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 September 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý

LOGAN COUNTY BANCSHARES, INC.

PART I - FINANCIAL INFORMATION

	ITEM I.		FINANCIAL STATEMENTS:

		Consolidated Statement of Condition As of September 30, 2003 and 2002 and December 31, 2002.

		Consolidated Statement of Income For the Nine Month Period Ended September 30, 2003 and 2002.

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

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

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

	September 30,						December 31, 2002
	2003			2002
ASSETS

CASH AND DUE FROM BANKS	$	6,204		$	6,885		$	5,967

INVESTMENT SECURITIES:
AVAILABLE FOR SALE	51,788			46,433			41,305
HELD TO MATURITY	0			0			0
FEDERAL FUNDS SOLD	15,670			8,860			11,370

LOANS:
TOTAL LOANS	102,018			108,532			107,933

RESERVE FOR LOAN LOSSES	1,567			1,293			1,619
NET LOANS	100,451			107,239			106,314

BANK PREMISES AND EQUIPMENT	3,069			3,231			3,217

ACCRUED INTEREST AND OTHER ASSETS	1,841			1,614			1,526
	$	179,023		$	174,262		$	169,699

LIABILITIES AND STOCKHOLDERS’ EQUITY

DEPOSITS:
DEMAND DEPOSITS:
NON-INTEREST	$	30,235		$	24,647		$	25,076
INTEREST BEARING	25,672			24,827			21,851
SAVINGS DEPOSITS	43,417			42,786			44,864
TIME DEPOSITS	58,341			60,134			58,652
TOTAL DEPOSITS	157,665			152,394			150,443

FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE	3,000			3,000			1,000
ACCRUED AND OTHER LIABILITIES	397			514			1,046

INCOME TAXES PAYABLE:
CURRENT	(24		)	15			(10		)
DEFERRED	221			369			27
TOTAL LIABILITIES	161,259			156,292			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	15,462			15,122			14,891
TREASURY STOCK	(1,406		)	(860		)	(1,406		)
TOTAL STOCKHOLDERS’ EQUITY	17,764			17,970			17,193
	$	179,023		$	174,262		$	169,699

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Income
For the Nine Month Periods Ended September 30, 2003 and 2002
(In Thousands)

	2003		2002

INTEREST INCOME:
INTEREST ON LOANS	$	5,725	$	6,491
INTEREST ON INVESTMENTS	741		1,039
INTEREST ON FEDERAL FUNDS SOLD	150		153
	6,616		7,683

INTEREST EXPENSE:
INTEREST ON DEPOSITS	1,529		2,013
INTEREST OTHER	73		120
NET INTEREST INCOME	5,014		5,550

PROVISION FOR LOAN LOSSES	3		180
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	5,011		5,370

OTHER INCOME:
SERVICE FEES	661		486
OTHER OPERATING INCOME	106		84
TOTAL OTHER INCOME	767		570

OTHER EXPENSES:
SALARIES AND BENEFITS	1,721		1,696
EXPENSE OF BANK PREMISES AND EQUIPMENT	465		440
OTHER OPERATING EXPENSES	1,215		1,220
TOTAL OTHER EXPENSES	3,401		3,356

INCOME BEFORE INCOME TAXES	2,377		2,584

INCOME TAXES	864		981
NET INCOME	$	1,513	$	1,603

PER SHARE OF COMMON STOCK NET INCOME	$	2.15	$	2.24

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Income
For the Three Month Periods Ended September 30, 2003 and 2002
(In Thousands)

	2003		2002

INTEREST INCOME:
INTEREST ON LOANS	$	1,888	$	2,124
INTEREST ON INVESTMENTS	237		343
INTEREST ON FEDERAL FUNDS SOLD	42		53
	2,167		2,520

INTEREST EXPENSE:
INTEREST ON DEPOSITS	492		634
INTEREST OTHER	27		41
NET INTEREST INCOME	1,648		1,845

PROVISION FOR LOAN LOSSES	—		60
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	1,648		1,785

OTHER INCOME:
SERVICE FEES	231		174
OTHER OPERATING INCOME	21		18
TOTAL OTHER INCOME	252		192

OTHER EXPENSES:
SALARIES AND BENEFITS	561		561
EXPENSE OF BANK PREMISES AND EQUIPMENT	155		150
OTHER OPERATING EXPENSES	371		397
TOTAL OTHER EXPENSES	1,087		1,108

INCOME BEFORE INCOME TAXES	813		869

INCOME TAXES	329		327
NET INCOME	$	484	$	542

PER SHARE OF COMMON STOCK NET INCOME	$	0.69	$	0.76

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement in Changes in Stockholders’ Equity
For the Nine Month Periods Ended September 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 NINE MONTHS ENDED September 30, 2003	0		0		1,513			0			0			1,513

NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES	0		0		0			(196		)	0			(196		)

TOTAL COMPREHENSIVE INCOME	0		0		1,513			(196		)	0			1,317

DIVIDENDS ON 703,991 SHARES COMMON STOCK @ $1.06					(746		)							(746		)
	$	1,300	$	2,408	$	15,398		$	64		$	(1,406	)	$	17,764

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

COMPREHENSIVE INCOME
NET INCOME FOR THE NINE MONTHS ENDED September 30, 2002	0		0		1,603			0			0			1,603

CHANGE IN NET UNREALIZED HOLDING GAINS (LOSSES) ON AVAILABLE FOR-SALE SECURITIES	0		0		0			337			0			337
OTHER ADJUSTMENTS					(32		)							(32		)
TOTAL COMPREHENSIVE INCOME	0		0		1,571			337			0			1,908

DIVIDENDS ON 716,991 SHARES COMMON STOCK @ $0.68					(738		)							(738		)
	$	1,300	$	2,408	$	14,750		$	372		$	(860	)	$	17,970

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Nine Month Periods Ended September 30, 2003 and 2002

	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	1,513		$	1,603
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION	198			201
SECURITY AMORTIZATION AND ACCREATION	189			—
MARKET VALUE AMORTIZATION	0			(3		)
PROVISION FOR LOAN LOSSES	3			180
(INCREASE) DECREASE IN OTHER ASSETS	103			(859		)
INCREASE (DECREASE) IN OTHER LIABILITIES	(469		)	127
NET CASH PROVIDED BY OPERATING ACTIVITIES	1,537			1,249

CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF SECURITIES AVAILABLE FOR SALE	45,332			20,820
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE	0			4,487
PURCHASE OF SECURITIES AVAILABLE FOR SALE	(56,428		)	(33,935		)
NET (INCREASE) DECREASE IN FEDERAL FUNDS SOLD	(4,300		)	(1,710		)
NET (INCREASE) DECREASE IN LOANS	5,970			8,336
PURCHASE OF BANK PREMISES AND EQUIPMENT	(50		)	(48		)
NET CASH PROVIDED BY INVESTING ACTIVITIES	(9,476		)	(2,050		)

CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEMAND DEPOSITS	8,680			532
NET INCREASE (DECREASE) IN SAVINGS DEPOSITS	(1,447		)	2,982
NET INCREASE (DECREASE) IN TIME DEPOSITS	(311		)	(3,148		)
NET INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED/REPURCHASED	2,000			1,000
DIVIDENDS PAID	(746		)	(752		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	8,176			614

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	237			(187		)

CASH AND CASH EQUIVALENT AT BEGINNING OF PERIOD	5,967			7,072
CASH AND CASH EQUIVALENT AT END OF PERIOD	$	6,204		$	6,885

Supplemental Disclosures of Cash Flow Information
Cash Paid For:
Interest	$	1,536		$	2,140
Income Taxes	$	878		$	995

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

September 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 $1,513,000. for the nine months ended September 30, 2003 compared to $1,603,000. for the nine months ended September 30, 2002, representing a 5.61% decrease. This decrease was primarily the result of the decrease in net interest income of $536,000., partially offset by an increase in other income of $197,000. and a decrease in income taxes of $117,000.

Earnings per common share were $2.15 for the nine months ended September 30, 2003 compared with $2.24 for the same period of 2002.

Logan County Bancshares’ annualized return on assets (ROA) for the nine month period ended September 30, 2003 was 1.13% compared to 1.20% for the nine month period ended September 30, 2002. Annualized return on shareholders’ equity (ROE) was 11.36% and 11.83% at September 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 $6,616,000. at September 30, 2003, a decrease of $1,067,000. from September 30, 2002. Interest expense also decreased $531,000., resulting in an overall decrease of $536,000. or 9.66% in net interest income between September 30, 2003 and September 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 nine month period ended September 30, 2003 and 2002, the provision for loan losses was $3,000. and $180,000. respectively.

The reserve for loan losses was $1,567,000. at September 30, 2003 compared to $1,293,000. at September 30, 2002. Expressed as a percentage of loans (net of unearned income), the reserve for loan losses was 1.53% at September 30, 2003 and 1.19% at September 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)

	September 30
	2003		2002
Loans past due 90 or more days still accruing interest	$	29	$	1,142
Non-performing assets:
Non-accruing loans	1,273		1,098
Other real estate owned	114		97
	$	1,387	$	1,195

NONINTEREST INCOME

Non-interest income includes revenues from all sources other than interest income. For the nine month period ended September 30, 2003, non-interest income totaled $767,000., representing an increase of $197,000., or 34.56% from the $570,000. recorded during the same period of 2002. This increase was primarily due to increases in other income of $22,000. and increased fees of $175,000.

NONINTEREST EXPENSE

Non-interest expense comprises overhead costs which are not related to interest expense or to losses from loans or securities. As of September 30, 2003, the Company’s non-interest expense totaled $3,401,000., increasing $45,000. over the $3,356,000. of non-interest expense for the nine months ended September 30, 2002. Expressed as a percentage of assets, annualized non-interest expense was 2.53% at September 30, 2003, compared to 2.56% at September 30, 2002.

Salaries and employee benefits are Logan County Bancshares’ largest non-interest cost, representing approximately 50% of total non-interest expense at September 30, 2003 and 2002. Salaries and employee benefits increased $25,000., or 1.47% at September 30, 2003 compared to September 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 nine month period ended September 30, 2003, reflected a $117,000. decrease when compared to the same period of 2002. Income tax expense equaled 36.35% and 37.96% of income before taxes at September 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 $9,324,000. between year end and September 30, 2003 to a balance of $179,023,000. The major component of this change was an increase in Investment Securities of $10,483,000. The primary source of funds for this change was an increase in deposits of $7,222,000., Federal Funds purchased/repurchase agreements of $2,000,000., and net income of $1,513,000.

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 September 30, 2003, Federal Funds Sold amounted to $15,670,000. and securities maturing within one year amounted to $18,149,000. These are compared to the balances at September 30, 2002 of $8,860,000. in Federal Funds Sold and maturing Investment Securities of $8,589,000. 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 $15,462,000. and has a total Stockholders’ Equity of $17,764,000. as of September 30, 2003; as compared to $15,122,000. of Retained Earnings and total Stockholders’ equity of $17,970,000. at September 30, 2003.

The equity capital was 9.92% and 10.31% of total assets at September 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	November 10, 2003	/s/Harvey Oakley
		Harvey Oakley Chairman
		(Signature)

Date	November 10, 2003	/s/Eddie D. Canterbury
		Eddie D. Canterbury President & CEO.
		(Signature)