First Sentry Bancshares, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - First Sentry Bancshares, Inc.	Financial_Report.xls
EX-31.2 - CERTIFICATION OF RICHARD D. HARDY, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - First Sentry Bancshares, Inc.	ex-31_2.htm
EX-31.1 - CERTIFICATION OF GEOFFREY S. SHEILS, PRESIDENT AND CHIEF EXECUTIVE OFFICER - First Sentry Bancshares, Inc.	ex-31_1.htm
EX-32 - CERTIFICATION OF GEOFFREY S. SHEILS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND RICHARD D. HARDY, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - First Sentry Bancshares, Inc.	ex-32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2012

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

For transition period from ____to____

Commission File Number 000-53790

FIRST SENTRY BANCSHARES, INC.

(Exact Name of Registrant as Specified in Charter)

West Virginia		03-0398338
(State or Other Jurisdiction of Incorporation or organization )		(I.R.S. Employer Identification No.)

823 Eighth Street, Huntington, West Virginia		25701
(Address of Principal Executive Offices)		(Zip Code)

(304) 522-6400

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.

1,437,651 shares of Common Stock, par value $1.00 per share, were issued and outstanding as of May 15, 2012.

FIRST SENTRY BANCSHARES, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I FINANCIAL INFORMATION		3

ITEM 1.	FINANCIAL STATEMENTS		3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25

Comparison of Financial Condition at March 31, 2012 and December 31, 2011

Comparison of Operating Results for the Three Months Ended March 31, 2012 and 2011

LIQUIDITY AND CAPITAL RESOURCES

Off-Balance Sheet Arrangements and Contractual Obligations

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 4.	CONTROLS AND PROCEDURES	34

PART II OTHER INFORMATION		35

ITEM 1.	LEGAL PROCEEDINGS	35
ITEM 1A.	RISK FACTORS	35
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	35
ITEM 4.	MINE SAFETY DISCLOSURES	35
ITEM 5.	OTHER INFORMATION	35
ITEM 6.	EXHIBITS	35
SIGNATURES		36

PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

March 31, 2012 (Unaudited) and December 31, 2011

(Dollars in Thousands)

	March 31,
	2012		December 31,
	(Unaudited)		2011
ASSETS

Cash and due from banks	$	13,013	$	10,183
Federal funds sold		95		255
Cash and cash equivalents		13,108		10,438

Interest-earning deposits		3,193		3,687
Investments available-for-sale		94,638		91,547
Investments held-to-maturity (fair value approximates $20,095 and $20,084, respectively)		19,220		19,274
Federal Home Loan Bank stock, at cost		2,785		2,931
Loans, net of allowance of $6,040 (unaudited) and $5,855, respectively		343,077		351,912
Interest receivable		1,964		2,035
Bank premises and equipment, net		6,317		6,417
Other real estate owned		1,957		1,999
Goodwill and core deposit intangible		2,804		2,813
Other assets		2,736		3,053
	$	491,799	$	496,106

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits:
Noninterest-bearing	$	61,983	$	63,397
Interest-bearing		346,747		338,451
Total deposits		408,730		401,848

Securities sold under agreements to repurchase		19,698		21,262
Federal Home Loan Bank advances		21,221		31,221
Interest payable		403		446
Other liabilities		726		751
		450,778		455,528

TRUST PREFERRED SECURITIES		9,000		9,000

STOCKHOLDERS' EQUITY
Common stock, $1 par value, 5,280,000 shares authorized
1,437,651 issued and outstanding at March 31, 2012
(unaudited) and December 31, 2011		1,438		1,438
Additional paid-in capital		15,294		15,294
Retained earnings		15,009		14,522
Accumulated other comprehensive income		280		324
		32,021		31,578

	$	491,799	$	496,106

See accompanying notes to consolidated financial statements.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2012 and 2011 (Unaudited)
(Dollars in Thousands, Except Earnings Per Share)

	Three Months Ended
	March 31,
	2012			2011

INTEREST INCOME
Loans, including fees	$	4,626		$	4,811
Investment securities		707			644
Interest-earning deposits and cash equivalents		11			42
		5,344			5,497

INTEREST EXPENSE
Deposits		1,063			1,263
Securities sold under agreements to repurchase		85			97
Trust preferred securities		66			58
Advances		135			151
		1,349			1,569

NET INTEREST INCOME		3,995			3,928

PROVISION FOR LOAN LOSSES		884			329
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,111			3,599

OTHER INCOME
Service fees		20			19
Securities losses		(58	)		(23	)
Other charges, commissions and fees		325			314
		287			310

OTHER EXPENSES
Salaries and employee benefits		1,130			1,107
Equipment and occupancy expenses		234			297
Data processing		185			156
Professional fees		168			200
Taxes, other than payroll, property and income		58			63
Insurance		120			215
Other expenses		404			496
		2,299			2,534

INCOME BEFORE INCOME TAX		1,099			1,375
INCOME TAX EXPENSE		324			432

NET INCOME	$	775		$	943

WEIGHTED AVERAGE EARNINGS PER SHARE	$	0.54		$	0.66

See accompanying notes to consolidated financial statements.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2012 and 2011 (Unaudited)
(Dollars in Thousands)

	Three Months Ended
	March 31,
	2012			2011

Net income	$	775		$	943

Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		(140	)		262
Reclassification adjustment for losses included in net income		58			23

		(82	)		285

Cumulative-effect adjustment to apply
GAAP for transfer of securities from available-for-sale to held-to-maturity		7			15
Adjustment for income tax benefit (expense)		31			(108	)

Other comprehensive income (loss), net of tax		(44	)		192

Comprehensive income	$	731		$	1,135

See accompanying notes to consolidated financial statements.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2012 and 2011 (Unaudited)
(Dollars in Thousands)

	March 31,			March 31,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	775		$	943
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		884			329
Depreciation and amortization		141			155
Investment securities amortization, net of accretion		123			116
Securities losses		58			23
Sale of foreclosed and repossessed properties (gains) and losses		(2	)		7

Changes in:
Interest receivable		71			(108	)
Other assets		317			228
Interest payable		(43	)		6
Income taxes payable		-			432
Other liabilities		(25	)		263

NET CASH PROVIDED BY OPERATING ACTIVITIES		2,299			2,394

CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-earning deposits		494			6,182
Redemptions of investments available-for-sale		30,063			2,397
Redemptions of investments held-to-maturity		40			361
Purchase of investments for available-for-sale		(33,438	)		(3,020	)
Sale of Federal Home Loan Bank stock		146			144
Net decrease in loans		8,024			3,218
Proceeds from sale of foreclosed properties		44			20
Proceeds from sale of other personal property		-			18
Purchases of premises and equipment		(32	)		(111	)

NET CASH PROVIDED BY INVESTING ACTIVITIES		5,341			9,209

CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposits		6,882			8,424
Net change in agreements to repurchase securities		(1,564	)		299
Net decrease in FHLB loans		(10,000	)		(12,500	)
Cash dividends paid		(288	)		(288	)

NET CASH USED IN FINANCING ACTIVITIES		(4,970	)		(4,065	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,670			7,538

CASH AND CASH EQUIVALENTS, BEGINNING		10,438			21,120

CASH AND CASH EQUIVALENTS, ENDING	$	13,108		$	28,658

(Continued)

See accompanying notes to consolidated financial statements.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2012 and 2011 (Unaudited)
(Dollars in Thousands)

	March 31,			March 31,
	2012			2011

SUPPLEMENTAL DISCLOSURES
Cash paid for interest on deposits and borrowings	$	1,392		$	1,623

Cash paid for income taxes	$	236		$	-

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES

Net change in unrealized holding gain (loss)on investments available-for-sale	$	(82	)	$	285

See accompanying notes to consolidated financial statements.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 1. BASIS OF PRESENTATION

Principles of consolidation: The accompanying unaudited consolidated financial statements of First Sentry Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary, First Sentry Bank (the “Bank”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for (i) a fair presentation and (ii) to make the financial statements not misleading, have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. All significant inter-company balances have been eliminated in consolidation.

Current accounting developments: In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-08, Intangibles – Goodwill and Other Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two step goodwill impairment test as described in previous guidance under Topic 350. The amendments are effective for fiscal years beginning December 15, 2011. Early adoption is permitted. The amendments did not have a significant impact on the Company.

In September 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-09, Compensation – Retirement Benefits – Multiemployer Plans. This update addresses concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. A unique characteristic of a multiemployer plan is that assets contributed by one employer may be used to provide benefits to employees of other participating employers. This is because the assets contributed by an employer are not specifically earmarked only for its employees. If a participating employer fails to make its required contributions, the unfunded obligations of the plan may be borne by the remaining participating employers. Similarly, in some cases, if an employer chooses to stop participating in a multiemployer plan, the withdrawing company may be required to pay to the plan a final payment (the withdrawal liability). Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this update require additional disclosures about an employer’s participation in a multiemployer pension plan.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 1. BASIS OF PRESENTATION (continued)

Previously, disclosures were limited primarily to the historical contributions made to the plans. In developing the new guidance, the FASB’s goal was to help users of financial statements assess the potential future cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. For public entities, the amendments in this update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for annual periods for fiscal years ending after December 15, 2012, with early adoption permitted. The amendments should be applied retrospectively for all periods presented. The amendments did not have a significant impact on the Company.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-10, Property, Plant and Equipment. Under the amendments in the Update, when a parent ceases to have a controlling interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidate financial statements until legal title to the real estate is transferred to legally satisfy the debt. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. The amendments are not expected to have any impact on the Company.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet. Offsetting (netting) assets and liabilities is an important aspect of presentation in financial statements. The differences in the offsetting requirements in U.S. generally accepted accounting principles (U.S GAAP) and International Financial Reporting Standards (IFRS) account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and the amounts presented in those statements prepared in accordance with IFRS for certain institutions. The difference reduces the comparability of statements of financial position. The FASB and IASB are issuing joint requirements to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on financial position. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The amendments are not expected to have a significant impact on the Company.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 1. BASIS OF PRESENTATION (continued)

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-12, Comprehensive Income. This Update defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments, and supersedes certain pending paragraphs in Update 2011-05. The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and the other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments did not have a significant impact on the Company.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 2. INVESTMENT SECURITIES

The amortized cost of investment securities and their fair values at March 31, 2012 (unaudited) and December 31, 2011 are as follows:

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2012 (unaudited):
Held-to-maturity:
State and political	$	19,220	$	875	$	-	$	20,095

Available-for-sale:
Mortgage-backed securities		23,138		370		52		23,456
U.S. agency		55,198		86		250		55,034
State and political		15,241		412		5		15,648
Corporate securities		500		-		-		500
		94,077		868		307		94,638

	$	113,297	$	1,743	$	307	$	114,733

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 2. INVESTMENT SECURITIES (continued)

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2011:
Held-to-maturity:
State and political	$	19,274	$	810	$	-	$	20,084

Available-for-sale:
Mortgage-backed securities		19,144		253		26		19,370
U.S. agency		57,154		111		81		57,184
State and political		14,105		393		4		14,495
Corporate securities		500		-		2		498
		90,903		757		113		91,547

	$	110,177	$	1,567	$	113	$	111,631

The amortized cost and estimated fair value of securities at March 31, 2012 (unaudited) and December 31, 2011, by contractual maturity, are as follows:

	Held-to-Maturity					Available-for-Sale
		Amortized		Fair		Amortized		Fair
		Cost		Value		Cost		Value
March 31, 2012 (unaudited):
One year or less		$	116	$	117	$	1,075	$	1,086
After one year through five years			1,048		1,054		5,603		5,662
After five years through ten years			8,391		8,808		13,254		13,434
After ten years			9,665		10,116		74,145		74,456

		$	19,220		20,095	$	94,077	$	94,638

December 31, 2011:
One year or less		$	157	$	158	$	1,111	$	1,126
After one year through five years			848		853		5,145		5,186
After five years through ten years			7,968		8,335		13,145		13,341
After ten years			10,301		10,738		71,502		71,894

		$	19,274		20,084	$	90,903	$	91,547

Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to its scheduled maturity.

Securities with a carrying value of $58,348 and $55,296 were pledged at March 31, 2012 (unaudited) and December 31, 2011, respectively, to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 2. INVESTMENT SECURITIES (continued)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Information pertaining to securities held-to-maturity and securities available-for-sale with gross unrealized losses at March 31, 2012 (unaudited) and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:


	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
March 31, 2012 (unaudited):	Losses		Value		Losses		Value
Held-to-maturity:
State and political	$	-	$	-	$	-	$	-
Available-for-sale:
Mortgage-backed securities		52		6,011		-		-
U.S. agencies		250		41,853		-		-
State and political		5		1,393		-		-
Corporate securities		-		-		-		-

	$	307	$	49,257	$	-	$	-

December 31, 2011:
Held-to-maturity:
State and political	$	-	$	200	$	-	$	-
Available-for-sale:
Mortgage-backed securities		26		4,836		-		-
U.S. Agencies		81		22,447		-		-
State and political		4		737				-
Corporate securities		2		498		-		-

	$	113	$	28,718	$	-	$	-

These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the federal government or its agencies issue the securities, whether the downgrades by bond-rating agencies have occurred, and the results of reviews of the issuer’s financial condition. Management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, therefore no unrealized losses are deemed to be other-than-temporary.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans are as follows:	March 31,
	2012			December 31,
	(unaudited)				2011
Loans
Commercial	$	101,097			$	104,271
Commercial real estate		175,677				179,778
Residential real estate		54,734				54,941
Consumer		17,680				18,865
		349,188				357,855
Less deferred loan fees		(71	)			(88	)
		349,117				357,767

Less allowance for loan losses		(6,040	)			(5,855	)

Loans, net of allowance	$	343,077			$	351,912

The allowance for loan losses is management’s estimate of probable credit losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance for loan losses and the appropriate provision for credit losses is based upon a quarterly evaluation of the loan portfolio. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of the estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. Allocations are made for specific loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectability. Other loans not specifically reviewed are segregated by class and allocations are made based upon historical loss percentages adjusted for current environmental factors. The environmental factors considered for each of the portfolios includes estimated probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. For purposes of determining the general allowance, the loan portfolio is segregated by product type to recognize differing risk profiles among categories. It is further segregated by credit grade for risk-related loan pools and delinquency for homogeneous loan pools. The outstanding principal balance within each pool is multiplied by historical loss data and certain qualitative factors to derive the general loss allocation per pool. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)

Changes in the allowance for loan losses for the three months ended March 31, 2012 (unaudited) and March 31, 2011 (unaudited) are as follows:

	March 31,		March 31,
	2012		2011
	(unaudited)		(unaudited)

Balance at beginning of the period	$	5,855	$	5,005

Loan charge-offs:
Commercial		366		24
Commercial real estate		200		-
Residential real estate		174		60
Consumer		-		29
Total charge-offs		740		113

Loan recoveries:
Commercial		32		2
Commercial real estate		-		-
Residential real estate		2		-
Consumer		7		7
Total recoveries		41		9

Provision for loan losses		884		329

Balance at end of the period	$	6,040	$	5,230

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)

The following presents the balance in the allowance for loan losses disaggregated on the basis of the Bank’s impairment measurement method, by portfolio segment, as of March 31, 2012 (unaudited) and December 31, 2011:

	Individually		Collectively
	Evaluated for		Evaluated for
	Impairment		Impairment		Total
March 31, 2012 (unaudited):
Commercial	$	2,595	$	1,684	$	4,279
Commercial real estate		672		640		1,312
Residential real estate		302		50		352
Consumer		26		68		94
Unallocated		-		3		3

	$	3,595	$	2,445	$	6,040

December 31, 2011:
Commercial	$	2,251	$	1,550	$	3,801
Commercial real estate		383		1,084		1,467
Residential real estate		396		49		445
Consumer		22		119		141
Unallocated		-		1		1

	$	3,052	$	2,803	$	5,855

The following presents the balance of loans disaggregated on the basis of the Bank’s impairment measurement method, by portfolio segment, as of March 31, 2012 (unaudited) and December 31, 2011:

	Individually		Collectively
	Evaluated for		Evaluated for
	Impairment		Impairment		Total
March 31, 2012 (unaudited):
Commercial	$	5,275	$	95,822	$	101,097
Commercial real estate		7,126		168,551		175,677
Residential real estate		1,803		52,931		54,734
Consumer		107		17,573		17,680

	$	14,311	$	334,877	$	349,188

December 31, 2011:
Commercial	$	4,944	$	99,327	$	104,271
Commercial real estate		7,702		172,076		179,778
Residential real estate		2,036		52,905		54,941
Consumer		107		18,758		18,865

	$	14,789	$	343,066	$	357,855

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)

Management monitors the credit quality of its loans on an ongoing basis. Measurement of the delinquency and past due status are based on the contractual terms of each loan. For all loan classes, past due loans are reviewed on a monthly basis to identify loans for nonaccrual status. Generally, when collection in full of the principal and interest is jeopardized, the loan is placed on non-accrual. The following presents an aging analysis of the Bank’s accruing and non-accruing loans as of March 31, 2012 (unaudited) and December 31, 2011:

	30-89		90 Days
	Days		Or More
	Past Due		Past Due		Non-accrual		Current		Total
March 31, 2012 (unaudited):
Commercial	$	198	$	-	$	2,712	$	98,187	$	101,097
Commercial real estate		496		-		6,343		168,838		175,677
Residential real estate		1,009		-		1,334		52,391		54,734
Consumer		454		-		131		17,095		17,680

	$	2,157	$	-	$	10,520	$	336,511	$	349,188

December 31, 2011:
Commercial	$	159	$	-	$	2,709	$	101,403	$	104,271
Commercial real estate		1,618		-		4,915		173,245		179,778
Residential real estate		1,180		-		727		53,034		54,941
Consumer		462		-		112		18,291		18,865

	$	3,419	$	-	$	8,463	$	345,973	$	357,855

The Bank assigns credit quality indicators of pass, special mention, substandard and doubtful to its loans. Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or in the Bank’s credit position at some future date. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt by the borrower. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. They require more intensive supervision by management. For some substandard loans, the likelihood of full collection of interest and principal may be in doubt and thus, placed on nonaccrual. A loan is classified as doubtful if it has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the loan, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. At March 31, 2012 (unaudited) and December 31, 2011, the Bank had no loans classified as doubtful.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)

The following is a summary of credit exposure using a credit risk profile utilizing internal assigned grades as of March 31, 2012 (unaudited) and December 31, 2011:

			Special
March 31, 2012 (unaudited):	Pass		Mention		Substandard
Loans
Commercial	$	95,561	$	1,620	$	3,916
Commercial real estate		161,714		5,480		8,483
Residential real estate		52,325		689		1,720
Consumer		17,521		30		129

	$	327,121	$	7,819	$	14,248

December 31, 2011:
Loans
Commercial	$	99,102	$	1,377	$	3,792
Commercial real estate		164,742		6,019		9,017
Residential real estate		52,397		696		1,848
Consumer		18,697		36		132

	$	334,938	$	8,128	$	14,789

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Bank does not consider loans for impairment unless a sustained period of delinquency (i.e. 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, eminent foreclosure proceedings, etc.). Impaired loans, or portions thereof, are charged-off when deemed uncollectible. The Company considers nonaccrual loans and loans past-due ninety days or more to be impaired. At March 31, 2012 (unaudited), there were no commitments to lend additional funds to customers whose loans are classified as nonaccrual. The average recorded investment in impaired loans at March 31, 2012 (unaudited) and December 31, 2011 was $7,532 and $4,954, respectively. The following is a summary of loans considered impaired:

	March 31,
	2012		December 31,
	(unaudited)		2011

Gross impaired loans	$	10,520	$	8,463
Less valuation allowance for impaired loans		2,281		1,638
Recorded investment in impaired loans	$	8,239	$	6,825

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)

A troubled debt restructuring (“TDR”) is the situation where the Bank grants a concession to the borrower that the Bank would not otherwise have considered due to a borrower’s financial difficulties. Most of the Bank’s loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months. These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment. The following table presents TDR’s as of March 31, 2012 (unaudited) and December 31, 2011:

	TDRs on		TDRs on
	Non-Accrual		Accrual
	Status		Status		Total TDRs
March 31, 2012 (unaudited):
Commercial	$	97	$	198	$	295
Commercial real estate		1,515		-		1,515
Residential real estate		664		-		664
Consumer		75		-		75

	$	2,351	$	198	$	2,549

December 31, 2011:
Commercial	$	-	$	295	$	295
Commercial real estate		1,515		-		1,515
Residential real estate		20		820		840
Consumer		15		77		92

	$	1,550	$	1,192	$	2,742

During the three months ended March 31, 2012, the Bank modified one loan relationship that was considered to be a troubled debt restructuring and during the twelve months ended December 31, 2011, the Bank modified six loan relationships that were considered to be troubled debt restructurings. All of our TDRs were modified to extend the maturity date. At March 31, 2012, 8% of the Bank’s TDRs were performing according to their modified terms and at December 31, 2011, 18% of the Bank’s TDRs were performing according to their modified terms. A loan is considered to be in payment default once it is 31 days contractually past due under the modified terms. As of March 31, 2012, the TDRs on non-accrual status were considered in default while none of the TDRs on accrual status were considered in default. As of December 31, 2011, the TDRs on non-accrual status and $708 of the TDRs on accrual status that were 30-89 days past due were considered in default. The Bank allocated $33 of specific reserves to customers whose loan terms have been modified as TDRs as of March 31, 2012. The TDRs on non-accrual status are designated as impaired. The Bank has not committed to lend any additional amounts to its existing TDR relationships.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 4. OTHER REAL ESTATE OWNED

Activity for other real estate owned for the three months ended March 31, 2012 (unaudited) and the year ended December 31, 2011 is as follows:

	March 31,
	2012			December 31,
	(unaudited)			2011

Balance at beginning of year	$	1,999		$	2,103
Properties acquired		-			562
Subsequent write-downs		-			(231	)
Gross proceeds from sales		(44	)		(432	)
Gains (losses) recorded		2			(3	)
	$	1,957		$	1,999

NOTE 5.

FEDERAL HOME LOAN BANK ADVANCES

The Bank owns stock of the Federal Home Loan Bank of Pittsburgh (FHLB), which allows the Bank to borrow funds from the FHLB. The Bank’s maximum borrowing capacity from the FHLB was $135,741 at March 31, 2012 (unaudited) and $135,742 at December 31, 2011.

The Bank has advances from the FHLB totaling $21,221 at March 31, 2012 (unaudited) and $31,221 at December 31, 2011. The advances are secured by commercial, commercial real estate and residential real estate loans and pledged securities. They have various scheduled maturity dates beginning with June 18, 2012 through May 19, 2022. The interest rate is determined at the time the advances are made and currently range from 0.24% to 4.57%. The FHLB advances are scheduled for repayment as follows:

Year	Amount

2012	$	10,000
2013		-
2014		-
2015		-
2016		-
Thereafter		11,221
	$	21,221

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 6. TRUST PREFERRED SECURITIES

On April 23, 2007, First Sentry Bancshares Capital Trust II (the “trust”) issued $5 million of Floating Rate Trust Preferred Securities. First Sentry Bancshares Capital Trust II, a Delaware statutory business trust, is a wholly-owned consolidated subsidiary of the Company, with its sole asset being $5 million aggregate principal amount of Floating Rate Junior Subordinated Debt Securities due June 15, 2037, of First Sentry Bancshares, Inc. (the trust debenture).

The trust preferred securities are non-voting, pay quarterly distributions at a variable rate, and carry a liquidation value of $1,000 per share. The variable interest rate is equal to a 3-month LIBOR plus 1.58% (2.05% at March 31, 2012, unaudited, and 2.13% at December 31, 2011) and distributions were $27 for the three months ended March 31, 2012 (unaudited) and $96 for the year ended December 31, 2011. The Company has executed a guarantee with regard to the trust preferred securities. The guarantee, when taken together with the Company’s obligations under the trust debenture, the indenture pursuant to which the trust debenture was issued and the applicable trust document, provides a full and unconditional guarantee of the trust’s obligations under the trust preferred securities.

On or after June 15, 2012, the trust preferred securities are redeemable in part or whole, at the option of the Company, for a redemption price of $1,000 per trust preferred security. The trust preferred securities are subject to mandatory redemption on June 15, 2037, at a redemption price of $1,000 per trust preferred security. First Sentry Bancshares, Inc. may cause the trust to delay payment of distributions on the trust preferred securities for up to twenty consecutive quarterly periods. During such deferral periods, distributions to which holders of the trust preferred securities are entitled will compound quarterly at the applicable rate for each quarterly period.

In the merger with Guaranty Financial Services, Inc., First Sentry Bancshares, Inc. acquired Guaranty Financial Statutory Trust I (the “Trust”), and the Company owns 100% of the common equity of the Trust. The Trust was formed in 2003 for the purpose of issuing $4 million of corporation-obligated, mandatorily-redeemable securities to third-party investors and investing the proceeds from the sale of the capital securities in junior subordinated debentures. Distributions on the capital securities issued by the Trust are payable quarterly bearing a variable interest rate equal to 3-month LIBOR plus 3.10% (3.57% at March 31, 2012 (unaudited) and 3.67% at December 31, 2011), which is equal to the interest rate being earned by the Trust on the debentures held by the Trust and are recorded as interest expense by the Company. Distributions for the three months ended March 31, 2012, totaled $39 (unaudited) and for the year ended December 31, 2011 totaled $136.

The capital securities have a 30-year term with a final maturity of June 26, 2033, but are redeemable, in whole or in part, at the option of the Company, on or after June 26, 2008, for a par value of $1,000 per trust preferred security. First Sentry Bancshares, Inc. may cause the trust to delay payment of distributions on the trust preferred securities for up to twenty consecutive quarterly periods. During such deferral periods, distributions to which holders of the trust preferred securities are entitled will compound quarterly at the applicable rate for each quarterly period.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 7. STOCKHOLDERS’ EQUITY

Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, as defined, combined with the retained earnings of the preceding two years, subject to the capital requirements as defined below.

The Bank is subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets (as defined in the regulations), and of Tier 1 capital to average assets (as defined). Management believes, as of March 31, 2012 (unaudited) and December 31, 2011, that the Bank meets all the capital adequacy requirements to which it is subject.

As of July 21, 2011, the date of the most recent notification from the West Virginia division of Banking, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. Management believes, as of March 31, 2012 (unaudited) and December 31, 2011, that the Bank meets all the capital adequacy requirements to which it is subject. The Bank’s actual and required capital amounts and ratios as of March 31, 2012 (unaudited) and December 31, 2011 are as follows:

											To Be Well
											Capitalized
											Under The Prompt
						For Capital					Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2012 (unaudited):
Total Risk-Based Capital	$	42,057		12.6	%	$	26,618		8	%	$	33,273		10	%
(to Risk-Weighted Assets)

Tier l Capital		37,875		11.4	%		13,313		4	%		19,969		6	%
(to Risk-Weighted Assets)

Tier l Capital		37,875		7.7	%		19,778		4	%		24,723		5	%
(to Adjusted Total Assets)

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 7. STOCKHOLDERS’ EQUITY (continued)

											To Be Well
											Capitalized
											Under The Prompt
						For Capital					Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011:
Total Risk-Based Capital
(to Risk-Weighted Assets)	$	41,668		12.2	%	$	27,323		8	%	$	34,154		10	%

Tier l Capital
(to Risk-Weighted Assets)		37,379		10.9	%		13,667		4	%		20,500		6	%

Tier l Capital
(to Adjusted Total Assets)		37,379		7.4	%		20,315		4	%		25,393		5	%

NOTE 8. FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures of GAAP, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments.

Under GAAP, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1	Valuation is based upon quoted prices in active markets for identical instruments that the entity has the ability to access at the measurement date.

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 generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 8. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments carried on the consolidated financial statements at cost and are not measured or recorded at fair value on a recurring basis, unless otherwise noted:

Cash and cash equivalents: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Federal funds sold: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Interest-earning deposits: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Available-for-sale and trading securities: Prices for these securities are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of investment securities. Benchmarks and other comparable securities are also used in estimating the values of these investment securities.

Trading assets: For trading assets, fair values are based on quoted market prices or quoted market prices of comparable instruments.

Held-to-maturity securities: Fair values are based on quoted market prices.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate commercial real estate and rental property mortgage loans and commercial and industrial loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Deposits: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities.

Securities sold under agreements to repurchase: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Advances: Rates currently available to the Bank for advances with similar terms and remaining maturities are used to estimate fair value of existing debt.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Dollars in Thousands)

NOTE 8. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

Commitments to extend credit and standby letters of credit: Commitments to extend credit and standby letters of credit represent agreements to lend to a customer at the market rate when the loan is extended, thus the commitments and letters of credit are not considered to have a fair value.

The following table presents the assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as reported on March 31, 2012 (unaudited) and December 31, 2011. As required by GAAP, financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices
			in Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
March 31, 2012 (unaudited):
Assets:
Investment securities:
Available-for-sale	$	94,638	$	-	$	94,638	$	-

December 31, 2011:
Assets:
Investment securities:
Available-for-sale	$	91,547	$	-	$	91,547	$	-

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the immediate settlement of the instruments. GAAP excluded certain financial instruments and all nonfinancial disclosure requirements. Accordingly, aggregate fair value estimates do not represent the underlying value of the Bank.

The estimated fair values of the Bank’s financial instruments at March 31, 2012 (unaudited), and December 31, 2011, do not significantly differ from their carrying amounts as reported in the balance sheet.

NOTE 9. SUBSEQUENT EVENTS

Management has evaluated subsequent events through May 15, 2012, which is the date that the Company’s financial statements were issued. On May 11, 2012, the Company filed a Form 15 with the SEC to deregister its shares of common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended. The Company expects the deregistration to be effective within 90 days after the filing of the Form 15.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

·	statements of our goals, intentions and expectations;

·	statements regarding our business plans, prospects, growth and operating strategies;

·	statements regarding the asset quality of our loan and investment portfolios; and

·	estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

·	general economic conditions, either nationally or in our market areas, that are worse than expected;

·	competition among depository and other financial institutions;

·	inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

·	adverse changes in the securities markets;

·	changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

·	our ability to enter new markets successfully and capitalize on growth opportunities;

·	our ability to successfully integrate acquired entities, if any;

·	changes in consumer spending, borrowing and savings habits;

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

·	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

·	changes in our organization, compensation and benefit plans;

·	changes in our financial condition or results of operations that reduce capital available to pay dividends; and

·	changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in First Sentry Bancshares, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on March 29, 2012.

Comparison of Financial Condition at March 31, 2012 and December 31, 2011

Total assets decreased $4.3 million, or 0.9%, to $491.8 million at March 31, 2012 from $496.1 million at December 31, 2011, primarily due to an $8.8 million decrease in loans, net of allowance, partially offset by increases of $3.1 million in investments available-for-sale and $2.7 million in cash and cash equivalents.

Cash and cash equivalents increased $2.7 million, or 25.6%, to $13.1 million at March 31, 2012 from $10.4 million at December 31, 2011, primarily as a result of temporary government deposits due to semi-annual property tax receipts.

Interest-earning deposits decreased $494,000, or 13.4%, to $3.2 million at March 31, 2012 from $3.7 million at December 31, 2011, as cash invested in short-term certificates of deposit during 2011 matured in the first quarter of 2012 and were used to purchase investments available-for-sale.

Investments classified as available for sale increased $3.1 million, or 3.4%, to $94.6 million at March 31, 2012, from $91.5 million at December 31, 2011. Investments classified as held to maturity decreased $54,000 or 0.3%, to $19.2 million at March 31, 2012, as compared to $19.3 million at December 31, 2011. We purchased $33.4 million of securities during the first three months of 2012 while $30.1 million of securities were called or matured during this period. Purchases of investment securities consisted of callable U.S. agency securities with step features, mortgage-backed securities with an average life five years or less and bank-qualified municipal bonds.

Loans, net of allowance, decreased $8.8 million, or 2.5%, to $343.1 million at March 31, 2012 from $351.9 million at December 31, 2011. Commercial real estate loans decreased $4.1 million while commercial loans decreased $3.2 million and consumer loans decreased $1.2 million. The decrease in commercial real estate loans was caused by two large pay offs, a $2.7 million participation loan that was repurchased by the lead bank and another $1.4 million pay off due to the sale of the underlying real estate that secured the loan. The decrease in commercial loans included a $672,000 pay down on a customer’s line of credit and a $500,000 pay off of two loans secured by a customer’s certificates of deposit that matured in January 2012. During the first three months of 2012, customer demand for loans remained muted primarily as a result of the continuing economic slowdown.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

Deposits increased $6.9 million, or 1.7%, to $408.7 million at March 31, 2012, from $401.8 million at December 31, 2011. Core deposits (consisting of checking accounts, NOW accounts, money market accounts and savings accounts) increased $9.2 million while certificates of deposit decreased $2.3 million during the first quarter of 2012. The growth in our core deposits was primarily attributed to a $5.0 million increase in our government NOW account balances and a $2.6 million increase in our consumer savings account balances. The decrease in certificates of deposit was partially attributed to the maturity of a $1.0 million brokered certificate of deposit that was originated during the first quarter of 2010.

Securities sold under agreements to repurchase decreased $1.6 million, or 7.4%, to $19.7 million at March 31, 2012, from $21.3 million at December 31, 2011. The decrease was the result of a decrease in our sweep repurchase agreements, primarily from public funds.

Federal Home Loan Bank borrowings decreased $10.0 million, or 32.0%, to $21.2 million at March 31, 2012, from $31.2 million at December 31, 2011. The increase in our deposits coupled with a decrease in loan balances created liquidity that was used to repay short-term FHLB advances.

Stockholders’ equity increased $443,000, or 1.4%, to $32.0 million at March 31, 2012, from $31.6 million at December 31, 2011. The increase was the result of an increase in retained earnings of $487,000, due to net income of $775,000 for the three months ended March 31, 2012, partially offset by the payment of $288,000 in cash dividends to stockholders during the first quarter of 2012. This increase in retained earnings was partially offset by a $44,000 decrease in accumulated other comprehensive income, reflecting market value fluctuations in available-for-sale investments, net of tax, during the first three months of 2012.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	For the Three Months Ended March 31,
	2012								2011
	Average Outstanding Balance			Interest		Yield/ Rate(1)			Average Outstanding Balance			Interest		Yield/ Rate(1)
	(Dollars in thousands)

Interest-earning assets:
Loans	$	351,917		$	4,626		5.26	%	$	354,494		$	4,811		5.43	%
Investment securities		110,876			706		2.55	(2)		83,580			644		3.08	(2)
Interest-earning deposits and cash equivalents		3,666			11		1.20			12,102			42		1.39
Federal Home Loan Bank stock		2,872			1		0.14			2,827			-		-
Total interest-earning assets		469,331			5,344		4.55			453,003			5,497		4.85
Non-interest-earning assets		29,464								29,905
Total assets	$	498,795							$	482,908

Interest-bearing liabilities:
Savings accounts	$	23,102			6		0.10		$	19,618			7		0.14
Certificates of deposit		209,553			983		1.88			213,180			1,147		2.15
Money market		55,086			51		0.37			65,246			68		0.42
NOW		51,301			23		0.18			48,454			41		0.34
Total interest-bearing deposits		339,042			1,063		1.25			346,498			1,263		1.46
Federal Home Loan Bank advances		32,891			135		1.64			21,802			151		2.77
Securities sold under agreements to repurchase		21,275			85		1.60			19,954			97		1.94
Trust preferred securities		9,000			66		2.93			9,000			58		2.58
Total interest-bearing liabilities		402,208			1,349		1.34			397,254			1,569		1.58
Non-interest-bearing checking		63,074								54,595
Other non-interest-bearing liabilities		1,178								1,245
Total liabilities		466,460								453,094
Stockholders’ equity		32,335								29,814
Total liabilities and stockholders’ equity	$	498,795							$	482,908

Net interest income				$	3,995							$	3,928
Net interest rate spread (3)							3.21	%							3.27	%
Net interest-earning assets (4)	$	67,123							$	55,749
Net interest margin (5)							3.40	%							3.47	%
Average interest-earning assets to interest-bearing liabilities		116.69	%							114.03	%

______________

(1)	Average yields and rates for the three months ended March 31, 2012 and 2011 are annualized.

(2)	The tax equivalent yield of the investment securities portfolio was 3.08% and 3.80% for the three months ended March 31, 2012 and 2011, respectively.

(3)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(4)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

Comparison of Operating Results for the Three Months Ended March 31, 2012 and 2011

General. Net income decreased $168,000, or 17.8%, to $775,000 for the three months ended March 31, 2012, from $943,000 for the three months ended March 31, 2011. The decrease reflected an increase of $555,000 in our provision for loan losses partially offset by a decrease in non-interest expense of $235,000.

Interest Income. Interest income decreased $153,000, or 2.8%, to $5.3 million for the three months ended March 31, 2012, from $5.5 million for the three months ended March 31, 2011. The decrease resulted from a decline in the average yield on interest-earning assets of 30 basis points to 4.55% for the three months ended March 31, 2012, from 4.85% for the three months ended March 31, 2011, partially offset by an increase in the average balance of interest-earning assets of $16.3 million, or 3.6%, to $469.3 million for the three months ended March 31, 2012, from $453.0 million for the three months ended March 31, 2011. The decline in our average yield on interest-earning assets during the three months ended March 31, 2012, as compared to the prior year period was due to the general low market interest rates as a result of the Federal Reserve Board’s actions to keep interest rates low in order to stimulate the U.S. economy. The increase in the average balance of interest-earning assets was primarily due to an increase in investment securities partially offset by a decrease in interest-earning cash and cash equivalents.

Interest income on loans decreased $185,000, or 3.8%, to $4.6 million for the three months ended March 31, 2012, from $4.8 million for the three months ended March 31, 2011. The decrease resulted from the decrease in the average yield on our loan portfolio, which decreased 17 basis points, to 5.26% for the three months ended March 31, 2012, from 5.43% for the three months ended March 31, 2011, primarily as a result of the continuing low market interest rates. Also contributing to the decrease in interest income on loans was a decrease in the average balance of loans, which decreased $2.6 million, or 0.7%, to $351.9 million for the three months ended March 31, 2012, from $354.5 million for the three months ended March 31, 2011, reflecting a slowdown in loan demand primarily due to the continuing slow economic recovery.

Interest income on investment securities increased $63,000, or 9.8%, to $707,000 for the three months ended March 31, 2012, from $644,000 for the three months ended March 31, 2011. The increase resulted from an increase in the average balance of our securities portfolio, partially offset by a decrease in the average yield on our securities portfolio. The average balance of our securities portfolio increased $27.3 million, or 32.7%, to $110.9 million for the three months ended March 31, 2012, from $83.6 million for the three months ended March 31, 2011, primarily due to a decrease in interest-earning cash and cash equivalents and total loans receivable, with a portion of this excess liquidity then invested into the Bank’s securities portfolio. The average yield on our securities portfolio decreased by 53 basis points, to 2.55% for the three months ended March 31, 2012, from 3.08% for the three months ended March 31, 2011, due primarily to bonds being called and the proceeds then reinvested in new securities at lower yields due to the continuing low market interest rates.

Interest income from interest-earning deposits and cash equivalents decreased $31,000, or 73.8%, to $11,000 for the three months ended March 31, 2012, from $42,000 for the three months ended March 31, 2011. The decrease resulted primarily from a decrease in the average balance in interest-earning deposits and cash equivalents, which decreased $8.4 million, or 69.7%, to $3.7 million for the three months ended March 31, 2012, from $12.1 million for the three months ended March 31, 2011, primarily due to the maturing of certificates of deposit that were then reinvested into the Bank’s securities portfolio. The average yield on our interest-earning deposits and cash equivalents decreased 19 basis points, to 1.20% for the three months ended March 31, 2012, from 1.39% for the prior year period.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

Interest Expense. Interest expense decreased by $220,000 or 14.0%, to $1.3 million for the three months ended March 31, 2012, from $1.6 million for the prior year period. The decrease resulted from a decrease in the average rate we paid on all our interest-bearing liabilities between the three months ended March 31, 2012 and 2011, which was partially offset by an increase in the average balance of our interest-bearing liabilities between those two periods due to an increase in the average balance of short-term FHLB advances that was partially offset by a decrease in the average balance of interest-bearing deposits. The average rate we paid on interest-bearing liabilities decreased 24 basis points to 1.34% for the three months ended March 31, 2012, from 1.58% for the three months ended March 31, 2011, while the average balance of interest-bearing liabilities increased $5.0 million, or 1.2%, to $402.2 million for the three months ended March 31, 2012, from $397.3 million for the three months ended March 31, 2011.

Interest expense on certificates of deposit decreased $164,000, or 14.3%, to $983,000 for the three months ended March 31, 2012, from $1.1 million for the three months ended March 31, 2011. The decrease reflected a decline in the average rate paid on certificates of deposit, which decreased 27 basis points to 1.88% for the three months ended March 31, 2012, from 2.15% for the three months ended March 31, 2011, reflecting lower market rates. Also contributing to the decrease in interest expense on certificates of deposit for the three months ended March 31, 2012, as compared to the prior year period, was a decrease in the average balance of certificates of deposit, which decreased $3.6 million, or 1.7%, to $209.6 million for the three months ended March 31, 2012, from $213.2 million for the three months ended March 31, 2011, primarily as a result of the maturing of brokered certificates of deposit. Interest expense on our core deposits (consisting of checking accounts, NOW accounts, money market accounts and savings accounts) decreased $36,000, or 31.0%, to $80,000 for the three months ended March 31, 2012, from $116,000 for the prior year period, primarily as a result of decreases in the average rates paid on our core deposits between the three months ended March 31, 2012 and 2011. The average rate paid on NOW accounts decreased 16 basis points, the average rate paid on money market accounts decreased 5 basis points and the average rate paid on savings accounts decreased 4 basis points. Also contributing to the decrease in interest expense on our core deposits was a decrease in the average balance of core deposits, which decreased $3.8 million, or 2.9%, to $129.5 million for the three months ended March 31, 2012, from $133.3 million for the three months ended March 31, 2011. The decrease in the average balance of core deposits resulted primarily from a $10.2 million decrease in average deposits received from our participation in the Insured Network Deposits (“IND”) program administered by Promontory Interfinancial Network, LLC, the same company that administers our CDARS program. The IND program provides floating rate funding that comes from brokerage accounts across the nation in increments of $250,000 or less in order to provide full Federal Deposit Insurance Corporation insurance to customers. Partially offsetting the decrease in IND deposits were increases in our average business NOW account balances and our average consumer savings account balances, which increased $4.9 million in the aggregate for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011.

Interest expense on FHLB advances decreased by $16,000 to $135,000 for the three months ended March 31, 2012, from $151,000 for the prior year period, with the average rate paid on FHLB advances decreasing 113 basis points to 1.64% for the three months ended March 31, 2012, from 2.77% for the three months ended March 31, 2011. Partially offsetting the decrease in the average rate was an increase in the average balance of FHLB advances, which increased $11.1 million, or 50.9%, to $32.9 million for the three months ended March 31, 2012, from $21.8 million for the three months ended March 31, 2011. The average balance of FHLB advances increased during the period due to a decrease in the average balance of interest-bearing deposit balances during the same period. Interest expense on securities sold under agreement to repurchase decreased by $12,000 to $85,000 for the three months ended March 31, 2012, from $97,000 for the prior year period. The average rate we paid on securities sold under agreement to repurchase decreased 34 basis points to 1.60% for the three months ended March 31, 2012, from 1.94% for the three months ended March 31, 2011, while the average balance of securities sold under agreement to repurchase increased $1.3 million, or 6.6%, to $21.3 million for the three months ended March 31, 2012, from $20.0 million for the three months ended March 31, 2011. The increase in the average balance of securities sold under agreement to repurchase was primarily due to an increase in local government deposits that were swept into securities sold under agreement to repurchase. Interest expense on trust preferred securities increased by $8,000 during the three months ended March 31, 2012, as compared to the prior year period as the average rate we paid on trust preferred securities increased by 35 basis points to 2.93% for the three months ended March 31, 2012, from 2.58% for the three months ended March 31, 2011, reflecting an increase in the trust preferred securities’ 3-month LIBOR index.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

Net Interest Income. Net interest income increased by $67,000, or 1.7%, to $4.0 million for the three months ended March 31, 2012, from $3.9 million for the three months ended March 31, 2011. Our net interest rate spread decreased 6 basis points to 3.21% for the three months ended March 31, 2012, from 3.27% for the three months ended March 31, 2011, as the yield on our interest-earning assets repriced downward faster than the cost of our interest-bearing liabilities. In our local market area, competition for loans pushed our yield on loans lower while the competition for deposits slowed the decline in interest rates paid on deposits. Our net interest margin decreased 7 basis points to 3.40% for the three months ended March 31, 2012, from 3.47% for the three months ended March 31, 2011. Our average net interest-earning assets increased by $11.4 million, or 20.4%, to $67.1 million for the three months ended March 31, 2012, from $55.7 million for the three months ended March 31, 2011. The increase in net interest-earning assets was due to an increase in the average balance of interest-earning assets, primarily due to an increase in investment securities that was partially offset by a decrease in interest-earning cash and cash equivalents and loans receivable. Partial funding for the increase in the average balance of interest-earning assets came from an increase in the average balance of non-interest-bearing checking deposits, which increased $8.5 million, or 15.5%, to $63.1 million for the three months ended March 31, 2012, form $54.6 million for the three months ended March 31, 2011, primarily due to an increase in business account balances.

Provision for Loan Losses. We recorded a provision for loan losses of $884,000 for the three months ended March 31, 2012, and a provision for loan losses of $329,000 for the three months ended March 31, 2011. The increase in the provision for loan losses for the three months ended March 31, 2012, as compared to the prior year period, was based primarily on the increase in net charge-offs between the two periods. Net charge-offs increased by $595,000 to $699,000 for the three months ended March 31, 2012, from $104,000 for the three months ended March 31, 2011. The allowance for loan losses was $6.0 million, or 1.73% of total loans receivable at March 31, 2012, compared to $5.2 million, or 1.48% of total loans receivable at March 31, 2011. The increase in the ratio of the allowance for loan losses to total loans receivable at March 31, 2012, was the result of an $810,000 increase in the balance of the allowance for loan losses between March 31, 2012 and March 31, 2011, coupled with a $4.4 million decrease in total loans receivable between March 31, 2012 and March 31, 2011. The allowance for loan losses, as a percentage of non-performing loans, was 174.2% at March 31, 2012, as compared to 89.5% at March 31, 2011. Gross impaired loans increased $5.8 million, or 124.7%, to $10.5 million at March 31, 2012, from $4.7 million at March 31, 2011, primarily due to the ongoing slow recovery of the economy and a $5.3 million addition to impaired loans due to two commercial customers that were put on non-accrual status. The recorded investment in impaired loans increased by $4.9 million, or 150.3%, to $8.2 million at March 31, 2012, from $3.3 million at March 31, 2011, after increasing the allocation to impaired loans in the allowance for loan losses by $890,000, or 64.0%, to $2.3 million at March 31, 2012, from $1.4 million at March 31, 2011. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at March 31, 2012 and 2011.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

Other Income. Other income decreased $23,000 to $287,000 for the three months ended March 31, 2012, from $310,000 for the three months ended March 31, 2011. The decrease was primarily attributable to an increase in securities losses on principal payments received from mortgage-backed securities, with the loss increasing by $35,000 to $58,000 for the three months ended March 31, 2012, from $23,000 for the prior year period. Losses on mortgage-backed principal payments have increased due to recent additions to our mortgage-backed securities portfolio that were purchased at higher premium prices. The securities losses were partially offset by a $19,000 increase in debit card interchange revenue, which resulted from the increased use of debit cards issued by the Bank.

Other Expenses. Other expenses decreased $235,000, or 9.3%, to $2.3 million for the three months ended March 31, 2012, from $2.5 million for the three months ended March 31, 2011. Contributing to the decrease in non-interest expense during the first quarter of 2012 when compared to the prior year period was a $95,000 decrease in insurance expense due to a decrease in FDIC insurance assessments due to a change in the assessment base enacted into law by the Dodd-Frank Act and effective beginning with the second quarter of 2011. Also contributing to the decrease in non-interest expense was a $92,000 decrease in other expenses, which decreased to $404,000 for the three months ended March 31, 2012, from $496,000 for the three months ended March 31, 2011. The decrease in other expenses was due to a number of other expense reductions, including advertising and other real estate expenses, which decreased a total of $46,000. Equipment and occupancy expenses also decreased $63,000 to $234,000 for the three months ended March 31, 2012, from $297,000 for the three months ended March 31, 2011, including a $31,000 decrease in equipment depreciation and maintenance expenses and an $18,000 decrease in lease expenses due to the closing of the former Guaranty Bank drive-through on Ninth Street in Huntington during the second quarter of 2011. Partially offsetting the decreases in non-interest expenses was a $29,000 increase in data processing due to increased maintenance costs, an increase in the number of transactions processed, and the addition of remote deposit capture services.

Income Tax Expense. The provision for income taxes was $324,000 for the three months ended March 31, 2012, compared with $432,000 for the prior year period. Our effective tax rate was 29.5% for the three months ended March 31, 2012, compared to 31.4% for the three months ended March 31, 2011, with the decrease in the effective tax rate reflecting an increase in the ratio of non-taxable interest income received from municipal bond investments when compared to total interest income.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, repurchase agreements, advances from the Federal Home Loan Bank of Pittsburgh, lines of credit with other financial institutions and maturities and sales of securities. In addition, we have the ability to collateralize borrowings in the wholesale markets. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Board of Directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (not subject to pledge) as a percentage of deposits and borrowings (not subject to pledge) of 20% or greater. However, should the ratio be less than 20%, there should be sufficient sources of contingent liquidity in order to satisfy this 20% requirement. At March 31, 2012, this ratio was 23.92% with a contingent liquidity ratio of 40.69%. Contingent sources of liquidity include $112.7 million of additional borrowing capacity with the Federal Home Loan Bank of Pittsburgh and $21.5 million of unused lines of credit with other financial institutions. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2012.

We regularly adjust our investments in liquid assets based upon our assessment of:

(i)	expected loan demand and repayment;

(ii)	expected deposit flows;

(iii)

yields available on interest-earning deposits and securities; and

(iv)	the objectives of our asset/liability management program.

Excess cash is invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and investing activities during any given period. At March 31, 2012, cash and cash equivalents totaled $13.1 million. At March 31, 2012, we had no loans classified as held for sale. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $94.6 million at March 31, 2012, and we had $21.2 million in outstanding borrowings at March 31, 2012. We had $112.7 million of remaining borrowing capacity available at the Federal Home Loan Bank of Pittsburgh as of March 31, 2012.

At March 31, 2012, we had $6.7 million in outstanding loan commitments. In addition to outstanding loan commitments, we had $57.6 million in unused lines of credit to borrowers. Certificates of deposit due within one year of March 31, 2012 totaled $106.8 million, or 26.1% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements) and advances from the Federal Home Loan Bank of Pittsburgh and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2013. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

First Sentry Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2012, First Sentry Bank exceeded all regulatory capital requirements. First Sentry Bank is considered “well capitalized” under regulatory guidelines.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we originate.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2012. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2012, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST SENTRY BANCSHARES, INC.
	(Registrant)

Date: May 15, 2012		/s/ Geoffrey S. Sheils
		Geoffrey S. Sheils
		President and Chief Executive Officer


Date: May 15, 2012		/s/ Richard D. Hardy
		Richard D. Hardy
		Senior Vice President and Chief Financial Officer

FIRST SENTRY BANCSHARES, INC. AND SUBSIDIARY

INDEX TO EXHIBITS

Exhibit
Number		Description

31.1		Certification of Geoffrey S. Sheils, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of Richard D. Hardy, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32		Certification of Geoffrey S. Sheils, President and Chief Executive Officer, and Richard D. Hardy, Senior Vice President 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.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

101.PRE		XBRL Taxonomy Presentation Linkbase Document

First Sentry Bancshares, Inc. - FORM 10-Q - May 15, 2012

Attached files

First Sentry Bancshares, Inc. Reports