SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period Ended March 31, 2007
[ ] 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 (I.R.S. Employer
incorporation or organization) 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, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
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
881,961 shares outstanding as of May 11, 2007
ALLEGHENY BANCSHARES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 2
Unaudited Consolidated Statements of Income -- Three Months
ended March 31, 2007 and 2006 2
Consolidated Balance Sheets -- March 31, 2007 (Unaudited)
and December 31, 2006 (Audited) 3
Unaudited Consolidated Statements of Changes in Stockholders'
Equity - Three Months Ended March 31, 2007 and 2006 4
Unaudited Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 2007 and 2006 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 1.A. Risk Factors 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8K 15
SIGNATURES 16
CERTIFICATIONS 17
Page 2
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)
----------------------------------------------------------
(Unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2007 2006
-------- --------
INTEREST AND DIVIDEND INCOME:
Loans and fees $ 2,694 $ 2,389
Investment securities -- taxable 200 180
Investment securities -- nontaxable 179 172
Deposits and federal funds sold 41 17
-------- --------
Total Interest and Dividend Income 3,114 2,758
-------- --------
INTEREST EXPENSE:
Deposits 1,197 805
Borrowings 86 84
-------- --------
Total Interest Expense 1,283 889
-------- --------
NET INTEREST INCOME 1,831 1,869
PROVISION FOR LOAN LOSSES 44 54
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,787 1,815
-------- --------
NONINTEREST INCOME:
Service charges on deposit accounts 168 158
Other income 116 63
-------- --------
Total Noninterest Income 284 221
-------- --------
NONINTEREST EXPENSE:
Salaries and benefits 713 650
Occupancy expenses 86 74
Equipment expenses 158 145
Other expenses 333 345
-------- --------
Total Noninterest Expenses 1,290 1,214
-------- --------
Income before Income Taxes 781 822
INCOME TAX EXPENSE 209 247
-------- --------
NET INCOME $ 572 $ 575
======== ========
EARNINGS PER SHARE
Net income $ .65 $ .64
======== ========
Weighted Average Shares Outstanding 883,974 894,935
======== ========
The accompanying notes are an integral part of these statements.
Page 3
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
--------------
MARCH 31, 2007 DECEMBER 31, 2006
-------------- -----------------
Unaudited Audited
ASSETS
Cash and due from banks $ 1,884 $ 2,174
Federal funds sold 6,676 3,601
Interest bearing deposits in banks 110 130
Investment securities available for sale 32,285 34,008
Investment securities held to maturity 500 500
Restricted equity securities 961 967
Loans receivable, net of allowance for loan
losses of $1,193 and $1,258 respectively 133,974 134,109
Bank premises and equipment, net 6,658 6,749
Other assets 2,023 1,779
--------- ---------
Total Assets $ 185,071 $ 184,017
========= =========
LIABILITIES
Deposits
Noninterest bearing demand $ 17,351 $ 16,336
Interest bearing
Demand 16,284 16,918
Savings 33,428 32,765
Time deposits over $100,000 24,365 25,479
Other time deposits 58,990 57,844
--------- ---------
Total Deposits 150,418 149,342
Accrued expenses and other liabilities 736 754
Short-term borrowings 2,446 2,769
Long-term debt 5,453 5,592
--------- ---------
Total Liabilities 159,053 158,457
--------- ---------
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 25,168 24,596
Accumulated other comprehensive (loss) (8) (60)
Treasury stock (at cost, 17,689 shares in 2007 and
14,789 shares in 2006) (942) (776)
--------- ---------
Total Stockholders' Equity 26,018 25,560
--------- ---------
Total Liabilities and Stockholders' Equity $ 185,071 $ 184,017
========= =========
The accompanying notes are an integral part of these statements.
Page 4
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
--------------
(Unaudited)
Accumulated
Additional Other
Common Paid In Retained Comprehensive Treasury
Total Stock Capital Earnings (Loss) Stock
BALANCE, DECEMBER 31, 2006 $ 25,560 $ 900 $ 900 $ 24,596 $ (60) $ (776)
Comprehensive Income
Net income 572 572
Change in unrealized
gain on available for sale
securities, net of
income tax effect of $23 52 52
-------- --------
Total Comprehensive Income 624
Purchase of Treasury Stock (166) (166)
-------- -------- -------- -------- -------- --------
BALANCE, MARCH 31, 2007 $ 26,018 $ 900 $ 900 $ 25,168 $ (8) $ (942)
======== ======== ======== ======== ======== ========
BALANCE, DECEMBER 31, 2005 $ 24,864 $ 900 $ 900 $ 23,389 $ (117) $ (208)
Comprehensive Income
Net income 575 575
Change in unrealized
loss on available for sale
securities, net of
income tax effect of $(43) (95) (95)
-------- --------
Total Comprehensive Income 480
Purchase of Treasury Stock (26) (26)
-------- -------- -------- -------- -------- --------
BALANCE, MARCH 31, 2006 $ 25,318 $ 900 $ 900 $ 23,964 $ (212) $ (234)
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements.
Page 5
ALLEGHENY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2007 2006
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 572 $ 575
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 44 54
Depreciation and amortization 124 114
Net amortization of securities 4 8
Deferred income tax benefit 25
Net change in:
Accrued income (110) (58)
Other assets (183) (108)
Accrued expense and other liabilities (18) 111
------- -------
Net Cash Provided by Operating Activities 458 696
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold (3,075) 1,484
Net change in interest bearing deposits in banks 20 90
Proceeds from sales, calls and maturities
of available for sale securities 2,293 263
Net decrease in restricted investments 7
Purchase of securities available for sale (500) (119)
Net (increase) decrease in loans 90 (2,678)
Purchase of bank premises and equipment (32) (267)
------- -------
Net Cash Used in Investing Activities (1,197) (1,227)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in:
Demand and savings deposits 1,044 (2,572)
Time deposits 31 1,903
Short-term borrowings (30)
Proceeds from long-term borrowings -- 1,000
Curtailments of long-term borrowings (431) (1,136)
Purchase of treasury stock (165) (26)
------- -------
Net Cash Provided by (Used in) Financing Activities 449 (831)
------- -------
CASH AND DUE FROM BANKS
Net decrease in cash and due from banks (290) (1,362)
Cash and due from banks, beginning of period 2,174 2,882
------- -------
Cash and due from banks, end of period $ 1,884 $ 1,520
======= =======
Supplemental Disclosure of Cash Paid During the Period for:
Interest $ 1,306 $ 877
Income taxes $ 262 $ 0
The accompanying notes are an integral part of these statements.
Page 6
ALLEGHENY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES:
The 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 March 31,
2007, and the results of operations for the periods ended March 31, 2007 and
2006. The notes included herein should be read in conjunction with the notes to
the financial statements included in the 2006 annual report to stockholders of
Allegheny Bancshares, Inc.
NOTE 2 INVESTMENT SECURITIES AND RESTRICTED SECURITIES:
The amortized costs of investment securities and their approximate fair
values at March 31, 2007 and December 31, 2006 follows (in thousands of
dollars):
MARCH 31, 2007 DECEMBER 31, 2006
-------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
SECURITIES AVAILABLE FOR SALE:
U.S. Government Mortgaged
Backed Securities $ 3,497 $ 3,414 $ 3,667 $ 3,576
Government-Sponsored
Enterprise Securities 10,482 10,453 11,730 11,671
Obligations of States and
Political Subdivisions 18,219 18,318 18,599 18,661
Other Equity Securities 100 100 100 100
------- ------- ------- -------
Total $32,298 $32,285 $34,096 $34,008
======= ======= ======= =======
SECURITIES HELD TO MATURITY:
U.S. Treasury and Agency
Obligations $ 500 $ 494 $ 500 $ 490
======= ======= ======= =======
Restricted investments 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.
Page 7
ALLEGHENY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 LOANS RECEIVABLE:
Loans outstanding are summarized as follows (in thousands of dollars):
MARCH 31, DECEMBER 31,
2007 2006
Real estate loans $ 60,545 $ 60,768
Commercial and industrial loans 59,293 59,181
Loans to individuals, primarily
collateralized by autos 11,190 11,381
All other loans 4,139 4,037
-------- --------
Total Loans 135,167 135,367
Less allowance for loan losses 1,193 1,258
-------- --------
Net Loans Receivable $133,974 $134,109
======== ========
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the
three months ended March 31, 2007 and 2006 follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
2007 2006
---- ----
Balance, beginning of period $ 1,258 $ 1,172
Provision charged to operating expenses 44 54
Recoveries of loans charged off 31 18
Loans charged off (140) (8)
------- -------
Balance, end of period $ 1,193 $ 1,236
======= =======
NOTE 5 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 March 31, 2007 were
fixed at the time of the advance and fixed rates range from 3.15% to 5.40%. The
FHLB notes are secured by FHLB Stock, as well as investment securities and
mortgage loans. The weighted average interest rate is 4.34% at March 31, 2007.
Page 8
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 four financial centers located in the West Virginia towns of Franklin,
Moorefield and Marlinton, and its newest branch near Harrisonburg, Virginia.
Currently its primary trade areas are these towns and the West Virginia counties
of Pendleton, Hardy, Pocahontas, and in western Rockingham County, Virginia. The
newest financial center is located in Rockingham County, Virginia just west of
the city limits of Harrisonburg, Virginia and was opened for business July 19,
2006.
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.
Page 9
ALLOWANCE FOR LOAN LOSSES AND PROVISION FOR LOAN LOSSES
The provision for loan losses was $44,000 and $54,000 for the three
month periods ended March 31, 2007 and 2006 respectively. The allowance for loan
losses ("ALL") was $1,193,000 (.88% of loans) at the end of the first three
months of 2007 compared with $1,258,000 (.93% of loans) at December 31, 2006.
The ALL decrease was caused primarily by the level of loans charged off during
the first three months of 2007. 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 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.
RESULTS OF OPERATIONS OVERVIEW
Net income of $572,000 for the first three months of 2007 represents a
decrease of.52% compared to the same period a year ago. Annualized returns on
average equity and average assets for the three months ended March 31, 2007 were
8.89% and 1.26%, respectively, compared with 9.29% and 1.36% for the same period
in 2006. The reduced income for the first quarter 2007 compared to first quarter
2006 was a result of additional expenses due to our new branch location in
Harrisonburg, Virginia. The Harrisonburg office was opened in July of 2006, and
for the first three months of 2007, the after tax loss from the operations for
this branch totaled $59,000.
Also as expected we are seeing our interest margin lower due to the
flat interest rate yield curve we have been experiencing. This situation has
caused our deposit rates to rise faster than our loan rates and has caused our
main source of income, our net interest margin, to decline as a percentage of
earning assets (See Table I). After good loan growth in the first half of 2006,
loan demand has been flat, and loans actually decreased the first three months
of 2007.
In addition to these reasons, our noninterest expense has grown as a
result of additional employees, and annual pay increases for existing employees.
NET INTEREST INCOME
The Company's taxable equivalent net interest income decreased by 0.20%
for the first three months of 2007 compared to the first three months of 2006.
This decrease resulted from the increase cost of deposits as well as the growth
of interest bearing liabilities. Average balance of interest bearing liabilities
grew by 7.49% while average balance of total earning assets grew by 5.92%. The
Company's tax equivalent net yield on earnings assets for first three months of
2007 was 4.53% compared to 4.82% for same period in 2006 as the cost of funds
increased 93 basis points while the yield on earning assets increased 49 basis
points. Seventeen consecutive increases by the Federal
Page 10
Reserve Board of the target rate of fed funds from June 2004 to June 2006 have
caused the average rates earned on earning assets and the average rates paid on
interest bearing liabilities to continue to increase. Unfortunately for our
interest margin, this rate increase has caused our shorter term deposit rates to
rise more that the rates earned on our longer term loans and investments.
The lack of loan growth during the first quarter of 2007 has also
decreased net interest income as we have experienced a 13.74% reduction in loan
fees, particularly caused by a decrease in loan processing fees.
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)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2007 MARCH 31, 2006
-------------- --------------
AVERAGE INCOME/ AVERAGE INCOME/
BALANCE EXPENSE RATES BALANCE EXPENSE RATES
Interest Income
Loans (1,2) $134,618 $ 2,724 8.09% $127,129 $ 2,389 7.52%
Federal funds sold 2,945 39 5.30% 968 10 4.13%
Interest bearing deposits 138 2 5.80% 470 7 5.96%
Investments
Taxable 16,505 200 4.85% 15,880 180 4.53%
Nontaxable (2) 18,429 271 5.88% 17,970 261 5.81%
-------- -------- ---- -------- -------- ----
Total Earning Assets 172,635 3,236 7.50% 162,417 2,847 7.01%
-------- -------- ---- -------- -------- ----
Interest Expense
Demand deposits 15,921 61 1.53% 19,165 68 1.42%
Savings 32,191 212 2.63% 28,692 118 1.65%
Time deposits 83,213 924 4.44% 72,936 619 3.39%
Short-term borrowings 2,385 27 4.53% 3,573 32 3.58%
Long-term debt 5,527 58 4.20% 5,169 52 4.02%
-------- -------- ---- -------- -------- ----
Total Interest Bearing
Liabilities $139,237 $ 1,282 3.68% $129,532 $ 889 2.75%
-------- -------- ---- -------- -------- ----
Net Interest Margin (1) 1,954 1,958
======== ========
Net Yield on Interest
Earning Assets 4.53% 4.82%
==== ====
(1) Interest on loans includes loan fees
(2) An incremental tax rate of 34% was used to calculate the tax
equivalent income
Page 11
NONINTEREST INCOME
Noninterest income increased 28.51% during the first three months of
2007 as compared to the same period in 2006. The increase was largely due to an
increase in commissions earned by our mortgage division, as well as gains
incurred on selling foreclosed real estate and an increase in overdraft fees.
NONINTEREST EXPENSES
Total noninterest expense increased $75,000 or 6.18% for the first
three months of 2007, as compared to 2006. Salaries and benefits increased by
9.69% due to the increase in the number of employees, merit increases, and
higher benefit costs. The number of employees as measured by full time
equivalents (FTE) increased by 4 in the first quarter of 2007, as compared to
the same period of 2006. This represents a 7.3% increase in number of employees.
Occupancy and equipment expenses increased by 16.22% primarily due to expenses
of the new Harrisonburg, Virginia office opened in July 2006.
INCOME TAX EXPENSE
Income tax expense equaled 26.73% of income before income taxes for the
three months ended March 31, 2007 compared with 30.05% for the three months
ended March 31, 2006.
LOANS AND PROVISION FOR LOAN LOSS
Total loans were $135,167,000 at March 31, 2007, compared to
$135,367,000 at December 31, 2006, representing a 0.15% decrease. While the Bank
experienced a little loan growth in the commercial loan portfolio, this growth
was more than offset by decreases in our consumer real estate and other consumer
loans. A schedule of loans by type is shown in Note 3 to the financial
statements. Approximately 82% of the loan portfolio is secured by real estate at
March 31, 2007.
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
collectable. Loans accounted for on a nonaccrual basis were $5,178. 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 at March 31,
2007 and December 31, 2006 (in thousands of dollars):
MARCH 31, DECEMBER 31,
2007 2006
Nonaccrual loans $ 5 $104
Restructured loans 23 24
Loans delinquent 90 days or more 371 206
---- ----
Total Nonperforming Loans $399 $334
==== ====
Page 12
DEPOSITS
The Company's deposits increased $1,076,000 or 0.72% during the first
three months of 2007. A schedule of deposits by type is shown in the balance
sheets. Time deposits of $100,000 or more were 16.20% and 17.06% of total
deposits at March 31, 2007 and December 31, 2006, respectively.
BORROWINGS
Short-term borrowings decreased during 2006 due to drop in commercial
customers balances in our Term and Daily Sweep Repurchase Agreements.
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 5 to 20 years. Interest rates on these
obligations range from 3.15% to 5.40%.
CAPITAL
The Company continues to maintain a strong capital position to provide
an attractive financial return to our shareholders and to support future growth.
Capital as a percentage of total assets was 14.06% at March 31, 2007 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 March 31, 2007, the Company had liquid
assets of approximately $8.67 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 March 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 and borrow under
established lines of credit of $18.2 million.
At March 31, 2007, the Company had a negative cumulative Gap Rate
Sensitivity Ratio of -30.29% 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 -13.28%. This generally indicates that the Company is a little
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 growing community bank operating in a rural
environment. Table II shows the Company's interest sensitivity.
Page 13
TABLE II
ALLEGHENY BANCSHARES, INC.
INTEREST SENSITIVITY ANALYSIS
MARCH 31, 2007
(In Thousands of Dollars)
0-3 4-12 1-5 OVER 5 TOTAL
MONTHS MONTHS YEARS YEARS
USES OF FUNDS:
Loans 29,943 25,662 40,644 38,918 135,167
Fed Funds Sold 6,676 6,676
Interest bearing deposits 110 110
Investment securities 351 1,327 16,861 14,246 32,785
Restricted Investments 961 961
--------- --------- --------- --------- ---------
Total 37,080 26,989 57,505 54,125 175,699
--------- --------- --------- --------- ---------
SOURCES OF FUNDS:
Deposits:
Interest bearing demand 16,285 16,285
Savings 33,428 33,428
Time deposits over $100,000 3,650 15,527 5,187 24,364
Other time deposits 12,601 33,374 12,359 656 58,990
Short-term borrowings 1,849 597 2,446
Long-term debt 141 431 2,419 2,462 5,453
--------- --------- --------- --------- ---------
Total 67,954 49,332 20,562 3,118 140,966
--------- --------- --------- --------- ---------
Discrete Gap (30,874) (22,343) 36,943 51,007 34,733
Cumulative Gap (30,874) (53,217) (16,274) 34,733
Ratio of Cumulative Gap
To Total Earning Assets -17.57% -30.29% -9.26% 19.77%
Table II reflects the earlier of the maturity or repricing dates for various
assets and liabilities at March 31, 2007. 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 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.
Page 14
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 2006 Form 10-K.
ITEM 4. 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 1 A. RISK FACTORS --
No Material Changes
ITEM 2. CHANGES IN SECURITIES --
During the 3-month period ending March 31, 2007, the Company purchased back
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:
Page 15
TOTAL NUMBER AVERAGE
OF SHARES PRICE PER
DATE PURCHASED SHARE
- ------------------------------------------------------------------------
January 17, 2007 150 $57.00
January 26, 2007 350 $57.50
February 20, 2007 1,200 $57.00
March 5, 2007 1,200 $57.00
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
ITEM 6. EXHIBITS AND REPORTS ON 8-K -
A. 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-KSB filed March 31, 2006.
No. Description Exhibit Number
- --- ----------- --------------
3.3 Bylaws of Allegheny Bancshares, Inc. 3.3
B. REPORTS ON 8K
No reports filed in the first quarter of 2007.
Page 16
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
By: /s/ L. KIRK BILLINGSLEY
-----------------------------
L. Kirk Billingsley
Chief Financial Officer
Date: May 11, 2007