ITEM 1. BUSINESS
GENERAL
Allegheny Bancshares, Inc. (hereinafter referred to as the "Company" or "we"), incorporated under the laws of West Virginia in 2003, is a one-bank holding company subject to the provisions of the Bank Holding Company Act of 1956, as amended, and owns 100% of the outstanding stock of its subsidiary bank, Pendleton Community Bank ("Bank"). The Bank, headquartered in Franklin, West Virginia, was incorporated under the laws of West Virginia on March 9, 1925 and operates as a state chartered bank. The Bank is engaged in the general commercial banking business offering a full range of banking services focused primarily towards serving individuals, small to medium size businesses, the agricultural industry, and the professional community. The Bank strives to serve the banking needs of its customers while developing personal, hometown relationships.
LOCATION AND MARKET AREA
The Bank's primary trade area includes the West Virginia localities of Pendleton, Grant, Hardy and Pocahontas counties including the towns of Franklin, Marlinton, Moorefield, and Petersburg. In addition, the Bank has opened an office in Rockingham County, Virginia just outside the City of Harrisonburg. The Bank's secondary trade area includes the neighboring counties of each respective office, including counties in West Virginia and Virginia. The Bank's business locations include their main office and operations center located in Franklin, West Virginia, a full service branch in Moorefield opened in July 1999, a full service branch in Marlinton, West Virginia opened in November 2001, and the most recent branch office near Harrisonburg, Virginia which opened in July of 2006.
Management is continuing to investigate and consider other possible sites that would enable the Bank to profitably serve its market area.
BANKING SERVICES
The Bank is a normal full service commercial bank and as such offers services that would be normally expected. The Bank accepts deposits, makes consumer and commercial loans, issues drafts, provides internet access to customer accounts, offers drive through banking and provides automated teller machines. The Bank's deposits are insured under the Federal Deposit Insurance Act to the limits provided thereunder.
LOANS
The Bank offers a full range of short-to-medium term commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements) and purchase of equipment and machinery. Consumer loans may include secured and unsecured loans for financing automobiles, mobile homes, home purchases and improvements, education and personal investments.
Real estate construction loans (residential and commercial) are made for a maximum term of twelve months. Long-term real estate loans (residential and commercial) are made with a maximum amortization period of 30 years with fixed rates, balloon terms and adjustable rate terms (ARMs) of from one to five years. Interest rates vary depending on the length of the term. The majority of the real estate loans are made as investments, with a small percentage sold in the secondary market.
The Bank's lending activities are subject to a variety of lending limits imposed by state law. While differing limits apply in certain circumstances based on the type of loan or the nature of the borrower (including the borrower's relationship to the Bank), in general, the Bank is subject to a loan-to-one borrower limit of an amount equal to 15% of the Bank's capital and surplus in the case of loans which are
not fully secured by readily marketable or other permissible types of collateral. The Bank voluntarily may choose to impose a policy limit on loans to a single borrower that is less than the legal lending limit. The Bank may establish relationships with correspondent banks to participate in loans when loan amounts exceed the Bank's legal lending limits or internal lending policies.
DEPOSITS
The Bank offers a full range of deposit products including checking, money market, and savings accounts, certificates of deposits, and individual retirement accounts. The deposit accounts are insured under the Federal Deposit Insurance Act to the limits provided thereunder.
Other bank services include safe deposit boxes, issuance of cashier's checks, credit life insurance, traveler's checks, direct deposit of payroll and social security checks, automatic drafts for various accounts, telephone banking, online banking, cash management, and bill pay.
EMPLOYEES
As of December 31, 2007, the Bank had 59 full-time employees and 68 total employees. No one employee devotes full time service to Allegheny Bancshares, Inc.
FORWARD LOOKING STATEMENTS
The following discussion contains statements that refer to future expectations, contain projections of the results of operations or of financial condition or state other information that is "forward-looking." "Forward-looking" statements are easily identified by the use of words such as "could," "could anticipate," "estimate," "believe," and similar words that refer to the future outlook. There is always a degree of uncertainty associated with "forward-looking" statements. The Company's management believes that the expectations reflected in such statements are based upon reasonable assumptions and on the facts and circumstances existing at the time of these disclosures. Actual results could differ significantly from those anticipated.
Many factors could cause the Company's actual results to differ materially from the results contemplated by the forward-looking statements. Some factors, which could negatively affect the results, include the factors as set forth in the "Risk Factors" Item 1A.
ITEM 1B. UNRESOLVED STAFF COMMENTS - NONE
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The main office of the Bank is located at 300 North Main Street, Franklin, West Virginia and is owned by the Bank. In addition to the main office the Bank owns and operates full service financial centers in the communities of Moorefield, and Marlinton, West Virginia. The Bank also owns and operates its newest full service financial center in Harrisonburg, Virginia.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any pending or threatened litigation in which the Bank may be
involved as a defendant. In the normal course of business, the Bank periodically must initiate suits against borrowers as a final course of action in collecting past due loans.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Allegheny Bancshares has not submitted any matters to the vote of security holders for the quarter ending December 31, 2007.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
The Company's common stock is currently not traded on any established market; however, the Company is frequently informed of the sales price at which common shares are exchanged. Other transactions may have occurred which were not reported to the Company. The Company acts as its own transfer agent.
The amount of dividends payable by the Company depends upon its earnings and capital position, and is limited by the federal and state law, regulations and policy. A West Virginia state bank cannot pay dividends (without the consent of banking authorities) in excess of the total net profits of the current year and the combined retained profits of the previous two years. The dividend limit as of January 1, 2008 is included in Note 11 to the financial statements.
Annual dividends were declared as of December 31, 2007 and 2006 in the amount of 1.40 and 1.30 per share, respectively.
STOCKHOLDERS
As of December 31, 2007, there were 717 shareholders of record. This amount includes all shareholders, whether individually or held by a brokerage firm or custodian in street name.
The high and low trade prices of the Company's common stock reported to management were as follows:
(1) This price was the result of a private sale and may not be indicative of the market for the Company's shares.
PURCHASES OF SECURITIES DURING LAST QUARTER OF 2007
Allegheny has not initiated any plans to repurchase its stock, however from time to time as the
opportunity presents itself, the Company, as shown above, has repurchased shares.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Allegheny Bancshares, Inc. (Company) is a single bank holding company organized under the laws of West Virginia. The Company provides financial services through its wholly owned subsidiary Pendleton Community Bank (Bank).
The Bank is a full service commercial bank offering financial services through four financial centers located in the West Virginia towns of Franklin, Moorefield and Marlinton, and a branch near Harrisonburg, Virginia. Currently it's primary trade area are these towns and the West Virginia counties of Pendleton, Hardy, and Pocahontas, and in Harrisonburg and Rockingham County, Virginia.
The following discussion and analysis is provided to address information about the Company's financial condition and results of operations that may not otherwise be apparent from reading the Consolidated Financial Statements and notes. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the related notes to the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICY
The financial condition and results of operations as presented in the Consolidated Financial Statements and the Notes to Consolidated Financial Statements are dependent on the accounting policies. The policies selected and applied involve judgments, estimates, and may change from period to period based upon economic conditions. In addition, changes in generally accepted accounting principles could impact the calculations of these estimates, and even though this would not affect the true values, it could affect the timing of recognizing income or expense.
The following discussion of allowance for loans loss is, in management's opinion, the most important and critical policy that affects the financial condition and results of operations. This critical policy involves the most difficult and complex judgments about the unknown losses that currently exist in the Company's largest asset, its loan portfolio.
ALLOWANCE FOR LOAN LOSSES AND PROVISION FOR LOAN LOSSES
The provision for loan losses was $187,117 and $162,323 for the calendar years 2007 and 2006 respectively. The allowance for loan losses ("ALL") was $1,186,000 (.80% of loans) at the end of 2007 compared with $1,258,000 (.93% of loans) at December 31, 2006. The ALL decrease was due to increase in loans charged offs in 2007. The loans charged off exceeded our provision charged to the allowance, and recoveries in 2007. See Note 4 for the amounts.
The ALL is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans, industry historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the 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 susceptible to significant revision as more information becomes available. Managements' valuation of the ALL is based upon two principals of accounting: 1) SFAS No. 5 Accounting for Contingencies and SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The Bank utilizes both of theses accounting standards by first identifying problem loans above a certain threshold and estimating losses based on the underlying collateral values, and second taking the remainder of the loan portfolio and separating the portfolio into pools of loans based on grade of loans as determined by the Company's internal grading system. We apply loss percentages based upon our historical loss rates, and make adjustments based on economic conditions. The determination of the ALL is subjective and actual losses may be more or less than the amount of the allowance. However, management believes that the allowance is a fair estimate of losses that exists in the loan portfolio as of the balance sheet date.
OVERVIEW
Net income of the Company increased 4.41% from 2006 to 2007 and earnings per share increased 5.66% from $2.65 to $2.80. Earnings per share increased more as a percentage than net income due to lower number of shares outstanding. Increases of $242,000 in net interest income and $252,000 in noninterest income were primary factors in the increase in income. However, these large increases were partially offset due to a $413,000 increase in noninterest expenses.
The increase in net interest income was caused primarily by growth in our loan portfolio. Average loans grew by 6.43% and the interest rate environment increased our yield on the total earning assets as shown in Table I. However rising interest rates on interest bearing liabilities grew faster than earnings.
NET INTEREST INCOME
The primary source of the Company's earnings is net interest income, the difference between income on earning assets and the cost of funds supporting those assets. Significant categories of earning assets are loans and securities while deposits represent the major portion of interest-bearing liabilities. For purposes of the following discussion, comparison of net interest income is done on a tax equivalent basis, which provides a common basis for comparing yields on earning assets exempt from federal income taxes to those which are fully taxable. The Company's taxable equivalent net interest income increased 5.27% in 2007 compared to 2006, due to the net growth of earning assets. The Company's net yield on interest earning assets for 2007 was 4.68% compared to 4.72% for 2006 as the yield on earning assets increased by 45 basis points while the cost of funds increased by 59 basis points. 2007 proved to be a tough year for the interest margin due to increased competition for deposits as well as the flat yield curve the Company has experienced the last couple of years. The cost of funds increased due to the repricing of deposits at higher current rates and the higher rates offered to attract new deposits. In addition, the flat and sometimes inverted yield curve that existed for practically all of 2007 made it difficult to increase rates on loans or find additional earnings in the bond market by investing farther out on the yield curve. As such, cost for the short term deposits increased more than the yield on our longer term interest bearing assets.
During the first half of 2007 the growth of deposits outpaced the growth of loans as we were seeking local deposits to offset some other funding utilized during 2006. In the last half of 2007, loan growth exceeded deposit growth and once again we utilized funding from the Federal Home Loan Bank (FHLB). While this increased our interest expense, it also enabled the Company to mitigate interest rate risk by matching liabilities to the maturity of assets and the ability to offer customers longer term loan products.
Due to the falling interest rate environment, it is anticipated that the interest margin may see an increase over the coming year as the faster repricing liabilities mature and are re-priced prior to assets being re-priced. However, changes in our asset mix and possible increase in competition for deposits could have an impact on this.
NONINTEREST INCOME
Noninterest income consists of all revenues which are not included in interest and fee income related to earning assets. Noninterest income increased 24.52% during 2007 as compared to 2006. A large part of this increase was due to the non interest income being reduced in 2006 due to losses on sale of investments as the Company restructured its bond portfolio. Subtracting the losses incurred on sale of investments in 2006, the Company still had a 15.68% increase in non interest income. The increase was primarily due to increases of $34,000 in overdraft fees, and $113,000 increase in income generated by originating fixed rate loans for the secondary market.
NONINTEREST EXPENSES
Noninterest expenses increased $413,000 in 2007 compared to 2006. Noninterest expenses as a percentage of average assets was 2.91% and 2.83% for each of the years ended December 31, 2007 and 2006, respectively. This increase is primarily attributable to a $306,000 increase in salaries and benefits as a result of an increase in the number of employees, merit increases, and higher benefit costs. The average
full time equivalent (FTE) employees increased from 57 for 2006, to 61 for 2007. Salary expense increased by 12.77%, benefit costs increased by 8.67% and payroll tax expense increased by 7.05%. Total noninterest expenses associated with the new Harrisonburg financial center that opened in July of 2006 totaled $361,000 which was $148,000 more than 2006. Salary and benefits for the financial center was $150,100 more than 2006 and occupancy expense for this branch increased $35,000 from 2006.
INCOME TAX EXPENSE
Income tax expense equaled 28.05% and 29.42% of income before income taxes for the years ended December, 31 2007 and 2006, respectively. Increases in tax exempt interest income on municipal bonds and tax exempt loans and tax free income on Bank Owned Life Insurance investment was the primary cause for the reduction in income tax expense as a percentage of income.
SECURITIES
Schedules of securities by type and maturity are shown in Note 3 to the financial statements.
LOANS
Total loans increased 9.31% during 2007 to $147,970,930. Loan growth in 2007 occurred primarily in the commercial loan portfolio and the residential land portfolio. The commercial loans are typically secured by agricultural land. A schedule of loans by type is shown in Note 4 of the financial statements. Approximately 84% of the loan portfolio is secured by real estate at December 31, 2007.
LOAN PORTFOLIO RISK FACTORS
Nonperfoming loans include nonaccrual loans, loans over 90 days past due and restructured loans. Nonaccrual loans are loans in which interest accruals have been discontinued. Loans are placed in a nonaccrual status when management has information that indicates that principal or interest may not be collectable. Loans accounted for on a nonaccrual basis were $9,403 at December 31, 2007. The Company has a substantial amount of loans in the loan portfolio related to agribusinesses; see Note 4 of the financial statements for additional details. Restructured loans are loans for which a borrower has been granted a concession on the interest rate or the original repayment terms because of financial difficulties.
The following table summarizes the Company's nonperforming loans (in thousands of dollars):
LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an estimate of the losses in the current loan portfolio. The allowance is based on two principles of accounting: (i) SFAS 5, Accounting for Contingencies which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that loans be identified which have characteristics of impairment (e.g. the collateral, present value of cash flows or observable market values are less than the loan balance).
For each period presented, the provision for loan losses charged to operations is based on management's judgment after taking into consideration all factors connected with the collectibility of the existing portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and value of the portfolio, industry standards and other relevant factors.
Through internal loan review the bank classifies loans into categories and assigns a risk rating as follows to be used in the calculation: Excellent, Good, Satisfactory, Special Mention, Substandard, Doubtful and Loss. Within these categories, Real Estate, Consumer, and Commercial Loans are assigned a specific loss rate based on historical losses and management's estimation of potential loss.
Loans identified as problem loans or potential problem loans are committed to a watch list. Loans on the watch list are classified as loss, doubtful, substandard or special mention and are subjected to a more detailed review. This detailed review identifies each applicable loan for specific impairment and a specific allocation for that impaired amount is used in the calculation. Rates assigned each category may vary over time as historical loss rates, loan structure and economic conditions change.
The allowance for loan losses is computed quarterly and adjusted prior to the issuance of the quarterly financial statements. All loan losses charged to the allowance are approved by the board of directors at their regular meetings. The allowance is reviewed for adequacy after considering historical loss rates, current economic conditions (both locally and nationally) and any known credit problems that have not been considered under the above formula.
The allowance for loan losses decreased from $1,258,122 at December 31, 2006 to $1,185,826 at December 31, 2007. Net charge offs increased from $76,264 in 2006 to $259,413 in 2007. The provision for loan losses increased from $162,323 in 2006 to $187,117 in 2007. Based on historical losses, delinquency rates, a thorough review of the loan portfolio and after considering the elements of the preceding paragraph, management is of the opinion that the allowance for loan losses is appropriately stated in order to absorb losses in the current portfolio.
See Table IV for a summary of the activity in the allowance for loan losses.
The Company has allocated the allowance according to the amount deemed to be reasonably necessary to provide for the losses within each of the categories of loans. The allocation of the allowance as shown in Table IV should not be interpreted as an indication that loan losses in future years will occur in the same proportions or that the allocation indicates future loan loss trends. Furthermore, the portion allocated to each loan category is not the total amount available for losses that might occur within such categories since the total allowance is a general allowance applicable to the entire portfolio.
Table IV shows the balance and percentage of the Company's allowance for loan losses allocated to each major category of loans.
DEPOSITS
The Company's primary source of funding is from local customer deposits. The company offers standard bank deposit products to local individuals and businesses. The Company also sought funding from brokered certificate of deposits during 2006, due to intense competition for local deposits and loan growth that needed to be funded. As of December 31, 2006 the Company had $3,015,000 of brokered deposits but did not renew this funding source during 2007. The Company's deposits increased $7,770,278 or 5.20% during 2007 and $12,367,923 or 9.03% during 2006. A schedule of deposits by type is shown in the balance sheets. Time deposits of $100,000 or more were 17.04% and 17.06% of total deposits at December 31, 2007 and 2006 respectively.
LONG-TERM DEBT
The Company has from time to time borrowed long term debt from the Federal Home Loan Bank in order to fund long-term, fixed rate loan products to qualifying customers. The Company made
principal payments of $575,000 and $517,000 in 2007 and 2006, respectively. The following table shows the FHLB debt as of December 31, 2007.
(Dollars in Thousands)
Maturity schedule and other information on this debt can be found in Note 10 to the financial statements.
CAPITAL
Capital as a percentage of total assets was 13.72% at December 31, 2007 and significantly exceeded regulatory requirements. The Company is considered to be well capitalized under the regulatory guidelines.
UNCERTAINTIES AND TRENDS
Management is not aware of any trends, events or uncertainties that will have or that are reasonably likely to have a material effect on liquidity, capital resources or operations. Additionally, management is not aware of any current recommendations by the regulatory authorities which, if they were to be implemented, would have such an effect.
LIQUIDITY AND INTEREST SENSITIVITY
At December 31, 2007, the Company had liquid assets of approximately $3.1 million in the form of cash and due from banks and federal funds sold. Management believes that the Company's liquid assets are adequate at December 31, 2007. Additional liquidity may be provided by the growth in deposit accounts and loan repayments. In the event the Company would need additional funds, it has the ability to purchase federal funds under established lines of credit of $7.7 million.
The Company has relied on local deposits to fund loan growth in the past. This has become more difficult and expensive in the current rate environment. There is much competition for deposits locally and the bank has explored other avenues of funding such as brokered certificates of deposits and Federal Home Loan Bank borrowings. In the current interest rate environment it has been difficult to earn the typical interest margin on the interest rate spread between short term rates and long term rates, since there is very little increase in interest rates on the longer term assets such as investments and loans.
This interest rate environment has also changed the pattern of the banking customers. Customers are wanting longer term adjustable rate mortgages and fixed rate mortgages, as longer term rates remain low, yet on the deposit side they are demanding short term deposit products since longer term deposit rates have not increased as quickly as the short-term rates. As of this writing we see indications of a
normalizing yield curve as short term rates drop. But should the flat yield curve we have experienced during last couple of years continue into the future, the Company could continue to experience pressure on its net interest margin.
TABLE I
ALLEGHENY BANCSHARES, INC. NET INTEREST MARGIN ANALYSIS (ON A FULLY TAX EQUIVALENT BASIS) (IN THOUSANDS)
(1) Interest on loans includes loan fees.
(2) An incremental tax rate of 34% was used to calculate the tax equivalent income.
Average noninterest bearing deposits for 2007 and 2006 were $17,676 and $16,791, respectively.
TABLE II
ALLEGHENY BANCSHARES, INC. EFFECT OF RATE-VOLUME CHANGE ON NET INTEREST INCOME (ON A FULLY TAX EQUIVALENT BASIS) (IN THOUSANDS)
NOTE: Volume changes have been determined by multiplying the prior years' average rate by the change in balances outstanding. The rate change is the difference between the total change and the volume.
TABLE III
ALLEGHENY BANCSHARES, INC. INTEREST SENSITIVITY ANALYSIS (IN THOUSANDS) DECEMBER 31, 2007
Table III reflects the earlier of the maturity or repricing dates for various assets and liabilities. The above does not make any assumptions with respect to loan repayments or deposit run offs. Loan principal payments are included in the earliest period in which the loan matures or can be repriced. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity.
TABLE IV
ALLEGHENY BANCSHARES, INC. LOAN LOSS ALLOWANCE ACTIVITY (IN THOUSANDS)
ANALYSIS OF ENDING BALANCE
TABLE V
ALLEGHENY BANCSHARES, INC. TIME DEPOSIT MATURITIES - OVER $100,000 (IN THOUSANDS)
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
(ELLIOTT DAVIS LOGO) 104 Cranberry Road ACCOUNTS AND BUSINESS ADVISORS Post Office Box 760 Galax, VA 24333
Phone 276.238.1800 Fax 276.238.1801
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors Allegheny Bancshares, Inc. Franklin, West Virginia
We have audited the consolidated balance sheets of Allegheny Bancshares, Inc. and subsidiary as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 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 the Allegheny Bancshares, Inc. and subsidiary as of December 31, 2007 and 2006 and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Elliott Davis, LLC
Galax, Virginia February 29, 2008
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006
The accompanying notes are an integral part of this statement.
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2007, AND 2006
The accompanying notes are an integral part of this statement.
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
The accompanying notes are an integral part of this statement.
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
The accompanying notes are an integral part of this statement.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Allegheny Bancshares ("Company") is a bank holding company and operates under a charter issued by the state of West Virginia. The Company owns all of the outstanding stock of Pendleton Community Bank ("Bank"), which operates under a charter issued by the State of West Virginia and provides commercial banking services to customers located primarily in Pendleton County, West Virginia and adjacent counties. As a state chartered bank, the Bank is subject to regulation by the Department of Banking for the State of West Virginia and the Federal Deposit Insurance Corporation. The Bank is engaged in the general commercial banking business offering a full range of banking services focused primarily towards serving individuals, small to medium size businesses, the agricultural industry, and the professional community.
The Bank's primary trade area includes the West Virginia localities of Pendleton, Grant, Hardy and Pocahontas counties including the towns of Franklin, Marlinton, Moorefield, and Petersburg. In addition the Bank has opened an office in Rockingham County, Virginia just outside the City of Harrisonburg.
The accounting and reporting policies of the Company and its subsidiary conform to U.S. generally accepted accounting principles and to accepted practice within the banking industry. A summary of significant accounting policies is as follows:
CONSOLIDATION POLICY - The consolidated financial statements include Allegheny Bancshares, Inc. and Pendleton Community Bank. All significant intercompany balances and transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan and foreclosed real estate losses, management obtains independent appraisals for significant properties.
While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as a part of their routine examination process, periodically review the Company's allowances for loan losses. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examinations. Because of these factors, it is reasonably possible that the allowances for loan losses may change materially in the near term.
CASH AND DUE FROM BANKS - Cash and due from banks as used in the balance sheet and cash flow statements is defined as cash on hand and noninterest bearing funds at correspondent institutions.
INVESTMENT SECURITIES -Securities that the Company has both the ability and complete intention to hold to maturity (at the time of purchase) are classified as held to maturity securities. These held to maturity securities are recorded at amortized cost value. Investment securities which the Company intends to hold for indefinite periods of time, including investment securities used as part of the Company's
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
asset/liability management strategy, are classified as available for sale. These investment securities are carried at fair value. Net unrealized gains and losses, net of deferred income taxes, are excluded from earnings and reported as a separate component of stockholders' equity until realized.
Interest and dividends on securities and amortization of premiums and accretion of discounts on securities are reported as interest income using the effective interest method. Gains and losses on the sale of investment securities are determined using the specific identification method.
LOANS - Loans are intended to be held until maturity and are shown on the balance sheet net of the allowance for loan losses. Interest is computed by effective interest method which generally result in level rates of return on principal. Interest income generally is not recognized on loans classified as nonaccrual loans. Payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other impaired loans is recognized only to the extent of interest payments received. Loans will remain in nonaccrual status unless the loans are brought current per the loan contract and financial conditions have improved to a point that the likelihood of further loss is remote.
Loan origination fees are recognized in the period the loan is made and costs of origination are expensed in the period that the costs are incurred. This is a deviation from generally accepted accounting principals (GAAP) that indicate that these fees and costs should be capitalized and recognized as an adjustment to yield of the related loan. The Company has calculated this costs and the amount of it's deviation from GAAP, and has determined that there is not a significant impact on the financial statements.
The Company grants commercial, real estate and consumer installment loans to its customers. Collateral requirements for loans are determined on a loan-by-loan basis depending upon the purpose of the loan and the financial condition of the borrower.
In the normal course of business, to meet the credit needs of its customers, the Company has made commitments to extend credit. These commitments represent a credit risk, which is not recognized in the Company's balance sheet. The Company uses the same credit policies in making commitments as it does for other loans. Commitments to extend credit are generally made for a period of one year or less and interest rates are determined when funds are disbursed. Collateral and other security for the loans are determined on a case-by-case basis. Since some of the commitments are expected to expire without being drawn upon, the contract or notional amounts do not necessarily represent future cash requirements. See Note 17 for lending commitments as of December 31, 2007 and 2006.
The accrual of interest on all loans is discontinued when in management's opinion the borrower may be unable to meet payments as they become due. These loans are considered nonaccrual loans, and all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Loans are charged against the allowance when management believes the financial condition of the borrower is at a point that the payments on the loan can not be expected through any of the any of the available repayment options. Subsequent recoveries are added back to the allowance.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Management's quarterly evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Managements' valuation of the ALL is based upon two principals of accounting: 1) Statement of Financial Accounting Standards (SFAS) No. 5 Accounting for Contingencies and SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The Bank utilizes both of theses accounting standards by first identifying problem loans above a certain threshold and estimating losses based on the underlying collateral values, and second, taking the remainder of the loan portfolio and separating the portfolio into pools of loans. These pools are based on grade of loans as determined by the Company's internal grading system, and the type of loan. We apply loss percentages based upon our historical loss rates, and make adjustments based on economic conditions.
The determination of the ALL is subjective and actual losses may be more or less than the amount of the allowance. However management believes that the allowance is a fair estimate of losses that exists in the loan portfolio as of the balance sheet date.
BANK PREMISES AND EQUIPMENT - Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to income over the estimated useful lives of the assets principally on a straight-line method. For buildings and improvements the estimated useful lives are between 10 and 50 years, the estimated lives for furniture and equipment are 5 to 10 years.
INCOME TAXES - Amounts shown as income tax expense are based on income reported on the financial statements rather than amounts currently payable under state and federal tax laws. Deferred taxes, which arise principally from the difference in timing of reporting certain income and expenses for financial statements and for reporting these items for computation of income for tax purposes, are included in the amounts reported as income taxes. Deferred income tax assets and liabilities arise from these timing differences.
BASIC EARNINGS PER SHARE - Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of cash and cash equivalents, accrued interest receivable, demand deposits, savings deposits and short-term borrowings approximates fair value. The fair value of securities is based upon a pricing model which takes into consideration maturity, yields and quality. The remainder of the recorded financial instruments were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments at year-end.
Fair values for off-balance-sheet lending commitments approximate the contract or notional value taking into account the remaining terms of the agreements.
RECENT ACCOUNTING PRONOUNCEMENTS -In February 2007, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 159 ("FAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
No. 115." FAS 159 allows entities to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities that are not otherwise required to be measured at fair value, with changes in fair value recognized in earnings as they occur. FAS 159 also requires entities to report those financial assets and financial liabilities measure at fair value in a manner that separates those reported fair values from the carrying amounts of similar assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, FAS 159 establishes presentation and disclosure requirements designed to improve comparability between entities that elect different measurement attributes for similar assets and liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted if an entity also early adopts the provisions of FAS 157. The Company has determined that it does not intend to elect to use the fair value option to value financial assets and liabilities in accordance with FAS 159.
In December 2007, the FASB issues FAS No. 141R, "Business Combinations" ("FAS 141R"), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. FAS 141R applies prospectively to business combinations for which the acquisition date is on or after fiscal years beginning after December 15, 2008. FAS 141R will become effective for our fiscal year beginning January 1, 2009. We are currently evaluating the effect that the adoption of FAS 141R will have on our consolidated financial statements.
NOTE 2 CASH AND DUE FROM BANKS:
The Company is required by the Federal Reserve to maintain reserve balance based upon a percentage of deposits. The Company meets this requirement through cash on hand and balances held with its correspondent bank. The reserve requirement at December 31, 2006 and 2007 were $773,000 and $807,000 respectively.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 SECURITIES:
The amortized cost and fair values of securities are as follows:
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 SECURITIES (CONTINUED):
For the years ended December 31, 2007, and 2006, proceeds from sales, calls and maturities of securities available for sale amounted to $4,810,000 and $9,165,255, respectively. Gross realized losses amounted to $78,635 in 2006. No gains or losses were realized in 2007.
The following table shows the gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than temporarily impaired (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous, unrealized loss position at December 31, 2007 and 2006. The unrealized losses on the Company's investments were caused by interest rate increases in the current interest rates of similar issues and no material impairment of value is due to deteriorating financial condition of the issuers. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those 16 investments to be other-than-temporary impaired at December 31, 2007.
A maturity schedule of securities in thousands as of December 31, 2007, by contractual maturity is shown below. Actual maturities may differ because borrowers may have the right to call or prepay obligations.
The carrying value of securities pledged by the Company to secure deposits, repurchase agreements and for other purposes amounted to $15,138,622 and $15,727,683 at December 31, 2007 and 2006, respectively. The fair value of these pledged securities approximates the carrying value. Weighted average yields have been computed on a tax equivalent basis using an incremental tax rate of 34%.
Restricted securities consist of stock in the Federal Home Loan Bank (FHLB) and Community Financial Services, Inc. (CFSI). Investment in the FHLB stock is determined by the level of the Bank's participation with FHLB various products and is collateral against outstanding borrowings from that institution. CFSI is the parent company of the Bank's correspondent bank. Both of these investments are carried at cost, and each is restricted as to transferability.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 LOANS RECEIVABLE:
Loans receivable outstanding are summarized as follows:
A summary of transactions in the allowance for loan losses follows in thousands:
The following is a summary of information pertaining to impaired loans at December 31, in thousands:
The average annual recorded investment in impaired loans and interest income recognized on impaired loans in thousands for the years ended December 31, 2007 and 2006 is summarized below:
No additional funds are committed to be advanced in connection with impaired loans.
Loans accounted for on a nonaccrual basis were $9,403 and $104,084 at December 31, 2007 and 2006 (.01% and .08% of total loans), respectively. Accruing loans which are contractually past due
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 LOANS RECEIVABLE (CONTINUED):
90 days or more as to principal or interest totaled $968,588 and $205,679 at December 31, 2007 and 2006 (.65%, and .15% of total loans), respectively. Past due status is determined based on the contractual terms of the loan agreement.
Foreclosed and repossessed assets totaled $45,300 and $69,525 at December 31, 2007 and 2006 respectively.
NOTE 5 COMPANY PREMISES AND EQUIPMENT:
Company premises and equipment are summarized as follows:
Depreciation expense on these premises and equipment totaled $499,713 and $488,769 for the years ended December 31, 2007, and 2006 respectively.
NOTE 6 BANK OWNED LIFE INSURANCE:
The Company, in an effort to attract and retain employees, offers a variety of benefits to full time employees. The costs of these benefits continue to grow faster than inflation. In order to offset some of these costs and to offer other benefits the Company has invested in a Bank Owned Life Insurance (BOLI) contract. Earnings on these contracts are tax exempt, and are very attractive in comparison with other long-term investments.
NOTE 7 TIME DEPOSITS:
At December 31, 2007, the scheduled maturities of time deposits in thousands are as follows:
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 SECURITES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within one to four days from the transaction date, unless classified as a term repurchase agreement. The maturity of the term repurchase agreement would generally mature within six months to two years. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The weighted average interest rate on these agreements was 4.50% during 2007. The highest month end balance during 2007 was $2,455,082. For 2006, the highest month end balance was $3,339,304 and the average interest rate was 4.03%.
NOTE 9 LINES OF CREDIT:
The Company has lines of credit with Silverton Bank totaling $7,700,000. As of December 31, 2007, the Company had no outstanding debt on this line. The Line of Credit is unsecured. These borrowings will carry interest at prevailing federal funds rates when and if funds are borrowed.
NOTE 10 LONG-TERM DEBT:
The Company has borrowed money from the Federal Home Loan Bank of Pittsburgh (FHLB). The interest rates on all of the notes payable as of December 31, 2007 were fixed at the time of the advance and fixed rates range from 3.15% to 5.61%. The FHLB notes are secured by FHLB Stock, as well as investment securities and mortgage loans. The weighted average interest rate is 4.59% at December 31, 2007. The company has total borrowing capacity from the FHLB of $82,648,000.
Repayments of long term debt are due monthly. Interest expense of $270,015 and $236,954 was incurred on these debts in 2007 and 2006, respectively. The maturities of long term debt as of December 31, 2007 are as follows:
NOTE 11 DIVIDEND LIMITATIONS:
The principal source of funds of Allegheny Bancshares, Inc. is dividends paid by its subsidiary bank. The Code of West Virginia imposes certain restrictions on dividends paid by a state bank. A state bank cannot pay dividends (without the consent of state banking authorities) in excess of the total net profits of the current year and the combined retained profits of the previous two years. As of January 1, 2008, the Bank could pay dividends of up to $473,833 without permission of the authorities.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 INCOME TAXES:
The current and deferred components of income tax expense in thousands are as follows:
A reconciliation between the provision for income taxes and the amount computed by multiplying income by the statutory federal income tax rates is as follows:
The net deferred tax asset arising from temporary differences in thousands as of December 31 is summarized as follows:
NOTE 13 EMPLOYEE BENEFITS:
The Company has a defined contribution plan with 401(k) provisions that is funded with discretionary contributions by the bank that covers substantially all full time employees at each bank. There is a one year waiting period prior to admission into the plan. Contributions to the plan
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 EMPLOYEE BENEFITS (CONTINUED):
are based on a percentage of each employee's salary plus matching contributions. Investment of employee balances is done through the direction of each employee. Plan contributions by the employer are fully invested in the year of contribution. The amount of contributions by the Company into employee's accounts in the plan were: $104,148 and $90,946 for years ending December 31, 2007 and 2006 respectively.
NOTE 14 RELATED PARTY TRANSACTIONS:
During the year, officers, directors, principal stockholders and their affiliates (related parties) were customers of and had transactions with the Company in the ordinary course of business. In management's opinion, these transactions were made on substantially the same terms as those prevailing for other customers for comparable transactions and did not involve more than normal risks. Loan activity to related parties is as follows:
NOTE 15 REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).
As of April 3, 2007, the most recent notification from the institution's primary regulator categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 REGULATORY MATTERS (CONTINUED):
The Company's actual capital amounts and ratios are presented below.
The amounts and ratios above are for the consolidated entity. The differences for the subsidiary Bank individually are not significant.
NOTE 16 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK:
The Company make commitments to extend credit in the normal course of business and issue standby letters of credit to meet the financing needs of their customers. The amount of the commitments represents the Company's exposure to credit loss that is not included in the balance sheet.
The Company use the same credit policies in making commitments and issuing letters of credit as used for the loans reflected in the balance sheet. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Banks upon the extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.
As of December 31, 2007 and 2006, the Company had outstanding the following commitments (in thousands of dollars):
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 17 CONCENTRATIONS:
The Bank operates as a community bank in the areas that it serves. As such the loan portfolio consists of commercial, residential real estate and consumer loans located to individuals and businesses located primarily in the areas surrounding our four offices. In addition the collateral for our loans is secured primarily by real estate and personal property located in this same area.
Although the Company has a diversified loan portfolio, a substantial portion of the borrowers' ability to honor their contracts is dependent upon the agribusiness economic sector. Loans for agribusiness include loans directly related to poultry houses which amounted to $7,196,301 at December 31, 2007 and $8,215,000 at December 31, 2006. The majority of these loans are collateralized by deeds of trust on real estate. Farmers Home Administration (FHA) guarantees cover ninety percent of the loan balance on $1,429,646 of these loans at December 31, 2007 and $2,329,000 at December 31, 2006.
Demand deposit accounts that are overdrawn, have been reclassified as a loan since they represent an amount owed to the bank. The amount of overdrawn accounts included in the loan balance is $238,191 and $125,470 at December 31, 2007 and 2006, respectively.
NOTE 18 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
CASH AND SHORT-TERM DEPOSITS
For those short-term instruments, which includes interest bearing deposits and fed funds sold the carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES
For securities, fair value equals quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
RESTRICTED INVESTMENTS
The carrying value of restricted investments is a reasonable estimate of its fair value.
LOANS
The fair value of loans is estimated by discounting the future cash flows using the current offering rates for similar loans to borrowers with similar credit ratings and for the same remaining maturities.
DEPOSITS
For demand, interest checking, regular savings, money market and any other account payable on demand with no penalty the fair value is the carrying value. The fair value of certificates of deposits is estimated using the rates currently offered for deposits of similar remaining maturities.
SHORT TERM BORROWINGS AND INTEREST PAYABLE OR RECEIVABLE:
Due to the short-term nature of these accounts the carrying value is estimated to be the same as the carrying value.
LONG-TERM DEBT
The fair value of long term debt is estimated using the rates currently offered by the Federal Home Loan Bank for indebtedness with similar maturities.
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 18 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
OFF -BALANCE SHEET ITEMS
Letters of credit, lines of credit, and loan commitments are deemed to be at face value.
The contract or notional amount of financial instruments with off-balance sheet risk is as follows:
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Management has conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2007, utilizing the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company's internal controls over financial reporting as of December 31, 2007 are effective.
We have established our disclosure controls and procedures to ensure that material information related to Allegheny Bancshares, Inc. is made known to our principal executive officer and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. These disclosure controls and procedures consist principally of communications between and among the Chief Executive Officer and the Chief Financial Officer to identify any new transactions, events, trends, contingencies or other matters that may be material to the Company's operations. As required, we have evaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, Allegheny Bancshares, Inc.'s management, including the Chief Financial Officer, concluded that such disclosure controls and procedures were operating effectively as designed as of the date of such evaluation.
This Annual Report does not include an attestation report of the 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 temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in the Annual Report.
CHANGES IN INTERNAL CONTROLS
During the period reported upon, there were no significant changes in Allegheny Bancshares, Inc.'s internal controls pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls.
ITEM 9B.
ITEM 9B. OTHER INFORMATION - NONE
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information regarding directors, executive officers and the audit committee financial expert is Incorporated by reference from the Company's definitive proxy statement for the Company's 2008 Annual Meeting of Shareholders. To be held April 14th, 2008 ("Proxy Statement"), under caption "Election of Directors."
Information on Section 16(a) beneficial ownership reporting compliance for the directors and executive officers of the Company is incorporated by reference from the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Proxy Statement under the caption "Executive Compensation and other Information."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information incorporated by reference from the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information incorporated by reference from the Proxy Statement under the caption "Certain Transactions with Directors and Officers and Their Associates."
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information incorporated by reference from the Proxy Statement under the caption "Auditors."
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)(1) FINANCIAL STATEMENTS
Reference is made to Part II, Item 8 of the Annual Report on Form 10-K
(A)(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted since they are not required, are not applicable, or the required information is shown on the consolidated financial statements or related notes.
(A)(3) EXHIBITS
The following Exhibits are attached.
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-K filed March 31, 2007.
10.1 Employment Agreement with William A. Loving, Jr. with modification
10.2 Executive Severance Agreement with William A. Loving, Jr. with modification
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-K filed March 31, 2006.
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-KSB filed March 26, 2004.
The following Exhibits are incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-KSB filed March 30, 2003.
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant causes this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLEGHENY BANCSHARES, INC.
By: WILLIAM A. LOVING, JR. ------------------------------------ William A. Loving, Jr. Executive Vice-President and Chief Executive Officer
Date: March 9, 2008
By: L. KIRK BILLINGSLEY ------------------------------------ L. Kirk Billingsley Chief Financial Officer
Date: March 9, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated.
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant causes this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLEGHENY BANCSHARES, INC.
By: /s/ William A. Loving ------------------------------------ William A. Loving, Jr. Executive Vice-President and Chief Executive Officer
Date: March 9, 2008
By: /s/ L. Kirk Billingsley ------------------------------------ L. Kirk Billingsley Chief Financial Officer
Date: March 9, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated.