**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

 

**WASHINGTON, D. C.  20549**

 

**Quarterly Report Under Section 13or 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 ItsCharter)

 

**WEST VIRGINIA**

(State or other jurisdiction of incorporation ororganization)

 

**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 checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. Yes ý  No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the numberof shares outstanding, of each of the issuer’s classes of common stock, as ofthe latest practicable date.  **703,991**

** **

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

 

 

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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                      |   |
|                                 |  |  |  |  |

 

2

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LOGAN COUNTY BANCSHARES, INC.AND SUBSIDIARIESConsolidated Statement of ConditionSeptember 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 |   |

 

SEEACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

3

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LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIESConsolidated Statement of IncomeFor 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 ACCOMPANYINGNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

4

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LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIESConsolidated Statement of IncomeFor 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 ACCOMPANYINGNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

5

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LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARIESConsolidated Statement in Changesin Stockholders’ EquityFor 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 ACCOMPANYINGNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

6

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LOGAN COUNTY BANCSHARES, INC. ANDSUBSIDIARIESConsolidated Statement of Cash FlowsFor 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 ACCOMPANYINGNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

7

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September 30, 2003

 

 

LOGAN COUNTY BANCSHARES, INC. ANDSUBSIDIARIESNotes to Consolidated FinancialStatements

 

1.               FinancialStatements:

 

The foregoingstatements are unaudited; however, in the opinion of the Management, alladjustments (comprising of only normal recurring accruals) necessary for a fairpresentation of the financial statements have been included.

 

2.               Basisof Consolidation:

 

TheConsolidated Statement of Condition and Consolidated Statement of Income ofLogan County Bancshares, Inc. include the activity of Logan Bank and TrustCompany, a wholly owned subsidiary.

 

8

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MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

EARNINGSSUMMARY

 

The Companyreported net income of $1,513,000. for the nine months ended September 30, 2003compared to $1,603,000. for the nine months ended September 30, 2002, representinga 5.61% decrease. This decrease was primarily the result of the decrease in netinterest income of $536,000., partially offset by an increase in other incomeof $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 thesame 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% atSeptember 30, 2003 and 2002, respectively.

 

NET INTERESTINCOME

 

The most significant componentof Logan County Bancshares’ net earnings is net interest income, whichrepresents the excess of interest income earned on earning assets over theinterest expense paid for sources of funds. Net interest income is affected bychanges in volume resulting from growth and alteration of the balance sheetcomposition, as well as by fluctuations in market interest rates and maturitiesof sources and uses of funds.

 

Interestincome 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., resultingin an overall decrease of $536,000. or 9.66% in net interest income betweenSeptember 30, 2003 and September 30, 2002.

 

PROVISION FORLOAN LOSSES AND ASSET QUALITY

 

The provisionfor loan losses represents charges to earnings necessary to maintain anadequate allowance for potential future loan losses. Management’s determinationof the appropriate level of the allowance is based on an ongoing analysis ofcredit quality and loss potential in the loan portfolio, actual loan lossexperience relative to the size and characteristics of the loan portfolio,change in the composition and risk characteristics of the loan portfolio andthe anticipated influence of national and local economic conditions. Theadequacy of the allowance for loan losses is reviewed quarterly and adjustmentsare made as considered necessary.

 

For the ninemonth period ended September 30, 2003 and 2002, the provision for loan losseswas $3,000. and $180,000. respectively.

 

The reservefor 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 unearnedincome), the reserve for loan losses was 1.53% at September 30, 2003 and 1.19%at September 30, 2002.

 

9

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A summary of the Company’s pastdue 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 |   |

 

NONINTERESTINCOME

 

Non-interestincome includes revenues from all sources other than interest income. For thenine 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 toincreases in other income of $22,000. and increased fees of $175,000.

 

NONINTERESTEXPENSE

 

Non-interestexpense comprises overhead costs which are not related to interest expense orto losses from loans or securities. As of September 30, 2003, the Company’s non-interestexpense totaled $3,401,000., increasing $45,000. over the $3,356,000. ofnon-interest expense for the nine months ended September 30, 2002. Expressed asa percentage of assets, annualized non-interest expense was 2.53% at September30, 2003, compared to 2.56% at September 30, 2002.

 

Salaries andemployee 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% atSeptember 30, 2003 compared to September 30, 2002. This increase is primarilydue to normal personnel increases and timing of personnel benefit accruals.

 

INCOME TAXES

 

Logan CountyBancshares’ 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 atSeptember 30, 2003 and 2002, respectively. For financial reporting purposes, incometax expense does not equal the statutory income tax rate of 43% when applied topretax income, primarily because of timing differences in expense items for taxpurposes..

 

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Balance SheetData:

 

Total assetsincreased by $9,324,000. between year end and September 30, 2003 to a balanceof $179,023,000. The major component of this change was an increase inInvestment Securities of $10,483,000. The primary source of funds for thischange was an increase in deposits of $7,222,000., Federal Fundspurchased/repurchase agreements of $2,000,000., and net income of $1,513,000.

 

Liquidity:

 

ManagingLogan’s liquidity requirements primarily involves meeting the loan demand,deposit withdrawal and the cash flow requirements. Logan’s primary sources ofliquid assets are federal funds sold and investment securities maturing in lessthan one year. These items can be converted into funds in a short period oftime. At September 30, 2003, Federal Funds Sold amounted to $15,670,000. andsecurities maturing within one year amounted to $18,149,000. These are comparedto the balances at September 30, 2002 of $8,860,000. in Federal Funds Sold andmaturing Investment Securities of $8,589,000. due within one year.

 

Traditionally,banks have been able to manage liquidity based on a relatively stable group ofcore deposits. The deposits, demand and consumer deposits under $l00,000. areconsidered the most stable and least expensive source of funds. During 2003 and2002, banks continue to be faced with volatile interest sensitive funds andhave had to match their funding requirements by using assets and liabilitymanagement techniques.

 

CapitalResources:

 

Logan’scapital position is based on its stockholders’ equity and the primary source ofsuch equity has been retained earnings. Since Logan’s formation, it hasaccumulated 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. ofRetained Earnings and total Stockholders’ equity of $17,970,000. at September30, 2003.

 

The equitycapital was 9.92% and 10.31% of total assets at September 30, 2003 and 2002respectively. Logan County Bancshares exceeds all regulatory capital guidelines and has not been advised by any regulatory agency of any minimum capitalrequirement.

 

Effects of Inflation:

 

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

 

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PART II.- OTHER INFORMATION

 

NONE.

 

SIGNATURES

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly 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)                               |

 

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