**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

----

 

**Quarterly Report Pursuant to Section 13or 15(d) ofthe Securities Exchange Act of 1934**

 

**For the quarterlyperiod ended:**

 

**June 30, 2005**

 

**Commission FileNumber: 2-95114**

 

**LOGAN COUNTYBANCSHARES, INC.**

(Exact name of Registrant as specified in its Charter)

 

| **West Virginia**                                               |
|-----------------------------------------------------------------|
| (State or other jurisdiction of Incorporation or  organization) |
|                                                            |
| **55-0660015**                                                  |
| (I.R.S. Employer Identification No.)                            |
|                                                            |
| **P. O. Box 597, Logan, West Virginia**                         | ** ** | **25601** |
| (Address of principal  executive offices)                       | ** ** | (Zip Code) |
|                                                            |
| **(304) 752-1166**                                              |
| (Registrant’s telephone number, including area code)       |

 

----

 
| Indicate  by check mark whether the registrant (1) has filed all reports required  to be filed by Section 13 or 15(d) of the |
|---------------------------------------------------------------------------------------------------------------------------------------------|
| Securities  Exchange Act of 1934 during the preceding 12 months (or for such shorter  period that the registrant was required to file       |
| such  reports), and (2) has been subject to such filing requirements for the  past 90 days.                                            | Yes ý  No o |

 

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

 

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

 
| Class Outstanding at August 12, 2005 |
|------------------------------------------------|
|                                           |
| Common  Stock ($1.67 Par Value)                | ** ** | 703,991 Shares |

 

 

----

 

**LOGANCOUNTY BANCSHARES, INC.**

 

**Table ofContents**

 
| PART I – FINANCIAL INFORMATION |                                                                                                                            |
|------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                            |   |
| ITEM  1.                                 | FINANCIAL STATEMENTS:                                                                                                           |   |
|                                     |                                                                                                                            |   |
|                                     | Consolidated Balance Sheets  as of June 30, 2005 (Unaudited) and December 31, 2004.                                   |   |
|                                     |                                                                                                                            |   |
|                                     | Consolidated Statements of  Income For the Six Month Periods Ended June 30, 2005 and 2004  (Unaudited)                     |   |
|                                     |                                                                                                                            |   |
|                                     | Consolidated Statements of  Income For the Three Month Periods Ended June 30, 2005 and 2004  (Unaudited)                   |   |
|                                     |                                                                                                                            |   |
|                                     | Consolidated Statement of  Changes in Stockholders’ Equity for the Six Month Period Ended June 30,  2005 (Unaudited). |   |
|                                     |                                                                                                                            |   |
|                                     | Consolidated Statements of  Cash Flows for the Six Month Periods Ended June 30, 2005 and 2004  (Unaudited)                 |   |
|                                     |                                                                                                                            |   |
|                                     | Notes to Consolidated  Financial Statements                                                                                     |   |
|                                     |                                                                                                                            |   |
| ITEM  2.                                 | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                     |   |
|                                     |                                                                                                                            |   |
| ITEM  3.                                 | QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                     |   |
|                                     |                                                                                                                            |   |
| ITEM  4.                                 | CONTROLS AND PROCEDURES                                                                                                         |   |
|                                     |                                                                                                                            |   |
| PART II – OTHER INFORMATION    |                                                                                                                            |
|                                     |                                                                                                                            |   |
| ITEM 1.                                  | LEGAL PROCEEDINGS                                                                                                               |   |
|                                     |                                                                                                                            |   |
| ITEM  2.                                 | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                    |   |
|                                     |                                                                                                                            |   |
| ITEM  3.                                 | DEFAULTS UPON  SENIOR SECURITIES                                                                                                |   |
|                                     |                                                                                                                            |   |
| ITEM  4.                                 | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                            |   |
|                                     |                                                                                                                            |   |
| ITEM 5.                                  | OTHER INFORMATION                                                                                                               |   |
|                                     |                                                                                                                            |   |
| ITEM  6.                                 | EXHIBITS                                                                                                                        |   |

 

i

----

 
| EXHIBITS          |                                                                                                        |   |
|-------------------|-------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                        |   |
| Exhibit 31.1 | Sarbanes-Oxley Act, Section 302 Certification of Executive Vice  President and Chief Executive Officer |   |
|              |                                                                                                        |   |
| Exhibit 31.2 | Sarbanes-Oxley Act, Section 302 Certification of Vice President  and Chief Financial Officer           |   |
|              |                                                                                                        |   |
| Exhibit 32.1 | Sarbanes-Oxley Act, Section 906 Certification of Executive Vice  President and Chief Executive Officer |   |
|              |                                                                                                        |   |
| Exhibit 32.2 | Sarbanes-Oxley Act, Section 906 Certification of Vice President  and Chief Financial Officer           |   |
|              |                                                                                                        |   |
| Signatures        |                                                                                                        |   |

 

ii

----

 

**LOGAN COUNTY BANCSHARES, INC.**

 

**PART I**

 

**FINANCIAL INFORMATION**

 

**ITEM 1.**** ****FINANCIAL STATEMENTS**

 

**Logan County BancShares, Inc. and Subsidiary**

**CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

**(In Thousands)**

 
| ** **                                                                                                                   | ** ** | **June 30,**    | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| ** **                                                                                                                   | ** ** | **2005**        | ** ** | **2004**         | ** ** |
| ** **                                                                                                                   | ** ** | **(Unaudited)** | ** ** | ** **       | ** ** |
| **ASSETS**                                                                                                                   |       |            |       |             |       |
| Cash and cash equivalents:                                                                                                   |       |            |       |             |       |
| Cash and due  from banks                                                                                                     |       | $               | 6,001      |             | $          | 5,995 |   |
| Federal funds  sold                                                                                                          |       | 4,820           |       | 5,990            |       |
| Total cash and  cash equivalents                                                                                             |       | 10,821          |       | 11,985           |       |
|                                                                                                                         |       |            |       |             |       |
| Investment  securities:                                                                                                      |       |            |       |             |       |
| Available-for-sale  (at fair value)                                                                                          |       | 67,331          |       | 65,920           |       |
| Loans                                                                                                                        |       | 100,245         |       | 98,297           |       |
| Less allowance  for possible loan losses                                                                                     |       | (1,241          | )          | (1,263           | )          |
| Net loans                                                                                                                    |       | 99,004          |       | 97,034           |       |
|                                                                                                                         |       |            |       |             |       |
| Premises and  equipment, net                                                                                                 |       | 3,070           |       | 3,191            |       |
| Accrued income  receivable                                                                                                   |       | 597             |       | 675              |       |
| Bank owned life  insurance                                                                                                   |       | 2,106           |       | 2,076            |       |
| Other assets                                                                                                                 |       | 744             |       | 787              |       |
|                                                                                                                         |       |            |       |             |       |
| Total assets                                                                                                                 |       | $               | 183,673    |             | $          | 181,668 |   |
|                                                                                                                         |       |            |       |             |       |
| **LIABILITIES**                                                                                                              |       |            |       |             |       |
|                                                                                                                         |       |            |       |             |       |
| Noninterest  bearing deposits:                                                                                               |       |            |       |             |       |
| Demand                                                                                                                       |       | $               | 35,474     |             | $          | 33,992 |   |
| Interest bearing  deposits:                                                                                                  |       |            |       |             |       |
| Demand                                                                                                                       |       | 23,858          |       | 23,675           |       |
| Savings                                                                                                                      |       | 47,365          |       | 46,549           |       |
| Time                                                                                                                         |       | 56,032          |       | 56,995           |       |
| Total deposits                                                                                                               |       | 162,729         |       | 161,211          |       |
| Repurchase  agreements                                                                                                       |       | 2,000           |       | 2,000            |       |
| Accrued interest  and other liabilities                                                                                      |       | 561             |       | 530              |       |
| Total  liabilities                                                                                                           |       | 165,290         |       | 163,741          |       |
|                                                                                                                         |       |            |       |             |       |
| **STOCKHOLDERS’ EQUITY**                                                                                                |       |            |       |             |       |
|                                                                                                                         |       |            |       |             |       |
| Common stock -  780,000 shares authorized at $1.67 par value:  703,991 shares issued at June 30, 2005, and December 31, 2004 |       | 1,300           |       | 1,300            |       |
| Treasury Stock -  76,000 shares at cost                                                                                      |       | (1,406          | )          | (1,406           | )          |
| Surplus                                                                                                                      |       | 2,408           |       | 2,408            |       |
| Retained  earnings                                                                                                           |       | 16,302          |       | 15,851           |       |
| Accumulated  other comprehensive income (loss)                                                                               |       | (221            | )          | (226             | )          |
| Total  stockholders’ equity                                                                                             |       | 18,383          |       | 17,927           |       |
|                                                                                                                         |       |            |       |             |       |
| Total  liabilities and stockholders’ equity                                                                             |       | $               | 183,673    |             | $          | 181,668 |   |

 

The accompanying notes are an integral part of the unaudited consolidatedfinancial statements.

 

3

----

 

**Logan County BancShares, Inc. and Subsidiary**

**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

**(In Thousands)**

 
| ** **                                                    | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **June 30,**         | ** ** |
| ** **                                                    | ** ** | **2005**             | ** ** | **2004** | ** ** |
| **INTEREST  AND DIVIDEND INCOME**                             |       |                 |       |   |   |
| Interest and  fees on loans                                   |       | $                    | 3,417      |   | $ | 3,486 |   |
| Interest and  dividends on investments                        |       | 794                  |       | 472 |   |
| Interest on  federal funds sold                               |       | 124                  |       | 99 |   |
| Total interest  income                                        |       | 4,335                |       | 4,057 |   |
|                                                          |       |                 |       |   |   |
| **INTEREST  EXPENSE**                                         |       |                 |       |   |   |
| Deposits                                                      |       | 806                  |       | 841 |   |
| Other borrowings                                              |       | 35                   |       | 51 |   |
| Total interest  expense                                       |       | 841                  |       | 892 |   |
|                                                          |       |                 |       |   |   |
| Net interest  income                                          |       | 3,494                |       | 3,165 |   |
|                                                          |       |                 |       |   |   |
| **PROVISION  FOR POSSIBLE LOAN LOSSES**                       |       | —               |       | — |   |
|                                                          |       |                 |       |   |   |
| Net interest  income after provision for possible loan losses |       | 3,494                |       | 3,165 |   |
|                                                          |       |                 |       |   |   |
| **NONINTEREST  INCOME**                                       |       |                 |       |   |   |
| Service charges  and other fees                               |       | 406                  |       | 418 |   |
| Other operating  income                                       |       | 104                  |       | 110 |   |
| Total  noninterest income                                     |       | 510                  |       | 528 |   |
|                                                          |       |                 |       |   |   |
| **NONINTEREST  EXPENSE**                                      |       |                 |       |   |   |
| Salary and  employee benefits                                 |       | 1,176                |       | 1,163 |   |
| Repairs and  maintenance                                      |       | 118                  |       | 280 |   |
| Fees paid to  Directors                                       |       | 52                   |       | 47 |   |
| Federal Reserve  charges                                      |       | 51                   |       | 50 |   |
| Data processing                                               |       | 376                  |       | 309 |   |
| Supplies                                                      |       | 64                   |       | 84 |   |
| Postage                                                       |       | 45                   |       | 43 |   |
| Other operating  expenses                                     |       | 594                  |       | 344 |   |
| Total  noninterest expense                                    |       | 2,476                |       | 2,320 |   |
|                                                          |       |                 |       |   |   |
| Income before  income taxes                                   |       | 1,528                |       | 1,373 |   |
|                                                          |       |                 |       |   |   |
| **INCOME  TAXES**                                             |       | 556                  |       | 488 |   |
|                                                          |       |                 |       |   |   |
| Net income                                                    |       | $                    | 972        |   | $ | 885 |   |
|                                                          |       |                 |       |   |   |
| Dividends  declared per common share                          |       | $                    | 0.74       |   | $ | 0.72 |   |
|                                                          |       |                 |       |   |   |
| Earnings per  common share:                                   |       |                 |       |   |   |
| Basic                                                         |       | $                    | 1.38       |   | $ | 1.26 |   |
| Diluted                                                       |       | $                    | 1.38       |   | $ | 1.26 |   |
|                                                          |       |                 |       |   |   |
| Average  outstanding shares:                                  |       |                 |       |   |   |
| Basic                                                         |       | 703,991              |       | 703,991 |   |
| Diluted                                                       |       | 703,991              |       | 703,991 |   |

 

The accompanying notes are an integral part of the unauditedconsolidated financial statements.

 

4

----

 

**Logan County BancShares, Inc. and Subsidiary**

**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

**(In Thousands)**

 
| ** **                                                    | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **June 30,**           | ** ** |
| ** **                                                    | ** ** | **2005**               | ** ** | **2004** | ** ** |
| **INTEREST  AND DIVIDEND INCOME**                             |       |                   |       |   |   |
| Interest and  fees on loans                                   |       | $                      | 1,719      |   | $ | 1,729 |   |
| Interest and  dividends on investments                        |       | 405                    |       | 259 |   |
| Interest on  federal funds sold                               |       | 70                     |       | 45 |   |
| Total interest  income                                        |       | 2,194                  |       | 2,033 |   |
|                                                          |       |                   |       |   |   |
| **INTEREST  EXPENSE**                                         |       |                   |       |   |   |
| Deposits                                                      |       | 411                    |       | 415 |   |
| Other borrowings                                              |       | 18                     |       | 24 |   |
| Total interest expense                                        |       | 429                    |       | 439 |   |
|                                                          |       |                   |       |   |   |
| Net interest  income                                          |       | 1,765                  |       | 1,594 |   |
|                                                          |       |                   |       |   |   |
| **PROVISION  FOR POSSIBLE LOAN LOSSES**                       |       | —                 |       | — |   |
|                                                          |       |                   |       |   |   |
| Net interest  income after provision for possible loan losses |       | 1,765                  |       | 1,594 |   |
|                                                          |       |                   |       |   |   |
| **NONINTEREST  INCOME**                                       |       |                   |       |   |   |
| Service charges  and other fees                               |       | 213                    |       | 221 |   |
| Other operating  income                                       |       | 40                     |       | 47 |   |
| Total  noninterest income                                     |       | 253                    |       | 268 |   |
|                                                          |       |                   |       |   |   |
| **NONINTEREST  EXPENSE**                                      |       |                   |       |   |   |
| Salary and  employee benefits                                 |       | 583                    |       | 573 |   |
| Repairs and  maintenance                                      |       | 69                     |       | 146 |   |
| Fees paid to  Directors                                       |       | 25                     |       | 23 |   |
| Federal Reserve  charge                                       |       | 19                     |       | 23 |   |
| Data processing                                               |       | 192                    |       | 178 |   |
| Supplies                                                      |       | 39                     |       | 48 |   |
| Postage                                                       |       | 27                     |       | 11 |   |
| Other operating  expenses                                     |       | 339                    |       | 185 |   |
| Total  noninterest expense                                    |       | 1,293                  |       | 1,187 |   |
|                                                          |       |                   |       |   |   |
| Income before  income taxes                                   |       | 725                    |       | 675 |   |
|                                                          |       |                   |       |   |   |
| **INCOME  TAXES**                                             |       | 263                    |       | 240 |   |
|                                                          |       |                   |       |   |   |
| Net income                                                    |       | $                      | 462        |   | $ | 435 |   |
|                                                          |       |                   |       |   |   |
| Dividends  declared per common share                          |       | $                      | 0.37       |   | $ | 0.36 |   |
|                                                          |       |                   |       |   |   |
| Earnings per  common share:                                   |       |                   |       |   |   |
| Basic                                                         |       | $                      | 0.66       |   | $ | 0.62 |   |
| Diluted                                                       |       | $                      | 0.66       |   | $ | 0.62 |   |
|                                                          |       |                   |       |   |   |
| Average  outstanding shares:                                  |       |                   |       |   |   |
| Basic                                                         |       | 703,991                |       | 703,991 |   |
| Diluted                                                       |       | 703,991                |       | 703,991 |   |

 

The accompanying notes are an integral part of the unauditedconsolidated financial statements.

 

5

----

 

**Logan County BancShares, Inc. and Subsidiary**

**CONSOLIDATED STATEM ENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)**

**(In Thousands)**

 
| ** **                                         | ** ** | ** **        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|------------|------------|--------------|------------|--------------|------------|-------------------|------------|--------------------|------------|------------|------------|------------|------------|
| ** **                                         | ** ** | ** **        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated**    | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | ** **        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | **Other**          | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **Common  Stock** | ** ** | ** ** | ** ** | **Retained** | ** ** | **Treasury** | ** ** | **Comprehensive** | ** ** | **Comprehensive**  | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **Shares**        | ** ** | **Stock**  | ** ** | **Surplus**  | ** ** | **Earnings** | ** ** | **Stock**         | ** ** | **Income  (loss)** | ** ** | **Income** | ** ** | **Total**  | ** ** |
| ** **                                         | ** ** | ** **        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **BALANCE,  DECEMBER 31, 2004**                    |       | 703,991           |       | $          | 1,300      |         | $          | 2,408        |       | $                 | 15,851     |               | $          | (1,406     | )          | $          | (226       | ) |   |   | $ | 17,927 |   |
|                                               |       |              |       |       |       |         |       |         |       |              |       |               |       |       |       |       |       |
| Comprehensive  income:                             |       |              |       |       |       |         |       |         |       |              |       |               |       |       |       |       |       |
| Net income for  the six months ended June 30, 2005 |       | —            |       | —     |       | —       |       | 972          |       | —            |       | —             |       | $          | 972        |       | 972        |   |
| Other  comprehensive income, net of tax            |       |              |       |       |       |         |       |         |       |              |       |               |       |       |       |       |       |
| Unrealized loss  on securities available-for-sale  |       | —            |       | —     |       | —       |       | —       |       | —            |       | 5                  |       | 5          |       | 5          |       |
| Comprehensive  income                              |       |              |       |       |       |         |       |         |       |              |       |               |       | $          | 977        |       |       |   |
|                                               |       |              |       |       |       |         |       |         |       |              |       |               |       |       |       |       |       |
| Cash dividend  ($0.74 per share)                   |       | —            |       | —     |       | —       |       | (521         | )          | —            |       | —             |       |       |       | (521       | )          |
|                                               |       |              |       |       |       |         |       |         |       |              |       |               |       |       |       |       |       |
| **BALANCE,  JUNE 30, 2005**                        |       | 703,991           |       | $          | 1,300      |         | $          | 2,408        |       | $                 | 16,302     |               | $          | (1,406     | )          | $          | (221       | ) |   |   | $ | 18,383 |   |

 

The accompanying notes are an integral part of the unauditedconsolidated financial statements.

 

6

----

 

**Logan County BancShares, Inc. and Subsidiary**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**(In Thousands)**

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **June 30,**         | ** ** |
| ** **                                                                         | ** ** | **2005**             | ** ** | **2004** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                          |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 972        |   | $ | 885 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                 |       |   |   |
| Allowance for  loan losses                                                         |       | —               |       | — |   |
| Depreciation and  amortization                                                     |       | 169                  |       | 124 |   |
| Premium  amortization and accretion on investment securities                       |       | 14                   |       | 102 |   |
| (Increase)  decrease in interest receivable and other assets                       |       | 81                   |       | (92 | ) |
| (Increase)  decrease in interest payable and other liabilities                     |       | (31                  | )          | (465 | ) |
| Other, net                                                                         |       | —               |       | — |   |
| Net cash  provided by operating activities                                         |       | 1,205                |       | 554 |   |
|                                                                               |       |                 |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                          |       |                 |       |   |   |
| Proceeds from  sales of securities available-for-sale                              |       | 3,380                |       | 38,083 |   |
| Purchases of  securities available-for-sale                                        |       | (4,750               | )          | (49,250 | ) |
| Net (increase)  decrease in loans                                                  |       | (1,948               | )          | 2,538 |   |
| Purchase of bank  premises and equipment                                           |       | (48                  | )          | (248 | ) |
| Net cash used in  investing activities                                             |       | (3,366               | )          | (8,877 | ) |
|                                                                               |       |                 |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                          |       |                 |       |   |   |
| Net increase  (decrease) in deposits                                               |       | 1,518                |       | 11,888 |   |
| Net increase  (decrease) in repurchase agreements                                  |       | —               |       | (1,000 | ) |
| Dividends paid                                                                     |       | (521                 | )          | (507 | ) |
| Net cash  provided by financing activities                                         |       | 997                  |       | 10,381 |   |
|                                                                               |       |                 |       |   |   |
| **INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS**                              |       | (1,164               | )          | 2,058 |   |
| ** **                                                                         |       |                 |       |   |   |
| **CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                |       | 11,985               |       | 18,727 |   |
|                                                                               |       |                 |       |   |   |
| **CASH  AND CASH EQUIVALENTS, END OF PERIOD**                                      |       | $                    | 10,821     |   | $ | 20,785 |   |
|                                                                               |       |                 |       |   |   |
| **Supplemental  Disclosures:**                                                     |       |                 |       |   |   |
| Cash paid for  interest                                                            |       | $                    | 842        |   | $ | 857 |   |
| Cash paid for  income taxes                                                        |       | $                    | 368        |   | $ | 580 |   |

 

The accompanying notes are an integral part of the unauditedconsolidated financial statements.

 

7

----

 

**LOGANCOUNTY BANCSHARES, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE1 - CRITICAL ACCOUNTING POLICIES

 

Theaccounting and reporting policies of Logan County BancShares, Inc. ( the “Company”)and its subsidiary were prepared in accordance with accounting principlesgenerally accepted in the United States of America, (“US GAAP”) and to generalpractices within the financial services industry. This Form 10-Q is alsoin accordance with instructions to Form 10-Q and Rule 10-01 of Rule S-X.Accordingly, this Form 10-Q does not include all of the information andfootnotes required by US GAAP for complete financial statements. Thepreparation of financial statements in conformity with US GAAP requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Actual results could differfrom those estimates. Management has identified the accounting policiesdescribed below as those that, due to the judgments, estimates and assumptionsinherent in those policies, are critical to an understanding of the Company’sconsolidated financial statements and management’s discussion and analysis.

 

Income Recognition

 

TheCompany recognizes interest income by methods conforming to US GAAP thatinclude general accounting practices within the financial services industry.Interest income on loans and investment securities is recognized by methodsthat result in level rates of return on principal amounts outstanding,including yield adjustments resulting from the amortization of loan costs andpremiums on investment securities and accretion of loan fees and discounts oninvestment securities.

 

Inthe event management believes collection of all or a portion of contractualinterest on a loan has become doubtful, which generally occurs after the loanis 90 days past due, the accrual of interest is discontinued. In addition,previously accrued interest deemed uncollectible that was recognized in incomeis reversed. Interest received on nonaccrual loans is recorded as a reductionto principal and is included in income only if principal recovery is reasonablyassured. A nonaccrual loan is restored to accrual status when it is broughtcurrent or has performed in accordance with contractual terms for a reasonableperiod of time, and the collectibility of the total contractual principal andinterest is no longer doubtful.

 

Allowance for Loan Losses

 

Ingeneral, determining the amount of the allowance for loan losses requiressignificant judgment and the use of estimates by management. The Companymaintains an allowance for loan losses to absorb probable losses in the loanportfolio based on a quarterly analysis of the portfolio. This formal analysisdetermines an appropriate level and allocation of the allowance for loan lossesamong loan types and resulting provision for loan losses by considering factorsaffecting loan losses, including specific losses, levels and trends in impairedand nonperforming loans, historical loan loss experience, current national andlocal economic conditions, volume, growth and composition of the portfolio,regulatory guidance and other relevant factors. Management continually monitorsthe loan portfolio through reviews of past due loans and all significant loanswhich are considered to be potential problem loans on a monthly basis. Theinternal loan review function provides for an independent review to evaluatethe adequacy of the allowance. The provision could increase or decrease eachquarter based upon the results of management’s formal analysis.

 

Theamount of the allowance for loan losses for the various loan types representsmanagement’s estimate of expected losses from existing loans based uponspecific allocations

 

8

----

 

forindividual lending relationships and historical loss experience for eachcategory of homogeneous loans. Impaired loans are commercial and commercialreal estate loans for which it is probable the Company will not be able tocollect all amounts due according to the contractual terms of the loanagreement. The Company individually evaluates such loans for impairment anddoes not aggregate loans by major risk classifications. The definition of “impairedloans” is not the same as the definition of “nonaccrual loans,” although thetwo categories overlap. The Company may choose to place a loan on nonaccrualstatus due to payment delinquency or uncertain collectibility while notclassifying the loan as impaired. Factors considered by management indetermining impairment include payment status and collateral value. The amountof impairment for these types of loans is determined by the difference betweenthe present value of the expected cash flows related to the loan, using theoriginal interest rate, and its recorded value, or as a practical expedient inthe case of collateralized loans, the difference between the fair value of thecollateral and the recorded amount of the loans. When foreclosure is probable,impairment is measured based on the fair value of the collateral. Whileallocations are made to specific loans and pools of loans, the allowance isavailable for all loan losses.

 

Mortgageloans secured by one-to-four family properties and all consumer loans areconsidered large groups of smaller-balance homogeneous loans and are measuredfor impairment collectively. Loans that experience insignificant paymentdelays, which are defined as 90 days or less, generally are not classified asimpaired. Management determines the significance of payment delays on acase-by-case basis taking into consideration all circumstances concerning the loan,the credit worthiness and payment history of the borrower, the length of thepayment delay, and the amount of shortfall in relation to the principal andinterest owed.

 

Individualloan reviews are based upon specific quantitative and qualitative criteria,including the size of the loan, loan quality ratings, value of collateral,repayment ability of borrowers, and historical experience factors. Thehistorical experience factors utilized for individual loan reviews are basedupon past loss experience, known trends in losses and delinquencies, the growthof loans in particular markets and industries, and known changes in economicconditions in the particular lending markets. Allowances for homogeneous loans(such as residential mortgage loans, personal loans, etc.) are evaluated basedupon historical loss experience, trends in losses and delinquencies, growth ofloans in particular markets, and known changes in economic conditions in eachlending market. There can be no assurance the allowance for loan losses will beadequate to cover all losses, but management believes the allowance for loanlosses in the amount of $1,241,000 at June 30, 2005, was adequate toprovide for probable losses from existing loans based on information currentlyavailable. While management uses available information to provide for loanlosses, the ultimate collectibility of a substantial portion of the loanportfolio and the need for future additions to the allowance will be based onchanges in economic conditions and other relevant factors. As such, an adversechange in economic activity could reduce cash flows for both commercial andindividual borrowers, which would likely cause the Company to experienceincreases in problem assets, delinquencies, and losses on loans.

 

Investment Securities

 

Investmentsecurities are classified at the time of purchase, based on management’sintention and ability, as securities available-for-sale orheld-to-maturity. All debt and equity securities have been classified asavailable-for-sale which serve principally as a source of liquidity. Unrealizedholding gains and losses for available-for-sale securities are reported as aseparate component of stockholders’ equity, net of tax, until realized.Realized securities gains and losses are computed using the specificidentification method. Interest and dividends on investment securities arerecognized as income when earned.

 

9

----

 

Whiletemporary changes in the market value of available-for-sale securities are notrecognized in earnings, a decline in fair value below amortized cost, deemed tobe other-than-temporary, results in an adjustment to the cost basis of theinvestment, with a corresponding loss charged against earnings. Managementevaluates the investment securities for other-than-temporary declines inestimated fair value on a quarterly basis. This analysis requires management toconsider various factors in order to determine if a decline in estimated fairvalue is temporary or other-than-temporary. These factors include duration andmagnitude of the decline in value, the financial condition of the issuer, andthe company’s ability and intent to continue holding the investment for aperiod of time sufficient to allow for any anticipated recovery in marketvalue. At June 30, 2005, there were no investment securities identified bymanagement to be other-than-temporarily impaired. If investments decline infair value due to adverse changes in the financial markets, charges to incomecould occur in future periods.

 

Income Taxes

 

TheCompany and its subsidiary file a consolidated federal income tax return.Deferred tax assets and liabilities are reflected at currently enacted incometax rates applicable to the period in which the deferred tax assets and liabilitiesare expected to be realized or settled. As changes in tax laws or rates areenacted, deferred tax assets and liabilities are adjusted through the provisionfor income taxes. Deferred income tax expenses or benefits are based on thechanges in the deferred tax asset or liability from period to period. Theprovision for income taxes during the current period is at a rate whichmanagement believes will approximate the effective rate for the year.

 

Cash Flows

 

Cashand cash equivalents consist of cash and due from banks and federal funds sold.

 

NOTE2 - RECENT ACCOUNTING PRONOUNCEMENTS

 

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (FAS No. 123R). FAS No. 123R revised FAS No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and its related implementationguidance. FAS No. 123R will require compensation costs related to share-basedpayment transactions to be recognized in the financial statement (with limitedexceptions). The amount of compensation cost will be measured based on thegrant-date fair value of the equity or liability instruments issued. Compensationcost will be recognized over the period that an employee provides service inexchange for the award.

 

InJune 2005, the FASB issued FAS No. 154, Accounting Changes and ErrorsCorrections, a replacement of APB Opinion No. 20 and FAS No. 3. TheStatement applies to all voluntary changes in accounting principle, and changesthe requirements for accounting for and reporting of a change in accountingprinciple. FAS No. 154 requires retrospective application to prior periods’financial statements of a voluntary change in accounting principle unless it isimpractical. APB Opinion No. 20 previously required that most voluntarychanges in accounting principle be recognized by including in net income of theperiod of the change the cumulative effect of changing to the new accountingprinciple. FAS No.154 improves the financial reporting because its requirementsenhance the consistency of financial reporting between periods.

 

InApril, 2005, the Securities and Exchange Commission adopted a new rule thatamends the compliance dates for FAS No. 123R. The Statement requires thatcompensation cost relating to share-based payment transactions be recognized infinancial statements and that this cost be measured based on the fair value ofthe equity or liability instruments issued. FAS No. 123R

 

10

----

 

coversa wide range of share-based compensation arrangements including share options,restricted share plans, performance-based awards, share appreciation rights,and employee share purchase plans. The Company will adopt FAS No. 123R on January 1,2006 and is currently evaluating the impact the adoption of the standard willhave on the Company’s results of operations.

 

InMarch 2005, the Securities and Exchange Commission (“SEC”) issued Staff AccountingBulletin No. 107 (“SAB No. 107”), Share-BasedPayment, providing guidance on option valuation methods, the accounting forincome tax effects of share-based payment arrangements upon adoption ofFAS No. 123R, and the disclosures in MD&A subsequent to theadoption. The Company will provide SAB No. 107 required disclosuresupon adoption of FAS No. 123R on January 1, 2006 and iscurrently evaluating the impact the adoption of the standard will have on theCompany’s financial condition, results of operations, and cash flows.

 

InDecember 2004, FASB issued FAS No. 153, Exchanges of NonmonetaryAssets - An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29,Accounting for Nonmonetary Transactions, is based on the principle thatexchanges of nonmonetary assets should be measured based on the fair value ofthe assets exchanged. The guidance in that Opinion, however, included certainexceptions to that principle. FAS No. 153 amends Opinion No. 29 toeliminate the exception for nonmonetary exchanges of similar productive assetsand replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance. A nonmonetary exchange has commercialsubstance if the future cash flows of the entity are expected to changesignificantly as a result of the exchange. The provisions of FAS No. 153are effective for nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005. Early application is permitted andcompanies must apply the standard prospectively. The adoption of this standardis not expected to have a material effect on the Company’ s results ofoperations or financial position.

 

11

----

 

**LOGAN COUNTY BANCSHARES, INC.**

 

**ITEM 2.****         ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This narrative will assistreaders in their analysis of the accompanying consolidated financialstatements. It should be read in conjunction with the unaudited consolidatedfinancial statements and the notes. Management is not aware of any market orinstitutional trends, events or uncertainties that will have or are reasonablylikely to have a material effect on the liquidity, capital resources oroperations of the Company, except as discussed herein. Management is also notaware of any current recommendations by any regulatory authorities, which wouldhave such a material effect if implemented.

 

**Comparisonof the Results of Operations for the Six Months ended June 30, 2005 and2004**

 

Net income increased by$87,000, or 10%, from net income of $885,000 for the six months ended June 30,2004, to net income for the six months ended June 30, 2005, of $972,000.

 

Interestand dividend income increased $278,000 or 7%, from $4,057,000 for the six monthsended June 30, 2004, to $4,335,000 for the same period in 2005. Theincrease is attributed to the increase in interest and dividends on investmentsof $322,000 or 68%, offset by decrease in interest on loans of $69,000 or 2%. Thedecrease in interest on loans was due to the decrease in the average balance ofloans of $1,075,000 and a decrease of 10 basis points in the average yield onloans. Interest on available-for-sale securities increased due to an increaseof $13,088,000 in the average balance invested. The yield on investmentsecurities increased by 68 basis points due to the general increase in ratesfrom 2004 and management’s decision to invest in securities with shortermaturities.

 

Interestexpense on deposits decreased by $35,000, or 4%, from $841,000 for the sixmonths ended June 30, 2004, to $806,000 for the six months ended June 30,2005. The decrease in interest expense on deposits was the direct result of the7 basis point decrease in the cost of funds from 1.06% for the six months endedJune 30, 2004, to .99% for the same period in 2005.

 

Managementregularly performs an analysis to identify the inherent risk of loss in itsloan portfolio. This analysis includes evaluation of concentrations of credit,past loss experience, current economic conditions, amount and composition ofthe loan portfolio (including loans being specifically monitored bymanagement), estimated fair value of underlying collateral, loan commitmentsoutstanding, delinquencies, and other factors. Based on this analysis, managementestablished an allowance for loan losses. The allowance for loan losses isadjusted periodically by a provision for loan losses, which is charged tooperations based on management’s evaluation of the probable losses that may beincurred in the Bank’s portfolio. No provision for loan losses was madefor the six months ended June 30, 2005, as compared to the same six month periodended June 30, 2004.

 

The Bank will continue tomonitor its allowance for loan losses and make future additions to the allowancethrough the provision for loan losses as economic conditions dictate. Althoughthe Bank maintains its allowance for loan losses at a level that it considersto be adequate to provide for the inherent risk of loss in its loan portfolio,there can be no assurance that future losses will not exceed estimated amountsor that additional provisions for loan losses will not be required in futureperiods. In addition, the Bank’s determination as to the amount of itsallowance for loan losses is subject to review by banking regulators, as partof their examination process, which may result in the establishment of anadditional allowance based on the judgment of the banking regulators after areview of the information available at the time of their examination.

 

12

----

 

Nonnterestincome decreased by $18,000, or 4%, to $510,000 for the six-month period ended June 30,2005, from $528,000 for the same period in 2004 due to a decrease in servicecharges.

 

Noninterest expenseincreased by $156,000, or 7%, from $2,320,000 for the six months ended June 30,2004, to $2,476,000 for the same period in 2005. Compensation and employeebenefits, the largest component of non-interest expense, increased slightly forthe six months ended June 30, 2005, compared to the same period in 2004. Othersignificant changes in non-interest expenses for the 2005 period compared to2004 include a $67,000 increase in data processing costs to $376,000, or 22%; a$51,000 or 34% increase in occupancy expense, a $56,000 or 57% increase inprofessional services. Supplies and data processing costs increased because ofthe bank’s implementation of a new check image processing system in 2005.

 

Incometax expense increased by $68,000, or 14%, from $488,000 for the six monthsended June 30, 2004, to $556,000 for the six months ended June 30,2005, as a result of the increase in pre-tax income.

 

**Comparisonof the Results of Operations for the Three Months ended June 30, 2005 and2004**

 

Net income increased by $27,000or 6%, from net income of $435,000 for the three months ended June 30,2004, to net income for the three months ended June 30, 2005, of $462,000.

 

Interest and dividend incomeincreased $161,000 or 8%, from $2,033,000 for the three months ended June 30,2004, to $2,194,000 for the same period in 2005. The increase is attributed tothe increase in interest and dividends on investments of $146,000 or 56%,offset by decrease in interest on loans of $10,000 or 1%. These changes were aresult of the growth in average balance in investment securities and increasedyields in these investments.

 

Interest expense on depositsand repurchase agreements decreased by $10,000 or 2%, from $439,000 for thethree months ended June 30, 2004, to $429,000 for the three months ended June 30,2005. The decrease in interest expense on deposits was the direct result of adecrease in cost of funds.

 

Noninterest income decreasedby $15,000 or 6%, to $253,000 for the three month period ended June 30,2005, from $268,000 for the same period in 2004 due to a decrease in servicecharges.

 

Noninterest expenseincreased by $106,000 or 9%, from $1,187,000 for the three months ended June 30,2004, to $1,293,000 for the same period in 2005.

 

Compensation and employeebenefits, the largest component of non-interest expense, increased slightly forthe three months ended June 30, 2005, compared to the same period in 2004.Other significant changes in non-interest expenses for the 2005 period comparedto 2004 include a $14,000 increase in data processing costs to $192,000 or 7%;a $35,000 or 49% increase in professional services.

 

Income tax expense increasedby $23,000 or 10%, from $240,000 for the three months ended June 30, 2004,to $263,000 for the three months ended June 30, 2005, as a result of theincrease in pre-tax income.

 

13

----

 

**FINANCIALCONDITION AND ASSET QUALITY**

 

Total assets at June 30,2005, were approximately $183,673,000 as compared to approximately $181,668,000at December 31, 2004, or an increase of $2,005,000, or 1.1%. The loanportfolio increased by $1,948,000, or 2.0%, during the six-month period ended June 30,2005.As the economy began to show signs of improvement during the second quarter,loan demand began to improve. However, management continues to adhere to itspolicy of not extending long-term fixed rate financing in this low interestrate environment. By investing short-term, management believes it is betterpositioned to manage the interest margin as interest rates are beginning toincrease. The investment portfolio increased by $1,411,000, or 2.1% during thissame period; at the same time, federal funds sold decreased $1,170,000 or19.5%. Total deposits increased by $1,518,000 to $162,729,000 at June 30,2005, from $161,211,000 at December 31, 2004. Although deposits increasedby nearly 1.0%, pricing for deposits is very competitive in the Company’sprimary trade areas among banks and other nontraditional financial serviceproviders, indicating future pressure on the Company’s net interest income. Managementbelieves that the deposit growth is attributable to the Bank’s service deliveryas its deposit rates are in line with those of competing institutions.

 

The continuing stagnation inthe local and national economies places ongoing emphasis on the Company’smethodology in determining the adequacy of the allowance for loan losses. TheCompany periodically evaluates the adequacy of the allowance for loan losses inorder to maintain the allowance at a level that is sufficient to absorbprobable credit losses. This evaluation is based on a review of the Company’shistorical loss experience, known and inherent risks in the loan portfolio,including adverse circumstances that may affect the ability of the borrower torepay interest and/or principal, the estimated value of collateral, and ananalysis of the levels and trends of delinquencies, charge-offs and the riskratings of the various loan categories. Such factors as the level and trend ofinterest rates and the condition of the national and local economies are alsoconsidered. At June 30, 2005, and December 31, 2004, the allowancefor loan losses was $1,241,000 and $1,263,000, respectively. This resulted inthe ratio of the allowance for loan losses to total loans decreasing slightlyfrom 1.28% at December 31, 2004, compared to 1.24% at June 30, 2005. Estimatesmay change at some point in the future.

 

Financial instrumentsinclude commitments to extend and standby letters of credit. These commitmentsinclude standby letters of credit of approximately $856,000 at June 30,2005, and at December 31, 2004. These instruments contain various elementsof credit and interest rate risk in excess of the amount recognized in theconsolidated statements of financial condition. Additionally, certainoff-balance sheet items of approximately $11,719,000 at June 30, 2005, and$13,966,000 at December 31, 2004, were comprised primarily of unfundedloan commitments.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Liquidity managementinvolves the ability to meet the cash flow requirements of depositors wantingto withdraw funds or borrowers needing assurance that sufficient funds will beavailable to meet their credit needs. Liquidity can best be demonstrated by ananalysis of the Company’s cash flows. The primary source of cash flows for theCompany is operating activities. Operating activities provided $1,205,000 ofliquidity for the six-month period ended June 30, 2005, compared to$554,000 for the same six months in 2004. The principal elements of these operatingflows are net income, increased for significant non-cash expenses anddepreciation and amortization. A secondary source of liquidity for the Companycomes from investing activities, principally the maturities of investmentsecurities. For the six-month period ended June, 2004, due to the low interestrate environment, maturities and calls of investment securities amounted to$38,083,000 compared to $3,380,000 in 2005. As of June 30, 2005, the

 

14

----

 

Company had approximately$44,349,000 of investment securities that mature within 12 months. Interestrates are beginning to increase and the rapidity of calls in investmentsecurities is expected to decline. Relatively flat loan demand resulted in anet increase in loans of $1,948,000, or 2.0% for the first six months of 2005following a decrease of $2,538,000 for the same period in 2004.

 

OFF BALANCE SHEETARRANGEMENTS

 

At June 30, 2005 andDecember 31, 2004, the Company had outstanding loan commitments and unusedlines of credit totaling $12,575,000 and $14,822,000 respectively. As of June 30,2005, management placed a high degree of probability for required fundingwithin one year of approximately $1,904,323 million. Approximately $10,584,000 millionis principally unused home equity and credit card lines on which managementplaces a low probability for required funding.

 

This report may containcertain forward-looking statements, including certain plans, expectations,goals and projections, which are subject to numerous assumptions, risks anduncertainties. Actual results could differ materially from those contained inor implied by such statements for a variety of factors including: changes ineconomic conditions which may affect the Company’s primary market area; rapidmovements in interest rates; competitive pressures on product pricing andservices; success and timing of business strategies; the nature and extent ofgovernment actions and reforms; and rapidly changing technology and evolvingfinancial industry standards.

 

**ITEM 3.****     ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

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

 

The negative gap position aspresented in the following table for maturities of one year or less is offsetby the substantial positive gap position for maturities greater than one year. Theearnings of the Company are sufficient to withstand the short-term negative gapposition. Should a large fluctuation occur, increasing the costs of funds,management would consider increasing service charges and non-interest feeswhich management determines the market would bear in order to negate increasedrate costs. An additional response, at the option of management, would be liquidationof certain long-term investments, and conversion of those funds into short-termsecurities.

 

The Company’s managementrecognized the concentration of large certificates of deposit. The Company’spolicy of asset-liability management matches both rates and maturities so theCompany will not have a liquidity problem or allow income to be affected by achange in rates.

 

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

 

15

----

 

INTEREST RATESENSITIVE ANALYSIS TABLE

 

(In Thousands ofDollars)

 
| **As of June 30, 2005**                                              | ** ** | **0-90** | ** ** | **91-180** | ** ** | **181-365** | ** ** | **Total  One  Year** | ** ** | **Over  One  Year** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|------------|------------|-------------|------------|----------------------|------------|---------------------|------------|-----------|------------|
| Earning Assets                                                            |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Loans                                                                     |       | $        | 17,199     |       | $          | 1,640       |       | $                    | 5,568      |                | $          | 24,407    |       | $ | 75,838 |   | $ | 100,245 |   |
| Investments                                                               |       | 4,244    |       | 12,921     |       | 27,184      |       | 44,349               |       | 22,982              |       | 67,331    |       |
| Federal Funds Sold                                                        |       | 4,820    |       | —     |       | —      |       | 4,820                |       | —              |       | 4,820     |       |
|                                                                      |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Total Earning Assets                                                      |       | 26,263   |       | 14,561     |       | 32,752      |       | 73,576               |       | 98,820              |       | 172,396   |       |
|                                                                      |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Interest Bearing Liabilities                                              |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Demand Deposits                                                           |       | 23,858   |       | —     |       | —      |       | 23,858               |       | —              |       | 23,858    |       |
| Savings                                                                   |       | 13,262   |       | 10,420     |       | 23,683      |       | 47,365               |       | —              |       | 47,365    |       |
| CD’s of $100,000 and Over                                            |       | 3,900    |       | 3,378      |       | 2,664       |       | 9,942                |       | 7,811               |       | 17,753    |       |
| Other Time                                                                |       | 5,702    |       | 7,193      |       | 7,582       |       | 20,477               |       | 17,802              |       | 38,279    |       |
|                                                                      |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Total Interest Bearing Liability                                          |       | 46,722   |       | 20,991     |       | 33,929      |       | 101,642              |       | 25,613              |       | 127,255   |       |
|                                                                      |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Interest Sensitivity Gap                                                  |       | (20,459  | )          | (6,430     | )          | (1,177      | )          | (28,066              | )          | 73,207              |       | 45,141    |       |
|                                                                      |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Cumulative Gap                                                            |       | (20,459  | )          | (26,889    | )          | (28,066     | )          | (28,066              | )          | 45,141              |       | 45,141    |       |
|                                                                      |       |     |       |       |       |        |       |                 |       |                |       |      |       |
| Rate Sensitive Assets/Rate Sensitive Liabilities  (Cumulative Percentage) |       | 56.21    | %          | 60.29      | %          | 72.39       | %          | 72.39                | %          | 135.47              | %          | 135.47    | %          |
|                                                                           |            |          |            |            |            |             |            |                      |            |                     |            |           |            |  |  |  |  |  |  |

 

**ITEM 4.****     ****CONTROLS AND PROCEDURES**

 

Evaluation ofDisclosure Controls and Procedures

 

As of the end of the periodcovered by this report, the Company’s Executive Vice-President and ChiefExecutive Officer, Eddie Canterbury, and Vice President and Chief FinancialOfficer, Mark Mareske, evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)). Based on their evaluation, the Executive Vice President and ChiefExecutive Officer and the Vice President and Chief Financial Officer haveconcluded that the Company’s disclosure controls and procedures were adequateand effective to ensure that material information required to be disclosed bythe Company in reports that it files or submits under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.

 

Changes in Internal Controls

 

There were no changes in theCompany’s internal control over financial reporting identified in theevaluation performed by the Company’s Executive Vice President and ChiefExecutive Officer and the Vice President and Chief Financial Officer thatmaterially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

16

----

 

**LOGAN COUNTY BANCSHARES, INC.**

 

**PART II**

 

**OTHER INFORMATION**

 

ITEM 1.      LEGALPROCEEDINGS

 

Thenature of the business of the Company’s subsidiary generates a certain amountof litigation involving matters arising in the ordinary course of business. TheCompany is unaware of any litigation other than ordinary routine litigationincidental to the business of the Company, to which it or its subsidiary is apart or of which any of their property is subject.

 

ITEM2.      CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OFEQUITY SECURITIES.

 

None

 

ITEM3.      DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM4.      SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

 

(a)           TheAnnual Meeting of Shareholders was held on Tuesday, May 24, 2005.

 

(b)           Thefollowing two (2) proposals were voted on at the Annual Meeting ofShareholders:

 

•              Thefixing of the number of directors for Logan County BancShares, Inc. (the “Company”)at ten (10) and the election of the nominees submitted to the shareholdersfor consideration; and

 

•              The ratification of S.R. Snodgrass, A.C., asthe Company’s independent registered public accounting firm for the fiscal yearending December 31, 2005.

 

Theresults of the voting were as follows:

 

(i)            The following directors were elected:

 
| **Name**          | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-------------------|------------|---------------|------------|--------------------|------------|
| Harvey Oakley     |       | 528,324       |       | 1,377              |       |
| Clell Peyton      |       | 528,324       |       | 1,377              |       |
| Earle B. Queen    |       | 528,324       |       | 1,377              |       |
| LaVeta Ray Jean   |       | 528,324       |       | 1,377              |       |
| William W. Wagner |       | 528,324       |       | 1,377              |       |
| Eddie Canterbury  |       | 528,324       |       | 1,377              |       |
| Walter D. Vance   |       | 528,324       |       | 1,377              |       |
| Glenn T. Yost     |       | 528,324       |       | 1,377              |       |
| David McCormick   |       | 528,324       |       | 1,377              |       |
| Michael Winter    |       | 528,324       |       | 1,377              |       |

 

17

----

 

(ii)           Ratified S.R. Snodgrass, A.C. as the Company’sindependent registered public accounting firm for the fiscal year ending December 31,2005.

 

ITEM 5.      OTHERINFORMATION

 

None

 

ITEM6.      EXHIBITS AND REPORTS ON FORM 8-K

 

(a) Exhibitsrequired by Item 601 of Regulation S-K :

 

(31) Rule 13a-14(a)/15d-14(a) Certifications

 

Certificationas Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of2002 by President and Chief Executive Officer

 

Certificationas Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of2002 by Vice-President Chief Financial Officer

 

(32) Section 1350Certifications

 

Certification Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 byPresident and Chief Executive Officer

 

Certification Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 byVice-President and Chief Financial Officer

 

18

----

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                       | LOGAN COUNTY BANCSHARES, INC.                                          |   |
|----------------------------|------------------------------------------------------------------------|--------|
|                       | (Registrant)                                                           |
|                       |                                                                   |
| Date: August 12, 2005 | /s/ Eddie Canterbury                                                   |   |
|                       | Eddie Canterbury  Executive Vice President and Chief Executive Officer |
|                       |                                                                   |
| Date: August 12, 2005 | /s/ Mark Mareske                                                       |   |
|                       | Mark Mareske,  Vice President and Chief Financial Officer              |

 

19

----

 

**EXHIBIT INDEX**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                            |
|-------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                                                                                                       |
| 31.1                    |       | Certification as Adopted Pursuant to Section 302(a) of the  Sarbanes-Oxley Act of 2002 by Executive Vice President and Chief Executive  Officer                                  |
| 31.2                    |       | Certification as Adopted Pursuant to Section 302(a) of the  Sarbanes-Oxley Act of 2002 by Vice President and Chief Financial Officer                                             |
| 32.1                    |       | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Executive  Vice President and Chief Executive Officer |
| 32.2                    |       | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Vice  President and Chief Financial Officer           |

 

20

----