SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

Annual Report Pursuant to Section 13 or 15 (d) of

The Securities Exchange Act of 1934

 

For the calendar year ended December 31, 2003 Commission file No. 2-95114

 

 

LOGAN COUNTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s Telephone Number, including area code: (304) 752-2080

 

Securities Registered Pursuant to Section 12(g) of The Act:

 

NONE

(Title of Class)

 

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.  (X) Yes ( ) No.

 

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

 

Class Outstanding at April 14, 2004

 

Common Stock ($1.67 Par Value)

703,991 Shares

 

State the aggregate market value of the voting stock held by non-affiliates of the Registrant.

 

Aggregate market value of voting stock	Based on last trade price
$29,567,622	$42.00

 

Documents Incorporated by Reference

 

(None)

 

 

LOGAN COUNTY BANCSHARES, INC.

 

FORM 10-K

 

INDEX

 

ITEM     1	-		Business		2
ITEM     2	-		Properties		6
ITEM     3	-		Legal Proceedings		6
ITEM     4	-		Submission of Matters to a Vote of Security Holders		6
ITEM     5	-		Market for the Registrant’s Common Stock and Related And Related Security Holder Matters		7
ITEM     6	-		Selected Financial Data		8
ITEM     7	-		Management’s Discussion and Analysis		11
ITEM     8	-		Financial Statements and Supplemental Data
ITEM     9	-		Disagreements on Accounting and Financial Disclosures		61
ITEM   10	-		Directors and Executive Officers of the Registrant		61
ITEM   11	-		Executive Compensation		62
ITEM   12	-		Security Ownership of Certain Beneficial Owners and Management		62
ITEM   13	-		Certain Relationships and Related Transactions		62
ITEM   14	-		Exhibits, Financial Statement Schedules and Reports on Form 8K		62
PROXY MATERIALS					64
SIGNATURES					68

 

 

ITEM 1 - - BUSINESS

 

LOGAN COUNTY BANCSHARES, INC.

 

Logan County Bancshares, Inc. is a bank holding company, which was organized under the laws of the State of West Virginia in 1985.  On May 17, 1985, the Corporation acquired all the outstanding capital stock of Logan Bank & Trust Company (LB&T) and also all of the outstanding stock of Bank of Chapmanville (BC).  Both of these subsidiaries are banking corporations organized under the laws of the State of West Virginia.  On May 28, 1996, the subsidiary banks, Logan Bank & Trust Company and Bank of Chapmanville entered into a merger agreement whereby they would be merged into Logan Bank & Trust Company.  The merger was completed after proper regulatory approval and was accounted for under the pooling of interest method of accounting.

 

Logan Bank & Trust Company was organized in 1963, and still operates at its original location at the corner of Washington and Main Streets in Logan, West Virginia.  The Company also has a separate drive-up facility and mini-bank also located on Main Street in Logan, and in early February 1996, opened a new full-service branch in the Man area.  In November 1996, the bank acquired a branch facility from another financial institution located at Harts, West Virginia.  The facility at Route 10 North, Harts, is operated as a full service branch of the bank.  Logan Bank & Trust Company is a member of the Federal Reserve System and deposits are insured pursuant to the Federal Deposit Insurance Act.

 

Logan Bank & Trust Company provides a complete range of retail banking services to individuals and small and medium size businesses.  Their services include checking, savings, NOW, certificates of deposit and money market deposit accounts, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes, other consumer-oriented financial services including safety deposit box accounts, IRA accounts and night depository.  The company also operates several automatic teller machines at three strategic locations in Logan County, which provide 24-hour working services to customers of Logan Bank & trust Company.  The Company is a member of the Cirrus ATM network which has over 100 locations in West Virginia and more than 10,000 locations in 47 states.

 

Logan Bank & Trust Company provides depository lending and related financial services to commercial, retail, industrial, financial and governmental customers.  The lending function includes short and medium-term loans, letters of credit, inventory and accounts receivable financing and real estate construction lending.  The Company also offers a discount investment brokerage service through a sub-contract arrangement with a larger financial institution.

 

The Chapmanville Bank of LB&T Bank has one location situated on Railroad Avenue in Chapmanville, West Virginia.  This facility also provides a complete range of retail banking services to individuals and small and medium sized businesses.  These services include checking, savings, NOW, certificates of deposit and money market account deposits, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes are provided as well.  In addition, the Bank offers consumer oriented financial services such as IRA accounts, night depository, safety deposit boxes and other banking related services.

 

2

 

The branch also provides depository, lending and related financial services to commercial, retail, industrial, financial and governmental customers.  The lending function includes short and medium-term loans, letters of credit, inventory and accounts receivable financing, and real estate construction lending, as do all the branches of Logan Bank & Trust Company.

 

INVESTMENT CONSIDERATIONS

 

An investment in the shares offered hereby involves certain risks.  A subscription for shares should be made only after careful considerations set forth below and elsewhere in this Offering Circular, and should be undertaken only by persons who can afford an investment involving such risks.

 

MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

 

The shares of Logan county BancShares, Inc. are infrequently traded in the over-the-counter market and are not listed on the National Association of Security Dealers Automated Quotation System (NASDAQ) or on any exchange.  Management is not aware of any security dealer, which makes a market in the stock; therefore, no active trading market should be deemed to exist.

 

The sales price for Logan County BancShares, Inc. stock is determined by negotiations between individual buyers and sellers.  Although company keeps no records of sale prices paid for Company stock and has no direct knowledge of such prices, for purposes of presentation, Corporation’s management estimates the approximate market value ranges for 2003 and 2002 to be as follows:

 

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Sale Price:
2003 Common Stock		$42-$42		$42-$42		$42-$42		$42-$42
2002 Common Stock		$42-$42		$42-$42		$42-$42		$42-$42
Per Share Dividends Declared:
2003 Common Stock		$0.35		$0.35		$0.35		$0.51
2002 Common Stock		$0.34		$0.34		$0.35		$0.50

 

COMPETITION

 

Vigorous competition exists in the market area of Logan County Bancshares, Inc.  In addition to the three other banks located within the market area, the location is in a relatively close proximity to two population centers of the State.  There is also competition for deposits and related financial services from non-bank institutions such as savings and loans, insurance companies and brokerage firms, all of which are active in the area.  Those institutions, in addition to the finance companies, provide loans.  Since the Bank Holding Company Act, passed by the West Virginia Legislature in 1982, local banks have been joining bank holding companies around the State.  Of the five banks located in Logan County, only one is a unit bank.  The other four are members of various multi-bank holding companies.  Logan County BancShares, Inc. has been able to compete effectively within the county by having one institution located in the county seat (Logan Bank & Trust Company), and Branches located in the high-growth area of the county.  Also, to stimulate growth, Logan County BancShares, Inc. is the only bank holding company owned and controlled from within the county.

 

3

 

SUPERVISION AND REGULATION

 

The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the Act) and is registered as such with the Board of Governors of the Federal Reserve System (the Reserve Board).  As a bank holding company, the corporation is required to file with the Federal Reserve Board an annual report and such other information as may be required.  The Federal Reserve Board may also make examinations of the corporation.  In addition, the Federal Reserve Board has the authority (which it has not exercised) to regulate provisions of certain bank holding company debt.

 

The Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring substantially all the assets of or direct or indirect ownership or control of more than 5% of the voting shares of any bank, which is not already majority-owned.  The Act also prohibits a bank holding company, with certain exceptions, from itself engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities.  One of the principal exceptions to these prohibitions is for engaging or acquiring shares of a company engaged in activities found by the Federal Reserve Board by order or regulation to be so closely related to banking or managing banks as to be a proper incident thereto.  The Act prohibits the acquisition by a bank holding company of more that 5% of the outstanding voting shares of a bank located outside the State in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the State in which the bank acquired is located.  The Act and regulations of the Federal Reserve Board also prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services.

 

Logan Bank & Trust Company is an insured bank, organized under the Banking Law of the State of West Virginia and is a member of the Federal Reserve System.  Accordingly, their operations are subject to Federal and State laws applicable to commercial banks with trust powers and to regulation by the Commissioner of Banking and the West Virginia State Banking Commissioner, the Federal Reserve Board and the Federal Deposit Insurance Corporation.  Among other restrictions, the West Virginia Banking laws state that banks organized hereunder may pay dividends only out of undivided profits.  Under the Federal Reserve Act, the approval of the Federal Reserve Board is required for dividends declared by a state member bank which in any year exceeds the net profits of such bank for that year, as defined, combined with retained net profits for the two preceding years.

 

4

 

GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS

 

The earnings and growth of the banking industry and of Logan Bank & Trust Company is affected by the credit policies of monetary authorities including the Federal Reserve System.  An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures.  Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in the U. S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits.  These means are used in varying combinations to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid for deposits.  The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future.

 

In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve system, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand of their effect on the business and earnings of the Corporation, and Logan Bank & Trust Company.

 

FOREIGN OPERATIONS

 

The corporation and subsidiary have no foreign operations.

 

EXECUTIVE OFFICERS

 

For information concerning the Executive Officers of the Corporation, please see Item 10.

 

5

 

ITEM 2 - - PROPERTIES

 

The principal offices of the corporation are shared with those of Logan Bank & Trust Company and are situated in Logan, West Virginia.  This building, a two-story bank and office building, is owned by Logan Bank & Trust Company, as is a mini-bank and drive-up facility which is located near-by.  In addition, a one-story office and bank building is located on Railroad Avenue in Chapmanville, West Virginia.  During 1996 the Bank opened two other branch facilities in West Virginia.  Both are one-story office and bank buildings located at Rt. 10, South Man, West Virginia and Rt. 10 North at Harts, West Virginia.

 

ITEM 3 - - LEGAL PROCEEDINGS

 

There are no legal actions or proceedings to which the Corporation, or its subsidiary is a party.

 

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None.

 

6

 

ITEM 5 - - MARKET FOR THE REGISTRANT’S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS

 

The shares of Logan County BancShares, Inc are infrequently traded in the over-the-counter market and are not listed on the National Association of Security Dealers Automated Quotation System (NASDAQ) or on any exchange.  Management is not aware of any security dealer, which makes a market in the stock; therefore, no active trading market should be deemed to exist.

 

The sales price for Logan County BancShares, Inc. stock is determined by negotiations between individual buyers and sellers.  Although company keeps no records of sales prices paid for Company stock and has no direct knowledge of such prices, for purposes of presentations, Corporation’s management estimates the approximate market value ranges for 2003 and 2002 to be as follows:

 

 

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Sales Price:
2003 Common Stock		$42-$42		$42-$42		$42-$42		$42-$42
2002 Common Stock		$42-$42		$42-$42		$42-$42		$42-$42
Per Share Dividends Declared:
2003 Common Stock		$0.35		$0.35		$0.35		$0.51
2002 Common Stock		$0.34		$0.34		$0.35		$0.50

 

7

 

ITEM 6 - - SELECTED FINANCIAL DATA

 

LOGAN BANCSHARES, INC. AND SUBSIDIARY

 

(In Thousands of Dollars)

 

YEAR ENDED DECEMBER 31:		2003			2002			2001			2000			1999
Total Interest Revenue		$	8,766		$	10,088		$	12,090		$	11,508		$	10,753
Total Interest Expense		2,087			2,764			4,801			4,828			4,378
Net Interest Revenue		6,679			7,324			7,289			6,680			6,375
Provision for Possible
Loan Losses		3			534			700			100			22
Net Interest Revenue After Provision for Possible Loan Losses		6,676			6,790			6,589			6,580			6,353
Other Operating Revenue		986			805			707			769			699
Other Operating Expense		(4,728		)	(4,689		)	(4,631		)	(4,185		)	(3,897		)
Income Before Income Taxes		2,934			2,906			2,665			3,164			3,155
Income Taxes		1,033			1,064			909			1,131			1,131
Net Income		$	1,901		$	1,842		$	1,756		$	2,033		$	2,024
Per Common Share:
Net Income		$	2.70		$	2.57		$	2.45		$	2.84		$	2.83
Cash Dividends Declared		$	1.57		$	1.53		$	1.50		$	1.44		$	1.34
At December 31:
Total Loans		$	101,615		$	107,933		$	116,907		$	113,641		$	109,571
Total Assets		175,659			170,041			171,599			157,480			152,746
Total Deposits		154,152			156,443			152,028			138,723			127,619
Short-Term Debt		3,000			1,000			2,000			2,000			9,840
Tota Shareholders' Equity		17,790			17,193			16,800			16,014			14,444
Selected Ratios:
Rate of Return on Average:
Total Assets		1.06		%	1.06		%	1.03		%	1.36		%	1.39		%
Shareholders' Equity		10.24		%	10.37		%	10.36		%	13.35		%	13.84		%
Tier 1 Capital to Total Assets at Year End		10.11		%	9.58		%	10.31		%	10.25		%	9.92		%
Average Total Shareholders' Equity to Average Total Assets		10.25		%	10.25		%	9.95		%	10.15		%	10.05		%
Common Dividend Payout Ratio		58.15		%	59.56		%	61.12		%	50.79		%	47.35		%
Nonaccrual and Restructured Business Loans as a Percentage of Total Loans		1.04		%	1.58		%	0.74		%	0.37		%	0.51		%

 

8

 

Logan County BancShares, Inc. and Subsidiary

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

 

INTRODUCTION

 

The Management’s Discussion and Analysis reviews and discusses the financial condition of Logan County BancShares, Inc. and Subsidiary.  Included are (a) the results of operations for 2003 and 2002 and (b) discussion of liquidity including an asset and liability sensitivity analysis, and (c) an analysis of earnings, dividends, and capital.  The discussion and analysis discloses any material changes and any infrequent events and known trends as they relate to liquidity, capital resources and results of operations.  The information presented reflects the activities of the holding company and the subsidiary bank, Logan Bank & Trust Company.

 

To assist in understanding and evaluating major changes in Logan County BancShares, Inc.’s financial position and results of operations, this discussion emphasizes a comparison of the years 2003 to 2002, 2002 to 2001 and 2001 to 2000, and also presents five year information in instances where appropriate.  This discussion should be read concurrently with the audited financial statements including notes to those statements.

 

The following definitions apply to terms used in this report:

 

AVERAGE BALANCE:  All balances have been computed on the basis of monthly averages.

 

NET INTEREST INCOME:  Interest and related fee income on earning assets, reduced by total interest paid on interest bearing deposits and borrowed funds.  This net amount, when divided by average earning asset balances becomes net interest margin.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity is provided through short-term investments, payments on outstanding loans, and the ability to attract new deposits or borrow funds.  At December 31, 2003 and 2002, the funds available within one year from investments and loans were $51,426,000. and 47,465,000.

 

Logan County BancShares, Inc.’s subsidiary bank deposit mix increased by $3,709,000. in 2003 after a small decrease in 2002.  In the other years presented, deposits increased by $13,305,000 in 2001 and $11,104,000 in 2000.  These increases in the deposit mix point out a marketing strategy that has attracted new customers to the Bank.  Time deposits represented the major growth in the deposit mix.  They decreased over the last two years after reasonable increases in the first three years. Demand deposits contributed to the growth in the deposit mix by increasing $2,015,000. in 2002, $6,164,000. in 2001 and $4,011,000. in 2000.  Savings deposits showed increases of $5,060,000. in 2002,  $7,517,000 in 2001, $1,263,000. in 2000 and remaining stable.

 

9

 

These changes are predominantly due to the fluctuating interest rates by the Federal Reserve and movement of savings to time deposits by the consumer in order to obtain a better interest rate.  At December 31, 2003 and 2002, 34.61% and 31.19%, of the total deposits were in demand deposits while 28.03% and 29.82% were in savings and 37.36% and 38.98% were in time deposits, respectively.  The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.

 

At December 31, 2001 and 2000, 32.19% and 30.84% of the total deposits were in demand deposits, while 26.18% and 23.27% were in savings and 41.16% and 45.88% were in time deposits respectively.  The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.

 

10

 

ITEM 7 - - Management’s Discussion and Analysis

 

The Management’s Discussion and Analysis reviews and discusses the financial condition of Logan County BancShares, Inc. and Subsidiary.  Included are (a) the results of operations for 2003 and 2002 and (b) discussion of liquidity including an asset and liability sensitivity analysis, and (c) an analysis of earnings, dividends, and capital.  The discussion and analysis discloses any material changes and any infrequent events and known trends as they relate to liquidity, capital resources and results of operations.  The information presented reflects the activities of the holding company and the subsidiary bank, Logan Bank & Trust Company.

 

To assist in understanding and evaluating major changes in Logan County BancShares, Inc.’s financial position and results of operations, this discussion emphasizes a comparison of the years 2003 to 2002, 2002 to 2001 and 2001 to 2000, and also presents five year information in instances where appropriate.  This discussion should be read concurrently with the audited financial statements including notes to those statements.

 

The following definitions apply to terms used in this report:

 

AVERAGE BALANCE:  All balances have been computed on the basis of monthly averages.

 

NET INTEREST INCOME:  Interest and related fee income on earning assets, reduced by total interest paid on interest bearing deposits and borrowed funds.  This net amount, when divided by average earning asset balances becomes net interest margin.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity is provided through short-term investments, payments on outstanding loans, and the ability to attract new deposits or borrow funds.  At December 31, 2003 and 2002, the funds available within one year from investments and loans were $51,426,000. and 47,465,000.

 

Logan County BancShares, Inc.’s subsidiary bank deposit mix increased by $3,709,000. in 2003 after a small decrease in 2002.  In the other years presented, deposits increased by $13,305,000 in 2001 and $11,104,000 in 2000.  These increases in the deposit mix point out a marketing strategy that has attracted new customers to the Bank.  Time deposits represented the major growth in the deposit mix.  They decreased over the last two years after reasonable increases in the first three years. Demand deposits contributed to the growth in the deposit mix by increasing $2,015,000. in 2002, $6,164,000. in 2001 and $4,011,000. in 2000.  Savings deposits showed increases of $5,060,000. in 2002,  $7,517,000 in 2001, $1,263,000. in 2000 and remaining stable.

 

11

 

These changes are predominantly due to the fluctuating interest rates by the Federal Reserve and movement of savings to time deposits by the consumer in order to obtain a better interest rate.  At December 31, 2003 and 2002, 34.61% and 31.19%, of the total deposits were in demand deposits while 28.03% and 29.82% were in savings and 37.36% and 38.98% were in time deposits, respectively.  The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.

 

At December 31, 2001 and 2000, 32.19% and 30.84% of the total deposits were in demand deposits, while 26.18% and 23.27% were in savings and 41.16% and 45.88% were in time deposits respectively.  The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.

 

12

 

During 2003, 2002 and 2001, banks have been faced with a highly competitive atmosphere in the sense of maintaining a continuity of growth.  Logan County BancShares, Inc. has maintained a community bank approach that enhanced its performance over those years.  The merger of Bank of Chapmanville into Logan Bank & Trust Company enabled the Company to operate more efficiently and thereby capture a sizeable portion of the market for deposits in the fastest growing area of Logan County, West Virginia. See Table I. for a five-year summary of financial data.

 

Capital planning is essentially the management process that allocates capital resources in a manner which generates the highest income, while maintaining sufficient liquidity, at the lowest degree of risk attainable.  Moreover, it is the philosophy of Logan County BancShares, Inc. to nurture that growth by planning for steady, long-range profits rather that the high-risk, high-exposure techniques.  As noted in Table I. the ratio of net income to average assets was 1.08%, 1.06% and 1.03% for the years ended December 31, 2003, 2002 and 2001, respectively.  Through the periods presented, management has allocated new funds into the higher-yielding loans when the loan demand has been sufficient.  Although the improvement in the local economy had been at a slow pace through the periods presented, overall loan demand has been stable.  Deposit growth show a marked increase due to marketing the community bank service approach.

 

Table I. represents a summary of financial data for the previous five years.

 

13

 

TABLE I.  - -  SUMMARY OF FINANCIAL DATA FOR FIVE YEARS

(In thousands of dollars)

 

		2003			2002			2001			2000			1999
Year End Balances:
Total Assets		$	175,659		$	170,041		$	171,599		$	157,480		$	152,746
Total Earning Assets		165,973			160,608			160,413			147,539			139,600
TotalDeposits		154,152			150,443			152,028			138,728			127,619
Stockholders' Equity		17,790			17,193			16,800			16,014			14,444
Income for theYear:
Total Interest Income		8,766			10,088			12,090			11,508			10,753
Total Interest Expnese		2,087			2,764			4,801			4,828			4,378
Net Interest Income		6,679			7,324			7,289			6,680			6,375
Provision for Loan
Losses		3			534			700			100			22
Non-interest Income		986			805			707			769			699
Non-interest expense		5,762			5,753			5,540			5,316			5,028
Net Income		1,901			1,842			1,756			2,033			2,024
Per Share Data
Net Income		2.70			2.57			2.45			2.84			2.83
Stockholders’ Equity		25.27			23.73			23.43			22.34			20.14
Cash Dividends		1.57			1.53			1.50			1.44			1.34
Key Ratios
Net Income To:
Average Assets		1.06		%	1.06		%	1.03		%	1.36		%	1.39		%
Average Stockholders’ Equity		10.24		%	10.37		%	10.36		%	13.36		%	13.84		%
Average Stockholders’ Equity to Average Assets		10.25		%	10.25		%	9.95		%	10.15		%	10.05		%

 

14

 

TABLE II - RATE ANALYSIS OF INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES

(In Thousands of Dollars)

 

		2003									2002								2001
		Average Balance				Income (Expense)			Average Yield		Average Balance			Income (Expense)			Average Yield		Average Balance			Income (Expense)			Average Yield
EARNING ASSETS:
Loans
(Net of Reserves & Discounts:)
Commercial		$		41,444		$	2,665		6.43	%	$	44,680		$	3,103		6.94	%	$	46,696		$	4,209		9.01	%
Real Estate		51,765				4,004			7.73	%	53,180			4,262			8.01	%	52,514			4,376			8.33	%
Consumer		10,665				910			8.53	%	12,564			1,154			9.18	%	14,079			1,397			9.92	%
Total Net Loans		103,874				7,579			7.30	%	110,424			8,519			7.71	%	113,289			9,982			8.81	%
Investment Securities:
Taxable		0				0			0.00	%	0			0			0.00	%	0			0			0.00	%
Available for Sale		45,014				1,005			2.23	%	40,988			1,364			3.33	%	25,967			1,354			5.21	%
Total Investment Securities		45,014				1,005			2.23	%	40,988			1,364			3.33	%	25,967			1,354			5.21	%
Federal Funds sold and Securities Purchased Under Option to resale		17,472				182			1.04	%	13,106			206			1.57	%	20,540			754			3.67	%
Total Earnings Assets		$	166,360			$	8,766		5.27	%	$	164,518		$	10,089		6.13	%	$	159,796		$	12,090		7.57	%
Interest Bearing Liabliities:
Savings and Interest Bearing Demand		$	67,047			$	315		0.47	%	$	65,384		$	584		0.89	%	$	57,807		$	1,139		1.97	%
Time Deposits		58,224				1,672			2.87	%	60,861			2,024			3.33	%	64,549			3,522			5.46	%
Federal Funds Purchased		2,852				100			3.51	%	2,910			157			5.39	%	2,000			140			7.00	%
Total Interest Bearing Liabilities		$	128,123			$	2,087		1.63	%	$	129,155		$	2,765		2.14	%	$	124,356		$	4,801		3.86	%

 

15

 

TABLE III - VOLUME ANALYSIS OF CHANGE IN INTEREST INCOME AND INTEREST EXPENSE

(In Thousands of Dollars)

 

											2003 VS 2002									2002 VS 2001
		Interest 2003			Income 2002			Expense 2001			Increase Volume			(Decrease) Change In Rate			Due To Total			Increase Volume			(Decrease) Change In Rate			Due To Total
INTEREST INCOME ON
EARNING ASSETS:
LOANS:
Commercial		$	2,665		$	3,103		$	4,209		(312		)	(126		)	$	(438	)	$	(140	)	$	(966	)	$	(1,106	)
Real Estate		4,004			4,262			4,376			(113		)	(145		)	(258		)	54			(168		)	(114		)
Consumer		910			1,154			1,397			(174		)	(70		)	(244		)	(139		)	—104			(243		)
Total Loans		7,579			8,519			9,982			(599		)	(341		)	(940		)	(225		)	(1,238		)	(1,463		)
SECURITIES
Held to Maturity
Taxable		0			0			0			0			0			0			0			0			0
Available for sale		1,005			1,364			1,354			134			(493		)	(359		)	500			(490		)	10
TOTAL SECURITIES		1,005			1,364			1,354			134			(493		)	(359		)	500			(490		)	10
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED:
Under Agreement to Resale		182			206			754			69			(93		)	(24		)	(117		)	(431		)	(548		)
TOTAL INTEREST INCOME ON EARNING ASSETS		8,766			10,089			12,090			(396		)	(927		)	(1,323		)	158			(2,159		)	(2,001		)
INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Savings & Interest
Bearing Demand Deposits		315			584			1,139			148			(417		)	(269		)	68			(623		)	(555		)
Time Deposits		1,672			2,024			3,522			(88		)	(264		)	(352		)	(123		)	(1,375		)	(1,498		)
Repurchased - Purchased		100			157			140			(3		)	(54		)	(57		)	49			(32		)	17
TOTAL INTEREST EXPENSE ON
INTEREST BEARING LIABILITIES		2,087			2,765			4,801			57			(735		)	(678		)	(6		)	(2,030		)	(2,036		)
NET INTEREST INCOME		$	6,679		$	7,324		$	7,289		$	(453	)	$	(192	)	$	(645	)	$	164		$	(129	)	$	35

 

16

 

LOAN PORTFOLIO

 

The loan portfolio of Logan county BancShares, Inc. and Subsidiary continues to represent the largest component of earning assets.  Loan activity has remained stable due to the Bank’s emphasis on lending; as shown on Table IV, the Bank has contributed substantially to liquidity by structuring the loan portfolio in such a manner as to have approximately 39.48% of the total loans due within one year.

 

TABLE IV - REMAINING MATURITIES OF LOANS AT DECEMBER 31, 2003

(In Thousands of dollars)

 

		Commercial, Financial and Agricultural			Real Estate Mortgages			Installments			Total
MATURITIES
Due Within OneYear		$	18,004		$	4,907		$	1,731		24,642
Due One to Five Years		11,567			14,150			5,496			31,213
Due After Five Years		10,555			31,974			3,231			45,760
Total Loans		$	40,126		$	51,031		$	10,458		$	101,615
Due After One Year at Fixed Rate		$	22,122		$	46,124		$	9,132		77,378
Due After One Year at Floating Rate		0			0			0			0
Total Loans Due After One Year		$	22,122		$	46,124		$	9,132		$	77,378

 

17

 

LOAN LOSSES AND CREDIT RISKS

 

The allowance for loan losses is established by charging expenses at an amount that will maintain the allowance for loan losses at a level sufficient to provide for potential loan losses.  Loan losses are charged directly to the allowance when they occur and recoveries are credited to the allowance.  The amount of the provision is based on pase loan loss experience, management’s evaluation of the loan portfolio under current economic conditions, and such other factors as in management’s best judgment deserve current recognition in estimating loan losses.  Tables V and VI represent a summary of loan loss experience for the years 2003, 2002, 2001, 2000, and 1999.

TABLE V - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

 

		Year Ended December 31
		2003			2002			2001			2000			1999
Amount of Loans Outstanding  at End of Period		$	101,615		$	107,933		$	115,755		$	112,939		$	108,871
Monthly Average
Amount of Loans		$	103,873		$	110,174		$	113,289		$	109,447		$	101,197
Balance of Allowance for Possible Loan Losses at Beginning of Period		$	1,619		$	1,153		$	702		$	700		$	701
Loans Charged Off:
Commercial		$	0		$	9		$	32		$	0		$	0
Real Estate		35			16			20			7			0
Consumer		49			73			205			99			29
Total Loans Charged Off		84			98			257			106			29
Recoveries of Loans Previously Charged Off:
Commercial		0			1			1			0			1
Real Estate		5			1			1			3			0
Consumer		38			28			6			5			4
Total Recoveries		43			30			8			8			5
Net Loans Charged Off:		41			68			249			98			24
Additions to Allowance:
Charged to Expense		3			534			700			100			23
Balance at End of Period		$	1,581		$	1,619		$	1,153		$	702		$	700
Ratio of Net Charge-Offs
During Period to
Average Loans		0.039		%	0.062		%	0.220		%	0.089		%	0.024		%

 

18

 

TABLE VI - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

 

		December 31, 2003					December 31, 2002					December 31, 2001					December 31, 2000					December 31, 1999
		Allowance			% of Outstanding Loan Balance		Allowance			% of Outstanding Loan Balance		Allowance			% of Outstanding Loan Balance		Allowance			% of Outstanding Loan		Allowance			% of Outstanding Loan Balance
Commercial		$	854		2.13	%	$	854		1.94	%	$	749		1.52	%	$	464		0.98	%	$	464		1.03	%
Real Estate		596			1.17	%	623			1.19	%	288			0.54	%	163			0.31	%	163			0.32	%
Consumer		132			1.25	%	142			1.24	%	116			0.83	%	75			5.50	%	73			5.50	%
Total		$	1,582		1.55	%	$	1,619		1.50	%	$	1,153		0.97	%	$	702		0.62	%	$	700		0.64	%

 

19

 

CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS

 

Non-performing assets consist of (a) loans not accruing interest any longer due to doubts about future collectibility, (b) loans more than ninety days past due for the last principal or interest payment, and (c) other real estate owned by the Bank taken originally as loan collateral.  Table VII. provides a five-year summary of the components involved in non-performing assets as of year end.

 

Loans are determined to be non-accruing when it has been determined that the ability of the bank to collect the unpaid balance of such loans is highly unlikely due to the financial position of the borrower and general economic conditions.  The determination of such classification is made by bank management on a case-by-case basis for problem loans.  Generally, a review of each loan ninety days or more past due is made monthly and such loans deemed uncollectible become classified as non-accrual.

 

Loans are determined to be ninety days delinquent when such a period of time has elapsed since the last payment of principal or interest was made.  At such a time, consideration as to whether to classify the loan as non-accruing is made.  However, until such classification is made, interest will continue to be accrued.

 

Other real estate consists of real property that the Bank originally took as collateral for loans but has since acquired title to when the borrowers defaulted and the Bank bid on the property in question at public auction.

 

TABLE VII. - CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS

(In thousands of Dollars)

 

		Year Ended December 31,
		2003		2002		2001		2000		1999
Commercial Loans		$40,126		$43,980		$49,211		$47,526		$45,069
Real Estate Loans		51,031		52,503		53,719		52,597		51,163
Consumer Loans		10,458		11,450		13,978		13,518		13,339
Subtotal		101,615		107,933		116,908		113,641		109,571
Less: Unearned Income		0.		0.		0.		0.		0.
		101,615		107,933		116,908		113,641		109,571
Subtotal
Less: Reserve for Loan Losses		1,582		1,619		1,153		702		700
Net Loans		$100,033		$106,314		$115,755		$112,939		$108,871
Non-Performing Assets Non-Accruing Loans		$1,059		$1,706		$864		$426		$555
Loans Past Due 90 Days		149		617		1,801		3,338		3,272
Other Real Estate Owned		202		196		227		200		358
Total Non-Performing Assets		$1,410		$2,519		$2,892		$3,964		$4,185

 

20

 

SECURITIES

 

The securities portfolio of Logan County BancShares, Inc. is the second largest area of resource allocation.  Investments provide liquidity and serve as a hedge off-setting the increased sensitivity of deposits caused by deregulation.  The Company has been shifting the concentration of the portfolio from held to maturity securities into more flexible, higher-yielding available for sale investments.

 

Securities include those classified as held to maturity and available for sale, in 2002 and 2001 these amounted to approximately 30% of the earning assets and represented allocation of funds due to lower loan demand.

 

All debt securities, that Logan County BancShares Subsidiary does not have the ability or management does not have the positive intent to hold to maturity, are classified as “securities available for sale” and are carried at market value.

 

TABLE VIII. – MATURITY DISTRIBUTION OF SECURITES AT DECEMBER 31, 2003

(In Thousands of Dollars)

 

December 31. 2003		One Year or Less			OneYear Through Five Years			Years Through Ten Years			Over Ten Years			Total			Market Value
Dollars in thousands
U.S. Government:
Available for Sale		$	9,001		$	0		$	0		$	0		$	9,001		$	9,030
Held to maturity		0			0			0			0			0			0
U.S. Federal Agency/and Equities
Available for sale		17,773			20,737			0			344			38,854			38,943
Held to maturity		0			0			0			0			0			0
Total Securities:
Available for sale		26,774			20,737			0			344			47,855			47,973
Held to maturity		0			0			0			0			0			0
TOTAL		$	26,774		$	20,737		$	0		$	344		$	47,855		$	47,973
								0
Percent of total		55.95		%	43.33		%	0.00		%	0.72		%	100.00		%	100.00		%
Weighted average yield		2.09		%	1.92		%	0.00		%	3.30		%	2.02		%	2.02		%

 

 

**  The weighted average yields are based on carrying value and effective yields are weighted for the scheduled maturity of each security.

 

21

 

OTHER INCOME

 

In 2003 and 2002, the bank adjusted to a slower growth pace and evaluated service fees on the various services rendered for customers.  As a result, the service fees increased by $200,000 and other fees decreased by $20,000 in 2003 compared to 2002 and $29,000 and $75,000, respectively, in 2002 compared to 2001.

 

Table IX – OTHER INCOME
(In Thousands of Dollars)

 

											Increase (Decrease)
											2003 Over 2002					2002 Over 2001
		2003			2002			2001			Amount			Percent		Amount			Percent
Service Fee		$	857		$	657		$	628		$	200		30.44	%	$	29		-6.53	%
Other Fees		128			148			73			(20		)	-13.51	%	75			102.74	%
Securities:
Gain (Loss)		1			0			6			1			100.00	%	(6		)	-100.00	%
Total Other Income		$	986		$	805		$	707		$	181		22.48	%	$	98		-8.91	%

 

22

 

TABLE X – OTHER EXPENSES

(In Thousands of Dollars)

 

											2003 Over 2002					2002 Over 2001
		2003			2002			2001			Amount			Percent		Amount			Percent
Salaries and Benefits		$	2,377		$	2,322		$	2,217		$	55		2.37	%	$	105		4.74	%
Taxes		110			130			85			(20		)	-15.38	%	45			52.94	%
Depreciation		259			273			270			(14		)	-5.13	%	3			1.12	%
Repairs and Maintenance		277			230			223			47			20.43	%	7			3.14	%
Fees Paid to Directors		77			80			80			(3		)	-3.75	%	0			0.00	%
Equipment Rental		39			43			41			(4		)	-9.30	%	2			4.88	%
FDIC & Fidelity Insurance		107			110			113			(3		)	-2.73	%	(3		)	-2.64	%
Data Processing		559			533			514			26			4.88	%	19			3.67	%
Bank Stationery		146			143			163			3			2.10	%	(20		)	-12.27	%
Bank Operating Expenses		777			825			925			(48		)	-5.82	%	(100		)	-10.81	%
TOTAL		$	4,728		$	4,689		$	4,631		$	39		0.83	%	$	58		1.25	%

 

23

 

OTHER EXPENSES

 

During 2003 the other expenses increased by $39,000 and only .82% of the increase was in salaries and benefits and reflected normal increases in compensation.  Most other areas were relatively stable as management continued to control operational cost.

 

In 2002 the other expenses grew by $58,000 or only 1.25% over 2001.  This small increase was primarily in salaries, benefits and taxes all relating to normal increases in these areas.  These were affected by decreases in operating expenses and bank supplies.

 

Repairs and maintenance, directors’ fees, equipment rental, and Bank stationery expenses vary from year to year based on the Company’s demand.  These types of expenses are not directly related to the income function and, therefore, increase or decrease sporadically.

 

24

 

EARNINGS AND DIVIDENDS

 

As demonstrated in Table XI., Logan County BancShares, Inc. strives to achieve a favorable dividend payout rate to the shareholders.  In 2003 the trend of recent years continued.  Net income per share grew by 5.08% and dividends to shareholders by 2.61%.  The company maintained a strong capital position by increasing stockholders’ equity by 3.47% and assets grew by 3.51%.  During 2002 the company increased stockholder’s equity by 2.340%, along with increases of 4.90% in net income and 2.00% increase in the dividend payout ratio.  These positive indicators reflect the overall growth in size, service area and customer base.

 

TABLE XI. – THREE-YEAR SUMMARY OF EARNINGS AND DIVIDENDS

 

 

		Dividend Payout		Net Income			Dividends			Net Income		Dividends		Total Assets		Equity
2001		61.12	%	$	2.45		$	1.50		-13.73	%	4.17	%	8.96	%	4.91	%
2002		59.56	%	$	2.57		$	1.53		4.90	%	2.00	%	0.91	%	2.34	%
2003		58.15	%	$	2.45		$	1.57		5.08	%	2.61	%	3.51	%	3.47	%

 

25

 

EARNING ASSETS

 

Table XII represents analysis of average earning assets and interest-bearing liabilities for the years ended December 31, 2003, 2002, and 2001.

 

In the period presented, average-earning assets grew by $1,841,000 in 2003, $4,722,000 in 2002 and $20,386,000 in 2001.  This growth represented increases of 1.12% in 2003, 2.95% in 2002 and 14.62% in 2001.  The loan portfolio is the major component of earning assets which declined by $6,551,000 in 2003, $2,865,000 in 2002 after growing by $4,494,000 or 4.13% in 2001.  The company also allocated to the investment portfolio a portion of the growth to maintain liquidity and fund future loan requirements.

 

INTEREST BEARING LIABILITIES

 

Interest bearing liabilities include interest bearing demand deposits, savings accounts, time deposits and borrowed funds.  These are the prime sources of funds for Logan County BancShares, Inc. subsidiary to support earning assets.  Total average interest bearing liabilities decreased by $1,032,000 in 203 or 0.01% after increasing $4,799,000 or 3.86% in 2002 and $8,630,000 or 7.46$ in 2001.  In all years the Company has maintained a stable net interest margin while experiencing growth in the underlying deposits.  The Company has been able to match earning yields with costs of funds over the past three years to maintain a stable net interest margin.

 

26

 

TABLE XII – ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES

 

(In Thousands of Dollars)

 

		Year Ended 12/31/03								Year Ended 12/31/02								Year Ended 12/31/01
		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate
ASSETS
EARNING ASSETS:
LOANS:
Commercial		$	41,444		$	2,665		6.43	%	$	44,680		$	3,103		6.94	%	$	46,696		$	4,209		9.01	%
Real Estate		51,764			4,004			7.74	%	53,180			4,262			8.01	%	52,514			4,376			8.33	%
Consumer		10,665			910			8.53	%	12,564			1,154			9.18	%	14,079			1,397			9.92	%
Total Loans		$	103,873		$	7,579		7.30	%	$	110,424		$	8,519		7.71	%	$	113,289		$	9,982		8.81	%
INVESTMENT
SECURITIES
Held to Maturity		0			0			0.00	%	0			0			0.00	%	0			0			0.00	%
Available for Sale		45,014			1,005			2.23	%	40,988			1,364			3.32	%	25,967			1,354			5.21	%
Total Securities		45,014			1,005			2.23	%	40,988			1,364			3.32	%	25,967			1,354			5.21	%
FEDERAL FUNDS		17,472			182			1.04	%	13,106			206			1.57	%	20,540			754			3.67	%
SOLD TOTAL EARNING ASSETS		$	166,359		$	8,766		5.27	%	$	164,518		$	10,089		6.13	%	$	159,796		$	12,090		7.57	%
NON-EARNING
ASSETS:
Cash and Due From Banks		5,339								5,187								5,027
Bank Premises		3,145								3,337								3,561
Other Assets		300								408								1,997
TOTAL NON-EARNING ASSETS		$	8,784							$	8,932							$	10,585
TOTAL ASSETS		$	175,143							$	173,450							$	170,381

 

27

 

TABLE XII – ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES

 

(In Thousands of Dollars)

 

		Year Ended 12/31/03								Year Ended 12/31/02								Year Ended 12/31/01
		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate
INTEREST BEARING LIABILITIES:
DDA		$	67,047		$	315		0.47	%	$	65,384		$	584		0.89	%	$	57,807		$	1,139		1.97	%
Time Deposits		58,224			1,672			2.87	%	60,861			2,024			3.33	%	64,549			3,522			5.46	%
Repurchase Agreement		2,852			100			3.51	%	2,910			157			5.39	%	2,000			140			7.00	%
Total Interest Bearing Liabilities		$	128,123		$	2,087		1.63	%	$	129,155		$	2,765		2.14	%	$	124,356		$	4,801		3.86	%
NON-INTEREST BEARING LIABILITIES AND CAPITAL
Demand Deposits		28,166								25,559								28,052
Accrued Expenses		899								966								1,023
Capital		17,955								17,770								16,950
Total Non-Interest Bearing Liabilities and Capital		47,020								44,295								46,025
Total Liabilities and Stockholders’ Equity		$	175,143							$	173,450							$	170,381
NET INTEREST MARGIN		$	166,360		$	6,680		4.02	%	$	164,518		$	7,324		4.45	%	$	159,796		$	7,289		4.56	%

 

28

 

INTEREST RATE SENSITIVITY ANALYSIS

 

Asset and liability management is responsible for the planning, implementation, and control process for determining asset mix and maturity features relative to liability maturities in such a way that net interest margin will be maximized.  A major tool for such a process is gap management of the Bank’s interest sensitive assets to interest sensitive liabilities.

 

The negative gap position as presented in the following table for maturities of one year or less is offset by the substantial positive gap position for maturities greater that one year.  The earnings of Logan County BancShares, Inc. are sufficient to withstand the short-term negative gap position.  Should a large fluctuation occur, increasing the costs of funds, management would consider increasing service charges and non-interest fees which management determines the market would bear in order to negate increased rate costs.  An additional response, at the option of management, would be liquidation of certain long-term investments, and conversion of those funds into short-term securities.

 

Bank management recognized the concentration of large certificates of deposit.  The Bank’s policy of asset-liability management matches both rates and maturities so the Bank will not have a liquidity problem or allow income to be affected by a change in rates.

 

All demand and savings deposits are considered highly volatile, although experience has shown these accounts to be stable regardless of economic cycles.  Interest on savings and other transactional accounts have generally remained constant over periods of interest rate changes.  Therefore, deposits and savings are classified as “over one year” to represent a more realistic rate sensitive gap.

 

29

 

TABLE XIII — INTEREST RATE SENSITIVITY ANALYSIS

 

(In Thousands of dollars)

 

		0 - 90			91 - 180			181 - 365			Total One Year			Over One year			Total
Earning Assets
Loans		$	6,557		$	5,576		$	21,299		$	33,432		$	74,501		$	107,933
Investments		13,591			6,607			6,607			26,805			21,168			47,973
Fed. Funds Sold		11,370			0			0			11,370			0			11,370
Total Earning Assets		31,518			12,183			27,906			71,607			95,669			167,276
Interest Bearing Liabilities:
Demand Deposits		23,256			0			0			23,256			0			23,256
Savings		12,185			9,689			21,330			43,204			0			43,204
CD’s of $100,000 and Over		2,804			1,991			3,270			8,065			14,348			22,413
Other Time		6,834			6,707			6,341			19,882			15,300			35,182
Total Interest Bearing Liability		45,079			18,387			30,941			94,407			29,648			124,055
Interest Sensitivity Gap		$	(13,561	)	$	(6,204	)	$	(3,035	)	$	(22,800	)	$	66,021		$	43,221
Cumulative Gap		$	(13,561	)	$	(19,765	)	$	(22,800	)	$	(22,800	)	$	66,021		$	43,221
Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative Percentage)		69.92		%	68.86		%	75.85		%	75.85		%	134.84		%	134.84		%

 

30

 

TABLE XIV – AVERAGE BALANCE SHEET
(In Thousands of Dollars)

 

		2003			2002			2001			2000			1999
ASSETS:
Cash & Due from Banks		$	5,339		$	5,187		$	5,027		$	4,467		$	4,400
Investment Securities:
Available for Sale		45,014			40,988			25,967			28,887			29,045
Held to Maturity		0			0			0			0			1,080
Total Investments		45,014			40,988			25,967			28,887			30,125
Federal Funds Sold		17,472			13,106			20,540			1,728			4,792
Loans
Real Estates		51,764			53,180			52,514			52,215			49,235
Installment		10,665			12,564			14,079			13,348			12,212
Commercial & Other		41,444			44,680			46,696			43,884			40,468
		103,873			110,424			113,289			109,447			101,915
Less:  Unearned Discount		0			0			0			0			0
		103,873			110,424			113,289			109,447			101,915
Allowance For Loan Losses		(1,582		)	(1,250		)	(788		)	(652		)	(718		)
Net Loans		102,291			109,174			112,501			108,795			101,197
Banking Premises		3,145			3,337			3,561			3,765			2,824
Accrued Interest and Other Assets		1,882			1,658			2,785			2,373			2,136
TOTAL ASSETS		$	175,143		$	173,450		$	170,381		$	150,015		$	145,474
LIABILITIES & STOCKHOLDERS’ EQUITY
Deposits:
Demand Deposits		$	51,897		$	48,419		$	48,524		$	40,135		$	39,585
Savings Deposits		43,316			42,524			37,335			33,621			31,413
Time Deposits		58,224			60,861			64,549			59,505			58,167
Total Deposits		153,437			151,804			150,408			133,261			129,165
Repurchase Agreement		2,852			2,910			2,000			1,052			834
Other Liabilities		899			966			1,023			470			851
TOTAL LIABILITIES		157,188			155,680			153,431			134,783			130,850
STOCKHOLDERS’ EQUITY		17,955			17,770			16,950			15,232			15,624
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY		$	175,143		$	173,450		$	170,381		$	150,015		$	146,474

 

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To Our Shareholders, Customers and Friends:

 

 

We are proud to present the 2003 annual report of Logan County BancShares, Inc. and its Subsidiary, Logan Bank and Trust Company.  2003 saw the economy begin a slow upturn and we were positioned to show a continued earnings growth.  Net income for 2003 was $1,901,023 compared to $1,841,832. for 2002.  Earnings per common share totaled $2.62 in 2003 versus $2.57 in 2002.  This growth was largely from cost containment and proper asset liability management.  The return on average assets of 1.08% and return on equity of 10.24% are excellent returns of capital in today’s financial markets.

 

This year has been a year of celebration.  This marks our 40^TH continuous year of business in Logan; we are very proud of this achievement.  In today’s market, it certainly is not unusual to drive down the highway and see names change on bank signs (and new, OUT OF TOWN owners), but ours stays the SAME.  We had a vision 40 years ago, and by managing to achieve that goal we are still here for you.  We knew we needed four basic components to be successful: 1) the best people, 2) the best facility, 3) state of the art technology and 4) leadership with commitment.  We feel we have achieved these goals and are grateful the community has rewarded us with their continued support.

 

We started out with one facility and concentrated on becoming the kind of bank that would not only meet any of your banking or financial needs, but would be a part of your community.  We focused on getting and keeping the best people…your neighbors…not someone from out of town who not only didn’t know you, but also didn’t know the area’s needs.  As we fulfilled this commitment, we knew it was time to grow.  We branched out into more communities and today we have five sites, each meeting the four basic goals with which we started.

 

By continuing to anticipate the fluctuations in today’s economy and moving ahead of the curve, we have managed, even with the continuing slow market, to provide dividends to shareholders, affordable homes to neighbors, innovative lending to business while meeting the general financial needs of all our customers.  We specialize in giving all our customers that “hometown” treatment.

 

Our employees have been one of our biggest assets for the past forty years.  They continue to be involved in local schools, churches and organizations.  In today’s fast-paced world, it is comforting and inspiring to have people who are equally concerned with excelling in the business market and making our community a better place for us all.

 

We want to sincerely thank our directors for their vision, our shareholders for their support, our employees for their continued dedication and to our customers for their confidence.  We pledge to continue to focus on the vision and meet all new challenges as only a locally owned bank can do.  We will continue the tradition!

 

 

Respectively,

 

 

Harvey H. Oakley		Eddie Canterbury
Chairman/President		Executive Vice-President/CEO

 

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[Mc NEAL. WILLIAMSON & CO. LETTER HEAD]

 

Donald M. McNecl. CPA		Daniel L. Williamson, CPA
Post Office Box 1839		525 Tiller St., Cherry Tree Addn.
Logan, West Virginia 2560;		Logan, West Virginia 2560;
Phone (304) 752-0461		Fax  (304) 752-4660

 

INDEPENDENT AUDITORS’ REPORT

 

To the Board of Directors and Stockholders
of Logan County BancShares, Inc. and Subsidiary

 

We have audited the accompanying consolidated statements of condition of Logan County BancShares, Inc., and Subsidiary as of December 31, 2003, and 2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the  financial  statements.  An  audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present

fairly, in all material respects, the consolidated financial position of Logan County BancShares, Inc. and Subsidiary as of December 31, 2003, and 2002, and the results of their operations and  cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ McNeal, Williamson & Co.
Logan, West Virginia
February 26, 2004

 

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Logan County BancShares, Inc. and Subsidiary

Consolidated Statement of Condition

December 31, 2003 and 2002

 

ASSETS

 

		2003			2002
CASH AND DUE FROM BANKS		$	7,239,884		$	5,967,423
INVESTMENT SECURITIES:
Available for sale		47,972,978			41,305,138
Held to maturity		0			0
Total Investment Securities		47,972,978			41,305,138
FEDERAL FUNDS SOLD		13,385,000			11,370,000
LOANS:
Mortgage Loans		51,031,339			52,502,944
Installment Loans		10,457,792			11,449,826
Commercial and Other Loans		40,125,576			43,979,821
Total Loans		101,614,706			107,932,591
Less:Unearned Interest		0			0
Reserve for Loan Losses		1,581,414			1,618,632
Net Loans		100,033,292			106,313,959
BANK PREMISES AND EQUIPMENT		3,103,002			3,217,324
INTEREST RECEIVABLE		843,052			811,373
OTHER ASSETS		3,081,834			713,556
TOTAL ASSETS		$	175,659,042		$	169,698,773

 

The accompanying notes are an integral part of these consolidated financial statements

 

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