)
  Nine Months EndedSeptember 30,2010
    
    
    2009Cash Flows from Operating Activities:Net income
    
    $
    1,766
    
    
    $
    1,163Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    970
    
    
    
    292Depreciation and amortization
    
    
    378
    
    
    
    346Net amortization (accretion) of securities
    
    
    (4
    )
    
    
    34Gain on sale of securities
    
    
    
    
    
    
    (64
    )Loss on restricted equity other than temporary impairment
    
    
    
    
    
    
    604Deferred income tax benefit
    
    
    (159
    )
    
    
    17Income from life insurance investment
    
    
    (124
    )
    
    
    (130
    )Net change in:Accrued income
    
    
    67
    
    
    
    (208
    )Other assets
    
    
    (206
    )
    
    
    (607
    )Accrued expense and other liabilities
    
    
    416
    
    
    
    (349
    )Net Cash Provided by Operating Activities
    
    
    3,104
    
    
    
    1,098Cash Flows from Investing Activities:Net change in federal funds sold
    
    
    
    
    
    
    1,570Cash received from the acquisition of branch offices
    
    
    
    
    
    
    6,497Net change in interest bearing deposits in banks
    
    
    (1,221
    )
    
    
    (10,423
    )Proceeds from sales, calls and maturities of available for sale securities
    
    
    10,381
    
    
    
    6,453Purchase of securities available for sale
    
    
    (6,499
    )
    
    
    (11,076
    )Net increase in loans
    
    
    (9,577
    )
    
    
    (9,366
    )Purchase of bank premises and equipment
    
    
    (232
    )
    
    
    (158
    )Net Cash Used by Investing Activities
    
    
    (7,148
    )
    
    
    (16,503
    )Cash Flows from Financing Activities:Net change in:Demand and savings deposits
    
    
    11,451
    
    
    
    7,409Time deposits
    
    
    (2,590
    )
    
    
    13,443Short-term borrowings
    
    
    71
    
    
    
    (2,541
    )Curtailments of long-term borrowings
    
    
    (177
    )
    
    
    (168
    )Purchase of treasury stock
    
    
    
    
    
    
    (204
    )Net Cash Provided by Financing Activities
    
    
    8,755
    
    
    
    17,939Cash and due from banksNet increase in cash and due from banks
    
    
    4,711
    
    
    
    2,534Cash and due from banks, beginning of period
    
    
    3,810
    
    
    
    2,562Cash and due from banks, end of period
    
    $
    8,521
    
    
    $
    5,096Supplemental Disclosure of Cash Paid During the Period for:Interest
    
    $
    2,800
    
    
    $
    3,258Income taxes
    
    $
    915
    
    
    $
    864Transfers from loans to Other Real Estate Owned
    
    $
    223
    
    
    $
    37
   6




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##### Table of Contents



NOTE 1 ACCOUNTING PRINCIPLES:
   Recent Accounting Pronouncements 
     Subsequent events 
  7




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##### Table of Contents



NOTE 2 INVESTMENT SECURITIES:
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedSeptember 30, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSecurities available for sale:Mortgaged backed obligations of federal agencies
    
    $
    2,184
    
    
    $
    83
    
    
    $
    
    
    
    $
    2,267Government sponsored enterprises
    
    
    9,419
    
    
    
    337
    
    
    
    
    
    
    
    9,756Obligations of states and political subdivisions
    
    
    14,553
    
    
    
    567
    
    
    
    
    
    
    
    15,120Corporate obligations
    
    
    501
    
    
    
    53
    
    
    
    
    
    
    
    554Other equities
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130Total
    
    $
    26,787
    
    
    $
    1,040
    
    
    $
    
    
    
    $
    27,827
 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
   Less than 12 months
    
    
    12 Months or greaterUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    TotalSeptember 30, 2010
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair ValueDescription of Securities:Mortgaged backed obligations of federal agencies
    
    $
    66
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    66Government sponsored enterprises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    66
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    66
  8




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##### Table of Contents



Less than 12 months
    
    

12 Months or greaterUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    TotalDecember 31, 2009
    
    Fair Value
    
    
    Losses
    
    
    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
    
    $
    2,199
    
    
    $
    2,218After one year through five years
    
    
    17,689
    
    
    
    18,358After five years through ten years
    
    
    5,853
    
    
    
    6,171After ten years through fifteen years
    
    
    1,046
    
    
    
    1,080Total
    
    $
    26,787
    
    
    $
    27,827
  NOTE 3 RESTRICTED EQUITY SECURITIES:
   9




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##### Table of Contents



NOTE 4 LOANS RECEIVABLE:
  September 30,
    
    
    December 31,2010
    
    
    2009Real estate loans
    
    $
    84,568
    
    
    $
    83,465Commercial and industrial loans
    
    
    91,943
    
    
    
    83,169Loans to individuals, primarily collateralized by autos
    
    
    12,650
    
    
    
    12,913All other loans
    
    
    4,540
    
    
    
    5,107Total Loans
    
    
    193,701
    
    
    
    184,654Less allowance for loan losses
    
    
    2,389
    
    
    
    1,790Net Loans Receivable
    
    $
    191,312
    
    
    $
    182,864
 NOTE 5 ALLOWANCE FOR LOAN LOSSES:
  Nine Months EndedSeptember 30,2010
    
    
    2009Balance, beginning of period
    
    $
    1,790
    
    
    $
    1,396Provision charged to operating expenses
    
    
    971
    
    
    
    292Recoveries of loans charged off
    
    
    84
    
    
    
    124Loans charged off
    
    
    (456
    )
    
    
    (288
    )Balance, end of period
    
    $
    2,389
    
    
    $
    1,524
 NOTE 6 LONG TERM DEBT:
  NOTE 7 BANK OWNED LIFE INSURANCE:
   10




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##### Table of Contents



NOTE 8 FAIR VALUE:
 Fair Value Measurements,
    
 Investment securities available for sale:
 Loans:
 Other Real Estate Owned:
  11




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##### Table of Contents



September 30, 2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets recorded at fair value on a recurring basis:Mortgaged backed obligations of federal agencies
    
    $
    
    
    
    $
    2,267
    
    
    $
    
    
    
    $
    2,267Government sponsored enterprises
    
    
    9,756
    
    
    
    
    
    
    
    
    
    
    
    9,756Obligations of states and political subdivisions
    
    
    
    
    
    
    15,120
    
    
    
    
    
    
    
    15,120Corporate obligations
    
    
    
    
    
    
    554
    
    
    
    
    
    
    
    554Other equities
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    130Total
    
    $
    9,756
    
    
    $
    18,071
    
    
    $
    
    
    
    $
    28,827Assets recorded at fair value on a non recurring basis:Impaired Consumer Real Estate Loans
    
    $
    
    
    
    $
    
    
    
    $
    528
    
    
    $
    528Impaired Commercial Loans
    
    
    
    
    
    
    
    
    
    
    3,424
    
    
    
    3,424Other real estate owned
    
    
    
    
    
    
    
    
    
    
    1,009
    
    
    
    1,009Total
    
    $
    
    
    
    $
    
    
    
    $
    4,961
    
    
    $
    4,961
   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,
  12




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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:
  13




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##### Table of Contents



Short-term borrowings and interest payable or receivable:
 Long-term debt:
 Off balance sheet items:
 September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    Carrying(In Thousands)
    
    Fair Value
    
    
    Value
    
    
    Fair Value
    
    
    ValueCash and due from banks
    
    $
    8,521
    
    
    $
    8,521
    
    
    $
    3,810
    
    
    $
    3,810Interest bearing deposits in banks
    
    
    9,471
    
    
    
    9,471
    
    
    
    8,249
    
    
    
    8,249Securities available for sale
    
    
    27,827
    
    
    
    27,827
    
    
    
    31,338
    
    
    
    31,338Restricted equity securities
    
    
    748
    
    
    
    748
    
    
    
    748
    
    
    
    748Loans
    
    
    195,110
    
    
    
    191,312
    
    
    
    184,753
    
    
    
    182,864Interest receivable
    
    
    1,369
    
    
    
    1,369
    
    
    
    1,436
    
    
    
    1,436Bank owned life insurance
    
    
    3,991
    
    
    
    3,991
    
    
    
    3,867
    
    
    
    3,867Demand deposits
    
    
    29,298
    
    
    
    29,298
    
    
    
    26,689
    
    
    
    26,689Interest bearing demand deposit
    
    
    35,870
    
    
    
    35,870
    
    
    
    28,005
    
    
    
    28,005Savings deposits
    
    
    28,260
    
    
    
    28,260
    
    
    
    27,282
    
    
    
    27,282Time deposits
    
    
    125,459
    
    
    
    124,272
    
    
    
    127,599
    
    
    
    126,862Short-term borrowings
    
    
    1,002
    
    
    
    1,002
    
    
    
    931
    
    
    
    931Accrued interest payable
    
    
    317
    
    
    
    317
    
    
    
    344
    
    
    
    344Long-term debt
    
    
    4,874
    
    
    
    4,518
    
    
    
    4,927
    
    
    
    4,695
  14




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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
   15




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##### Table of Contents



Goodwill and Intangibles
  Results of Operations Overview
  Net Interest Income
     16




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##### Table of Contents



Allegheny Bancshares, Inc.

Net Interest Margin Analysis  (On a Fully Taxable Equivalent Basis) (Dollar Amounts in Thousands)
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    RatesInterest IncomeLoans 1,2,3
    
    $
    188,437
    
    
    $
    9,075
    
    
    
    6.42
    %
    
    $
    170,407
    
    
    $
    8,632
    
    
    
    6.75
    %Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    784
    
    
    
    
    
    
    
    0.00
    %Interest bearing deposits
    
    
    6,849
    
    
    
    92
    
    
    
    1.79
    %
    
    
    6,349
    
    
    
    63
    
    
    
    1.32
    %InvestmentsTaxable
    
    
    14,693
    
    
    
    334
    
    
    
    3.03
    %
    
    
    11,775
    
    
    
    309
    
    
    
    3.50
    %Nontaxable 2
    
    
    14,194
    
    
    
    610
    
    
    
    5.73
    %
    
    
    16,184
    
    
    
    703
    
    
    
    5.78
    %Total Earning Assets
    
    
    224,173
    
    
    
    10,111
    
    
    
    6.01
    %
    
    
    205,499
    
    
    
    9,707
    
    
    
    6.30
    %Interest ExpenseDemand deposits
    
    
    23,458
    
    
    
    211
    
    
    
    1.20
    %
    
    
    24,215
    
    
    
    167
    
    
    
    0.92
    %Savings
    
    
    34,219
    
    
    
    39
    
    
    
    0.15
    %
    
    
    27,553
    
    
    
    63
    
    
    
    0.30
    %Time deposits
    
    
    126,760
    
    
    
    2,350
    
    
    
    2.47
    %
    
    
    113,783
    
    
    
    2,807
    
    
    
    3.29
    %Short-term borrowings
    
    
    1,008
    
    
    
    1
    
    
    
    0.13
    %
    
    
    1,408
    
    
    
    2
    
    
    
    0.19
    %Long-term debt
    
    
    4,615
    
    
    
    171
    
    
    
    4.94
    %
    
    
    6,175
    
    
    
    214
    
    
    
    4.62
    %Total Interest BearingLiabilities
    
    $
    190,060
    
    
    $
    2,772
    
    
    
    1.94
    %
    
    $
    173,134
    
    
    $
    3,253
    
    
    
    2.51
    %Net Interest Margin 1
    
    
    
    
    
    
    7,339
    
    
    
    
    
    
    
    
    
    
    
    6,453Net Yield on InterestEarning Assets
    
    
    
    
    
    
    
    
    
    
    4.37
    %
    
    
    
    
    
    
    
    
    
    
    4.19
    %
 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
   17




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##### Table of Contents



Noninterest Expenses
  Income Tax Expense
  Loans and Provision for Loan Loss
   Loan Portfolio Risk Factors
   18




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Nonaccrual loans
    
    $
    4,481
    
    
    $
    104Restructured loans
    
    
    137
    
    
    
    133Loans delinquent 90 days or more
    
    
    1,149
    
    
    
    5,290Total Nonperforming Loans
    
    $
    5,767
    
    
    
    5,527Nonperforming loans as a percentage of total loans
    
    
    2.98
    %
    
    
    2.99
    %Allowance for loan losses as a percentage of nonperforming loans
    
    
    41.43
    %
    
    
    32.39
    %
 st
 Deposits
  Borrowings
  Capital
  Uncertainties and Trends
   19




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##### Table of Contents



Liquidity and Interest Sensitivity
    Allegheny Bancshares, Inc.
 Interest Sensitivity Analysis  September 30, 2010
 0-3
    
    
    4-12
    
    
    1-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalUses of Funds:Loans
    
    $
    20,863
    
    
    $
    29,732
    
    
    $
    45,438
    
    
    $
    97,668
    
    
    $
    193,701Interest bearing deposits
    
    
    4,192
    
    
    
    1,276
    
    
    
    4,003
    
    
    
    
    
    
    
    9,471Investment securities
    
    
    257
    
    
    
    1,890
    
    
    
    16,626
    
    
    
    9,054
    
    
    
    27,827Restricted Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    748
    
    
    
    748Total
    
    
    25,312
    
    
    
    32,898
    
    
    
    66,067
    
    
    
    107,470
    
    
    
    231,747Sources of Funds:Deposits:Interest bearing demand
    
    
    35,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,870Savings
    
    
    28,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,260Time deposits over $100,000
    
    
    7,219
    
    
    
    13,602
    
    
    
    26,069
    
    
    
    
    
    
    
    46,890Other time deposits
    
    
    16,459
    
    
    
    22,537
    
    
    
    37,707
    
    
    
    679
    
    
    
    77,382Short-term borrowings
    
    
    1,002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,002Long-term debt
    
    
    1,060
    
    
    
    128
    
    
    
    601
    
    
    
    2,729
    
    
    
    4,518Total
    
    $
    89,870
    
    
    $
    36,267
    
    
    $
    64,377
    
    
    $
    3,408
    
    
    $
    193,922Discrete Gap
    
    $
    (64,558
    )
    
    $
    (3,369
    )
    
    $
    1,690
    
    
    $
    104,062
    
    
    $
    37,825Cumulative Gap
    
    $
    (64,558
    )
    
    $
    (67,927
    )
    
    $
    (66,237
    )
    
    $
    37,825
    
    
    $
    37,825Ratio of Cumulative GapTo Total Earning Assets
    
    
    -27.86
    %
    
    
    -29.31
    %
    
    
    -28.58
    %
    
    
    16.32
    %
   20




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##### Table of Contents



Existence of Securities and Exchange Commission Web Site
  
 Item 4T
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  
 Part II. Other Information
 
 Item 1.
    
    Legal Proceedings Not Applicable
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds Not Applicable
 
 Item 3.
    
    Defaults Upon Senior Securities Not Applicable
 
 Item 5.
    
    Other Information Not Applicable
  21




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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
 The following exhibit is incorporated by reference to the Exhibits to Allegheny Bancshares, Inc.
Form 10-K filed March 31, 2006.
 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 OfficerBy:
    /s/ L. Kirk BillingsleyName:
    L. Kirk BillingsleyTitle:
    Senior Vice President and Chief Financial Officer   22