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, 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 June 30, 2003 and 2002 and December 31, 2002.

	Consolidated Statement of Income For the Six Month Period Ended June 30, 2003 and 2002.

	Consolidated Statement of Income For the Three Month Period Ended June 30, 2003 and 2002.

	Consolidated Statement of Changes in Stockholders’ Equity for the Six Month Period Ended June 30, 2003 and 2002.

	Consolidated Statement of Cash Flows for the Six Month Period Ended June 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 Condition
June 30, 2003 and 2002 and December 31, 2002
(In Thousands)

	June 30,						December 31, 2002
	2003			2002
ASSETS

CASH AND DUE FROM BANKS	$	6,961		$	5,792		$	5,967

INVESTMENT SECURITIES:
AVAILABLE FOR SALE	46,656			42,893			41,305
HELD TO MATURITY	0			0			0
FEDERAL FUNDS SOLD	12,190			6,500			11,370

LOANS:
TOTAL LOANS	103,913			110,906			107,933

RESERVE FOR LOAN LOSSES	1,571			1,261			1,619
NET LOANS	102,342			109,645			106,314

BANK PREMISES AND EQUIPMENT	3,130			3,265			3,217

ACCRUED INTEREST AND OTHER ASSETS	1,962			1,593			1,526
	$	173,241		$	169,688		$	169,699

LIABILITIES AND STOCKHOLDERS’ EQUITY

DEPOSITS:
DEMAND DEPOSITS:
NON-INTEREST	$	26,664		$	24,173		$	25,076
INTEREST BEARING	24,111			21,631			21,851
SAVINGS DEPOSITS	43,027			43,631			44,864
TIME DEPOSITS	58,126			59,185			58,652
TOTAL DEPOSITS	151,928			148,620			150,443

FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE	3,000			3,000			1,000
ACCRUED AND OTHER LIABILITIES	449			469			1,046

INCOME TAXES PAYABLE:
CURRENT	(20		)	16			(10		)
DEFERRED	277			169			27
TOTAL LIABILITIES	155,634			152,274			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	15,305			14,566			14,891
TREASURY STOCK	(1,406		)	(860		)	(1,406		)
TOTAL STOCKHOLDERS’ EQUITY	17,607			17,414			17,193
	$	173,241		$	169,688		$	169,699

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, 2003 and 2002

(In Thousands)

	2003		2002

INTEREST INCOME:
INTEREST ON LOANS	$	3,837	$	4,367
INTEREST ON INVESTMENTS	504		696
INTEREST ON FEDERAL FUNDS SOLD	108		100
	4,449		5,163

INTEREST EXPENSE:
INTEREST ON DEPOSITS	1,037		1,379
INTEREST OTHER	46		79
NET INTEREST INCOME	3,366		3,705

PROVISION FOR LOAN LOSSES	3		120
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	3,363		3,585

OTHER INCOME:
SERVICE FEES	430		312
OTHER OPERATING INCOME	85		66
TOTAL OTHER INCOME	515		378

OTHER EXPENSES:
SALARIES AND BENEFITS	1,160		1,135
EXPENSE OF BANK PREMISES AND EQUIPMENT	310		290
OTHER OPERATING EXPENSES	844		823
TOTAL OTHER EXPENSES	2,314		2,248

INCOME BEFORE INCOME TAXES	1,564		1,715

INCOME TAXES	535		654
NET INCOME	$	1,029	$	1,061

PER SHARE OF COMMON STOCK NET INCOME	$	1.46	$	1.48

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, 2003 and 2002

(In Thousands)

	2003		2002

INTEREST INCOME:
INTEREST ON LOANS	$	1,910	$	2,149
INTEREST ON INVESTMENTS	231		361
INTEREST ON FEDERAL FUNDS SOLD	59		49
	2,200		2,559

INTEREST EXPENSE:
INTEREST ON DEPOSITS	506		654
INTEREST OTHER	27		40
NET INTEREST INCOME	1,667		1,865

PROVISION FOR LOAN LOSSES	1		60
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	1,666		1,805

OTHER INCOME:
SERVICE FEES	236		159
OTHER OPERATING INCOME	26		23
TOTAL OTHER INCOME	262		182

OTHER EXPENSES:
SALARIES AND BENEFITS	576		563
EXPENSE OF BANK PREMISES AND EQUIPMENT	161		151
OTHER OPERATING EXPENSES	459		420
TOTAL OTHER EXPENSES	1,196		1,134

INCOME BEFORE INCOME TAXES	732		853

INCOME TAXES	234		329
NET INCOME	$	498	$	524

PER SHARE OF COMMON STOCK NET INCOME	$	0.71	$	0.73

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, 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 SIX MONTHS ENDED JUNE 30, 2003	0		0		1,029			0			0			1,029
NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES	0		0		0			(122		)	0			(122		)
TOTAL COMPREHENSIVE INCOME	0		0		1,029			(122		)	0			907
DIVIDENDS ON 703,991 SHARES COMMON STOCK @ $.70					(493		)							(493		)
	$	1,300	$	2,408	$	15,167		$	138		$	(1,406	)	$	17,607

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	0		0		0			72			0			72
OTHER ADJUSTMENTS					(31		)							(31		)
TOTAL COMPREHENSIVE INCOME	0		0		1,030			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

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, 2003 and 2002

	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	1,029		$	1,061
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION	132			134
SECURITY AMORTIZATION AND ACCREATION	55			51
MARKET VALUE AMORTIZATION	0			(2		)
PROVISION FOR LOAN LOSSES	3			120
(INCREASE) DECREASE IN OTHER ASSETS	(436		)	215
INCREASE (DECREASE) IN OTHER LIABILITIES	(607		)	(148		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	176			1,431

CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF SECURITIES AVAILABLE FOR SALE	31,977			15,500
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE	0			4,487
PURCHASE OF SECURITIES AVAILABLE FOR SALE	(37,255		)	(26,427		)
NET (INCREASE) DECREASE IN FEDERAL FUNDS SOLD	(820		)	650
NET (INCREASE) DECREASE IN LOANS	3,969			5,990
PURCHASE OF BANK PREMISES AND EQUIPMENT	(45		)	(15		)
NET CASH PROVIDED BY INVESTING ACTIVITIES	(2,174		)	185

CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEMAND DEPOSITS	3,848			(3,138		)
NET INCREASE (DECREASE) IN SAVINGS DEPOSITS	(1,837		)	3,827
NET INCREASE (DECREASE) IN TIME DEPOSITS	(526		)	(4,097		)
NET INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED/REPURCHASED	2,000			1,000
DIVIDENDS PAID	(493		)	(488		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	2,992			(2,896		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	994			(1,280		)

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

CASH AND CASH EQUIVALENT AT END OF PERIOD	$	6,961		$	5,792

Supplemental Disclosures of Cash Flow Information
Cash Paid For:
Interest	$	1,088		$	1,458
Income Taxes	$	506		$	615

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

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
					JUNE 3MTH						JUNE 3MTH
INTEREST INCOME:
INTEREST ON LOANS	$	3,837	$	1,927	$	1,910	$	4,367	$	2,218	$	2,149
INTEREST ON INVESTMENTS	504		273		$	231	696		335		$	361
INTEREST ON FEDERAL FUNDS SOLD	108		49		$	59	100		51		$	49
	4,449		2,249		$	2,200	5,163		2,604		$	2,559
					$	—					$	—
INTEREST EXPENSE:					$	—					$	—
INTEREST ON DEPOSITS	1,037		531		$	506	1,379		725		$	654
INTEREST OTHER	46		19		$	27	79		39		$	40
NET INTEREST INCOME	3,366		1,699		$	1,667	3,705		1,840		$	1,865
					$	—					$	—
PROVISION FOR LOAN LOSSES	3		2		$	1	120		60		$	60
NET INTEREST INCOME AFTER					$	—					$	—
PROVISION FOR LOAN LOSSES	3,363		1,697		$	1,666	3,585		1,780		$	1,805
					$	—					$	—
OTHER INCOME:					$	—					$	—
SERVICE FEES	430		194		$	236	312		153		$	159
OTHER OPERATING INCOME	85		59		$	26	66		43		$	23
TOTAL OTHER INCOME	515		253		$	262	378		196		$	182
					$	—					$	—
OTHER EXPENSES:					$	—					$	—
SALARIES AND BENEFITS	1,160		584		$	576	1,135		572		$	563
EXPENSE OF BANK PREMISES AND
EQUIPMENT	310		149		$	161	290		139		$	151
OTHER OPERATING EXPENSES	844		385		$	459	823		403		$	420
TOTAL OTHER EXPENSES	2,314		1,118		$	1,196	2,248		1,114		$	1,134
					$	—					$	—
INCOME BEFORE INCOME TAXES	1,564		832		$	732	1,715		862		$	853
					$	—					$	—
INCOME TAXES	535		301		$	234	654		325		$	329
NET INCOME	$	1,029	$	531	$	498	$	1,061	$	537	$	524
					$	—					$	—
PER SHARE OF COMMON STOCK NET INCOME	$	1.46	$	0.75	$	1	$	1.48	$	0.76	$	1

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

June 30, 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 $1,029,000. for the six months ended June 30, 2003 compared to $1,061,000. for the six months ended June 30, 2002, representing a 3.01% decrease. This decrease was primarily the result of the decrease in net interest income of $339,000., partially offset by an increase in other income of $137,000. and a decrease in income taxes of $119,000.

Earnings per common share were $1.46 for the six months ended June 30, 2003 compared with $1.48 for the same period of 2002.

Logan County Bancshares’ annualized return on assets (ROA) for the six month period ended June 30, 2003 was 1.20% compared to 1.21% for the six month period ended June 30, 2002. Annualized return on shareholders’ equity (ROE) was 11.83% and 12.55% at June 30, 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 $4,449,000. at June 30, 2003, a decrease of $714,000. from June 30, 2002. Interest expense also decreased $375,000., resulting in an overall decrease of $339,000. or 9.15% in net interest income between June 30, 2003 and June 30, 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 six month period ended June 30, 2003 and 2002, the provision for loan losses was $3,000. and $120,000. respectively.

The reserve for loan losses was $1,571,000. at June 30, 2003 compared to $1,261,000. at June 30, 2002. Expressed as a percentage of loans (net of unearned income), the reserve for loan losses was 1.51% at June 30, 2003 and 1.14% at June 30, 2002.

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)

	June 30
	2003		2002

Loans past due 90 or more days still accruing interest	$	858	$	1,297

Non-performing assets:
Non-accruing loans	1,765		1,202
Other real estate owned	199		14
	$	1,964	$	1,216

NONINTEREST INCOME

Non-interest income includes revenues from all sources other than interest income. For the three month period ended June 30, 2003, non-interest income totaled $515,000., representing a increase of $137,000., or 36.24% from the $378,000. recorded during the same period of 2002. This increase was primarily due to increases in other income of $19,000. and increased fees of $118,000.

NONINTEREST EXPENSE

Non-interest expense comprises overhead costs which are not related to interest expense or to losses from loans or securities. As of June 30, 2003, the Company’s non-interest expense totaled $2,314,000., increasing $66,000. over the $2,248,000. of non-interest expense for the three months ended June 30, 2002. Expressed as a percentage of assets, annualized non-interest expense was 2.67% at June 30, 2003, compared to 2.53% at June 30, 2002.

Salaries and employee benefits are Logan County Bancshares’ largest non-interest cost, representing approximately 50% of total non-interest expense at June 30, 2003 and 2002. Salaries and employee benefits increased $25,000., or 2.20% at June 30, 2003 compared to June 30, 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 six month period ended June 30, 2003, reflected a $119,000. decrease when compared to the same period of 2002. Income tax expense equaled 34.20% and 38.00% of income before taxes at June 30, 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..

Balance Sheet Data:

Total assets increased by $3,542,000. between year end and June 30, 2003 to a balance of $173,241,000. The major component of this change was an increase in Investment Securities of $5,351,000. The primary source of funds for this change was an increase in deposits of $1,485,000., Federal Funds purchased/repurchase agreements of $2,000,000., and net income of $1,029,000.

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, 2003, Federal Funds Sold amounted to $12,190,000. and securities maturing within one year amounted to $28,749,000. These are compared to the balances at June 30, 2002 of $19,110,000. 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 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 $15,305,000. and has a total Stockholders’ Equity of $17,607,000. as of June 30, 2003; as compared to $14,566,000. of Retained Earnings and total Stockholders’ equity of $17,414,000. at June 30, 2003.

The equity capital was 8.43% and 10.26% of total assets at June 30, 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.

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		August 11, 2003	/s/Harvey Oakley
			Harvey Oakley Chairman
			(Signature)


Date	August 11, 2003		/s/Eddie D. Canterbury
			Eddie D. Canterbury President & CEO.
			(Signature)