Allegheny Bancshares 10-Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2009

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.000-50151

Allegheny Bancshares, Inc.

(Exact name of registrant as specified in its charter)

West Virginia	22-3888163
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

300 North Main Street
P. O. Box 487
Franklin, West Virginia 26807
(Address of principal executive offices, including zip code)

(304) 358-2311
(Registrant’s Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “accelerated filer,” “accelerated filer” and smaller reporting company” in rule 12b-2 of the Exchange Act.

Large accelerated filero Accelerated filero Non-accelerated filero Smaller reporting companyþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

Common Stock, par value — $1.00
867,809 shares outstanding as of November 5, 2009

ALLEGHENY BANCSHARES, INC.

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		2
Unaudited Consolidated Statements of Income — Nine Months ended September 30, 2009 and 2008		2
Unaudited Consolidated Statements of Income — Three Months ended September 30, 2009 and 2008		3
Consolidated Balance Sheets — September 30, 2009 (Unaudited) and December 31, 2008 (Audited)		4
Unaudited Consolidated Statements of Changes in Stockholders’ Equity — Nine Months Ended September 30, 2009 and 2008		5
Unaudited Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2009 and 2008		6
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures about Market Risk		20
Item 4T. Controls and Procedures		21
PART II. OTHER INFORMATION		21
Item 1. Legal Proceedings		21
Item 2. Changes in Securities		21
Item 3. Defaults upon Senior Securities		21
Item 4. Submission of Matters to a Vote of Security Holders		21
Item 5. Other Information		21
Item 6. Exhibits		22
SIGNATURES		23
Exhibit 31.1
Exhibit 31.2
Exhibit 32

1

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 Ended
	September 30,
	2009			2008
Interest and Dividend Income:
Loans and fees	$	8,561		$	8,490
Investment securities — taxable		309			367
Investment securities — nontaxable		464			510
Deposits and federal funds sold		63			181
Total Interest and Dividend Income		9,397			9,548
Interest Expense:
Deposits		3,036			3,499
Borrowings		216			281
Total Interest Expense		3,252			3,780
Net Interest Income		6,145			5,768
Provision for loan losses		292			216
Net Interest Income After Provision for Loan Losses		5,853			5,552
Noninterest Income:
Service charges on deposit accounts		723			637
Restricted equity security impairment		(604	)		—
Gain on sale of securities		64			—
Other income		509			487
Total Noninterest Income		692			1,124
Noninterest Expense:
Salaries and benefits		2,322			2,176
Occupancy expenses		304			289
Equipment expenses		471			453
Other expenses		1,699			1,159
Total Noninterest Expenses		4,796			4,077
Income before Income Taxes		1,749			2,599
Income Tax Expense		586			682
Net Income	$	1,163		$	1,917
Earnings Per Share
Net income	$	1.34		$	2.18
Weighted Average Shares Outstanding		870,675			879,350

The accompanying notes are an integral part of these statements.

2

Allegheny Bancshares, Inc.

Consolidated Statements of Income
(In thousands, except for share and per share information)

	Three Months Ended
	September 30,
	2009		2008
Interest and Dividend Income:
Loans and fees	$	2,995	$	2,804
Investment securities — taxable		96		108
Investment securities — nontaxable		158		167
Deposits and federal funds sold		21		53
Total Interest and Dividend Income		3,270		3,132
Interest Expense:
Deposits		1,046		1,083
Borrowings		71		86
Total Interest Expense		1,117		1,169
Net Interest Income		2,153		1,963
Provision for loan losses		125		81
Net Interest Income After Provision for Loan Losses		2,028		1,882
Noninterest Income:
Service charges on deposit accounts		282		225
Other income		189		164
Total Noninterest Income		471		389
Noninterest Expense:
Salaries and benefits		799		729
Occupancy expenses		106		100
Equipment expenses		164		151
Other expenses		542		394
Total Noninterest Expenses		1,611		1,374
Income before Income Taxes		888		897
Income Tax Expense		230		217
Net Income	$	658	$	680
Earnings Per Share
Net income	$	0.76	$	0.77
Weighted Average Shares Outstanding		870,294		877,831

The accompanying notes are an integral part of these statements.

3

Allegheny Bancshares, Inc.

Consolidated Balance Sheets
(In thousands, except for share and per share information)

	September 30, 2009			December 31, 2008
	Unaudited			Audited
ASSETS
Cash and due from banks	$	5,096		$	2,562
Federal funds sold		—			1,570
Interest bearing deposits in banks		15,060			4,637
Investment securities available for sale		30,721			25,685
Restricted equity securities		748			1,351
Loans receivable, net of allowance for loan losses of $1,524 and $1,396 respectively		179,788			156,982
Bank premises and equipment, net		6,929			6,249
Interest receivable		1,484			1,276
Goodwill		1,087			—
Bank owned life insurance		3,823			3,693
Other assets		1,427			725
Total Assets	$	246,163		$	204,730
LIABILITIES
Deposits
Noninterest bearing demand	$	25,943		$	20,197
Interest bearing
Demand		31,896			18,985
Savings		27,054			28,567
Time deposits over $100,000		41,526			28,211
Other time deposits		83,855			71,280
Total Deposits		210,274			167,240
Accrued expenses and other liabilities		737			841
Short-term borrowings		1,028			3,569
Long-term debt		5,752			5,920
Total Liabilities		217,791			177,570
STOCKHOLDERS’ EQUITY
Common stock; $1 par value, 2,000,000 shares
Authorized, 900,000 issued		900			900
Additional paid in capital		900			900
Retained earnings		27,794			26,631
Accumulated other comprehensive income		573			320
Treasury stock (at cost, 32,191 shares in 2009 and 28,767 shares in 2008)		(1,795	)		(1,591	)
Total Stockholders’ Equity		28,372			27,160
Total Liabilities and Stockholders’ Equity	$	246,163		$	204,730

The accompanying notes are an integral part of these statements.

4

Allegheny Bancshares, Inc.

Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
(Unaudited)

										Accumulated Other
				Common		Additional		Retained		Comprehensive		Treasury
	Total			Stock		Paid In Capital		Earnings		Income (Loss)		Stock
Balance, December 31, 2008	$	27,160		$	900	$	900	$	26,631	$	320	$	(1,591	)
Comprehensive Income
Net Income		1,163							1,163
Change in unrealized gain on available for sale securities, net of income tax effect of $131		253									253
Total Comprehensive Income
Purchase of Treasury Stock		(204	)										(204	)
Balance, September 30, 2009	$	28,372		$	900	$	900	$	27,794	$	573	$	1,795
Balance, December 31, 2007	$	26,731		$	900	$	900	$	25,836	$	154	$	(1,059	)
Comprehensive Income
Net income		1,917							1,917
Change in unrealized gain on available for sale securities, net of income tax effect of $15		29									29
Total Comprehensive Income		1,946
Purchase of Treasury Stock		(460	)										(460	)
Balance, September 30, 2008	$	28,217		$	900	$	900	$	27,753	$	183	$	(1,519	)

The accompanying notes are an integral part of these statements.

5

Allegheny Bancshares, Inc.

Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30,
	2009			2008
Cash Flows from Operating Activities:
Net income	$	1,163		$	1,917
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		292			216
Depreciation and amortization		346			346
Loss on disposal of fixed assets		—			17
Net amortization of securities		34			10
Gain on sale of securities		(64	)		—
Loss on restricted equity other than temporary impairment		604			—
Deferred income tax benefit		17			(52	)
Income from life insurance investment		(130	)		(131	)
Net change in:
Accrued income		(208	)		(62	)
Other assets		(607	)		(177	)
Accrued expense and other liabilities		(349	)		23
Net Cash Provided by Operating Activities		1,098			2,107
Cash Flows from Investing Activities:
Net change in federal funds sold		1,570			(948	)
Cash received from the acquisition of branch offices		6,497			—
Net change in interest bearing deposits in banks		(10,423	)		(4,900	)
Proceeds from sales, calls and maturities of available for sale securities		6,453			6,856
Purchase of securities available for sale		(11,076	)		(2.201	)
Proceeds from maturity of held to maturity security		—			500
Purchase of restricted investments		—			(614	)
Proceeds from redemption of restricted investments		—			167
Net increase in loans		(9,366	)		(7,219	)
Purchase of bank premises and equipment		(158	)		(162	)
Net Cash Used in Investing Activities		(16,503	)		(8,521	)
Cash Flows from Financing Activities:
Net change in:
Demand and savings deposits		7,409			3,522
Time deposits		13,443			6,022
Short-term borrowings		(2,541	)		(184	)
Curtailments of long-term borrowings		(168	)		(1,981	)
Purchase of treasury stock		(204	)		(460	)
Net Cash Provided by Financing Activities		17,939			6,919
Cash and due from banks
Net increase in cash and due from banks		2,534			505
Cash and due from banks, beginning of period		2,562			2,846
Cash and due from banks, end of period	$	5,096		$	3,351

Continued

6

Allegheny Bancshares, Inc.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)

	Nine Months Ended
	September 30,
	2009		2008
Supplemental Disclosure of Cash Paid During the Period for:
Interest	$	3,258	$	3786
Income taxes	$	864	$	780
Transactions related to acquisition of branches
Increase in assets and liabilities:
Loans	$	13,732		—
Bank premises and equipment	$	869		—
Other assets (Goodwill)	$	1,086		—
Deposits	$	22,182		—
Other liabilities	$	2

The accompanying notes are an integral part of these statements.

7

ALLEGHENY BANCSHARES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 ACCOUNTING PRINCIPLES:

The consolidated financial statements include the accounts of Allegheny Bancshares Inc. and its subsidiaries (the “Company”). Significant intercompany accounts and transactions have been eliminated in the consolidation.

The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general industry practices. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2009, and the results of operations for the periods ended September 30, 2008 and 2009. The notes included herein should be read in conjunction with the notes to the financial statements included in the 2008 Form 10-K included with the annual report to stockholders of Allegheny Bancshares, Inc.

Recent Accounting Pronouncements —In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “TheFASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes theFASB Accounting Standards Codification^TM(“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands forAccounting Standards Codification. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”).

In conjunction with the issuance of SFAS 168, the FASB also issued its first Accounting Standards Update No. 2009-1, “Topic 105 -Generally Accepted Accounting Principles” (“ASU 2009-1”) which includes SFAS 168 in its entirety as a transition to the ASC. ASU 2009-1 is effective for interim and annual periods ending after September 15, 2009 and will not have an impact on the Company’s financial position or results of operations but will change the referencing system for accounting standards. Certain of the following pronouncements were issued prior to the issuance of the ASC and adoption of the ASUs. For such pronouncements, citations to the applicable Codification by Topic, Subtopic and Section are provided where applicable in addition to the original standard type and number.

In December 2008 the FASB issued FASB Staff Position (“FSP”) SFAS 132(R)-1 (FASB ASC 715-20-65), “Employers’ Disclosures about Postretirement Benefit Plan Assets,” (“FSP SFAS 132(R)-1”). This FSP provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The objective of the FSP is to provide the users of financial statements with an understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets; (c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (e) significant concentrations of risk within plan assets. The FSP also requires a nonpublic entity, as defined in Statement of Financial Accounting Standard (“SFAS”) 132, to disclose net periodic benefit cost for each period for which a statement of income is presented. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Staff Position will require the Company to provide additional disclosures related to its benefit plans.

On April 9, 2009, the FASB issued the next staff position related to fair value which is discussed below.

FSP SFAS 115-2 and SFAS 124-2 (FASB ASC 320-10-65), “Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP SFAS 115-2 and SFAS 124-2”) categorizes losses on debt securities available-for-sale or held-to-maturity determined by management to be other-than-temporarily impaired into losses due to credit issues and losses related to all other factors. Other-than-temporary impairment (OTTI) exists when it is more likely than not that the security will mature or be sold before its amortized cost basis can be recovered. An OTTI related to credit losses should be recognized through earnings. An OTTI related to other factors should be recognized in other comprehensive income. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Annual disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required for interim periods (including the aging of securities with unrealized losses).

8

ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS

Also on April 1, 2009, the FASB issued FSP SFAS 141(R)-1 (FASB ASC 805-20-25, 30, 35, 50), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” The FSP requires that assets acquired and liabilities assumed in a business combination that arise from a contingency be recognized at fair value. If fair value cannot be determined during the measurement period as determined in SFAS 141 (R), the asset or liability can still be recognized if it can be determined that it is probable that the asset existed or the liability had been incurred as of the measurement date and if the amount of the asset or liability can be reasonably estimated. If it is not determined to be probable that the asset/liability existed/was incurred or no reasonable amount can be determined, no asset or liability is recognized. The entity should determine a rational basis for subsequently measuring the acquired assets and assumed liabilities. Contingent consideration agreements should be recognized initially at fair value and subsequently reevaluated in accordance with guidance found in paragraph 65 of SFAS 141 (R). The FSP is effective for business combinations with an acquisition date on or after the beginning of the Company’s first annual reporting period beginning on or after December 15, 2008. The Company will assess the impact of the FSP if and when a future acquisition occurs.

The Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 111 (FASB ASC 320-10-S99-1) on April 9, 2009 to amend Topic 5.M., “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities” and to supplement FSP SFAS 115-2 and SFAS 124-2. SAB 111 maintains the staff’s previous views related to equity securities; however debt securities are excluded from its scope. The SAB provides that “other-than-temporary” impairment is not necessarily the same as “permanent” impairment and unless evidence exists to support a value equal to or greater than the carrying value of the equity security investment, a write-down to fair value should be recorded and accounted for as a realized loss. The SAB was effective upon issuance and had no impact on the Company’s financial position.

NOTE 2 INVESTMENT SECURITIES:

The amortized costs of investment securities and their approximate fair values are as follows (in thousands of dollars):

			Gross		Gross
	Amortized		Unrealized		Unrealized
September 30, 2009	Cost		Gains		Losses		Fair Value
Securities available for sale:
Mortgaged backed obligations of federal agencies	$	3,714	$	85	$	—	$	3,799
Government sponsored enterprises		8,988		127		—		9,115
Obligations of states and political subdivisions		16,516		642		7		17,151
Corporate obligations		501		23		—		524
Other equities		132		—		—		132
Total	$	29,851	$	877	$	7	$	30,721

			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2008	Cost		Gains		Losses		Fair Value
Securities available for sale:
Mortgaged backed obligations of federal agencies	$	2,905	$	34	$	4	$	2,935
Government sponsored enterprises		6,008		169		—		6,177
Obligations of states and political subdivisions		15,652		396		58		15,991
Corporate obligations		501		—		50		451
Other equities		131		—		—		131
Total	$	25,197	$	599	$	112	$	25,685

Consideration is given to current market conditions, historical trends in the individual securities, as well as trends in the overall market. Declines determined to be other than temporary are charged to operations and are shown on the income statement. There were no other-than-temporary impairment charges on investment securities during the first nine months of 2008 or 2009, however there were charges to restricted equity securities, see footnote number 3.

9

ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS

The following table shows the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses that are deemed to be temporarily impaired (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous, unrealized loss position at September 30, 2009. The unrealized losses on the Company’s investment securities were caused by various reasons, but the Company feels that no material impairment of value is due to deteriorating financial condition of the issuers. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider this 1 bond investment to be other-than-temporary impaired at September 30, 2009.

	Less than 12 months				12 Months or greater
			Unrealized				Unrealized		Total
	Fair Value		Losses		Fair Value		Losses		FairValue
Description of Securities:
Mortgaged backed obligations of federal agencies	$	—	$	—	$	—	$	—	$	—
Government sponsored enterprises		—		—		—		—		—
Obligations of states and political subdivisions		—		—		559		7		559
Corporate obligations		—		—		—		—		—
Total	$	—	$	—	$	559	$	7	$	559

A maturity schedule of securities in thousands as of September 30, 2009, by contractual maturity is shown below. Actual maturities may differ because borrowers may have the right to call or prepay obligations.

	Amortized
	Cost		Fair Value
Due:
In one year or less	$	2,495	$	2,530
After one year through five years		20,426		20,898
After five years through ten years		5,388		5,673
After ten years through fifteen years		1,542		1,620
Net Cash Provided by Operating Activities	$	29,851	$	30,721

For the period ended September 30, 2009, proceeds from sales of securities available for sale amounted to $4,436,390 and gains in the amount of $63,510 were recognized on these sales. No gains or losses were recognized in the same period of 2008.

NOTE 3 RESTRICTED EQUITY SECURITIES:

Restricted equity securities are considered restricted due to lack of marketability. It consists of stock in the Federal Home Loan Bank (FHLB) and at December 31, 2008, the parent company of the Bank’s Correspondent Bank (Correspondent). 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. The FHLB stock is carried at cost, the “Correspondent” stock is carried at market value and each is restricted as to transferability. Management evaluates these restricted securities for other-than-temporary impairment on a quarterly basis, and more often when conditions warrant.

Consideration is given to current market conditions, historical trends in the individual securities, as well as trends in the overall market. Declines determined to be other than temporary are charged to operations and are shown on the income statement. In view of the recent May 1, 2009 closure of “Correspondent” by the Office of the Comptroller of the Currency, the Company recorded an other than temporary impairment (“OTTI”) non-cash charge against earnings. The carrying value of the Company’s “Correspondent” stock as of December 31, 2008 was approximately $603,515. The OTTI charge as of March 31, 2009 was $603,515, eliminating our carrying value of this stock. No other than temporary impairment charge was recognized in the same period in 2008.

10

ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 4 LOANS RECEIVABLE:

Loans outstanding are summarized as follows (in thousands of dollars):

	September 30,		December 31,
	2009		2008
Real estate loans	$	84,680	$	72,291
Commercial and industrial loans		78,543		70,680
Loans to individuals, primarily collateralized by autos		13,588		11,779
All other loans		4,502		3,628
Total Loans		181,312		158,378
Less allowance for loan losses		1,524		1,396
Net Loans Receivable	$	179,788	$	156,982

NOTE 5 ALLOWANCE FOR LOAN LOSSES:

A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2009 and 2008 follows (in thousands):

	Nine Months Ended
	September 30,
	2009			2008
Balance, beginning of period		1,396		$	1,186
Provision charged to operating expenses		292			216
Recoveries of loans charged off		124			87
Loans charged off		(288	)		(148	)
Balance, end of period		1,524		$	1,341

NOTE 6 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 September 30, 2009 were fixed at the time of the advance and fixed rates range from 4.14% to 5.57%. The FHLB notes are secured by FHLB Stock, as well as investment securities and mortgage loans. The weighted average interest rate is 4.87% at September 30, 2009.

NOTE 7 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.

11

ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 8 FAIR VALUE:

FASB ASC 820-10,Fair Value Measurements,provides a definition of fair value for accounting purposes, establishes a framework for measuring fair value and expands related financial disclosures. This statement does not require any new fair value measurements and was initially effective for the Company beginning January 1, 2008. This statement establishes a hierarchy that prioritizes the use of fair value inputs used in valuation methodologies into the following three levels.

Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 — Valuation is based upon significant inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

At September 30^,2009 the Company had no liabilities subject to fair value. The following is a description of valuation methodologies used for assets recorded at fair values.

Investment securities available for sale:Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, when available. If quoted prices are not available, fair values are measured using independent pricing models. Level 1 securities include those traded by dealers or brokers in an active markets such as U.S. Treasury securities, and securities issued by government sponsored entities that are traded by dealers, and money market funds. Level 2 securities include mortgage backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include other equities that do not have an active market.

Restricted equity securities:Restricted equity securities that are restricted as to the transferability of the shares. Fair value measurement is based upon quoted prices when available, but due to the limited number of transactions, and the restrictions on transferability of these shares, a true active market does not always exist. As such, the restricted equity securities are considered as Level 3 securities.

Loans:The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. If a loan is considered impaired an allowance for loan loss is established in accordance with FASB ASC 310-10Accounting by Creditors for Impairment of a Loan, by utilizing market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). The fair value was determined by the measurement of the fair value of the underlying collateral. Typically the collateral value is determined by applying a discount to an appraisal that was performed at or about the date of the loan. Due to the age of appraisals the changing market conditions of real estate the Company considers its impaired loans to be level 3 assets and are measured on a nonrecurring basis.

Goodwill:The Company may be required to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. Goodwill is one of these assets, and is subject to impairment testing. The goodwill currently recorded on the books was recorded with the purchase of two branch offices in April 2009. Goodwill is considered by the Company to be a level 3 asset.

Other Real Estate Owned:Certain assets such as other real estate owned (OREO) are measured at the lower of carrying value or fair value less estimated holding costs and cost to sell. We believe that the fair value component in its valuation follows the provisions of FASB ASC 820-10. Due to age of some appraisals and changing real estate market conditions, the Company considers it’s OREO to be level 3 assets.

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS

The following table presents the recorded amount of assets measured at fair value (in thousands of dollars):

	Level 1		Level 2		Level 3		Total
Assets recorded at fair value on a recurring basis:
Investment securities available for sale	$	9,115	$	21,606	$	—	$	30,721
Restricted equity securities		—		748		—		748
Total	$	9,115	$	22,354	$	—	$	31,469
Assets recorded at fair value on a non recurring basis:
Impaired Loans	$	—	$	—	$	1,914	$	1,914
Goodwill		—		—		1,087		1,087
Other real estate owned		—		—		824		824
Total	$	—	$	—	$	3,825	$	3,825

NOTE 9 PURCHASE OF TWO BRANCH OFFICES:

On April 17, 2009, the Company’s wholly owned subsidiary, Pendleton Community Bank completed the acquisition of two branch offices from Citizens National Bank (“CNB”). The two offices are in Marlinton, WV and Petersburg, WV. The Agreement can be found by accessing the website of the Securities and Exchange Commission under the filings of Allegheny Bancshares, Inc. and as part of the Current Report on Form 8-K filed on January 20, 2009. The purchase is accounted for under the requirements of FASB ASC 805 and included the real estate and both offices of CNB as well as $13,732,408 loan portfolio and $22,182,383 in deposits. The assets and liabilities were recorded at fair market values.

The Company is still determining the value of the intangible assets and the fair value of the assets acquired and liabilities assumed that are used to calculate goodwill in the transaction. An estimate of the fair value of the assets acquired and liabilities assumed has been used in the preparation of these unaudited consolidated financial statements, however, these estimates may be revised once the final valuations are performed.

NOTE 10 GOODWILL:

The Company follows FASB ASC 350-20Goodwill and Other Intangible Assets,which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. Provisions within this statement discontinue any amortization of goodwill and intangible assets with indefinite lives, and require at least annual impairment review or more often if certain impairment conditions exist. With the purchase of the two CNB branches (see note #9), there was a significant amount of goodwill recorded, and no impairments reported. The goodwill recognized on the purchase of the two branch offices totaled $1,086,732.

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ALLEGHENY BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 11 BENEFIT PLANS:

Executive Performance Driven Plan: On June 4^th, 2008, the Company, approved the Pendleton Community Bank , Inc. Executive Performance Driven Plan. The Performance Plan provides for bonus compensation based on achievement of certain performance goals. The CEO is eligible to receive a bonus based on achievement of the performance criteria.

For the Bank’s Chief Executive Officer, performance compensation will be based on the following individual categories (as reflected in the performance of Allegheny Bancshares, Inc.): Return on Average Equity, Increase in Earnings per Share, Return on Assets, Asset Growth Rate.

The total performance compensation which may be earned by the CEO is between 0% and 11.50% of his base salary. The Company has accrued a liability and incurred a benefit expense of $7,660 for the first nine months of 2009 and $15,750 for the first nine months of 2008.

Supplemental Retirement Agreement: On June 4th, 2008 the Bank entered into a non-qualified Supplemental Retirement Agreement (“SERP”) with the CEO. The SERP provide for the payment of a monthly supplemental executive retirement benefit equal to annual payments of $54,663 for a 15 year period. Such benefit shall be payable for a period of fifteen years, or under certain circumstances, prior to age 65. For each full calendar year the CEO completes with the Bank without separation of service, the CEO shall be credited with 8.33% of this benefit, toward 100% after 12 years. The Company has accrued a liability and incurred a benefit expense of $19,416 for the first nine months of 2009 for this plan, and $17,203 for the same period of 2008.

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Item 2. Management’s Discussion and Analysis of Financial Condition 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 five financial centers located in the West Virginia towns of Franklin, Moorefield Marlinton and Petersburg, and a financial center near Harrisonburg, Virginia. Currently its primary trade areas are these towns and the West Virginia counties of Pendleton, Hardy, Pocahontas, Grant and in 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.

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:

• 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

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 $282,000 and $216,000 for the nine month periods ended September 30, 2009 and 2008 respectively. The allowance for loan losses (“ALL”) was $1,524,000 (.84% of loans) at the end of the first nine months of 2009 compared with $1,396,000 (.88% of loans) at December 31, 2008. The percentage decrease in ALL was caused primarily by the purchase of $13,732,408 of loans when the bank purchased two branch offices from Citizens National Bank of Elkins, WV (“CNB”). By following the recently enacted purchase accounting rules for the CNB branch transaction, an allowance for loan losses was not recorded since the loans were recorded at fair value. The Company continues to monitor the loan portfolio for signs of weakness or developing credit problems. Loan loss provision for each period is determined after evaluating the loan portfolio and determining the level of reserves necessary to absorb current charge-offs and maintain the reserve at adequate levels. See Note 5 for the amounts.

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The Company monitors the portfolio particularly closely in the current downturn in the economy. Real estate sales are certainly slow in the Company’s market area, but this area has not seen a marked increase in foreclosures or dropping collateral values as has been the case for many areas.. Most of the Company’s market area is fairly rural and the majority of employment in theses areas is not in economically sensitive industries. The Company is not immune to the current economic downturn and it has exposure to the slowing economic situation particularly as it relates to the timber industry, and housing industry as the Company has made real estate development loans to a limited extent within our markets. We have seen, on average, the Company’s past due percentages to be higher in 2009 than previous years, however at September 30, 2009, the past due percentage was not outside the normal expected range based upon our historical percentages. With the slow real estate and commercial environment the Company does realizes there is an increase in credit risk in its loan portfolio and has made adjustments not only to the calculation of the allowance for loan loss, but also has made increases to the amount of the provision for loan losses.

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. Management’s valuation of the ALL is based upon two principals of accounting: 1) FASB ASC 450-20 Accounting for Contingencies and 2) FASB ASC 310-10, Accounting by Creditors for Impairment of a Loan. The Company utilizes both of these accounting standards by first identifying problem loans above a certain threshold and estimating losses based on the underlying collateral values, and second taking the remainder of the loan portfolio and separating the portfolio into pools of loans 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.

Results of Operations Overview

Net income of $1,163,000 for the first nine months of 2009 represents a decrease of 39.33% compared to the same period a year ago. This represents a $1.34 net income per share as compared to $2.18 income for the same period a year ago. Included in the first nine month’s results for 2009 was an other-than-temporary (“OTTI”) non-cash impairment charge of $604 thousand dollars pre-tax, equivalent to a $559 thousand after tax or $0.64 per share. The impairment charge relates to certain restricted equity securities. On May 1, 2009 the Office of the Comptroller of the Currency closed the company and took control of its assets. This OTTI charge represents the complete write off of the carrying value of the equity securities. Consolidated annualized returns on average equity and average assets for the nine months ended September 30, 2009 were 5.60% and 0.70%, respectively, compared with 9.24% and 1.27% for the same period in 2008. Net interest income had a slight increase from 2008 to 2009, but was more than offset by the combination of the OTTI charge and an increase in non interest expense.

Net Interest Income

The Company’s taxable equivalent net interest income increased by 5.15% for the first nine months of 2009 compared to the same period in 2008. This increase resulted primarily due to the decrease in the interest expense on deposits. Average balance of interest bearing liabilities grew by 13.06% while average balance of total earning assets grew by 9.28%. The Company’s tax equivalent yield on earnings assets for first nine months of 2009 was 4.19% compared to 4.35% for same period in 2008 as the cost of funds decreased by 78 basis points while the yield on earning assets decreased 73 basis points.

As shown in the interest sensitivity analysis in Table II, the Company is in a liability sensitive position, meaning our liabilities mature and reprice faster than our assets in a stable rate environment. In the last two years, the Federal Reserve lowered rates by 450 basis points, and in 2009 the company has seen rates stabilize. This rate decrease has increased the prepayment speeds on assets with investments being called and loans being refinanced. Dropping rates can have a negative effect on interest margins, even for liability sensitive banks since the rates on earning assets can and will typically drop greater than banks can drop the costs of deposits.

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Table I shows the average balances for interest bearing assets and liabilities, the rates earned on earning assets and the rates paid on deposits and borrowed funds.

TABLE I

Allegheny Bancshares, Inc.
Net Interest Margin Analysis
(On a Fully Taxable Equivalent Basis) (Dollar Amounts in Thousands)

	Nine Months Ended							Nine Months Ended
	September 30, 2009							September 30, 2008
	Average		Income/					Average		Income/
	Balance		Expense		Rates			Balance		Expense		Rates
Interest Income
Loans1, 2	$	170,407	$	8,632		6.75	%	$	151,094	$	8,595		7.58	%
Federal funds sold		784		—		0.00	%		1,334		30		3.00	%
Interest bearing deposits		6,349		63		1.32	%		6,281		150		3.18	%
Investments
Taxable		11,775		309		3.50	%		11,588		368		4.23	%
Nontaxable2		16,184		703		5.78	%		17,744		773		5.81	%
Total Earning Assets		205,499		9,707		6.30	%		188,041		9,916		7.03	%
Interest Expense
Demand deposits		24,215		167		0.92	%		16,079		124		1.03	%
Savings		27,553		63		0.30	%		31,341		281		1.20	%
Time deposits		113,783		2,807		3.29	%		96,773		3,093		4.26	%
Short-term borrowings		1,408		2		0.19	%		1,670		20		1.60	%
Long-term debt		6,175		214		4.62	%		7,271		261		4.79	%
Total Interest Bearing
Liabilities	$	173,134	$	3,253		2.51	%	$	153,134	$	3,779		3.29	%
Net Interest Margin1				6,453							6,137
Net Yield on Interest
Earning Assets						4.19	%						4.35	%

1	Interest on loans includes loan fees.
2	An incremental tax rate of 34% was used to calculate the tax equivalent income.

Noninterest Income

Noninterest income decreased to $692,000 for the 9 months ending September 30, 2009, compared to $1,124,000 for the same period in 2008. As discussed in the “Results of Operations Overview” above, this decrease was almost entirely caused by the other-than-temporary-impairment charge on a restricted equity investment of the Company. Other than this impairment charge, noninterest income has increased with an $83,000 increase in overdraft protection fees, $59,000 increase in ATM fee income and a $64,000 gain on sale of available for sale securities.

Noninterest Expenses

Total noninterest expense increased $719,000 or 17.64% for the first nine months of 2009, as compared to 2008. Other expenses increased by approximately $540,000 or 46.59%. The main reasons for this increase include $265,000 increase in FDIC insurance cost partially due to a special $103,000 assessment assessed on June 30^th, as well as increased FDIC insurance premiums. In addition to this expense we have incurred $199,000 in conversion expenses associated with acquisition of two branch offices of Citizens National Bank (See Note 8 to the financial statements). New accounting rules enacted at the beginning of 2009 require companies to expense the conversion expenses as compared to the old rule of capitalizing these expenses as business combination costs.

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Salaries and benefits increased by 6.70% due to merit increases, and an increase in the number of employees. With the purchase of the two additional branch offices, our number of full time equivalent employees has increased. For the first nine months of 2009 our number of full time equivalent employee average increased by over 7 employees or 10.77% over the same period in 2008.

Income Tax Expense

Income tax expense is 33.50% of pretax income for the first nine months of 2009 compared to 26.24% for the same period in 2008. This tax expense is higher than pre tax income due to the majority of the other-than-temporary-impairment charge not being tax deductible. The loss on the OTTI charge for income tax purposes is considered a capital loss and only deductible to the extent that the Company has capital gains. Currently the Company does not have the expectation that it could realistically generate enough capital gains to fully offset the capital losses that have arisen from the OTTI charges on the restricted stock. To that extent, it must consider excess losses as non tax deductible and not derive any tax benefit from the excess capital losses over realistically expected capital gains. It appears that $484,000 of the OTTI charge will not be tax deductible as of September 30, 2009.

Loans and Provision for Loan Loss

Total loans were $181,313,000 at September 30, 2009, compared to $156,982,000 at December 31, 2008, representing a 15.50% increase. This growth in the loan portfolio came primarily from purchase of loans from the two branch offices, which added $13,732,000 to our loan portfolio but also included $10,599,000 of growth in our branch offices. A schedule of loans by type is shown in Note 3 to the financial statements. Approximately 86% of the loan portfolio is secured by real estate at September 30, 2009. The loans purchased as part of the branch acquisition are recorded at fair market value, which includes a credit discount for expected losses existing in the portfolio, but also includes a premium for favorable interest rates included in the portfolio, compared to current market rates. This is required under the new accounting rules and as such an increase in the allowance for loan loss for loans purchased on the date of purchase is not allowed.

Loan Portfolio Risk Factors

Nonperforming 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 collectible. The Company has a substantial amount of loans in the loan portfolio related to agribusinesses. Restructured loans are loans for which a borrower has been granted a concession on the interest rate or original repayment terms because of financial difficulties.

The following table summarizes the Company’s nonperforming loans at September 30, 2009 and December 31, 2008 (in thousands of dollars):

	September 30,		December 31,
	2009		2008
Nonaccrual loans	$	255	$	659
Restructured loans		134		139
Loans delinquent 90 days or more		1,285		1,034
Total Nonperforming Loans	$	1,674		1,832

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Deposits

The Company’s primary funding source is deposits from individuals, businesses and government entities located within it’s trade area. The Company’s deposits increased $43,034,000 or 25.73% during the first nine months of 2009. Of this increase, $22,182,000, was assumed in connection with the purchase of the acquisition of the two branch offices, but in addition $20,852,000 of increase in deposits came from our branch operations. A schedule of deposits by type is shown in the balance sheets. The primary reason for this increase was the increase in certificates of deposits (CDs). Much of this deposit growth it is believed to be due to a “flight to quality” as customers seek safe investments due to recent turmoil in the equity markets. Time deposits of $100,000 or more were 19.75% and 16.87% of total deposits at September 30, 2009 and December 31, 2008, respectively.

Borrowings

The Company borrows funds from the Federal Home Loan Bank (FHLB) to provide liquidity and to reduce interest rate risk. As competition for deposits have increased during periods of loan growth, FHLB borrowings have been utilized to help fund the loan growth. These borrowings have a fixed rate of interest and are amortized over a period of 2 to 20 years. Interest rates on these obligations range from 4.14% to 5.57%.

Capital

The Company continues to maintain a strong capital position to support future growth. Capital as a percentage of total assets was 11.49% at September 30, 2009 and significantly exceeded regulatory requirements. The Company is considered to be well capitalized under the regulatory framework for prompt corrective actions.

Uncertainties and Trends

Management is not aware of any known 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

Liquidity reflects our ability to ensure that funds are available to meet present and future obligations. At September 30, 2009, the Company had liquid assets of approximately $5.096 million in the form of cash and due from banks. Management believes that the Company’s liquid assets are adequate at September 30, 2009. Additional liquidity may be provided by the growth in deposit accounts and loan repayments. In the event the Company would need additional funds, it has the ability to purchase federal funds and borrow under established lines of credit of $92.4 million.

At September 30, 2009, the Company had a negative cumulative Gap Rate Sensitivity Ratio of 32.89% for the one year repricing period. This rate reflects a very conservative estimate since we show an immediate runoff of accounts without a specific maturity date, and does not reflect the historical movement of funds during varying interest rate environments. Adjusted for historical repricing trends in response to interest rate changes, the adjusted Gap Ratio is -17.90%. This indicates that the Company is liability sensitive. But this negative gap ratio is within guidelines set by the Company and the Company expects interest income would remain stable in both a declining and increasing interest rate environment. Management constantly monitors the Company’s interest rate risk and has decided that the current position is an acceptable risk for a community bank operating in a rural environment. Table II shows the Company’s interest sensitivity.

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TABLE II

Allegheny Bancshares, Inc.
Interest Sensitivity Analysis
September 30, 2009
(In Thousands of Dollars)

	0-3			4-12			1-5			Over 5
	Months			Months			Years			Years			Total
Uses of Funds:
Loans	$	22,975		$	24,770		$	54,651		$	78,916		$	181,312
Interest bearing deposits		12,854			1,687			519						15,060
Investment securities		662			1,560			18,881			9,618			30,721
Restricted Investments											748			748
Total		36,491			28,017			74,051			89,282			227,841
Sources of Funds:
Deposits:
Interest bearing demand		31,896												31,896
Savings		27,054												27,054
Time deposits over $100,000		7,195			18,088			12,446			3,797			41,526
Other time deposits		16,801			36,145			24,054			6,855			83,855
Short-term borrowings		1,028												1,028
Long-term debt		1,057			176			1,628			2,891			5,752
Total	$	85,031		$	54,409		$	38,128		$	13,543		$	191,111
Discrete Gap	$	(48,540	)	$	(26,392	)	$	35,923		$	75,739		$
Cumulative Gap	$	(48,540	)	$	(74,932	)	$	(39,009	)	$	36,730		$
Ratio of Cumulative Gap		-21.30	%		-32.89	%		-17.12	%		16.12	%
To Total Earning Assets

Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities at September 30, 2009. In preparing the above table, no assumptions are made with respect to loan prepayments 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. A loan with a floating rate, such as the majority of our residential loan portfolio, that has reached a contractual floor or ceiling level is being treated as a fixed rate loan until the rate is again free to float. In the current rate environment, this has the effect of causing the table II to model our adjustable rate loans as fixed rate loans. However in a rising interest rate environment when these loans would be repriced at rates above the contractual floor, and are once again free to float, many of our loans would move from the over 5 year timeframe to a more current timeframe.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2008 Form 10-K.

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Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers that file periodic reports under the Securities Exchange Act of 1934 (the “Act”) are now required to include in those reports certain information concerning the issuer’s controls and procedures for complying with the disclosure requirements of the federal securities laws. Under rules adopted by the Securities and Exchange Commission effective August 29, 2002, these disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure.

We have established disclosure controls and procedures to ensure that material information related to Allegheny Bancshares, Inc. and its subsidiary 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 quarterly report. Based on this evaluation, the Company’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.

Changes in Internal Controls

During the period reported upon, there were no significant changes in the Company’s internal controls pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls.

Part II. Other Information

Item 1. Legal Proceedings —Not Applicable

Item 2. Changes in Securities —

During the 9-month period ending September 30, 2009, the Company purchased some of the Company’s stock to be held as treasury stock. This was not part of publicly announced plan. The details of the transaction were as follows:

	Total Number Of		Average Price
Date	Shares Purchased		Per Share
March 03, 2009		500	$	60.00
March 11, 2009		500	$	60.00
June 11, 2009		224	$	65.00
September 23, 2009		2,690	$	60.00

Item 3. Defaults Upon Senior Securities —Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders —Not Applicable

Item 5. Other Information —Not Applicable

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Item 6. Exhibits

The following Exhibits are filed as part of this Form 10-Q

No.		Description
	31.1	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).

The following exhibit is incorporated by reference to the Exhibits to Allegheny Bancshares, Inc. Form 10-KSB filed March 30, 2003.

No.		Description	Exhibit Number
	3.1	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 Number
	3.3	Bylaws of Allegheny Bancshares, Inc.	3.3

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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, Jr.
	Name:	William A. Loving, Jr.
	Title:	Executive Vice President and Chief Executive Officer
By:	/s/ L. Kirk Billingsley
	Name:	L. Kirk Billingsley
	Title:	Senior Vice President and Chief Financial Officer

Date: November 5, 2009

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