LOGAN COUNTY BANCSHARES INC - 10-Q Quarterly Report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

Quarterly Report Under Section 13 or 15 (d)

of the Securities Exchange Act of 1934

For Quarter Ended June 30, 2002

Commission File Number 2-95114

LOGAN COUNTY BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

WEST VIRGINIA

(State or other jurisdiction of incorporation or organization)

55-0660015

(IRS Employer Identification Number)

P. O. BOX 597, LOGAN, WEST VIRGINIA		25601
(Address of Principal Executive Offices)		(Zip Code)

(304) 752-1166

(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 ý No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding, of each of the issuer’s classes of common stock, as of the latest practicable date. 716,991

LOGAN COUNTY BANCSHARES, INC.

PART I — FINANCIAL INFORMATION

	ITEM I. FINANCIAL STATEMENTS:

		Consolidated Statement of Condition As of June 30, 2002 and 2001 and December 31, 2000.

		Consolidated Statement of Income For the Three Month Period Ended June 30, 2002 and 2001.

		Consolidated Statement of Income For the Six Month Period Ended June 30, 2002 and 2001.

		Consolidated Statement of Changes in Stockholders’ Equity for the Six Month Period Ended June30, 2002 and 2001.

		Consolidated Statement of Cash Flows for the Six Month Period Ended June 30, 2002 and 2001.

		Notes to Consolidated Financial Statements

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


PART II — OTHER INFORMATION

SIGNATURES

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Condition

June 30, 2002 and 2001 and December 31, 2001

(In Thousands)

ASSETS
	June 30,										December 31,
	2002					2001					2001
CASH AND DUE FROM BANKS	$	5,792				$	5,955				$		7,072

INVESTMENT SECURITIES:
AVAILABLE FOR SALE	42,893					21,848					36,355
HELD TO MATURITY	0					0					0
FEDERAL FUNDS SOLD	6,500					25,210					7,150

LOANS:
TOTAL LOANS	110,906					116,031					116,908

RESERVE FOR LOAN LOSSES	1,261					848					1,153
NET LOANS	109,645					115,183					115,755

BANK PREMISES AND EQUIPMENT	3,265					3,493					3,384

ACCRUED INTEREST AND OTHER ASSETS	1,593					1,857					1,883
	$	169,688				$	173,546				$		171,599

LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS:
DEMAND DEPOSITS:
NON-INTEREST			$	24,173				$	28,006			$		27,571
INTEREST BEARING			21,631					21,421				21,371
SAVINGS DEPOSITS			43,631					36,160				39,804
TIME DEPOSITS			59,185					68,377				63,282
TOTAL DEPOSITS			148,620					153,964				152,028

FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE			3,000					2,000				2,000
ACCRUED AND OTHER LIABILITIES AND			469					686				673

INCOME TAXES PAYABLE:
CURRENT			16					81				(18			)
DEFERRED			169					114				116
TOTAL LIABILITIES			152,274					156,845				154,799

STOCKHOLDERS’ EQUITY:
COMMON STOCK—$1.67 PAR VALUE; AUTHORIZED — 780,000 SHARES OUTSTANDING — 716,991 SHARES IN 2000 AND 1999			1,300					1,300				1,300
SURPLUS			2,408					2,408				2,408
RETAINED EARNINGS			14,566					13,853				13,952
TREASURY STOCK			(860		)			(860		)		(860			)
TOTAL STOCKHOLDERS’ EQUITY			17,414					16,701				16,800
			$	169,688				$	173,546			$		171,599

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Income

For the Three Month Periods Ended June 30, 2002 and 2001

(In Thousands)

	2002		2001
INTEREST INCOME:
INTEREST ON LOANS	$	2,149	$	2,777
INTEREST ON INVESTMENTS	361		370
INTEREST ON FEDERAL FUNDS SOLD	49		222
	2,559		3,369

INTEREST EXPENSE:
INTEREST ON DEPOSITS	654		1,293
INTEREST OTHER	40		35
NET INTEREST INCOME	1,865		2,041

PROVISION FOR LOAN LOSSES	60		110
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	1,805		1,931

OTHER INCOME:
SERVICE FEES	159		168
OTHER OPERATING INCOME	23		6
TOTAL OTHER INCOME	182		174

OTHER EXPENSES:
SALARIES AND BENEFITS	563		527
EXPENSE OF BANK PREMISES AND EQUIPMENT	151		143
OTHER OPERATING EXPENSES	420		555
TOTAL OTHER EXPENSES	1,134		1,225

INCOME BEFORE INCOME TAXES	853		880

INCOME TAXES	329		347
NET INCOME	$	524	$	533

PER SHARE OF COMMON STOCK NET INCOME	$	0.73	$	0.74

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Income

For the Six Month Periods Ended June 30, 2002 and 2001

(In Thousands)

	2002		2001
INTEREST INCOME:
INTEREST ON LOANS	$	4,367	$	5,219
INTEREST ON INVESTMENTS	696		790
INTEREST ON FEDERAL FUNDS SOLD	100		382
	5,163		6,391

INTEREST EXPENSE:
INTEREST ON DEPOSITS	1,379		2,566
INTEREST OTHER	79		69
NET INTEREST INCOME	3,705		3,756

PROVISION FOR LOAN LOSSES	120		140
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	3,585		3,616

OTHER INCOME:
SERVICE FEES	312		318
OTHER OPERATING INCOME	66		41
TOTAL OTHER INCOME	378		359

OTHER EXPENSES:
SALARIES AND BENEFITS	1,135		1,040
EXPENSE OF BANK PREMISES AND EQUIPMENT	290		285
OTHER OPERATING EXPENSES	823		978
TOTAL OTHER EXPENSES	2,248		2,303

INCOME BEFORE INCOME TAXES	1,715		1,672

INCOME TAXES	654		632
NET INCOME	$	1,061	$	1,040

PER SHARE OF COMMON STOCK NET INCOME	$	1.48	$	1.45

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement in Changes in Stockholders’ Equity

For the Six Month Periods Ended June 30, 2002 and 2001

(In Thousands)

	Common Stock		Surplus		Retained Earnings			Comprehensive Income, Net			Treasury Stock		Total

BALANCE — DECEMBER 31
2001	$	1,300	$	2,408	$	13,917		$	35		($860	)	$	16,800

COMPREHENSIVE INCOME
NET INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2002	0		0		1,061			0			0		1,061

CHANGE IN NET UNREALIZED HOLDING GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES								72					72
OTHER ADJUSTMENTS					(31		)						(31		)
TOTAL COMPREHENSIVE INCOME	0		0		1030			72			0		1,102

DIVIDENDS ON 716,991 SHARES COMMON STOCK @ $0.68					(488		)						(488		)

	$	1,300	$	2,408	$	14,459		$	107		($860	)	$	17,414

BALANCE — DECEMBER 31
2000	$	1,300	$	2,408	$	13,237		($71		)	($860	)	$	16,014

COMPREHENSIVE INCOME
NET INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000	0		0		1,040			0			0		1,040

NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES								128					128
TOTAL COMPREHENSIVE INCOME	0		0		1040			128			0		1168

DIVIDENDS ON 716,991 SHARES COMMON STOCK @ $0.57					(481		)						(481		)
	$	1,300	$	2,408	$	13,796		$	57		($860	)	$	16,701

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001

	2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	1,061		$	1,040
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION	134			134
SECURITY AMORTIZATION AND ACCREATION	51			0
MARKET VALUE AMORTIZATION	(2		)	(2		)
PROVISION FOR LOAN LOSSES	120			140
(INCREASE) DECREASE IN OTHER ASSETS	215			506
INCREASE (DECREASE) IN OTHER LIABILITIES	(148		)	20
NET CASH PROVIDED BY OPERATING ACTIVITIES	1,537			1,838

CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF SECURITIES AVAILABLE FOR SALE	15,500			22,500
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE	4,487			3,977
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY	0			0
PURCHASE OF SECURITIES AVAILABLE FOR SALE	(26,427		)	(18,459		)
NET (INCREASE) DECREASE IN FEDERAL FUNDS SOLD	650			(20,930		)
NET (INCREASE) DECREASE IN LOANS	5,990			(2,384		)
PURCHASE OF BANK PREMISES AND EQUIPMENT	(15		)	(33		)

NET CASH PROVIDED BY INVESTING ACTIVITIES	185			(15,329		)

CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEMAND DEPOSITS	(3,138		)	6,649
NET INCREASE (DECREASE) IN SAVINGS DEPOSITS	3,827			3,872
NET INCREASE (DECREASE) IN TIME DEPOSITS	(4,097		)	4,720
NET INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE	1,000			0
DIVIDENDS PAID	(488		)	(481		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	(2,896		)	14,760
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(1,280		)	1,269

CASH AND CASH EQUIVALENT AT BEGINNING OF PERIOD	7,072			4,686
CASH AND CASH EQUIVALENT AT END OF PERIOD	$	5,792		$	5,955

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

June 30, 2002

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Financial Statements:

The foregoing statements are unaudited; however, in the opinion of the Management, all adjustments (comprising of only normal recurring accruals) necessary for a fair presentation of the financial statements have been included.

2. Basis of Consolidation:

The Consolidated Statement of Condition and Consolidated Statement of Income of Logan County BancShares, Inc. include the activity of Logan Bank and Trust Company and Bank of Chapmanville, a wholly owned subsidiary.

3. Year 2000 Assessment

Management has initiated a Company-wide program to assess its data processing, information systems and customer service programs to ensure the Company’s operating capabilities in the year 2000. Currently, the Company’s subsidiary Bank, LB&T, uses EDS, a regional provider of financial institution data processing as it’s primary provider of computer services and data processing. EDS has certified it’s hardware and software are Year 2000, and beyond, compliant.

The Company contracted to have their computer hardware evaluated for Year 2000 compliance and estimates additional computer hardware and software costs to be approximately $175,000. These costs were capitalized and will be amortized over five years. It is the opinion of management that the cost of converting these systems and the annual amortization, thereof, will not materially impact the results of operation or its financial position.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis focused on significant changes in the financial condition and results of operations of Logan County Bancshares, Inc.

EARNINGS SUMMARY

The Company reported net income of $1,061,000. for the six months ended June 30, 2002 compared to $1,040,000. for the six months ended June 30, 2001, representing a 2.00% increase. This increase was primarily the result of the decrease in net interest income of $31,000., increase in other income of $19,000. and decrease in all operating expenses of $55,000. and increase in income taxes of $22,000.

Earnings per common share were $1.48 for the six months ended June 30, 2002 compared with $1.45 for the same period of 2001.

Logan County Bancshares’ annualized return on assets (ROA) for the six month period ended June 30, 2002 was 1.22% compared to 1.20% for the six month period ended June 30, 2001. Annualized return on shareholders’ equity (ROE) was 12.19% and 12.45% at June 30, 2002 and 2001, respectively.

NET INTEREST INCOME

The most significant component of Logan County Bancshares’ net earnings is net interest income, which represents the excess of interest income earned on earning assets over the interest expense paid for sources of funds. Net interest income is affected by changes in volume resulting from growth and alteration of the balance sheet composition, as well as by fluctuations in market interest rates and maturities of sources and uses of funds.

Interest income amounted to $5,163,000. at June 30, 2002, a decrease of $1,228,000. from June 30, 2001. Interest expense also decreased $1,177,000., resulting in an overall decrease of $31,000. or .85% in net interest income between June 30, 2002 and June 30, 2001.

PROVISION FOR LOAN LOSSES AND ASSET QUALITY

The provision for loan losses represents charges to earnings necessary to maintain an adequate allowance for potential future loan losses. Management’s determination of the appropriate level of the allowance is based on an ongoing analysis of credit quality and loss potential in the loan portfolio, actual loan loss experience relative to the size and characteristics of the loan portfolio, change in the composition and risk characteristics of the loan portfolio and the anticipated influence of national and local economic conditions. The adequacy of the allowance for loan losses is reviewed quarterly and adjustments are made as considered necessary.

For the six month period ended June 30, 2002 and 2001, the provision for loan losses was $120,000. and $140,000. respectively.

The reserve for loan losses was $1,261,000. at June 30, 2002 compared to $848,000. at June 30, 2001. Expressed as a percentage of loans (net of unearned income), the reserve for loan losses was 1.14% at June 30, 2002 and .74% at June 30, 2001.

A summary of the Company’s past due loans and nonperforming assets is provided in the following table.

SUMMARY OF PAST DUE LOANS AND NONPERFORMING ASSETS

(in thousands of dollars)

	June 30,
	2002		2001
Loans past due 90 or more days still accruing interest	$	1,297	$	2,254

Nonperforming assets:
Nonaccruing loans	1,202		422
Other real estate owned	14		154
	$	1,216	$	576

NONINTEREST INCOME

Noninterest income includes revenues from all sources other than interest income. For the six month period ended June 30, 2002, noninterest income totalled $378,000., representing an increase of $19,000., or 5.29% from the $359,000. recorded during the same period of 2001. This increase was primarily due to increases in other income of $25,000.

NONINTEREST EXPENSE

Noninterest expense comprises overhead costs which are not related to interest expense or to losses from loans or securities. As of June 30, 2002, the Company’s noninterest expense totalled $2,248,000., decreasing $55,000. over the $2,303,000. of noninterest expense for the six months ended June 30, 2001. Expressed as a percentage of assets, annualized noninterest expense was 2.65% at June 30, 2002, compared to 2.69% at June 30, 2001.

Salaries and employee benefits are Logan County Bancshares’ largest noninterest cost, representing approximately 50% and 45% of total noninterest expense at June 30, 2002 and 2001. Salaries and employee benefits increased $95,000., or 2.35% at June 30, 2002 compared to June 30, 2001. This increase is primarily due to payroll timimg.

INCOME TAXES

Logan County Bancshares’ federal income tax expense, for the six month period ended June 30, 2002, reflected a $22,000. increase when compared to the same period of 2001. Income tax expense equalled 38.13% and 37.80% of income before taxes at June 30, 2002 and 2001, respectively. For financial reporting purposes, income tax expense does not equal the statutory income tax rate of 43% when applied to pretax income, primarily because of timing differences included in income before income taxes.

Balance Sheet Data:

Total assets decreased by $1,911,000. between year end and June 30, 2002 to a balance of $169,688,000. The major component of this change was a decrease in Loans of $6,002,000., Investment Securities increases of $6,538,,000., federal funds sold decrease of $650,000. and cash decreased by $1,280,000. The primary source of funds for this change was a decrease in deposits of $3,408,000., an increase in Federal funds purchased of $1,000,000., and net income of $1,061,000.

Liquidity:

Managing Logan’s liquidity requirements primarily involves meeting the loan demand, deposit withdrawal and the cash flow requirements. Logan’s primary sources of liquid assets are federal funds sold and investment securities maturing in less than one year. These items can be converted into funds in a short period of time. At June 30, 2002, Federal Funds Sold amounted to $6,500,000. and securities maturing within one year amounted to $6,055,000. These are compared to the balances at June 30, 2001 of $25,210,000. in Federal Funds Sold and maturing Investment Securities of $2,998,000. due within one year.

Traditionally, banks have been able to manage liquidity based on a relatively stable group of core deposits. The deposits, demand and consumer deposits under $l00,000. are considered the most stable and least expensive source of funds. During 2002 and 2001, banks continue to be faced with interest sensitive funds and have had to match their funding requirements by using assets and liability management techniques.

Capital Resources:

Logan’s capital position is based on its stockholders’ equity and the primary source of such equity has been retained earnings. Since Logan’s formation, it has accumulated Retained Earnings of $14,566,000. and has a total Stockholders’ Equity of $17,414,000. as of June 30, 2002; as compared to $13,853,000. of Retained Earnings and total Stockholders’ equity of $16,701,000. at June 30, 2001.

The equity capital was 10.26% and 9.62% of total assets at June 30, 2002 and 2001 respectively. Logan County Bancshares exceeds all regulatory capital guide lines and has not been advised by any regulatory agency of any minimum capital requirement.

Effects of Inflation:

The impact of inflation on a financial institution differs significantly from that exerted on an industrial concern, primarily because a financial institution’s assets and liabilities consist almost entirely of monetary items. The low proportion of the Bank’s net fixed assets to total assets reduces both the potential of inflated earnings resulting from understated depreciation charges and the potential significant understatement of asset values. However, inflation does have a considerable indirect impact on banks, including increased loan demand, as it becomes necessary for producers and consumers to acquire additional funds to maintain the same levels of consumption, inventories, and new investments. Inflation also frequently results in higher interest rates which can affect both yields on earning assets and rates paid on deposits and other interest-bearing liabilities.

PART II.	—	OTHER INFORMATION

		NONE.

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.

		LOGAN COUNTY BANCSHARES, INC.
		(Registrant)



Date	08/12/02	/s/Harvey Oakley
			Harvey Oakley, President
			(Signature)


Date	08/12/02	/s/Eddie D. Canterbury
			Eddie D. Canterbury, Exec. Vice Pres.
			(Signature)

CERTIFICATION UNDER SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Logan County BancShares, Inc.


	/s/Harvey Oakley
	Harvey Oakley, President
	(signature)



	/s/Eddie D. Canterbury
	Eddie D. Canterbury, Exec. Vice Pres.
	(signature)