**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

 

**WASHINGTON,D. C.  20549**

 

**Quarterly Report Under Section 13 or 15 (d)**

**of the Securities Exchange Act of 1934**

 

**ForQuarter Ended                June 30, 2002**

** **

** **

**CommissionFile Number               2-95114**

** **

 

 

**LOGAN COUNTY BANCSHARES, INC.**

(Exact Name ofRegistrant as Specified in Its Charter)

 

| **WEST  VIRGINIA**                                              |
|-----------------------------------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |

 

| **55-0660015**                        |
|---------------------------------------|
| (IRS Employer  Identification Number) |

 

| **P. O.  BOX 597, LOGAN, WEST VIRGINIA**  |   | **25601**  |
|-------------------------------------------|--------|------------|
| (Address of Principal  Executive Offices) |   | (Zip Code) |

 

| **(304)  752-1166**                                       |
|-----------------------------------------------------------|
| (Registrant’s telephone  number including area code) |

 

 

Indicate by check markwhether 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 TOCORPORATE ISSUERS:

 

Indicate the number ofshares outstanding, of each of the issuer’s classes of common stock, as of thelatest practicable date.   716,991

 

 

 

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LOGAN COUNTYBANCSHARES, INC.

 

 
| PART I — FINANCIAL INFORMATION |
|-------------------------------------|
|                                |   |   |
|                                | ITEM I. FINANCIAL STATEMENTS: |
|                                |   |   |
|                                |   | Consolidated  Statement of Condition As of June 30, 2002 and  2001 and December 31, 2000. |
|                                |   |   |
|                                |   | Consolidated Statement  of Income For the Three Month Period Ended June 30, 2002  and 2001. |
|                                |   |   |
|                                |   | Consolidated Statement  of Income For the Six Month Period Ended June 30, 2002  and 2001. |
|                                |   |   |
|                                |   | Consolidated  Statement of Changes in Stockholders’ Equity  for the Six Month Period EndedJune30, 2002 and 2001. |
|                                |   |   |
|                                |   | Consolidated  Statement of Cash Flows for the Six Month Period Ended June 30,  2002 and 2001. |
|                                |   |   |
|                                |   | 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 COUNTYBANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Condition

June 30, 2002 and2001 and December 31, 2001

(In Thousands)

 
| **ASSETS**                                                                                                             |   |
|------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                   |   | **June 30,** |   | **December  31,** |   |
|                                                                                                                   |   | **2002** | ** ** | **2001** |   | **2001** | ** ** |
| CASH AND DUE FROM BANKS                                                                                                |   | $ | 5,792 |   | $ | 5,955 |   | $ | 7,072 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| INVESTMENT SECURITIES:                                                                                                 |   |   |   |   |   |   |   |
| AVAILABLE FOR SALE                                                                                                     |   | 42,893 |   | 21,848 |   | 36,355 |   |
| HELD TO MATURITY                                                                                                       |   | 0 |   | 0 |   | 0 |   |
| FEDERAL FUNDS SOLD                                                                                                     |   | 6,500 |   | 25,210 |   | 7,150 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| LOANS:                                                                                                                 |   |   |   |   |   |   |   |
| TOTAL LOANS                                                                                                            |   | 110,906 |   | 116,031 |   | 116,908 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| RESERVE FOR LOAN LOSSES                                                                                                |   | 1,261 |   | 848 |   | 1,153 |   |
| NET LOANS                                                                                                              |   | 109,645 |   | 115,183 |   | 115,755 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| BANK PREMISES AND EQUIPMENT                                                                                            |   | 3,265 |   | 3,493 |   | 3,384 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| ACCRUED INTEREST AND OTHER ASSETS                                                                                      |   | 1,593 |   | 1,857 |   | 1,883 |   |
|                                                                                                                   |   | $ | 169,688 |   | $ | 173,546 |   | $ | 171,599 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                          |   |
| DEPOSITS:                                                                                                              |   |   |   |   |   |   |   |
| DEMAND DEPOSITS:                                                                                                       |   |   |   |   |   |   |   |
| NON-INTEREST                                                                                                           |   | $ | 24,173 |   | $ | 28,006 |   | $ | 27,571 |   |
| INTEREST BEARING                                                                                                       |   | 21,631 |   | 21,421 |   | 21,371 |   |
| SAVINGS DEPOSITS                                                                                                       |   | 43,631 |   | 36,160 |   | 39,804 |   |
| TIME DEPOSITS                                                                                                          |   | 59,185 |   | 68,377 |   | 63,282 |   |
| TOTAL DEPOSITS                                                                                                         |   | 148,620 |   | 153,964 |   | 152,028 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| FEDERAL FUNDS PURCHASED AND SECURITIESSOLD UNDER  AGREEMENTS TO REPURCHASE                                             |   | 3,000 |   | 2,000 |   | 2,000 |   |
| ACCRUED AND OTHER LIABILITIES AND                                                                                      |   | 469 |   | 686 |   | 673 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| INCOME TAXES PAYABLE:                                                                                                  |   |   |   |   |   |   |   |
| CURRENT                                                                                                                |   | 16 |   | 81 |   | (18 | ) |
| DEFERRED                                                                                                               |   | 169 |   | 114 |   | 116 |   |
| TOTAL LIABILITIES                                                                                                      |   | 152,274 |   | 156,845 |   | 154,799 |   |
|                                                                                                                   |   |   |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY:                                                                                             |   |   |   |   |   |   |   |
| COMMON STOCK—$1.67 PAR VALUE;AUTHORIZED —  780,000 SHARES OUTSTANDING — 716,991 SHARES IN 2000 AND 1999 |   | 1,300 |   | 1,300 |   | 1,300 |   |
| SURPLUS                                                                                                                |   | 2,408 |   | 2,408 |   | 2,408 |   |
| RETAINED EARNINGS                                                                                                      |   | 14,566 |   | 13,853 |   | 13,952 |   |
| TREASURY STOCK                                                                                                         |   | (860 | ) | (860 | ) | (860 | ) |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                        |   | 17,414 |   | 16,701 |   | 16,800 |   |
|                                                                                                                   |   | $ | 169,688 |   | $ | 173,546 |   | $ | 171,599 |   |
|                                                                                                                        |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

3

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LOGAN COUNTYBANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Income

For the ThreeMonth Periods Ended June 30, 2002 and 2001

(In Thousands)

 

 
|                                                |   | **2002** |   | **2001** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|
| INTEREST INCOME:                                    |   |     |   |     |   |
| INTEREST ON LOANS                                   |   | $        | 2,149  |     | $      | 2,777 |   |
| INTEREST ON INVESTMENTS                             |   | 361      |   | 370      |   |
| INTEREST ON FEDERAL FUNDS SOLD                      |   | 49       |   | 222      |   |
|                                                |   | 2,559    |   | 3,369    |   |
|                                                |   |     |   |     |   |
| INTEREST EXPENSE:                                   |   |     |   |     |   |
| INTEREST ON DEPOSITS                                |   | 654      |   | 1,293    |   |
| INTEREST OTHER                                      |   | 40       |   | 35       |   |
| NET INTEREST INCOME                                 |   | 1,865    |   | 2,041    |   |
|                                                |   |     |   |     |   |
| PROVISION FOR LOAN LOSSES                           |   | 60       |   | 110      |   |
| NET INTEREST INCOME AFTERPROVISION FOR  LOAN LOSSES |   | 1,805    |   | 1,931    |   |
|                                                |   |     |   |     |   |
| OTHER INCOME:                                       |   |     |   |     |   |
| SERVICE FEES                                        |   | 159      |   | 168      |   |
| OTHER OPERATING INCOME                              |   | 23       |   | 6        |   |
| TOTAL OTHER INCOME                                  |   | 182      |   | 174      |   |
|                                                |   |     |   |     |   |
| OTHER EXPENSES:                                     |   |     |   |     |   |
| SALARIES AND BENEFITS                               |   | 563      |   | 527      |   |
| EXPENSE OF BANK PREMISES ANDEQUIPMENT               |   | 151      |   | 143      |   |
| OTHER OPERATING EXPENSES                            |   | 420      |   | 555      |   |
| TOTAL OTHER EXPENSES                                |   | 1,134    |   | 1,225    |   |
|                                                |   |     |   |     |   |
| INCOME BEFORE INCOME TAXES                          |   | 853      |   | 880      |   |
|                                                |   |     |   |     |   |
| INCOME TAXES                                        |   | 329      |   | 347      |   |
| NET INCOME                                          |   | $        | 524    |     | $      | 533 |   |
|                                                |   |     |   |     |   |
| PER SHARE OF COMMON STOCK NET INCOME                |   | $        | 0.73   |     | $      | 0.74 |   |

 

 

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

4

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LOGAN COUNTYBANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Income

For the Six MonthPeriods Ended June 30, 2002 and 2001

(In Thousands)

 
|                                                |   | **2002** |   | **2001** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|
| INTEREST INCOME:                                    |   |     |   |     |   |
| INTEREST ON LOANS                                   |   | $        | 4,367  |     | $      | 5,219 |   |
| INTEREST ON INVESTMENTS                             |   | 696      |   | 790      |   |
| INTEREST ON FEDERAL FUNDS SOLD                      |   | 100      |   | 382      |   |
|                                                |   | 5,163    |   | 6,391    |   |
|                                                |   |     |   |     |   |
| INTEREST EXPENSE:                                   |   |     |   |     |   |
| INTEREST ON DEPOSITS                                |   | 1,379    |   | 2,566    |   |
| INTEREST OTHER                                      |   | 79       |   | 69       |   |
| NET INTEREST INCOME                                 |   | 3,705    |   | 3,756    |   |
|                                                |   |     |   |     |   |
| PROVISION FOR LOAN LOSSES                           |   | 120      |   | 140      |   |
| NET INTEREST INCOME AFTERPROVISION FOR  LOAN LOSSES |   | 3,585    |   | 3,616    |   |
|                                                |   |     |   |     |   |
| OTHER INCOME:                                       |   |     |   |     |   |
| SERVICE FEES                                        |   | 312      |   | 318      |   |
| OTHER OPERATING INCOME                              |   | 66       |   | 41       |   |
| TOTAL OTHER INCOME                                  |   | 378      |   | 359      |   |
|                                                |   |     |   |     |   |
| OTHER EXPENSES:                                     |   |     |   |     |   |
| SALARIES AND BENEFITS                               |   | 1,135    |   | 1,040    |   |
| EXPENSE OF BANK PREMISES ANDEQUIPMENT               |   | 290      |   | 285      |   |
| OTHER OPERATING EXPENSES                            |   | 823      |   | 978      |   |
| TOTAL OTHER EXPENSES                                |   | 2,248    |   | 2,303    |   |
|                                                |   |     |   |     |   |
| INCOME BEFORE INCOME TAXES                          |   | 1,715    |   | 1,672    |   |
|                                                |   |     |   |     |   |
| INCOME TAXES                                        |   | 654      |   | 632      |   |
| NET INCOME                                          |   | $        | 1,061  |     | $      | 1,040 |   |
|                                                |   |     |   |     |   |
| PER SHARE OF COMMON STOCK NET INCOME                |   | $        | 1.48   |     | $      | 1.45 |   |

 

 

SEE ACCOMPANYING NOTES TOCONSOLIDATED FINANCIAL STATEMENTS.

 

5

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LOGAN COUNTYBANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statement in Changes in Stockholders’Equity

For the Six MonthPeriods Ended June 30, 2002 and 2001

(In Thousands)

 
| ** **                                                                       |   | **Common**

**Stock** |   | **Surplus** |   | **Retained**

**Earnings** |   | **Comprehensive**

**Income, Net** |   | **Treasury**

**Stock** |   | **Total** |   |
|----------------------------------------------------------------------------------|--------|-----------------------|--------|-------------|--------|----------------------------|--------|------------------------------------|--------|-------------------------|--------|-----------|--------|
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| BALANCE — DECEMBER 31                                                       |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| 2001                                                                             |   | $                     | 1,300  |        | $      | 2,408                      |   | $                                  | 13,917 |                    | $      | 35        |   | ($860 | ) | $ | 16,800 |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| COMPREHENSIVE INCOME                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| NET INCOME FOR THE SIX MONTHSENDED JUNE 30,  2002                                |   |  

0             |   | 0           |   | 1,061                      |   | 0                                  |   | 0                       |   | 1,061     |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| CHANGE IN NET UNREALIZEDHOLDING GAINS  (LOSSES) ON AVAILABLE FOR-SALE SECURITIES |   |                  |   |        |   |                       |   | 72                                 |   |                    |   | 72        |   |
| OTHER ADJUSTMENTS                                                                |   |                  |   |        |   | (31                        | )      |                               |   |                    |   | (31       | )      |
| TOTAL COMPREHENSIVE INCOME                                                       |   | 0                     |   | 0           |   | 1030                       |   | 72                                 |   | 0                       |   | 1,102     |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| DIVIDENDS ON 716,991 SHARESCOMMON STOCK  @ $0.68                                 |   |                  |   |        |   | (488                       | )      |                               |   |                    |   | (488      | )      |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
|                                                                             |   | $                     | 1,300  |        | $      | 2,408                      |   | $                                  | 14,459 |                    | $      | 107       |   | ($860 | ) | $ | 17,414 |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| BALANCE — DECEMBER 31                                                       |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| 2000                                                                             |   | $                     | 1,300  |        | $      | 2,408                      |   | $                                  | 13,237 |                    | ($71   | )         | ($860  | ) | $ | 16,014 |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| COMPREHENSIVE INCOME                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| NET INCOME FOR THE SIX MONTHSENDED JUNE  30, 2000                                |   |  

0             |   | 0           |   | 1,040                      |   | 0                                  |   | 0                       |   | 1,040     |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| NET UNREALIZED GAINS (LOSSES)ON AVAILABLE  FOR-SALE SECURITIES                   |   |                  |   |        |   |                       |   | 128                                |   |                    |   | 128       |   |
| TOTAL COMPREHENSIVE INCOME                                                       |   | 0                     |   | 0           |   | 1040                       |   | 128                                |   | 0                       |   | 1168      |   |
|                                                                             |   |                  |   |        |   |                       |   |                               |   |                    |   |      |   |
| DIVIDENDS ON 716,991 SHARESCOMMON STOCK  @ $0.57                                 |   |                  |   |        |   | (481                       | )      |                               |   |                    |   | (481      | )      |
|                                                                             |   | $                     | 1,300  |        | $      | 2,408                      |   | $                                  | 13,796 |                    | $      | 57        |   | ($860 | ) | $ | 16,701 |   |

 

 

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

6

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LOGAN COUNTYBANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHPERIODS ENDED JUNE 30, 2002 AND 2001

 

 
|                                                                                                 |   | **2002** |   | **2001** |   |
|------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |   |     |   |     |   |
| NET INCOME                                                                                           |   | $        | 1,061  |     | $      | 1,040 |   |
| ADJUSTMENTS TO RECONCILE NETINCOME TO NET  CASH PROVIDED BY OPERATING ACTIVITIES:                    |   |     |   |     |   |
| DEPRECIATION                                                                                         |   | 134      |   | 134      |   |
| SECURITY AMORTIZATION ANDACCREATION                                                                  |   | 51       |   | 0        |   |
| MARKET VALUE AMORTIZATION                                                                            |   | (2       | )      | (2       | )      |
| PROVISION FOR LOAN LOSSES                                                                            |   | 120      |   | 140      |   |
| (INCREASE) DECREASE IN OTHERASSETS                                                                   |   | 215      |   | 506      |   |
| INCREASE (DECREASE) IN OTHERLIABILITIES                                                              |   | (148     | )      | 20       |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                            |   | 1,537    |   | 1,838    |   |
|                                                                                                 |   |     |   |     |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |   |     |   |     |   |
| PROCEEDS FROM SALE OF SECURITIES AVAILABLE FOR SALE                                                  |   | 15,500   |   | 22,500   |   |
| PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE                                            |   | 4,487    |   | 3,977    |   |
| PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY                                              |   | 0        |   | 0        |   |
| PURCHASE OF SECURITIES AVAILABLE FOR SALE                                                            |   | (26,427  | )      | (18,459  | )      |
| NET (INCREASE) DECREASE INFEDERAL FUNDS  SOLD                                                        |   | 650      |   | (20,930  | )      |
| NET (INCREASE) DECREASE IN LOANS                                                                     |   | 5,990    |   | (2,384   | )      |
| PURCHASE OF BANK PREMISESAND EQUIPMENT                                                               |   | (15      | )      | (33      | )      |
|                                                                                                 |   |     |   |     |   |
| NET CASH PROVIDED BY INVESTING ACTIVITIES                                                            |   | 185      |   | (15,329  | )      |
|                                                                                                 |   |     |   |     |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |   |     |   |     |   |
| NET INCREASE (DECREASE) INDEMAND  DEPOSITS                                                           |   | (3,138   | )      | 6,649    |   |
| NET INCREASE (DECREASE) INSAVINGS  DEPOSITS                                                          |   | 3,827    |   | 3,872    |   |
| NET INCREASE (DECREASE) INTIME DEPOSITS                                                              |   | (4,097   | )      | 4,720    |   |
| NET INCREASE (DECREASE) INFEDERAL FUNDS  PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE |   | 1,000    |   | 0        |   |
| DIVIDENDS PAID                                                                                       |   | (488     | )      | (481     | )      |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                                            |   | (2,896   | )      | 14,760   |   |
| NET INCREASE (DECREASE) IN CASH ANDCASH  EQUIVALENTS                                                 |   | (1,280   | )      | 1,269    |   |
|                                                                                                 |   |     |   |     |   |
| CASH AND CASH EQUIVALENT ATBEGINNING OF  PERIOD                                                      |   | 7,072    |   | 4,686    |   |
| CASH AND CASH EQUIVALENT ATEND OF PERIOD                                                             |   | $        | 5,792  |     | $      | 5,955 |   |

 

 

SEE ACCOMPANYINGNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

7

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June 30, 2002

 

 

 

LOGAN COUNTYBANCSHARES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

 

1.             FinancialStatements:

 

                Theforegoing statements are unaudited; however, in the opinion of the Management,all adjustments (comprising of only normal recurring accruals) necessary for afair presentation of the financial statements have been included.

 

2.             Basis ofConsolidation:

 

                TheConsolidated Statement of Condition and Consolidated Statement of Income of LoganCounty BancShares, Inc. include the activity of Logan Bank and Trust Companyand Bank of Chapmanville, a wholly owned subsidiary.

 

3.             Year 2000Assessment

 

                Managementhas initiated a Company-wide program to assess its data processing, informationsystems and customer service programs to ensure the Company’s operatingcapabilities in the year 2000. Currently, the Company’s subsidiary Bank, LB&T, uses EDS, a regionalprovider of financial institution data processing as it’s primary provider ofcomputer services and data processing. EDS has certified it’s hardware and software are Year 2000, and beyond,compliant.

 

                TheCompany contracted to have their computer hardware evaluated for Year 2000compliance and estimates additional computer hardware and software costs to beapproximately $175,000.  These costswere capitalized and will be amortized over five years.  It is the opinion of management that thecost of converting these systems and the annual amortization, thereof, will notmaterially impact the results of operation or its financial position.

 

8

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MANAGEMENT’S DISCUSSIONAND ANALYSIS OF

FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

 

 

                The following is adiscussion and analysis focused on significant changes in the financialcondition and results of operations of Logan County Bancshares, Inc.

 

EARNINGS SUMMARY

 

                The Companyreported net income of $1,061,000. for the six months ended June 30, 2002compared to $1,040,000. for the six months ended June 30, 2001, representing a2.00% increase.  This increase wasprimarily the result of the decrease in net interest income of $31,000.,increase in other income of $19,000. and decrease in all operating expenses of$55,000. and increase in income taxes of $22,000.

 

                Earnings percommon share were $1.48 for the six months ended June 30, 2002 compared with$1.45 for the same period of 2001.

 

                Logan CountyBancshares’ annualized return on assets (ROA) for the six month period endedJune 30, 2002 was 1.22% compared to 1.20% for the six month period ended June30, 2001.  Annualized return onshareholders’ equity (ROE) was 12.19% and 12.45% at June 30, 2002 and 2001,respectively.

 

NET INTEREST INCOME

 

                The mostsignificant component of Logan County Bancshares’ net earnings is net interestincome, which represents the excess of interest income earned on earning assetsover the interest expense paid for sources of funds.  Net interest income is affected by changes in volume resultingfrom growth and alteration of the balance sheet composition, as well as byfluctuations in market interest rates and maturities of sources and uses offunds.

 

                Interest incomeamounted to $5,163,000. at June 30, 2002, a decrease of $1,228,000. from June30, 2001.  Interest expense alsodecreased $1,177,000., resulting in an overall decrease of $31,000. or .85% innet interest income between June 30, 2002 and June 30, 2001. 

 

PROVISION FOR LOAN LOSSES AND ASSET QUALITY

 

                The provision forloan losses represents charges to earnings necessary to maintain an adequateallowance for potential future loan losses. Management’s determination of the appropriate level of the allowance isbased on an ongoing analysis of credit quality and loss potential in the loan portfolio,actual loan loss experience relative to the size and characteristics of theloan portfolio, change in the composition and risk characteristics of the loanportfolio and the anticipated influence of national and local economicconditions.  The adequacy of theallowance for loan losses is reviewed quarterly and adjustments are made asconsidered necessary.

 

                For the six monthperiod ended June 30, 2002 and 2001, the provision for loan losses was$120,000. and $140,000. respectively.

 

                The reserve forloan losses was $1,261,000. at June 30, 2002 compared to $848,000. at June 30,2001.  Expressed as a percentage ofloans (net of unearned income), the reserve for loan losses was 1.14% at June30, 2002 and .74% at June 30, 2001.

 

9

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A summary of the Company’s past due loans and nonperforming assets isprovided in the following table.

 

SUMMARY OF PAST DUE LOANSAND NONPERFORMING ASSETS

(in thousands of dollars)

 

 
|                                                   |   | **June 30,** |   |
|--------------------------------------------------------|--------|--------------|--------|
|                                                   |   | **2002**     |   | **2001** |   |
| Loans past due 90 or more days still accruing interest |   | $            | 1,297  |   | $ | 2,254 |   |
|                                                   |   |         |   |   |   |
| Nonperforming assets:                                  |   |         |   |   |   |
| Nonaccruing loans                                      |   | 1,202        |   | 422 |   |
| Other real estate owned                                |   | 14           |   | 154 |   |
|                                                   |   | $            | 1,216  |   | $ | 576 |   |

 

NONINTEREST INCOME

 

                Noninterest incomeincludes revenues from all sources other than interest income.  For the six month period ended June 30,2002, noninterest income totalled $378,000., representing an increase of$19,000., or 5.29% from the $359,000. recorded during the same period of2001.  This increase was primarily dueto increases in other income of $25,000.

 

NONINTEREST EXPENSE

 

                Noninterestexpense comprises overhead costs which are not related to interest expense orto losses from loans or securities.  Asof June 30, 2002, the Company’s noninterest expense totalled $2,248,000.,decreasing $55,000. over the $2,303,000. of noninterest expense for the sixmonths ended June 30, 2001.  Expressedas a percentage of assets, annualized noninterest expense was 2.65% at June 30,2002, compared to 2.69% at June 30, 2001.

 

                Salaries andemployee benefits are Logan County Bancshares’ largest noninterest cost,representing approximately 50% and 45% of total noninterest expense at June 30,2002 and 2001.  Salaries and employeebenefits increased $95,000., or 2.35% at June 30, 2002 compared to June 30,2001.  This increase is primarily due topayroll timimg.

 

INCOME TAXES

 

                Logan CountyBancshares’ federal income tax expense, for the six month period ended June 30,2002, reflected a $22,000. increase when compared to the same period of2001.  Income tax expense equalled38.13% and 37.80% of income before taxes at June 30, 2002 and 2001,respectively.  For financial reportingpurposes, income tax expense does not equal the statutory income tax rate of43% when applied to pretax income, primarily because of timing differencesincluded in income before income taxes.

 

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Balance Sheet Data:

 

                Total assetsdecreased by $1,911,000. between year end and June 30, 2002 to a balance of$169,688,000.  The major component ofthis change was a decrease in Loans of $6,002,000., Investment Securitiesincreases of $6,538,,000., federal funds sold decrease of $650,000. and cashdecreased by $1,280,000.  The primarysource of funds for this change was a decrease in deposits of $3,408,000., anincrease in Federal funds purchased of $1,000,000., and net income of$1,061,000.

 

Liquidity:

 

                Managing Logan’sliquidity requirements primarily involves meeting the loan demand, depositwithdrawal and the cash flow requirements. Logan’s primary sources of liquidassets are federal funds sold and investment securities maturing in less thanone year.  These items can be convertedinto funds in a short period of time. At June 30, 2002, Federal Funds Sold amounted to $6,500,000. andsecurities maturing within one year amounted to $6,055,000.  These are compared to the balances at June30, 2001 of $25,210,000.  in FederalFunds Sold and maturing Investment Securities of $2,998,000. due within oneyear.

 

                Traditionally,banks have been able to manage liquidity based on a relatively stable group ofcore deposits.  The deposits, demand andconsumer deposits under $l00,000. are considered the most stable and leastexpensive source of funds.  During 2002and 2001, banks continue to be faced with interest sensitive funds and have hadto match their funding requirements by using assets and liability managementtechniques.

 

Capital Resources:

 

                Logan’s capitalposition is based on its stockholders’ equity and the primary source of suchequity has been retained earnings. Since Logan’s formation, it has accumulated Retained Earnings of$14,566,000. and has a total Stockholders’ Equity of $17,414,000. as of June30, 2002; as compared to $13,853,000. of Retained Earnings and totalStockholders’ equity of $16,701,000. at June 30, 2001.

 

                The equity capitalwas 10.26% and 9.62% of total assets at June 30, 2002 and 2001respectively.  Logan County Bancsharesexceeds all regulatory capital guide lines and has not been advised by anyregulatory agency of any minimum capital requirement.

 

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 of the Bank’s net fixedassets to total assets reduces both the potential of inflated earningsresulting from understated depreciation charges and the potential significantunderstatement of asset values. However, inflation does have a considerable indirect impact on banks,including increased loan demand, as it becomes necessary for producers andconsumers to acquire additional funds to maintain the same levels ofconsumption, inventories, and new investments. Inflation also frequently results in higher interest rates which canaffect both yields on earning assets and rates paid on deposits and otherinterest-bearing liabilities.

 

 

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| PART II. | — | OTHER INFORMATION |
|----------|--------|-------------------|
|     |   |              |
|     |   | NONE.             |

 

 

SIGNATURES

 

                Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|   |     |   | LOGAN COUNTY  BANCSHARES, INC. |
|--------|----------|--------|--------------------------------|
|   |     |   | (Registrant)                   |
|   |     |   |                           |
|   |     |   |                           |
|   |     |   |                           |
| Date   | 08/12/02 |   | /s/Harvey Oakley               |   |
|   |     |   |                           | Harvey Oakley, President |
|   |     |   |                           | (Signature) |
|   |     |   |                           |
|   |     |   |                           |
| Date   | 08/12/02 |   | /s/Eddie D. Canterbury         |   |
|   |     |   |                           | Eddie D. Canterbury, Exec. Vice  Pres. |
|   |     |   |                           | (Signature) |
|        |          |        |                                |  |  |

 

 

 

CERTIFICATION UNDERSECTION 906

OF THE SARBANES-OXLEYACT OF 2002

 

                Pursuant to Section 906 of theSarbanes-Oxley Act of 2002, each of the undersigned certifies that thisperiodic report fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934 and that information contained in thisperiodic report fairly presents, in all material respects, the financialcondition and results of operations of Logan County BancShares, Inc.

 
|   |                                   |
|--------|----------------------------------------|
|   | /s/Harvey Oakley                       |
|   | Harvey Oakley, President               |
|   | (signature)                            |
|   |                                   |
|   |                                   |
|   |                                   |
|   | /s/Eddie D. Canterbury                 |
|   | Eddie D. Canterbury, Exec. Vice  Pres. |
|   | (signature)                            |

 

 

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