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 March 31, 2003

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. 703,991

LOGAN COUNTY BANCSHARES, INC.

PART I - FINANCIAL INFORMATION

	ITEM I.	FINANCIAL STATEMENTS:

		Consolidated Statement of Condition As of March 31, 2003 and 2002 and December 31, 2002.

		Consolidated Statement of Income For the Three Month Period Ended March 31, 2003 and 2002.

		Consolidated Statement of Changes in Stockholders’ Equity for the Three Month Period Ended March 31, 2003 and 2002.

		Consolidated Statement of Cash Flows for the Three Month Period Ended March 30, 2003 and 2002

		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 Income

For the Three Month Periods Ended March 31, 2003 and 2002

(In Thousands)

	2003		2002

INTEREST INCOME:
INTEREST ON LOANS	$	1,927	$	2,218
INTEREST ON INVESTMENTS	273		335
INTEREST ON FEDERAL FUNDS SOLD	49		51
	2,249		2,604

INTEREST EXPENSE:
INTEREST ON DEPOSITS	531		725
INTEREST OTHER	19		39
NET INTEREST INCOME	1,699		1,840

PROVISION FOR LOAN LOSSES	2		60
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	1,697		1,780

OTHER INCOME:
SERVICE FEES	194		153
OTHER OPERATING INCOME	59		43
TOTAL OTHER INCOME	253		196

OTHER EXPENSES:
SALARIES AND BENEFITS	584		572
EXPENSE OF BANK PREMISES AND EQUIPMENT	149		139
OTHER OPERATING EXPENSES	385		403
TOTAL OTHER EXPENSES	1,118		1,114

INCOME BEFORE INCOME TAXES	832		862

INCOME TAXES	301		325
NET INCOME	$	531	$	537

PER SHARE OF COMMON STOCK NET INCOME	$	0.75	$	0.76

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Condition

March 31, 2003 and 2002 and December 31, 2002

(In Thousands)

	March 31,						December 31,
	2003			2002			2002

ASSETS

CASH AND DUE FROM BANKS	$	7,334		$	6,121		$	5,967

INVESTMENT SECURITIES:
AVAILABLE FOR SALE	39,605			37,016			41,305
HELD TO MATURITY	0			0			0
FEDERAL FUNDS SOLD	20,990			19,110			11,370

LOANS:
TOTAL LOANS	105,222			111,112			107,933

RESERVE FOR LOAN LOSSES	1,578			1,198			1,619

NET LOANS	103,644			109,914			106,314

BANK PREMISES AND EQUIPMENT	3,196			3,323			3,217

ACCRUED INTEREST AND OTHER ASSETS	1,746			2,077			1,526
	$	176,515		$	177,561		$	169,699

LIABILITIES AND STOCKHOLDERS’ EQUITY

DEPOSITS:
DEMAND DEPOSITS:
NON-INTEREST	$	27,413		$	28,970		$	25,076
INTEREST BEARING	26,479			22,769			21,851
SAVINGS DEPOSITS	43,016			43,825			44,864
TIME DEPOSITS	58,199			61,379			58,652
TOTAL DEPOSITS	155,107			156,943			150,443

FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE	3,003			3,004			1,000
ACCRUED AND OTHER LIABILITIES	430			474			1,046

INCOME TAXES PAYABLE:
CURRENT	283			272			(10		)
DEFERRED	302			(31		)	27
TOTAL LIABILITIES	159,125			160,662			152,506

STOCKHOLDERS’ EQUITY:
COMMON STOCK-$1.67 PAR VALUE; AUTHORIZED - 780,000 SHARES OUTSTANDING - 703,991 and 716,991 SHARES IN 2003 AND 2002	1,300			1,300			1,300
SURPLUS	2,408			2,408			2,408
RETAINED EARNINGS	15,088			14,051			14,891
TREASURY STOCK	(1,406		)	(860		)	(1,406		)
TOTAL STOCKHOLDERS’ EQUITY	17,390			16,899			17,193
	$	176,515		$	177,561		$	169,699

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement in Changes in Stockholders’ Equity

For the Three Month Periods Ended March 31, 2003 and 2002

(In Thousands)

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

BALANCE - DECEMBER 31 2002	$	1,300	$	2,408	$	14,631		$	260		$	(1,406	)	$	17,193

COMPREHENSIVE INCOME NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003	0		0		531			0			0			531

NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES	0		0		0			(88		)	0			(88		)

TOTAL COMPREHENSIVE INCOME	0		0		531			(88		)	0			443

DIVIDENDS ON 703,991 SHARES COMMON STOCK @ $1.04					(246		)							(246		)
	$	1,300	$	2,408	$	14,916		$	172		$	(1,406	)	$	17,390

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

COMPREHENSIVE INCOME NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2002	0		0		537			0			0			537

CHANGE IN NET UNREALIZED HOLDING GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES	0		0		0			(194		)	0			(194		)

TOTAL COMPREHENSIVE INCOME	0		0		537			(194		)	0			343

DIVIDENDS ON 716,991 SHARES COMMON STOCK @ $0.34					(244		)							(244		)
	$	1,300	$	2,408	$	14,210		$	(159	)	$	(860	)	$	16,899

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Cash Flows

For the Three Month Periods Ended March 31, 2003 and 2002

	2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	531		$	537
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION	66			67
SECURITY AMORTIZATION AND ACCREATION	23			20
MARKET VALUE AMORTIZATION	0			(1		)
PROVISION FOR LOAN LOSSES	3			60
(INCREASE) DECREASE IN OTHER ASSETS	(220		)	(51		)
INCREASE (DECREASE) IN OTHER LIABILITIES	(10		)	(56		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	393			576

CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF SECURITIES AVAILABLE FOR SALE	21,477			13,000
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE	0			3,487
PURCHASE OF SECURITIES AVAILABLE FOR SALE	(20,014		)	(17,504		)
NET (INCREASE) DECREASE IN FEDERAL FUNDS SOLD	(9,620		)	(11,960		)
NET (INCREASE) DECREASE IN LOANS	2,755			5,781
PURCHASE OF BANK PREMISES AND EQUIPMENT	(45		)	(6		)
NET CASH PROVIDED BY INVESTING ACTIVITIES	(5,447		)	(7,202		)

CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEMAND DEPOSITS	6,965			2,797
NET INCREASE (DECREASE) IN SAVINGS DEPOSITS	(1,848		)	4,021
NET INCREASE (DECREASE) IN TIME DEPOSITS	(453		)	(1,903		)
NET INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED/REPURCHASED	2,003			1,004
DIVIDENDS PAID	(246		)	(244		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	6,421			5,675


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,367			(951		)

CASH AND CASH EQUIVALENT AT BEGINNING OF PERIOD	5,967			7,072

CASH AND CASH EQUIVALENT AT END OF PERIOD	$	7,334		$	6,121

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

March 31, 2003

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, a wholly owned subsidiary.

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 $531,000. for the three months ended March 31, 2003 compared to $537,000. for the three months ended March 31, 2002, representing a 1.00% decrease. This decrease was primarily the result of the decrease in net interest income of $141,000., offset by an increase in other income of $57,000. and a decrease in all operating expenses of $54,000. and decrease in income taxes of $24,000.

Earnings per common share were $.75 for the three months ended March 31, 2003 compared with $.76 for the same period of 2002.

Logan County Bancshares’ annualized return on assets (ROA) for the three month period ended March 31, 2003 was 1.20% compared to 1.21% for the three month period ended March 31, 2002. Annualized return on shareholders’ equity (ROE) was 12.21% and 12.71% at March 31, 2003 and 2002, 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 $2,249,000. at March 31, 2003, a decrease of $355,000. from March 31, 2002. Interest expense also decreased $214,000., resulting in an overall decrease of $141,000. or 5.41% in net interest income between March 31, 2003 and March 31, 2002.

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 three month period ended March 31, 2003 and 2002, the provision for loan losses was $3,000. and $60,000. respectively.

The reserve for loan losses was $1,578,000. at March 31, 2003 compared to $1,198,000. at March 31, 2002. Expressed as a percentage of loans (net of unearned income), the reserve for loan losses was 1.50% at March 31, 2003 and 1.08% at March 31, 2002.

Balance Sheet Data:

Total assets increased by $6,816,000. between year end and March 31, 2003 to a balance of $176,515,000. The major component of this change was an increase in Federal Funds Sold of $9,620,000. The primary source of funds for this change was an increase in deposits of $4,664,000., Federal Funds purchased/repurchase agreements of $2,003,000., and net income of $531,000.

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 March 31, 2003, Federal Funds Sold amounted to $20,990,000. and securities maturing within one year amounted to $28,210,000. These are compared to the balances at March 31, 2002 of $19,110,000. in Federal Funds Sold and maturing Investment Securities of $4,996,000. 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 2003 and 2002, banks continue to be faced with volatile 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 $15,088,000. and has a total Stockholders’ Equity of $17,390,000. as of March 31, 2003; as compared to $14,051,000. of Retained Earnings and total Stockholders’ equity of $16,899,000. at March 31, 2003.

The equity capital was 9.85% and 9.52% of total assets at March 31, 2003 and 2002 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.

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

SUMMARY OF PAST DUE LOANS AND NONPERFORMING ASSETS

(in thousands of dollars)

	March 31
	2003		2002
Loans past due 90 or more days still accruing interest	$	1,039	$	672

Non-performing assets:
Non-accruing loans	2,196		1,170
Other real estate owned	159		388
	$	2,355	$	1,558

NONINTEREST INCOME

Non-interest income includes revenues from all sources other than interest income. For the three month period ended March 31, 2003, non-interest income totaled $253,000., representing a increase of $57,000., or 29.01% from the $196,000. recorded during the same period of 2002. This increase was primarily due to increases in other income of $16,000. and increased fees of $41,000.

NONINTEREST EXPENSE

Non-interest expense comprises overhead costs which are not related to interest expense or to losses from loans or securities. As of March 31, 2003, the Company’s non-interest expense totaled $1,118,000., increasing $4,000. over the $1,114,000. of non-interest expense for the three months ended March 31, 2002. Expressed as a percentage of assets, annualized non-interest expense was 2.53% at March 31, 2003, compared to 2.51% at March 31, 2002.

Salaries and employee benefits are Logan County Bancshares’ largest non-interest cost, representing approximately 52% of total non-interest expense at March 31, 2003 and 2002. Salaries and employee benefits increased $12,000., or 2.09% at March 31, 2003 compared to March 31, 2002. This increase is primarily due to normal personnel increases and timing of personnel benefit accruals.

INCOME TAXES

Logan County Bancshares’ income tax expense, for the three month period ended March 31, 2003, reflected a $24,000. decrease when compared to the same period of 2002. Income tax expense equaled 36.18% and 37.00% of income before taxes at March 31, 2003 and 2002, 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 in expense items for tax purposes..

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	May 12, 2003	/s/ Harvey Oakley
		Harvey Oakley Chairman
		(Signature)


Date	May 12, 2003	/s/ Eddie D. Canterbury
		Eddie D. Canterbury President & CEO.
		(Signature)

CERTIFICATIONS

I, Eddie D. Canterbury, certify that:

1. I have reviewed this annual report on Form 10-Q of Logan County Bancshares, Inc.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to report, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 12, 2003

/s/ Eddie D. Canterbury

President & CEO

CERTIFICATIONS

I, Mark Mareske, certify that:

1. I have reviewed this annual report on Form 10-Q of Logan County Bancshares, Inc.

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: May 12, 2003

/s/ Mark Mareske

Vice President & CFO