**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

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**FORM 10-K**

** **

**Annual Report Persuant to Section 13 or 15(d) of**

**The Securities Exchange Act of 1934**

 

**For thecalendar year ended December 31, 2001 Commission File No.2-95114**

 

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** **

**LOGAN COUNTY BANCSHARES, INC.**

(Exact name of registrantas specified in its charter)

 

| **West  Virginia**               |   | **55-0660015**      |
|----------------------------------|--------|---------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer    |
| incorporation or  organization)  |   | Identification No.) |

 

| **P.O.  Box 597 Logan, WV**               |   | **25601**  |
|-------------------------------------------|--------|------------|
| (Address of principal  executive offices) |   | (Zip Code) |

 

Registrant’s TelephoneNumber, including area code: **(304) 752-2080**

 

Securities RegisteredPursuant To Section 12(b) of The Act:

**NONE**

 

|                |   | Name of each exchange |
|---------------------|--------|-----------------------|
| Title of Each Class |   | on which registered   |

 

Securities Registered Pursuantto Section 12(g) of The Act:

 

**NONE**

(Title of Class)

 

Indicate by check mark whether the registrant (1) hasfiled all reportsrequired to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12months (or for such shorter periodthat the registrant was required to file such reports)and (2) has beensubject to such filing requirements for the past 90 days. ýYes oNo.

 

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

 

Class Outstanding atMarch 23, 2002

 

| Common Stock ($1.67 Par  Value) |   | 716,991 Shares |
|---------------------------------|--------|----------------|

 

State the aggregate market value of the voting stockheld bynon-affiliatesof the registrant.

 

| Aggregate market value  of voting stock |   | Based on last trade  price |
|-----------------------------------------|--------|----------------------------|
|                                    |   |                       |
| $30,113,622                             |   | $42.00                     |

 

Documents Incorporated byReference

 

(NONE)

 

 

LOGAN COUNTY BANCSHARES,INC.

 

FORM 10 - K

 

INDEX

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

 

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ITEM1 - BUSINESS

 

LOGAN COUNTY BANCSHARES,INC.

 

                LoganCounty BancShares, Inc. is a bank holding company which wasorganized under the laws of the State ofWest Virginia in 1985. On May17, 1985, the Corporation acquired all the outstandingcapital stock ofLogan Bank & Trust Company (LB&T) and also all of theoutstanding stockof Bank of Chapmanville (BC). Both of these subsidiaries are bankingcorporations organized under the laws ofthe State of West Virginia. OnMay 28, 1996, the subsidiary banks; Logan Bank &Trust Company and Bankof Chapmanville entered into a merger agreement whereby they would bemerged into Logan Bank & TrustCompany. The merger was completed afterproper regulatory approval and was accounted for underthe pooling ofinterest method of accounting.

 

                LoganBank & Trust Company was organized in 1963, and stilloperates at its original location at thecorner of Washington and MainStreets in Logan, West Virginia. The Company also hasa separatedrive-upfacility and mini-bank also located on Main Street in Logan,and in early February 1996 opened a newfull-service branch in the Manarea. In November 1996, the bank acquired a branch facilityfromanotherfinancial institution located at Harts, West Virginia. Thefacility at Route 10 North, Harts, isoperated as a full service branchof the bank. Logan Bank & Trust Company is amember of the FederalReserve System and deposits are insured persuant to the Federal DepositInsurance Act.

 

                LoganBank & Trust Company provides a complete range of retailbanking services to individuals and smalland medium size businesses.Their services include checking, savings, NOW,certificates of depositand money market deposit accounts, business loans, individual loans,mortgage loans, home equity loans,consumer loans for various otherpurposes, other consumer-oriented financial servicesincluding safetydeposit box accounts, IRA accounts and night depository. The Companyalso operates several automatic tellermachines at three strategiclocations in Logan County which provide 24-hourworking services tocustomers of Logan Bank & Trust Company. The Company is a member oftheCirrus ATMnetwork which has over 100 locations in West Virginia andmore than 10,000 locations in 47 states.

 

                LoganBank & Trust Company provides depository lending and relatedfinancial services to commercial, retail,industrial, financial andgovernmental customers. The lending function includesshort and mediumterm loans, letters of credit, inventory and accounts receivablefinancing and real estate constructionlending. The Company also offersa discount investment brokerage service through asub-contractarrangement with a larger financial institution.

 

                TheChapmanville Bank of LB&T bank has one location situated onRailroad Avenue in Chapmanville, WestVirginia.

 

                Thisfacility also provides a complete range of retail bankingservices to individuals and small andmedium sized businesses. Theseservices include checking, savings, NOW, certificatesof deposit andmoney market account deposits, business loans, individual loans,mortgage loans, home equity loans,consumer loans for various otherpurposes are ided as well. In addition, the Bankoffers consumeroriented financial services such as IRA accounts, night depository,safety deposit boxes and other bankingrelated services.

 

3

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                Thebranch also provides depository, lending and related financialservices to commercial, retail,industrial, financial and governmentalcustomers. The lending function includes short andmedium-term loans,letters of credit, inventory and accounts receivable financing, andrealestateconstruction lending as do all the branches of Logan Bank & TrustCompany.

 

INVESTMENT CONSIDERATIONS

 

                Aninvestment in the shares offered hereby involves certain risks.A subscription for shares should be madeonly after carefulconsiderations set forth below and elsewhere in this Offering Circular,and should be undertaken only by personswho can afford an investmentinvolving such risks.

 

MARKET FOR THE COMMONSTOCK

AND RELATED SECURITYHOLDER MATTERS

 

                Theshares of Logan County Bancshares, Inc. are infrequently tradedin the over-the-counter market and arenot listed on the NationalAssociation of Security Dealers Automated QuotationSystem (NASDAQ) oron any exchange. Management is not aware of any security dealer whichmakes a market in the stock; therefore,no active trading market shouldbe deemed to exist.

 

                Thesales price for Logan County Bancshares, Inc. stock isdetermined by negotiations betweenindividual buyers and sellers.Although Company keeps no records of sale prices paidfor Company stockand has no direct knowledge of such prices, for purposes ofpresentation, Corporation’s managementestimates the approximate marketvalue ranges for 2001 and 2000 to be as follows:

 
|                    |   | **First**   |   | **Second**  |   | **Third**   |   | **Fourth**  |   |
|-------------------------|--------|-------------|--------|-------------|--------|-------------|--------|-------------|--------|
| **Sale Price:**         |   | **Quarter** |   | **Quarter** |   | **Quarter** |   | **Quarter** |   |
| 2001 Common Stock       |   | $42-$42     |   | $42-$42     |   | $42-$42     |   | $42-$42     |   |
| 2000 Common Stock       |   | $42-$42     |   | $42-$42     |   | $42-$42     |   | $42-$42     |   |
|                    |   |        |   |        |   |        |   |        |   |
| **Per Share Dividends** |   |        |   |        |   |        |   |        |   |
| **Declared:**           |   |        |   |        |   |        |   |        |   |
| 2001 Common Stock       |   | $           | 0.33   |        | $      | 0.34        |   | $           | 0.34   |   | $ | 0.49 |   |
| 2000 Common Stock       |   | $           | 0.32   |        | $      | 0.32        |   | $           | 0.32   |   | $ | 0.48 |   |

 

COMPETITION

 

                Vigorouscompetition exists in the market area of Logan CountyBancShares, Inc. In addition to the threeother banks located withinthe market area, the location is in a relatively closeproximity to twopopulation centers of the State. There is also competition for depositsand related financial services fromnon-bank institutions such assavings and loans, insurance companies and brokeragefirms, all of whichare active in the area. Loans are provided by those instutitions aswell in addition to the financecompanies. Since the Bank HoldingCompany Act, passed by the West Virginia Legislaturein 1982, localbanks have been joining bank holding companies around the State. Of thefive banks located in Logan County, onlyone is a unit bank. The otherfour are members of various multi-bank holdingcompanies. Logan CountyBancShares, Inc. has been able to compete effectively within the countyby having one institution located in thecounty seat (Logan Bank & TrustCompany), and Branches located in the high-growth areaof the county.Also, to stimulate growth, Logan County BancShares, Inc. is the onlybank holding company owned and controlledfrom within the county.

 

4

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SUPERVISION ANDREGULATION 

 

                TheCorporation is a bank holding company within the meaning of theBank Holding Company Act of 1956 (theAct) and is registered as suchwith the Board of Governors of the Federal ReserveSystem (the Reserve Board). As a bank holding company, the Corporation isrequired to filewith the Federal Reserve Board an annual report and such otherinformation as may be required. TheFederal Reserve Board may also makeexaminations of the corporation. In addition, theFederal Reserve Boardhas the authority (which it has not exercised) to regulate provisionsofcertain bankholding company debt.

 

                TheAct requires every bank holding company to obtain the priorapproval of the Federal Reserve Boardbefore acquiring substantially allthe assets of or direct or indirect ownership orcontrol of more than 5%of the voting shares of any bank which is not already majority-owned.The Act also prohibits a bank holdingcompany, with certain exceptions,from itself engaging in or acquiring direct orindirect control of morethan 5% of the voting shares of any company engaged in non-bankingactivities. One of the principalexceptions to these prohibitions isfor engaging or acquiring shares of a company engagedin activitiesfound by the Federal Reserve Board by order or regulation to be soclosely related to banking or managingbanks as to be a proper incident thereto. The Act prohibits the acquisition bya bank holding company ofmore than 5% of the outstanding voting shares of abank located outside the State in which the operations of its bankingsubsidiaries are principally conducted, unless such an acquisition isspecificallyauthorized by statute of the State in which the bank acquired islocated. The Act and regulations of theFederal Reserve Board alsoprohibit a bank holding company and its subsidiariesfrom engaging incertain tie-in arrangements in connection with any extension of creditor provision of any property or services.

 

                LoganBank & Trust Company is an insured bank, organized under theBanking Law of the State of West Virginiaand is a member of the FederalReserve System. Accordingly, their operations aresubject to Federaland State laws applicable to commercial banks with trust powers and toregulation by the Commissioner of Bankingand the West Virginia StateBanking Commissioner, the Federal Reserve Board andthe Federal DepositInsurance Corporation. Among other restrictions, the West VirginiaBanking laws state that banks organizedthereunder may pay dividendsonly out of undivided profits. Under the FederalReserve Act, theapproval of the Federal Reserve Board is required for dividendsdeclaredby a statemember bank which in any year exceeds the net profits of suchbank for that year, as defined, combinedwith retained net profits forthe two preceeding years.

 

5

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GOVERNMENT MONETARYPOLICIES AND ECONOMIC CONTROLS

 

                Theearnings and growth of the banking industry and of Logan Bank &Trust Company is affected by the creditpolicies of monetary authoritiesincluding the Federal Reserve System. An importantfunction of theFederal Reserve System is to regulate the national supply of bankcreditin order tocontrol recessionary and inflationary pressures. Among theinstruments of monetary policy used bythe Federal Reserve to implementthese objectives are open market operations in theU.S. Governmentsecurities, changes in the discount rate on member bank borrowings, andchanges in reserve requirements againstmember bank deposits. Thesemeans are used in varying combinations to influenceoverall growth of bank loans, investments and deposits and may also affectinterest ratescharged on loans or paid for deposits. The monetary policies of theFederal Reserve authorities have had a significanteffect on theoperating results of commercial banks in the past and are expected tocontinue to have such an effect in thefuture.

 

                Inview of changing conditions in the national economy and in themoney markets, as well as the effect ofactions by monetary and fiscal authorities, including the Federal Reservesystem, no prediction can be made as to possible future changes in interestrates, deposit levels, loan demand or their effect on the business and earningsof the Corporation, and Logan Bank & Trust Company.

 

FOREIGN OPERATIONS

 

                Thecorporation and subsidiary have no foreign operations.

 

EXECUTIVE OFFICERS

 

                Forinformation concerning the Executive Officers of the Corporation, please seeItem 10.

 

6

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ITEM2 - PROPERTIES

 

 

                Theprincipal offices of the corporation are shared with those ofLogan Bank & Trust Company and aresituated in Logan, West Virginia.This building, a two-story bank and office building,is owned by LoganBank & Trust company, as is a mini-bank and drive-up facility whichis located near-by. In addition, a one-story office and bank building islocated on Railroad Avenue inChapmanville, West Virginia. During 1996the Bank opened two other branch facilities in WestVirginia. Both areone-story office and bank buildings located at Rt. 10, South Man, WestVirginia and Rt.10 North at Harts, WestVirginia.

 

ITEM3 - LEGAL PROCEEDINGS

 

                Thereare no legal actions or proceedings pending to which theCorporation, or its subsidiary are a party.

 

ITEM4 - SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

 

                None.

 

 

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ITEM 5 - MARKET FOR THE REGISTRANT’S COMMONSTOCK

AND RELATEDSECURITY HOLDER MATTERS

 

                Theshares of Logan County BancShares, Inc. are infrequently tradedin the over-the-counter market and arenot listed on the NationalAssociation of Security Dealers Automated QuotationSystem (NASDAQ) oron any exchange.  Management isnot aware of any security dealer which makes a market in the stock; therefore,no active trading market shouldbe deemed to exist.

 

                Thesales price for Logan County BancShares, Inc. stock aredetermined by negotiations betweenindividual buyers and sellers.Although Company keeps no records of sales prices paidfor Company stockand has  no directknowledge  of such prices, for  purposes ofpresentation, Corporation’s management estimates theapproximate marketvalue ranges for 2001 and 2000 to be as follows:

 
|              |   | **First**   |   | **Second**  |   | **Third**   |   | **Fourth**  | ** ** |
|-------------------|--------|-------------|--------|-------------|--------|-------------|--------|-------------|------------|
| **Sales Price**   |   | **Quarter** |   | **Quarter** |   | **Quarter** |   | **Quarter** |       |
| 2001 Common Stock |   | $42-$42     |   | $42-$42     |   | $42-$42     |   | $42-$42     |       |
| 2000 Common Stock |   | $42-$42     |   | $42-$42     |   | $42-$42     |   | $42-$42     |       |

 
| **Per Share Dividends Declared:** |   |   |   |   |   |   |   |   |   |
|-----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| 2001 Common Stock                 |   | $      | 0.33   |   | $      | 0.34   |   | $      | 0.34   |   | $ | 0.49 |   |
| 2000 Common Stock                 |   | $      | 0.32   |   | $      | 0.32   |   | $      | 0.32   |   | $ | 0.48 |   |

 

 

8

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ITEM 6 - SELECTEDFINANCIAL DATA

 

LOGAN COUNTY BANCSHARES,INC. AND SUBSIDIARY

** **

(In Thousands of Dollars)

 
| **YEAR ENDED DECEMBER 31:**                                               |   | **2001** |    | **2000** |   | **1999** |   | **1998** |    | **1997** |   |
|---------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|----------|---------|----------|--------|
| Total Interest Revenue                                                    |   | $        | 12,090  |     | $      | 11,508   |   | $        | 10,753  |     | $      | 9,964 |   | $ | 8,693 |   |
| Total Interest Expense                                                    |   | 4,801    |    | 4,828    |   | 4,378    |   | 4,260    |    | 3,605    |   |
| Net Interest Revenue                                                      |   | 7,289    |    | 6,680    |   | 6,375    |   | 5,704    |    | 5,088    |   |
| Provision for Possible                                                    |   |     |    |     |   |     |   |     |    |     |   |
| Loan Losses                                                               |   | 700      |    | 100      |   | 22       |   | 90       |    | 107      |   |
| Net Interest Revenue  AfterProvision  for PossibleLoan Losses             |   | 6,589    |    | 6,580    |   | 6,353    |   | 5,614    |    | 4,981    |   |
| Other Operating Revenue                                                   |   | 707      |    | 769      |   | 699      |   | 989      |    | 1,264    |   |
| Other Operating Expense                                                   |   | (4,631   | )       | (4,185   | )      | (3,897   | )      | (3,629   | )       | (3,294   | )      |
| Income Before Income  Taxes                                               |   | 2,665    |    | 3,164    |   | 3,155    |   | 2,974    |    | 2,951    |   |
| Income Taxes                                                              |   | 909      |    | 1,131    |   | 1,131    |   | 1,083    |    | 1,057    |   |
| Net Income                                                                |   | $        | 1,756   |     | $      | 2,033    |   | $        | 2,024   |     | $      | 1,891 |   | $ | 1,894 |   |
| Per Common Share:                                                         |   |     |    |     |   |     |   |     |    |     |   |
| Net Income                                                                |   | $        | 2.45    |     | $      | 2.84     |   | $        | 2.83    |     | $      | 2.64 |   | $ | 2.65 |   |
| Cash Dividends Declared                                                   |   | $        | 1.50    |     | $      | 1.44     |   | $        | 1.34    |     | $      | 1.18 |   | $ | 1.07 |   |
| At December 31:                                                           |   |     |    |     |   |     |   |     |    |     |   |
| Total Loans                                                               |   | $        | 116,907 |     | $      | 113,641  |   | $        | 109,571 |     | $      | 95,139 |   | $ | 84,898 |   |
| Total Assets                                                              |   | 171,599  |    | 157,480  |   | 152,746  |   | 139,278  |    | 121,850  |   |
| Total Deposits                                                            |   | 152,028  |    | 138,723  |   | 127,619  |   | 124,420  |    | 108,107  |   |
| Short-Term Debt                                                           |   | 2,000    |    | 2,000    |   | 9,840    |   | 0        |    | 0        |   |
| Total Shareholders’  Equity                                          |   | 16,800   |    | 16,014   |   | 14,444   |   | 14,060   |    | 12,983   |   |
| Selected Ratios:                                                          |   |     |    |     |   |     |   |     |    |     |   |
| Rate of Return on  Average:                                               |   |     |    |     |   |     |   |     |    |     |   |
| Total Assets                                                              |   | 1.03     | %       | 1.36     | %      | 1.39     | %      | 1.43     | %       | 1.62     | %      |
| Shareholders’ Equity                                                 |   | 10.36    | %       | 13.35    | %      | 13.84    | %      | 13.99    | %       | 15.18    | %      |
| Tier 1 Capital to TotalAssets at Year End                                 |   | 10.31    | %       | 10.25    | %      | 9.92     | %      | 10.09    | %       | 11.09    | %      |
| Average Total  Shareholders’ Equity to Average total Assets          |   | 9.95     | %       | 10.15    | %      | 10.05    | %      | 10.22    | %       | 10.66    | %      |
| Common Dividend PayoutRatio                                               |   | 61.12    | %       | 50.79    | %      | 47.35    | %      | 44.70    | %       | 39.60    | %      |
| Nonaccrual and  Restructured Business Loans as a Percentageof Total Loans |   | 0.09     | %       | 0.13     | %      | 0.51     | %      | 0.53     | %       | 0.64     | %      |

 

 

9

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ITEM 7 - Management’s Discussion and Analysis

 

Logan County BancShares,Inc. and Subsidiary

Management’s Discussionand Analysis of Financial

Condition and Results ofOperations

 

INTRODUCTION

 

                TheManagement’s Discussion and Analysis reviews and discusses thefinancial condition of Logan CountyBancShares, Inc. and Subsidiary.Included are (a) the results of operations for 2000and (b) discussionof liquidity including an asset and liability sensitivity analysis, and(c) an analysis of earnings, dividends,and capital. The discussion andanalysis discloses any material changes and anyinfrequent events andknown trends as they relate to liquidity, capital resources and resultsof operations. The information presentedreflects the activities of theholding company and the subsidiary bank, Logan Bank& Trust Company.

 

                Toassist in understanding and evaluating major changes in LoganCounty BancShares, Inc.’s financialposition and results of operations, this discussion emphasizes a comparison ofthe years 2001 to 2000, 2000 to 1999, and 1999 to 1998, and also presents fiveyear information ininstances  whereappropriate.  This  discussion should be  readconcurrently with the audited financialstatements including notes tothose statements.

 

                Thefollowing definitions apply to terms used in this report:

 

                AVERAGEBALANCES: All balances have been computed on the basis ofmonthly averages.

 

                NETINTEREST INCOME: Interest and related fee income on earningassets, reduced by total interest paid oninterest bearing deposits andborrowed funds. This net amount, when divided byaverage earning asset balances becomes net interest margin.

 

                NETNON-INTEREST EXPENSE: Non-interest expenses reduced by theamount of non-interest income.

 

LIQUIDITY AND CAPITALRESOURCES

 

                Liquidityis provided through short-term investments, payments onoutstanding loans, and the ability toattract new deposits or borrow funds. At December 31, 2001, and 2000, the fundsavailable within one year from investments and loans were $37,712,000. and$43,830,000. 

 

                LoganCounty  BancShares, Inc.’s subsidiarydeposit  mix hasincreased by  $13,305,000. in  2001,$11,104,000., in  2000, and $3,198,000.in 1999. These increases in the deposit mix points out a marketing strategythat has attracted new customers to the Bank. Time deposits represented themajor growth in the deposit mix.  Theyincreased by $5,392,000., and $8,056,000. respectively in 2000 and 1999. In1998 all catagories grew while the shift in 1997 was from savings accounts intotime deposits due to the Banks’ promotional activities; offering competitiveinterest rates for short-term and long-term CD’s. Demand deposits contributed tothe growth in the deposit mix by increasing $6,164,000. in 2001 and $4,011,000in 2000. Savings depositsshowed increases of $7,517,000 in 2001, $1,263,000 in2000 and 1999 of$1,207,000. after remaining stable over the past five years.  These changes are predominantly due to thefluctuating interest rates by theFederal Reserve and movement of savings to timedeposits by the consumerin order to obtain a better interest rate.  At December 31, 2001 and 2000, 32.19% and 30.83% of the totaldeposits were in demand deposits, while 26.18% and 23.27% were in savings and41.63% and 45.89% were in time deposits, respectively. The stable growth indeposits gives the Bank a firm deposit base to meet the lending demand andmarket fluctuations.

 

10

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                During2001, 2000 and 1999, banks have been faced with a highlycompetitive atmosphere in the sense ofmaintaining a continuity ofgrowth. Logan County BancShares, Inc. has maintained acommunity bank approach which enhances its performance over those years. Themerger of Bank of Chapmanville into Logan Bank & Trust Company enabled theCompany to operate more effeciently and thereby capture a sizeable portion ofthe market for deposits in the fastest growing area of Logan County, WestVirginia. Also, with the addition of the Man Branch of Logan Bank & Trustand Harts Bank of Logan Bank & Trust in 1996, and the Fountain Placelocation in 1999, the Company has expanded its current market. See Table I. fora five-year summary of financial data.

 

                Capitalplanning is essentially  the managementprocess thatallocates capital resources in a manner that generates the highestincome, while maintaining sufficient liquidity, at the lowest degree of riskattainable.  Moreover, it is thephilosophy of Logan County BancShares, Inc. to nurture that growth by planningfor steady, long-range profits rather than the high-risk, high-exposuretechniques. As noted in Table I. the ratio of net income to average assets was1.03%, 1.36%, and 1.43%, for the years ended December 31, 2001, 2000 and 1999,respectively.  Through the periodspresented, management has allocated new funds into the higher-yielding loansand holding the investment securities nearly constant.  Although the improvement in the localeconomy had been at a slow pace through the periods presented, overall loandemand and deposit growth show a marked increase due to marketing the communitybank service approach.

 

                TableI. represents a summary of financial data for the previousfive years.

 

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TABLE I. — SUMMARY OFFINANCIAL DATA FOR FIVE YEARS

(In thousands of dollars)

 
|                                              |   | **2001** |    | **2000** |   | **1999** |   | **1998** |    | **1997** |   |
|---------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|----------|---------|----------|--------|
| Year End Balances:                                |   |     |    |     |   |     |   |     |    |     |   |
| Total Assets                                      |   | $        | 171,599 |     | $      | 157,480  |   | $        | 152,746 |     | $      | 139,278 |   | $ | 121,850 |   |
| Total Earning Assets                              |   | 160,413  |    | 147,539  |   | 139,600  |   | 130,454  |    | 113,088  |   |
| Total Deposits                                    |   | 152,028  |    | 138,728  |   | 127,619  |   | 124,420  |    | 108,107  |   |
| Stockholders’ Equity                         |   | 16,800   |    | 16,014   |   | 14,444   |   | 14,059   |    | 12,983   |   |
|                                              |   |     |    |     |   |     |   |     |    |     |   |
| Income for the Year:                              |   |     |    |     |   |     |   |     |    |     |   |
| Total Interest Income                             |   | 12,090   |    | 11,508   |   | 10,753   |   | 9,964    |    | 8,693    |   |
| Total Interest Expense                            |   | 4,801    |    | 4,828    |   | 4,378    |   | 4,260    |    | 3,605    |   |
| Net Interest Income                               |   | 7,289    |    | 6,680    |   | 6,375    |   | 5,704    |    | 5,088    |   |
| Provision for LoanLosses                          |   | 700      |    | 100      |   | 22       |   | 90       |    | 107      |   |
| Non-Interest Income                               |   | 707      |    | 769      |   | 699      |   | 989      |    | 1,264    |   |
| Non-interest expense                              |   | 5,540    |    | 5,316    |   | 5,028    |   | 4,712    |    | 4,351    |   |
| Net Income                                        |   | 1,756    |    | 2,033    |   | 2,024    |   | 1,891    |    | 1,893    |   |
|                                              |   |     |    |     |   |     |   |     |    |     |   |
| Per Share Data                                    |   |     |    |     |   |     |   |     |    |     |   |
| Net Income                                        |   | 2.84     |    | 2.84     |   | 2.83     |   | 2.64     |    | 2.65     |   |
| Stockholders’ Equity                         |   | 23.43    |    | 22.34    |   | 20.14    |   | 19.61    |    | 18.44    |   |
| Cash Dividends                                    |   | 1.50     |    | 1.44     |   | 1.34     |   | 1.18     |    | 1.07     |   |
|                                              |   |     |    |     |   |     |   |     |    |     |   |
| Key Ratios                                        |   |     |    |     |   |     |   |     |    |     |   |
| Net Income To:                                    |   |     |    |     |   |     |   |     |    |     |   |
| Average Assets                                    |   | 1.03     | %       | 1.36     | %      | 1.39     | %      | 1.43     | %       | 1.62     | %      |
| Average Stockholders’Equity                  |   | 10.36    | %       | 13.36    | %      | 13.84    | %      | 13.99    | %       | 15.18    | %      |
| Average Stockholders’Equity to AverageAssets |   | 9.95     | %       | 10.15    | %      | 10.05    | %      | 10.22    | %       | 10.66    | %      |
|                                                   |        |          |         |          |        |          |        |          |         |          |        |  |  |  |  |  |

 

 

12

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TABLE II. - RATE ANALYSISOF INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES

(In Thousands of Dollars)

 
|                                  |   | **2001**    |    | **2000**      |   | **1999**    |   |
|---------------------------------------|--------|-------------|---------|---------------|--------|-------------|--------|
|                                  |   | **Average** |    | **Income**    |   | **Average** |   | **Average** |   | **Income** |   | **Average** |   | **Average** |   | **Income** |   | **Average** |   |
|                                  |   | **Balance** |    | **(Expense)** |   | **Yield**   |   | **Balance** |   | **(Expense)** |   | **Yield** |   | **Balance** |   | **(Expense)** |   | **Yield** |   |
| **EARNING ASSETS:**                   |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                 |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Net  of Reserves & Discounts):   |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                            |   | $           | 46,696  |          | $      | 4,209       |   | 9.01 | % | $ | 43,232 |   | $ | 3,955 |   | 9.15 | % | $ | 40,468 |   | $ | 3,476 |   | 8.59 | % |
| Real  Estate                          |   | 52,514      |    | 4,376         |   | 8.33        | %      | 52,215 |   | 4,302 |   | 8.24 | % | 49,235 |   | 4,037 |   | 8.20 | % |
| Consumer                              |   | 14,079      |    | 1,397         |   | 9.92        | %      | 13,348 |   | 1,257 |   | 9.42 | % | 12,212 |   | 1,100 |   | 9.01 | % |
| Total  Net Loans                      |   | 113,289     |    | 9,982         |   | 8.81        | %      | 108,795 |   | 9,514 |   | 8.74 | % | 101,915 |   | 8,613 |   | 8.45 | % |
| Investment  Securities:               |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held  to Maturity                     |   | 0           |    | 0             |   | 0.00        | %      | 0 |   | 0 |   | 0.00 | % | 1,080 |   | 68 |   | 6.30 | % |
| Available  for Sale                   |   | 25,967      |    | 1,354         |   | 5.21        | %      | 28,887 |   | 1,886 |   | 6.53 | % | 29,045 |   | 1,840 |   | 6.33 | % |
| Total  InvestmentSecurities           |   | 25,967      |    | 1,354         |   | 5.21        | %      | 28,887 |   | 1,886 |   | 6.53 | % | 30,125 |   | 1,908 |   | 6.33 | % |
| Federal  Funds Sold & Securities  |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities  Purchased                 |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Under  Option to Resale               |   | 20,540      |    | 754           |   | 3.67        | %      | 1,728 |   | 108 |   | 6.25 | % | 4,792 |   | 232 |   | 4.84 | % |
| Total  Earning Assets                 |   | $           | 159,796 |          | $      | 12,090      |   | 7.57 | % | $ | 139,410 |   | $ | 11,508 |   | 8.25 | % | $ | 136,832 |   | $ | 10,753 |   | 7.86 | % |
| Interest  Bearing Liabilities:        |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings  & InterestBearing Demand |   | $           | 57,807  |          | $      | 1,139       |   | 1.97 | % | $ | 55,169 |   | $ | 1,329 |   | 2.41 | % | $ | 53,114 |   | $ | 1,360 |   | 2.56 | % |
| Time  Deposits                        |   | 64,549      |    | 3,522         |   | 5.46        | %      | 59,505 |   | 3,430 |   | 5.76 | % | 58,167 |   | 2,964 |   | 5.10 | % |
| Federal  Funds/Repurchased            |   | 2,000       |    | 140           |   | 7.00        | %      | 1,052 |   | 69 |   | 6.56 | % | 833 |   | 54 |   | 6.48 | % |
| Total  Interest Bearing               |   |        |    |          |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                           |   | $           | 124,356 |          | $      | 4,801       |   | 3.86 | % | $ | 115,726 |   | $ | 4,828 |   | 4.17 | % | $ | 112,114 |   | $ | 4,378 |   | 3.93 | % |

 

 

13

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TABLE III. - VOLUMEANALYSIS OF CHANGE IN INTEREST INCOME AND INTEREST EXPENSE

(In Thousands of Dollars)
|                                                    |   |                        |   |                                      |   |                                      |   | **2001 Vs. 2000** |   | **2000 Vs. 1999** |   |
|---------------------------------------------------------|--------|-----------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|-------------------|--------|-------------------|--------|
|                                                    |   | **Interest Income Expense** |   | **Increase (Decrease) Due To Change  In** |   | **Increase (Decrease) Due To Change  In** |   |
|                                                    |   | **2001**                    |   | **2000**                                  |   | **1999**                                  |   | **Volume**        |   | **Rate**          |   | **Total** |   | **Volume** |   | **Rate** |   | **Total** |   |
| INTEREST  INCOME ON EARNING ASSETS:                     |   |                        |   |                                      |   |                                      |   |              |   |              |   |   |   |   |   |   |   |   |   |
| LOANS:                                                  |   |                        |   |                                      |   |                                      |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Commercial                                              |   | $                           | 4,209  |                                      | $      | 3,955                                     |   | $                 | 3,476  |              | $      | 317 |   | $ | (63 | ) | $ | 254 |   | $ | 252 |   | $ | 227 |   | $ | 479 |   |
| Real  Estate                                            |   | 4,376                       |   | 4,302                                     |   | 4,037                                     |   | 25                |   | 49                |   | 74 |   | 245 |   | 20 |   | 265 |   |
| Consumer                                                |   | 1,397                       |   | 1,257                                     |   | 1,100                                     |   | 69                |   | 71                |   | 140 |   | 107 |   | 50 |   | 157 |   |
| Total  Loans                                            |   | 9,982                       |   | 9,514                                     |   | 8,613                                     |   | 411               |   | 57                |   | 468 |   | 604 |   | 297 |   | 901 |   |
| SECURITIES:                                             |   |                        |   |                                      |   |                                      |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Taxable                                                 |   | 0                           |   | 0                                         |   | 68                                        |   | 0                 |   | 0                 |   | 0 |   | (68 | ) | 0 |   | (68 | ) |
| Tax  Exempt                                             |   | 0                           |   | 0                                         |   | 0                                         |   | 0                 |   | 0                 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| Available  for Sale                                     |   | 1,354                       |   | 1,886                                     |   | 1,840                                     |   | (190              | )      | (342              | )      | (532 | ) | (12 | ) | 58 |   | 46 |   |
| Total  Securities                                       |   | 1,354                       |   | 1,886                                     |   | 1,908                                     |   | (190              | )      | (342              | )      | (532 | ) | (80 | ) | 58 |   | (22 | ) |
| FEDERAL  FUNDS SOLD ANDSECURITIES PURCHASED:            |   |                        |   |                                      |   |                                      |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Under  Agreement toResale                               |   | 754                         |   | 108                                       |   | 232                                       |   | 1,175             |   | (529              | )      | 646 |   | (56 | ) | (68 | ) | (124 | ) |
| TOTAL  INTEREST INCOME ONEARNING ASSETS                 |   | 12,090                      |   | 11,508                                    |   | 10,753                                    |   | 1,396             |   | (814              | )      | 582 |   | 468 |   |   |   |   |   |
| INTEREST  EXPENSE ONINTEREST BEARING LIABILITIES:       |   |                        |   |                                      |   |                                      |   |              |   |              |   |   |   |   |   |   |   |   |   |
| Savings  and Interest BearingDemand Deposits            |   | 1,139                       |   | 1,329                                     |   | 1,360                                     |   | (63               | )      | (127              | )      | (190 | ) | 49 |   | (80 | ) | (31 | ) |
| Time  Deposits                                          |   | 3,522                       |   | 3,430                                     |   | 2,964                                     |   | 290               |   | (198              | )      | 92 |   | 82 |   | 384 |   | 466 |   |
| Federal  Funds Purchased                                |   | 140                         |   | 69                                        |   | 54                                        |   | 62                |   | 9                 |   | 71 |   | 14 |   | 1 |   | 15 |   |
| TOTAL  INTEREST EXPENSE ON INTEREST BEARING LIABILITIES |   | 4,801                       |   | 4,828                                     |   | 4,378                                     |   | 289               |   | (316              | )      | (27 | ) | 145 |   | 304 |   | 450 |   |
| NET  INTEREST INCOME                                    |   | $                           | 7,289  |                                      | $      | 6,680                                     |   | $                 | 6,375  |              | $      | 1,107 |   | ($498 | ) | $ | 609 |   | $ | 323 |   | ($17 | ) | $ | 305 |   |
|                                                         |        |                             |        |                                           |        |                                           |        |                   |        |                   |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

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LOAN PORTFOLIO

 

                Theloan portfolio of Logan County BancShares, Inc.  Subsidiarycontinues to represent the largest component of earning assets.  Loanactivity has continued to increase due to the Bank’semphasis on lending; as shown on Table IV, the Bank has contributedsubstantially to liquidityby structuring the loan portfolio in such a manner asto have approximately22.30% of the total loans due within one year.

 

TABLE IV - REMAININGMATURITIES OF LOANS AT DECEMBER 31, 2001

(In Thousands of Dollars)

 
|                                |   | **COMMERCIAL,**   |   |            |   |             |   |      |   |
|-------------------------------------|--------|-------------------|--------|-----------------|--------|------------------|--------|-----------|--------|
|                                |   | **FINANCIAL AND** |   | **REAL ESTATE** |   |             |   |      |   |
| **MATURITIES**                      |   | **AGRICULTURAL**  |   | **MORTGAGES**   |   | **INSTALLMENTS** |   | **TOTAL** |   |
| Due Within One Year                 |   | $                 | 18,482 |            | $      | 6,625            |   | $         | 966    |   | 26,073 |   |
| Due One to Five Years               |   | 16,521            |   | 24,662          |   | 9,287            |   | 50,470    |   |
| Due After Five Years                |   | 14,207            |   | 22,432          |   | 3,725            |   | 40,364    |   |
| Total Loans                         |   | $                 | 49,210 |            | $      | 53,719           |   | $         | 13,978 |   | $ | 116,907 |   |
| Due After One Year at  Fixed Rate   |   | $                 | 30,728 |            | $      | 47,094           |   | $         | 13,012 |   | 90,834 |   |
| Due After One Year at  FloatingRate |   | 0                 |   | 0               |   | 0                |   | 0         |   |
| Total Loans Due AfterOne Year       |   | $                 | 30,728 |            | $      | 47,094           |   | $         | 13,012 |   | $ | 90,834 |   |

 

15

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LOAN LOSSES AND CREDITRISKS

 

                Theallowance for loan losses is established by charging expenses at anamount which will maintain the allowancefor loan losses at a levelsufficient to provide for potential loan losses.  Loan losses are chargeddirectly to the allowance when they occurand recoveries are credited to theallowance.  Theamount of the provision is based on past loan loss experience, management’sevaluation of the loan portfolio under currenteconomic conditions, and such other factors as inmanagement’s best judgementdeserve current recognition in estimating loanlosses.  Tables V. and VI. represent asummary of loan loss experience for the years 2001, 2000, 1999 1998 and 1997.

 

TABLE V. — ANALYSIS OFALLOWANCE FOR LOAN LOSSES

 
|                                                                 |   | **Year Ended December 31,** |    |
|----------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                 |   | **2001**                    |    | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| Amount of Loans  Outstanding at End of Period                        |   | $                           | 115,755 |   | $ | 112,939 |   | $ | 108,871 |   | $ | 94,402 |   | $ | 84,225 |   |
| Monthly AverageAmount of Loans                                       |   | $                           | 113,289 |   | $ | 109,447 |   | $ | 101,197 |   | $ | 89,182 |   | $ | 78,430 |   |
| Balance of Allowance  for Possible Loan Losses atBeginning of Period |   | $                           | 702     |   | $ | 700 |   | $ | 701 |   | $ | 673 |   | $ | 681 |   |
| Loans Charged Off:                                                   |   |                        |    |   |   |   |   |   |   |   |   |
| Commercial                                                           |   | $                           | 32      |   | $ | 0 |   | $ | 0 |   | $ | 14 |   | $ | 103 |   |
| Real Estate                                                          |   | 20                          |    | 7 |   | 0 |   | 0 |   | 0 |   |
| Consumer                                                             |   | 205                         |    | 99 |   | 29 |   | 51 |   | 13 |   |
| Total Loans Charged Off                                              |   | 257                         |    | 106 |   | 29 |   | 65 |   | 116 |   |
| Recoveries of Loans  PreviouslyCharged Off:                          |   |                        |    |   |   |   |   |   |   |   |   |
| Commercial                                                           |   | 1                           |    | 0 |   | 1 |   | 1 |   | 0 |   |
| Real Estate                                                          |   | 1                           |    | 3 |   | 0 |   | 0 |   | 0 |   |
| Consumer                                                             |   | 6                           |    | 5 |   | 4 |   | 2 |   | 1 |   |
| Total Recoveries                                                     |   | 8                           |    | 8 |   | 5 |   | 3 |   | 1 |   |
| Net Loans Charged Off                                                |   | 249                         |    | 98 |   | 24 |   | 62 |   | 116 |   |
| Additions to Allowance:                                              |   |                        |    |   |   |   |   |   |   |   |   |
| Charged to Expense                                                   |   | 700                         |    | 100 |   | 23 |   | 90 |   | 107 |   |
| Balance at End of  Period                                            |   | $                           | 1,153   |   | $ | 702 |   | $ | 700 |   | $ | 701 |   | $ | 673 |   |
| Ratio of Net  Charge-Offs During Period to Average Loans             |   | 1.017                       | %       | 0.089 | % | 0.024 | % | 0.069 | % | 0.148 | % |

 

16

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TABLE VI. - ALLOCATION OFALLOWANCE FOR LOAN LOSSES

 
|         |   | **December 31, 2001** |   | **December 31, 2000** |   | **December 31, 1999** |   | **December 31, 1998** |   | **December 31, 1997** |   |
|--------------|--------|-----------------------|--------|-----------------------|--------|-----------------------|--------|-----------------------|--------|-----------------------|--------|
|         |   |                  |   | **% Of**              |   |                  |   | **% Of**              |   |                  |   | **% Of** |   |   |   | **% Of** |   |   |   | **% Of** |   |
|         |   |                  |   | **Outstanding**       |   |                  |   | **Outstanding**       |   |                  |   | **Outstanding** |   |   |   | **Outstanding** |   |   |   | **Outstanding** |   |
|         |   |                  |   | **Loan**              |   |                  |   | **Loan**              |   |                  |   | **Loan** |   |   |   | **Loan** |   |   |   | **Loan** |   |
|         |   | **Allowance**         |   | **Balance**           |   | **Allowance**         |   | **Balance**           |   | **Allowance**         |   | **Balance** |   | **Allowance** |   | **Balance** |   | **Allowance** |   | **Balance** |   |
| Commercial   |   | $                     | 749    |                  | 1.52   | %                     | $      | 464                   |   | 0.98                  | %      | $ | 464 |   | 1.03 | % | $ | 463 |   | 1.22 | % | $ | 422 |   | 1.03 | % |
|         |   |                  |   |                  |   |                  |   |                  |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Real  Estate |   | 288                   |   | 0.54                  | %      | 163                   |   | 0.31                  | %      | 163                   |   | 0.32 | % | 163 |   | 0.35 | % | 144 |   | 0.40 | % |
|         |   |                  |   |                  |   |                  |   |                  |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Consumer     |   | 116                   |   | 0.83                  | %      | 75                    |   | 0.55                  | %      | 73                    |   | 0.55 | % | 75 |   | 0.67 | % | 107 |   | 1.27 | % |
|         |   |                  |   |                  |   |                  |   |                  |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Total        |   | $                     | 1,153  |                  | 0.97   | %                     | $      | 702                   |   | 0.62                  | %      | $ | 700 |   | 0.64 | % | $ | 701 |   | 0.74 | % | $ | 673 |   | 0.79 | % |

 

 

17

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CONSOLIDATED SUMMARY OFLOANS AND NON-PERFORMING ASSETS

 

                Non-performingassets consist of (a) loans not accruing interest anylonger due to doubts about futurecollectability, (b) loans more than ninety days past due for the last principalor interest payment, and (c) other real estate owned by the Bank takenoriginally as loan collateral.  TableVII.provides afive-year summary of the components involved in non-performingassets as of year end.

 

                Loansare determined to be nonaccruing when it has been determined thatthe ability of the Bank to collect theunpaid balance of such loans ishighly unlikely due to the financial position of theborrower and generaleconomic conditions.  Thedetermination of such classification is made by bank management on acase-by-case basis for problem loans. Generally, areview of each loan ninety days or more past due is made monthly andsuch loans deemed uncollectable become classified as nonaccrual.

 

                Loansare determined to be ninety days delinquent when such a period oftime has elapsed since the last paymentof principal or interest was made. At such a time, consideration as to whetherto classify the loan as nonaccruing is made. However, until such classification is made, interest will continue to beaccrued.

 

                Otherreal estate consists of real property that the Bank originallytook as collateral for loans but hassince acquired title to when the borrowers defaulted and the Bank bid on theproperty in question at public auction.

 

TABLE VII. — CONSOLIDATEDSUMMARY OF LOANS AND NON-PERFORMING ASSETS

(In Thousands of Dollars)

 
|                           |   | **Year Ended December 31,** |    |
|--------------------------------|--------|-----------------------------|---------|
|                           |   | **2001**                    |    | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| Commercial Loans               |   | $                           | 49,211  |   | $ | 47,526 |   | $ | 45,069 |   | $ | 37,938 |   | $ | 35,643 |   |
| Real Estate Loans              |   | 53,719                      |    | 52,597 |   | 51,163 |   | 46,088 |   | 40,858 |   |
| Consumer Loans                 |   | 13,978                      |    | 13,518 |   | 13,339 |   | 11,114 |   | 8,493 |   |
| Subtotal                       |   | 116,908                     |    | 113,641 |   | 109,571 |   | 95,140 |   | 84,994 |   |
| Less: Unearned Income          |   | 0                           |    | 0 |   | 0 |   | 36 |   | 96 |   |
| Subtotal                       |   | 116,908                     |    | 113,641 |   | 109,571 |   | 95,104 |   | 84,898 |   |
| Less: Reserve for Loan  Losses |   | 1,153                       |    | 702 |   | 700 |   | 701 |   | 673 |   |
| Net Loans                      |   | $                           | 115,755 |   | $ | 112,939 |   | $ | 108,871 |   | $ | 94,403 |   | $ | 84,225 |   |
| Non-Performing Assets          |   |                        |    |   |   |   |   |   |   |   |   |
| Non-Accruing Loans             |   | $                           | 864     |   | $ | 426 |   | $ | 555 |   | $ | 509 |   | $ | 546 |   |
| Loans Past Due 90 Days         |   | 1,801                       |    | 3,338 |   | 3,272 |   | 3,310 |   | 1,031 |   |
| Other Real Estate Owned        |   | 227                         |    | 200 |   | 358 |   | 94 |   | 172 |   |
| Total Non-Performing  Assets   |   | $                           | 2,892   |   | $ | 3,964 |   | $ | 4,185 |   | $ | 3,913 |   | $ | 1,749 |   |

 

 

18

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SECURITIES

 

                Thesecurities portfolio of Logan County BancShares, Inc. is the second largestareaof resourceallocation. Investments provide liquidity and serve as a hedge offsetting theincreased sensitivity of deposits causedby deregulation. The Company has been shiftingthe concentration of the portfolio from held tomaturity securities into more flexible, higher-yielding available for saleinvestments.

 

                Securitiesinclude those classified as held to maturity and available for sale. Thechange in securities in 2001 was 22% ofthe portfolio and represented allocation of funds due to lower loan demand.During 2000, the investment securities increased $6,737,000. in U.S. agenciesthat were classified as available for sale.

 

                Alldebt securities, that Logan County BancShares subsidiary does not have theabilityor managementdoes not have the positive intent to hold to maturity, are classified as“securities available for sale” and are carried at market value.

 

TABLE VIII. - MATURITYDISTRIBUTION OF SECURITIES AT DECEMBER 31, 2001

(In Thousands of Dollars)

 
|                          |   |                     |   |         |   | **Over**    |   |      |   |      |   |       |   |
|-------------------------------|--------|--------------------------|--------|--------------|--------|-------------|--------|-----------|--------|-----------|--------|------------|--------|
|                          |   |                     |   | **Over**     |   | **Five**    |   |      |   |      |   |       |   |
|                          |   | **One**                  |   | **One Year** |   | **Years**   |   |      |   |      |   |       |   |
|                          |   | **Year**                 |   | **Through**  |   | **Through** |   | **Over**  |   |      |   |       |   |
|                          |   | **or**                   |   | **Five**     |   | **Ten**     |   | **Ten**   |   |      |   | **Market** |   |
| **December 31, 2001**         |   | **Less**                 |   | **Years**    |   | **Years**   |   | **Years** |   | **Total** |   | **Value**  |   |
|                          |   | **Dollars in thousands** |   |
| U.S. Government:              |   |                     |   |
| Available for sale            |   | 3,487                    |   | 0            |   | 0           |   | 0         |   | 3,487     |   | 3,489      |   |
| Held to maturity              |   | 0                        |   | 0            |   | 0           |   | 0         |   | 0         |   | 0          |   |
|                          |   |                     |   |         |   |        |   |      |   |      |   |       |   |
| U.S. Federal Agency  Security |   |                     |   |         |   |        |   |      |   |      |   |       |   |
| Available for sale            |   | 0                        |   | 32,553       |   | 0           |   | 0         |   | 32,553    |   | 32,616     |   |
| Held to maturity              |   | 0                        |   | 0            |   | 0           |   | 0         |   | 0         |   | 0          |   |
|                          |   |                     |   |         |   |        |   |      |   |      |   |       |   |
| Total securities:             |   |                     |   |         |   |        |   |      |   |      |   |       |   |
| Available for sale            |   | 3,487                    |   | 32,553       |   | 0           |   | 0         |   | 36,040    |   | 36,105     |   |
| Held to maturity              |   | 0                        |   | 0            |   | 0           |   | 0         |   | 0         |   | 0          |   |
| Total                         |   | 3,487                    |   | 32,553       |   | 0           |   | 0         |   | 36,040    |   | 36,105     |   |
|                          |   |                     |   |         |   |        |   |      |   |      |   |       |   |
| Percent of total              |   | 9.68                     | %      | 90.32        | %      | 0.00        | %      | 0.00      | %      | 100.00    | %      | 100.00     | %      |
|                          |   |                     |   |         |   |        |   |      |   |      |   |       |   |
| Weighted average  yield**     |   | 1.53                     | %      | 4.14         | %      | 0.00        | %      | 0.00      | %      | 3.89      | %      | 3.77       | %      |

----

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

 

19

----

 

OTHER EXPENSES

 

                During2001 the other expenses grew by $446,000. or 10.66% over2000. The increase is directly related tothe overall growth of thebank and its customer base.  A large portion of the increase were,salaries and wages of $69,000., repair and maintenanceof $44,000., dataprocessing cost of $39,000. and stationery and supplies of $44,000. alldue to increase customer activity.  Bank operating expense increased by $223,000.due to donations of real estate to a non profit group of$170,000.

 

                In2000 other expenses increased $288,000. or 7.39% compared to1999. This increase was due to overall growth in 2000 and the operations ofthe new facility at Fountain Place.  Theincrease of salaries and benefits of $129,000., FDIC insurance of $21,000. andbank operating expenses of $55,000. are all a direct effect of the increasecustomer base.

 

                Otherexpenses continued to increase in 1998 by $333,000. to$3,629,000. This growth was due to theoverall growth of the company and its expansion of customer services. Thelargest components of the increase was salaries and benefits of $157,000. anddata porcessing of $133,000. While both are related to the subsidiary bank’sgrowth and increased service, the data processing cost also reflect preliminaryY2K cost incurred to evaluate the systems used by the company. These costamount to $42,000. in 1998.

 

                In2001 and 2000 the changes in taxes were due to changes inproperty taxes.  Depreciation expense increased throughout the period. Thisincrease is attributable to the opening of two branch facilities at Man andHarts, West Virginia and the Fountain Place facility late 1999.

 

                Repairsand maintenance, directors’ fees, equipment rental, andBank stationery expenses vary from yearto year based on the Company’s demand. These types of expenses are not directlyrelated to the income function and, therefore, increase or decreasesporadically.

 

20

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OTHER INCOME

 

                In2001 and 2000, the company continued to adjust their focus fromincreased collection of fees to promotinga growth in deposits. As a result, the service fees declined $41,000. in 2001and increased in 2000 by $32,000.  Otherincome decreased by $63,000. in 2001, and increased by $71,000. in 2000 or8.91% and 29.32% respectively as a result of these changes.

 

TABLE IX - OTHER INCOME 

(In Thousands of Dollars)
|              |   |     |   |     |   |     |   | **Increase (Decrease)** |   |
|-------------------|--------|----------|--------|----------|--------|----------|--------|-------------------------|--------|
|              |   |     |   |     |   |     |   | **2001 Over 2000**      |   | **2000 Over 1999** |   |
|              |   | **2001** |   | **2000** |   | **1999** |   | **Amount**              |   | **Percent** |   | **Amount** |   | **Percent** |   |
| Service Fee       |   | $        | 628    |     | $      | 669      |   | $                       | 637    |   | $ | (41 | ) | —6.53 | % | $ | 32 |   | 5.02 | % |
|              |   |     |   |     |   |     |   |                    |   |   |   |   |   |   |   |
| Other Fees        |   | 73       |   | 101      |   | 56       |   | (28                     | )      | —27.72 | % | 45 |   | 80.36 | % |
|              |   |     |   |     |   |     |   |                    |   |   |   |   |   |   |   |
| Securities:       |   |     |   |     |   |     |   |                    |   |   |   |   |   |   |   |
| Gain (Loss)       |   | 6        |   | 0        |   | 6        |   | 6                       |   | 100.00 | % | (6 | ) | 100.00 | % |
|              |   |     |   |     |   |     |   |                    |   |   |   |   |   |   |   |
| Total OtherIncome |   | $        | 707    |     | $      | 770      |   | $                       | 699    |   | $ | (63 | ) | —8.91 | % | $ | 71 |   | 29.32 | % |

 

21

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TABLE X. - OTHER EXPENSES

(In Thousands of Dollars)

 
|                         |   |     |   |     |   |     |   | **2001 Over 2000** |   | **2000 Over 1999** |   |
|------------------------------|--------|----------|--------|----------|--------|----------|--------|--------------------|--------|--------------------|--------|
|                         |   | **2001** |   | **2000** |   | **1999** |   | **AMOUNT**         |   | **PERCENT**        |   | **AMOUNT** |   | **PERCENT** |   |
| Salaries andBenefits         |   | $        | 2,217  |     | $      | 2,148    |   | $                  | 2,019  |               | $      | 69 |   | 3.21 | % | $ | 129 |   | 6.39 | % |
| Taxes                        |   | 85       |   | 70       |   | 61       |   | 15                 |   | 21.14              | %      | 9 |   | 14.75 | % |
| Depreciation                 |   | 270      |   | 273      |   | 179      |   | (3                 | )      | —1.10         | %      | 94 |   | 52.51 | % |
| Repairs andMaintenance       |   | 223      |   | 179      |   | 181      |   | 44                 |   | 24.58              | %      | (2 | ) | —1.10 | % |
| Fees Paid toDirectors        |   | 80       |   | 79       |   | 74       |   | 1                  |   | 1.27               | %      | 5 |   | 6.76 | % |
| Equipment Rental             |   | 41       |   | 41       |   | 42       |   | 0                  |   | 0.00               | %      | (1 | ) | —2.38 | % |
| FDIC & FidelityInsurance |   | 113      |   | 99       |   | 78       |   | 14                 |   | 14.14              | %      | 21 |   | 26.92 | % |
| Data Processing              |   | 514      |   | 475      |   | 483      |   | 39                 |   | 8.21               | %      | (8 | ) | —1.66 | % |
| Bank Stationery              |   | 163      |   | 119      |   | 133      |   | 44                 |   | 36.97              | %      | (14 | ) | —10.53 | % |
| Bank OperatingExpenses       |   | 925      |   | 702      |   | 647      |   | 223                |   | 31.17              | %      | 55 |   | 8.50 | % |
| Total                        |   | $        | 4,631  |     | $      | 4,185    |   | $                  | 3,897  |               | $      | 446 |   | 10.65 | % | $ | 288 |   | 7.39 | % |

 

 

22

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EARNINGS AND DIVIDENDS

 

                Asdemonstrated in Table XI., Logan County BancShares, Inc. strivesto achieve a favorable dividend payoutrate to the shareholders. During 2001 the company grew 8.96% in terms of assetand stockholder’s equity and increased by 4.91%, along with 4.17% increase inthe dividend. These positive indicators reflect the overall growth in size,servicearea andcustomer base.  In 2000 continued growthof 3.10% in total assets, 10.70% in equity, .44% in net income and 7.46% individends was seen. In 1999 the late 90’s trends improved with a 9.67% growthin assets, an increase of 7.17% in net income and a 2.65% increase in dividendspayout ratio. Dividends increased by 10.63% to reflect the company’s desire toreward  the shareholder whilemaintaining an excellent capital base.

 

TABLE XI. - THREE-YEARSUMMARY OF EARNINGS AND DIVIDENDS

 
|   |   | **Per Share** |   | **Percent Change Over Prior Year** |   |
|--------|--------|---------------|--------|------------------------------------|--------|
|   |   | **Dividend**  |   | **Net**                            |   |   |   | **Net** |   |   |   | **Total** |   |   |   |
|   |   | **Payout**    |   | **Income**                         |   | **Dividends** |   | **Income** |   | **Dividends** |   | **Assets** |   | **Equity** |   |
| 1999   |   | 47.35         | %      | $                                  | 2.83   |   | $ | 1.34 |   | 7.17 | % | 13.56 | % | 9.67 | % | 2.74 | % |
|   |   |          |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| 2000   |   | 50.79         | %      | $                                  | 2.84   |   | $ | 1.44 |   | 0.44 | % | 7.46 | % | 3.10 | % | 10.70 | % |
|   |   |          |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| 2001   |   | 61.12         | %      | $                                  | 2.45   |   | $ | 1.50 |   | —13.73 | % | 4.17 | % | 8.96 | % | 4.91 | % |

 

 

23

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EARNING ASSETS

 

                TableXII. represents analysis of average earning assets andinterest bearing liabilities for theyears ended December 31, 2001, 2000and 1999.

 

                Inthe period presented average earning assets grew by $20,386,000.in 2001, $2,578,000. in 2000 and$13,192,000. in 1999.  This growthrepresented increases of 14.62% in 2001, 1.88% in 2000 and 9.93% in 1999. Theloan portfolio is the major component of earning assets which grew by$4,494,000. or 4.13% in 2001, $6,880,000. or 6.65% in 2000, and $12,026,000. or13.38% in 1999.  The company alsoallocated to the investment portfolio a portion of the growth to maintainliquity and fund future loan requirements.

 

INTEREST BEARINGLIABILITIES

 

                Interestbearing liabilities  include interestbearing demanddeposits, savings accounts, time deposits and borrowed funds. These arethe prime sources of funds for Logan County BancShares, Inc. subsidiary tosupport earning assets. Total average interest bearing liabilities increased$8,630,000. or 7.46% in 2001, $3,612,000 or 3.22% in 2000 and $9,926,000. or9.71% in 1999. In all years the Company has maintained a stable net interestmargin while experiencing growth in the underlying deposits. The Company hasbeen able to match earning yields with costs of funds over the past three yearsto maintain a stable net interestmargin.

 

 

24

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TABLE XII. - ANALYSIS OFEARNING ASSETS AND INTEREST BEARING LIABILITIES

 

(In Thousands of Dollars)

 
|                                                |   | **Year Ended December 31, 2001** |    | **Year Ended December 31, 2000** |   | **Year Ended December 31, 1999** |   |
|-----------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|----------------------------------|--------|
|                                                |   | **Average**                      |    |                             |   | **Yield/**                       |   | **Average** |   |   |   | **Yield/** |   | **Average** |   |   |   | **Yield/** |   |
| **ASSETS:**                                         |   | **Balance**                      |    | **Interest**                     |   | **Rate**                         |   | **Balance** |   | **Interest** |   | **Rate** |   | **Balance** |   | **Interest** |   | **Rate** |   |
| EARNING  ASSETS:                                    |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOANS:                                              |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                          |   | $                                | 46,696  |                             | $      | 4,209                            |   | 9.01 | % | $ | 43,232 |   | $ | 3,955 |   | 9.15 | % | $ | 40,468 |   | $ | 3,476 |   | 8.59 | % |
| Real  Estate                                        |   | 52,514                           |    | 4,376                            |   | 8.33                             | %      | 52,215 |   | 4,302 |   | 8.24 | % | 49,235 |   | 4,037 |   | 8.20 | % |
| Consumer                                            |   | 14,079                           |    | 1,397                            |   | 9.92                             | %      | 13,348 |   | 1,257 |   | 9.42 | % | 12,212 |   | 1,100 |   | 9.01 | % |
| Total  Loans                                        |   | 113,289                          |    | 9,982                            |   | 8.81                             | %      | 108,795 |   | 9,514 |   | 8.74 | % | 101,915 |   | 8,613 |   | 8.45 | % |
| INVESTMENT  SECURITIES:                             |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held  to Maturity                                   |   | 0                                |    | 0                                |   | 0.00                             | %      | 0 |   | 0 |   | 0.00 | % | 1,080 |   | 68 |   | 6.30 | % |
| Available  for Sale                                 |   | 25,967                           |    | 1,354                            |   | 5.21                             | %      | 28,887 |   | 1,886 |   | 6.53 | % | 29,045 |   | 1840 |   | 6.45 | % |
| Total  Securities                                   |   | 25,967                           |    | 1,354                            |   | 5.21                             | %      | 28,887 |   | 1,886 |   | 6.53 | % | 30,125 |   | 1,908 |   | 6.33 | % |
| FEDERAL  FUNDS SOLD                                 |   | 20,540                           |    | 754                              |   | 3.67                             | %      | 1,728 |   | 108 |   | 6.25 | % | 4,792 |   | 232 |   | 4.84 | % |
| TOTAL  EARNING ASSETS                               |   | $                                | 159,796 |                             | $      | 12,090                           |   | 7.57 | % | $ | 139,410 |   | $ | 11,508 |   | 8.25 | % | $ | 136,832 |   | $ | 10,753 |   | 7.86 | % |
|                                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-EARNING  ASSETS:                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash  and Due from Banks                            |   | 5,027                            |    |                             |   |                             |   | 4,467 |   |   |   |   |   | 4,400 |   |   |   |   |   |
| Bank  Premises                                      |   | 3,561                            |    |                             |   |                             |   | 3,765 |   |   |   |   |   | 2,824 |   |   |   |   |   |
| Other  Assets                                       |   | 1,997                            |    |                             |   |                             |   | 2,373 |   |   |   |   |   | 1,418 |   |   |   |   |   |
| TOTAL  NON-EARNING ASSETS                           |   | $                                | 10,585  |                             |   |                             |   |   | $ | 10,605 |   |   |   |   |   | $ | 8,642 |   |   |   |   |   |
| TOTAL  ASSETS                                       |   | $                                | 170,381 |                             |   |                             |   |   | $ | 150,015 |   |   |   |   |   | $ | 145,474 |   |   |   |   |   |
|                                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST  BEARING LIABILITIES:                      |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings  Deposits and Interest Bearing:             |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| DDA                                                 |   | $                                | 57,807  |                             | $      | 1,139                            |   | 1.97 | % | $ | 55,169 |   | $ | 1,329 |   | 2.41 | % | $ | 53,114 |   | $ | 1,360 |   | 2.56 | % |
| Time Deposits                                       |   | 64,549                           |    | 3,522                            |   | 5.46                             | %      | 59,505 |   | 3,430 |   | 5.76 | % | 58,167 |   |   | 2,964 |   | 5.10 | % |
| Federal  Funds/Repurchased                          |   | 2,000                            |    | 140                              |   | 7.00                             | %      | 1,052 |   | 69 |   | 6.56 | % | 833 |   |   | 54 |   | 6.48 | % |
| Total  Interest Bearing Liabilities                 |   | 124,356                          |    | 4,801                            |   | 3.86                             | %      | 115,726 |   | 4,828 |   | 4.17 | % | 112,114 |   |   | 4,378 |   | 3.90 | % |
|                                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST BEARING  LIABILITIES AND CAPITAL:      |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                             |    |                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand Deposits                                     |   | 28,052                           |    |                             |   |                             |   | 18,587 |   |   |   |   |   | 17,885 |   |   |   |   |   |
| Accrued Expenses                                    |   | 1,023                            |    |                             |   |                             |   | 470 |   |   |   |   |   | 851 |   |   |   |   |   |
| Capital                                             |   | 16,950                           |    |                             |   |                             |   | 15,232 |   |   |   |   |   | 14,624 |   |   |   |   |   |
| Total Non-Interest Bearing  Liabilities and Capital |   | 46,025                           |    |                             |   |                             |   | 34,289 |   |   |   |   |   | 33,360 |   |   |   |   |   |
| Total Liabilities and  Stockholders’ Equity    |   | $                                | 170,381 |                             |   |                             |   |   | $ | 150,015 |   |   |   |   |   | $ | 145,474 |   |   |   |   |   |
| NET INTEREST MARGIN                                 |   | $                                | 159,796 |                             | $      | 7,289                            |   | 4.56 | % | $ | 139,410 |   | $ | 6,680 |   | 4.79 | % | $ | 136,832 |   | $ | 6,375 |   | 4.66 | % |

 

 

25

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TableXII. - ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES

 

(in Thousands of Dollars)

 
|                                               |   | **Year Ended  December 31, 2001** |    | **Year Ended  December 31, 2000** |   | **Year Ended  December 31, 1999** |   |
|----------------------------------------------------|--------|-----------------------------------|---------|-----------------------------------|--------|-----------------------------------|--------|
|                                               |   | **Average**

**Balance**          |    | **Interest**                      |   | **Yield/Rate**                    |   | **Average Balance** |   | **Interest** |   | **Yield/Rate** |   | **Average Balance** |   | **Interest** |   | **Yield/Rate** |   |
| ASSETS:                                            |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EARNING ASSETS:                                    |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOANS:                                             |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                         |   | $                                 | 46,696  |                              | $      | 4,209                             |   | 9.01 | % | $ | 43,232 |   | $ | 3,955 |   | 9.15 | % | $ | 40,468 |   | $ | 3,476 |   | 8.59 | % |
| Real Estate                                        |   | 52,514                            |    | 4,376                             |   | 8.33                              | %      | 52,215 |   | 4,302 |   | 8.24 | % | 49,235 |   | 4,037 |   | 8.20 | % |
| Consumer                                           |   | 14,079                            |    | 1,397                             |   | 9.92                              | %      | 13,348 |   | 1,257 |   | 9.42 | % | 12,212 |   | 1,100 |   | 9.01 | % |
| Total Loans                                        |   | 113,289                           |    | 9,982                             |   | 8.81                              | %      | 108,795 |   | 9,514 |   | 8.74 | % | 101,915 |   | 8,613 |   | 8.45 | % |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INVESTMENT SECURITIES:                             |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Hold to Maturity                                   | 0      | 0                                 | 0       | 0                                 |   | 0.00                              | %      | 0 | 0 | 0 |   | 0.00 | % | 1,080 | 0 | 68 |   | 6.30 | % |
| Available for Sale                                 |   | 25,967                            |    | 1,354                             |   | 5.21                              | %      | 28,887 |   | 1,886 |   | 6.53 | % | 29,045 |   | 1,840 |   | 6.45 | % |
| Total Securities                                   |   | 25,967                            |    | 1.354                             |   | 5.21                              | %      | 28,887 |   | 1,886 |   | 6.53 | % | 30,125 |   | 1,908 |   | 6.33 | % |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FEDERAL FUNDS SOLD                                 |   | 20,540                            |    | 754                               |   | 3.67                              | %      | 1,728 |   | 108 |   | 6.25 | % | 4,792 |   | 232 |   | 4.84 | % |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL EARNING ASSETS                               |   | $                                 | 159,796 |                              | $      | 12,090                            |   | 7.57 | % | $ | 139,410 |   | $ | 11,508 |   | 8.25 | % | $ | 136,832 |   | $ | 10,753 |   | 7.86 | % |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-EARNING ASSETS:                                |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and Due from Banks                            |   | 5,027                             |    |                              |   |                              |   | 4,467 |   |   |   |   |   | 4,400 |   |   |   |   |   |
| Bank Premises                                      |   | 3,561                             |    |                              |   |                              |   | 3,765 |   |   |   |   |   | 2,824 |   |   |   |   |   |
| Other Assets                                       |   | 1,997                             |    |                              |   |                              |   | 2,373 |   |   |   |   |   | 1,418 |   |   |   |   |   |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL NON-EARNING ASSETS                           |   | $                                 | 10,585  |                              |   |                              |   |   | $ | 10,605 |   |   |   |   |   | $ | 8,642 |   |   |   |   |   |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                                       |   | $                                 | 170,381 |                              |   |                              |   |   | $ | 150,015 |   |   |   |   |   | $ | 145,474 |   |   |   |   |   |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST BEARING LIABILITIES:                      |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings Deposits and Interest Bearing:             |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| DDA                                                |   | $                                 | 57,807  |                              | $      | 1,139                             |   | 1.97 | % | $ | 55,169 |   | $ | 1,329 |   | 2.41 | % | $ | 53,114 |   | $ | 1,360 |   | 2.56 | % |
| Time Deposits                                      |   | 64,549                            |    | 3,522                             |   | 5.46                              | %      | 59,505 |   | 3,430 |   | 5.76 | % | 58,167 |   | 2,964 |   | 5.10 | % |
| Federal Funds/Repurchased                          |   | 2,000                             |    | 140                               |   | 7.00                              | %      | 1,052 |   | 69 |   | 6.56 | % | 833 |   | 54 |   | 6.48 | % |
| Total Interest Bearing Liabilities                 |   | 124,356                           |    | 4,801                             |   | 3.86                              | %      | 115,726 |   | 4,828 |   | 4.17 | % | 112,114 |   | 4,378 |   | 3.90 | % |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST BEARING LIABILITIES AND CAPITAL:      |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand Deposits                                    |   | 28,052                            |    |                              |   |                              |   | 18,587 |   |   |   |   |   | 17,885 |   |   |   |   |   |
| Accrued Expenses                                   |   | 1,023                             |    |                              |   |                              |   | 470 |   |   |   |   |   | 851 |   |   |   |   |   |
| Capital                                            |   | 16,950                            |    |                              |   |                              |   | 15,232 |   |   |   |   |   | 14,624 |   |   |   |   |   |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Non-Interest Bearing Liabilities and Capital |   | 46,025                            |    |                              |   |                              |   | 34,289 |   |   |   |   |   | 33,360 |   |   |   |   |   |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Stockholders' Equity         |   | $                                 | 170,381 |                              |   |                              |   |   | $ | 150,015 |   |   |   |   |   | $ | 145,474 |   |   |   |   |   |
|                                               |   |                              |    |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET INTEREST MARGIN                                |   | $                                 | 159,796 |                              | $      | 7,289                             |   | 4.56 | % | $ | 139,410 |   | $ | 6,680 |   | 4.79 | % | $ | 136,832 |   | $ | 6,375 |   | 4.66 | % |
|                                                    |        |                                   |         |                                   |        |                                   |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

26

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INTEREST RATE SENSITIVITYANALYSIS

 

                Assetand liability management is responsible for the planning,implementation, and control process fordetermining asset mix andmaturity features relative to liability maturities insuch a way thatnet interest margin will be maximized. A major tool for such a process is gap management of the Bank’s interestsensitive assets to interest sensitive liabilities.

 

                Thenegative gap position as presented in the following table formaturities of one year or less is offsetby the substantial positive gap position for maturities greater than one year.The earnings of Logan County BancShares, Inc. are sufficient to withstand theshort term negative gap position. Should a large fluctuation occur, increasingthe cost of funds, management would consider increasing service charges andnon-interest fees which management determines the market would bear in order tonegate increased rate costs. An additional response, at the option ofmanagement, would  be liquidation ofcertain long-term investments, and conversion of those funds into short-termsecurities.

 

                Bankmanagement recognizes the concentration of large certificatesof deposit. The Bank’s policy ofasset-liability management matches both rates and maturities so the Bank willnot have a liquidity problem or allow income to be affected by a change inrates.

 

                Alldemand and savings deposits are considered highly volatile,although experience has shown theseaccounts to be stable regardless ofeconomic cycles. Interest on savings and other transactional accounts have generallyremained constant over periods of interest rate changes. Therefore, depositsand savings are classified as “over one year” to represent a more realisticrate sensitive gap.

 

27

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TABLE XIII. - INTERESTRATE SENSITIVITY ANALYSIS

 

(In Thousands of Dollars)

 
|                                                                  |   |     |    |       |   |        |   | **Total**    |    | **Over**     |   |      |   |
|-----------------------------------------------------------------------|--------|----------|---------|------------|--------|-------------|--------|--------------|---------|--------------|--------|-----------|--------|
|                                                                  |   | **0-90** |    | **91-180** |   | **181-365** |   | **One Year** |    | **One Year** |   | **Total** |   |
| Earning Assets                                                        |   |     |    |       |   |        |   |         |    |         |   |      |   |
| Loans                                                                 |   | $        | 19,461  |       | $      | 3,060       |   | $            | 4,552   |         | $      | 27,073    |   | $ | 89,834 |   | $ | 116,907 |   |
| Investments                                                           |   | 3,489    |    | 0          |   | 0           |   | 3,489        |    | 32,616       |   | 36,105    |   |
| Fed. Funds Sold                                                       |   | 7,150    |    | 0          |   | 0           |   | 7,150        |    | 0            |   | 7,150     |   |
| Total EarningAssets                                                   |   | 30,100   |    | 3,060      |   | 4,552       |   | 37,712       |    | 122,450      |   | 160,162   |   |
| Interest BearingLiabilities:                                          |   |     |    |       |   |        |   |         |    |         |   |      |   |
| Demand Deposits                                                       |   | 21,571   |    | 0          |   | 0           |   | 21,571       |    | 0            |   | 21,571    |   |
| Savings                                                               |   | 11,941   |    | 8,927      |   | 18,936      |   | 39,804       |    | 0            |   | 39,804    |   |
| CD’s of $100,000and Over                                         |   | 4,679    |    | 6,625      |   | 4,055       |   | 15,359       |    | 4,456        |   | 19,815    |   |
| Other Time                                                            |   | 10,978   |    | 10,125     |   | 7,735       |   | 28,838       |    | 14,629       |   | 43,467    |   |
| Total InterestBearing Liability                                       |   | 49,169   |    | 25,677     |   | 30,726      |   | 105,572      |    | 19,085       |   | 124,657   |   |
|                                                                  |   |     |    |       |   |        |   |         |    |         |   |      |   |
| InterestSensitivity Gap                                               |   | $        | (19,069 | )          | $      | (22,617     | )      | $            | (26,174 | )            | $      | (67,860   | )      | $ | 103,365 |   | $ | 35,505 |   |
| Cumulative Gap                                                        |   | $        | (19,069 | )          | $      | (41,686     | )      | $            | (67,860 | )            | $      | (67,860   | )      | $ | 35,505 |   | $ | 35,505 |   |
| Rate SensitiveAssets/Rate Sensitive Liabilities(CumulativePercentage) |   | 61.12    | %       | 44.30      | %      | 35.72       | %      | 35.72        | %       | 128.48       | %      | 128.48    | %      |

 

 

28

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TABLE XIV. - AVERAGEBALANCE SHEET

(In Thousands of Dollars)

 

 
|                                             |   | **2001** |    | **2000** |   | **1999** |   | **1998** |    | **1997** |   |
|--------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|----------|---------|----------|--------|
| ASSETS:                                          |   |     |    |     |   |     |   |     |    |     |   |
| Cash and Due from Banks                          |   | $        | 5,027   |     | $      | 4,467    |   | $        | 4,400   |     | $      | 4,168 |   | $ | 3,677 |   |
|                                             |   |     |    |     |   |     |   |     |    |     |   |
| Investment Securities:                           |   |     |    |     |   |     |   |     |    |     |   |
| Available for Sale                               |   | 25,967   |    | 28,887   |   | 29,045   |   | 18,763   |    | 16,689   |   |
| Held to Maturity                                 |   | 0        |    | 0        |   | 1,080    |   | 3,245    |    | 5,782    |   |
| Total Investments                                |   | 25,967   |    | 28,887   |   | 30,125   |   | 22,008   |    | 22,471   |   |
| Federal Funds Sold                               |   | 20,540   |    | 1,728    |   | 4,792    |   | 13,203   |    | 9,290    |   |
| Loans                                            |   |     |    |     |   |     |   |     |    |     |   |
| Real Estates                                     |   | 52,514   |    | 52,215   |   | 49,235   |   | 43,454   |    | 37,449   |   |
| Installment                                      |   | 14,079   |    | 13,348   |   | 12,212   |   | 10,459   |    | 7,402    |   |
| Commercial & Other                           |   | 46,696   |    | 43,884   |   | 40,468   |   | 36,041   |    | 33,714   |   |
|                                             |   | 113,289  |    | 109,447  |   | 101,915  |   | 89,954   |    | 78,565   |   |
| Less: Unearned Discount                          |   | 0        |    | 0        |   | 0        |   | 65       |    | 129      |   |
|                                             |   | 113,289  |    | 109,447  |   | 101,915  |   | 89,889   |    | 78,436   |   |
| Allowance For Loan  Losses                       |   | (788     | )       | (652     | )      | (718     | )      | (707     | )       | (614     | )      |
| Net Loans                                        |   | 112,501  |    | 108,795  |   | 101,197  |   | 89,182   |    | 77,822   |   |
| Banking Premises                                 |   | 3,561    |    | 3,765    |   | 2,824    |   | 2,113    |    | 2,133    |   |
| Accrued Interest and                             |   |     |    |     |   |     |   |     |    |     |   |
| Other Assets                                     |   | 2,785    |    | 2,373    |   | 2,136    |   | 1,608    |    | 1,565    |   |
| TOTAL ASSETS                                     |   | $        | 170,381 |     | $      | 150,015  |   | $        | 145,474 |     | $      | 132,282 |   | $ | 116,958 |   |
|                                             |   |     |    |     |   |     |   |     |    |     |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY       |   |     |    |     |   |     |   |     |    |     |   |
| Deposits:                                        |   |     |    |     |   |     |   |     |    |     |   |
| Demand Deposits                                  |   | $        | 48,524  |     | $      | 40,135   |   | $        | 39,585  |     | $      | 35,332 |   | $ | 31,007 |   |
| Savings Deposits                                 |   | 37,335   |    | 33,621   |   | 31,413   |   | 30,054   |    | 31,582   |   |
| Time Deposits                                    |   | 64,549   |    | 59,505   |   | 58,167   |   | 52,055   |    | 40,816   |   |
| Total Deposits                                   |   | 150,408  |    | 133,261  |   | 129,165  |   | 117,441  |    | 103,405  |   |
|                                             |   |     |    |     |   |     |   |     |    |     |   |
| Federal  Funds/Repurchased                       |   | 2,000    |    | 1,052    |   | 834      |   | 0        |    | 0        |   |
| Other Liabilities                                |   | 1,023    |    | 470      |   | 851      |   | 1,014    |    | 1,074    |   |
| TOTAL LIABILITIES                                |   | 153,431  |    | 134,783  |   | 130,850  |   | 118,455  |    | 104,479  |   |
|                                             |   |     |    |     |   |     |   |     |    |     |   |
| STOCKHOLDERS’ EQUITY                        |   | 16,950   |    | 15,232   |   | 14,624   |   | 13,827   |    | 12,479   |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY |   | $        | 170,381 |     | $      | 150,015  |   | $        | 145,474 |     | $      | 132,282 |   | $ | 116,958 |   |

 

29

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTALDATA

 
| Management’s Report on  Financial Statements   |
|-----------------------------------------------------|
|                                                |   |   |   |
| Report of Independent  Certified Public Accountants |
|                                                |   |   |   |
| Financial Statements:                               |
|                                                |   |   |   |
|                                                | Logan County BancShares, Inc. and Subsidiary: |
|                                                |   |   |   |
|                                                |   | Consolidated  Statement of Condition as of December 31, 2001 and 2000 |
|                                                |   |   |   |
|                                                |   | Consolidated  Statement of Income as of December 31, 2001, 2000 and 1999 |
|                                                |   |   |   |
|                                                |   | Consolidated  Statement of Changes in Stockholders’ Equity for the Years Ended December 31,  2001, 2000 and 1999 |
|                                                |   |   |   |
|                                                |   | Consolidated  Statement of Cash Flows for the Years Ended December 31, 2001, 2000, and 1999 |
|                                                |   |   |   |
|                                                |   | Notes to  Consolidated Financial Statements |
|                                                |   |   |   |
|                                                     |  |  |  |  |  |

 

 

30

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**LoganCounty Bancshares****, Inc.**

 

POST OFFICE BOX 597 • LOGAN, WEST VIRGINIA 25601 • (304) 752–0280• (304) 752–4649

 

To Our Stockholders, Customers and Friends:

 

We are proud to present the 2001 annualreport of Logan County BancShares, Inc. and its Subsidiary, Logan Bank andTrust Company. In 2001, we were able to start the year off on the same strongfoundation that has long been our trademark throughout our history, Our assetsgrew by $14,119,307 or 8.96%, to $171,599,279. This growth was largely investedin the region by increasing loans by $3,266,801, showing a continued commitmentto our service area, Earning of $1,755,621, or $2.45 per share, in 2001 notonly strengthens our capital position but also provides our shareholders areturn of dividends of $1,075,487. The return on average assets of 1.03% andreturn on equity of 9.95% are excellent returns of capital in todays financialmarkets.

 

2001 presented us with some challengingdecisions to make. The question was how to continue offering the bestopportunities to each community while staying true to our principles of makingsound and prudent investments in our customers and their businesses. We neededto make certain we would be strong for the future of ALL the communities weserve. We continued to upgrade our facilities, our systems and people to insurethe services we provide will meet all the needs of our customers. As part ofthis ongoing enhancement, we became a Member Bank in the Federal ReserveSystem. This change will give us additional resources to insure our communitywill receive updated financial services in the future. It also enabled us togrow in size and strengthen our position, not just for the bank and ourstockholders, but for YOU, our customers and friends. We needed to considerthis move carefully, because while growth is important, we felt obligated tomake sure we could stay true to the kind of bank which we to create in the beginning:large enough to offer all the latest in technology and innovative methods tomeet the financial needs of EACH of our customers, but small enough to keep the“hometown bank” feel. After careful consideration, we decided this WAS the bestway to proceed, Because of our confidence in our ability: to implement thechanges and the tireless support and dedication of our staff, we knew we wereready for this step.

 

Asalways, our commitment to the local community remains firm and is matched onlyby the dedication of our

employeesto our customers as well as the local organizations, schools and churches, Lookand you will see

themin your communities, working hard to make things better ... just like you.

 

We want to make special mention of Mr. FrankOakley, past President who passed away this spring. Mr. Oakley and his brotherwere founding organizers of this bank back in 1963. He shared a vision of abank which was strong for the depositors and shareholders, community oriented,and built on service to the area. While we shall miss his leadership, hisvision is one which we will strive to preserve.

 

We again want to express our sincere thanksto our employees for their commitment, to our shareholders for their support,to our directors for their leadership and for the confidence of our customers,old and new, in making Logan County BancShares, Inc. and its subsidiary, LoganBank and Trust Company. We are eager to face the challenges of this new financial environment as your locally–ownedbank in an even stronger position than in the past.

 

 

Respectively,

 

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

 

| **Logan  Bank &Trust** |   | **Fountain  Place Bank Of** |   | **Chapmanville  Bank Of** |   | **Man Bank  Of** |   | **Harts  Bank Of** |
|----------------------------|--------|-----------------------------|--------|---------------------------|--------|------------------|--------|--------------------|
| **LB&T**               |   | **LB&T**                |   | **LB&T**              |   | **LB&T**     |   | **LB&T**       |
|                       |   |                        |   |                      |   |             |   |               |
| Logan, WV 25601            |   | Logan, WV 25601             |   | Chapmanville, WV 25508    |   | Man, WV 25635    |   | Harts, WV 25524    |

 

 

31

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WMcNEAL, WILLIAMSON & CO,

Certified Public Accountants

 

| Donald M. McNeal, CPA      |   | Daniel  L. Williamson CPA          |
|----------------------------|--------|------------------------------------|
| Post Office Box****1839    |   | 525 Tiller St., Cherry Trees Addn. |
| Logan, West Virginia 25601 |   | Logan,  West Virginia 25601        |
| Phone (304) 752-0461       |   | Fax  (304) 752-4660                |

 

INDEPENDENT AUDITORS’ REPORT

 

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

 

We have audited the accompanying consolidatedstatements of condition ofLogan County BancShares, Inc., and Subsidiary as ofDecember 31, 2001,and 2000, and the related consolidated statements of income, changes instockholders’ equity and cash flows for each of the three years in the periodended December 31, 2001.  Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is toexpress an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with generallyaccepted auditingstandards. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statementpresentation. We believe that our audit provides a reasonable basis forour opinion.

 

In our opinion, the financial statements referred toabove presentfairly, in all material respects, the consolidated financial positionof Logan County BancShares, Inc. and Subsidiary as of December 31, 2001, and2000, and the consolidated results of its operations and their cash flows foreach of the three years in the period ended December 31, 2000, in conformity withgenerally accepted accounting principles.

 

 
| /s/ McNeal, Williamson  & Co. |
|-----------------------------------|
| Logan, West Virginia              |
| February 25, 2002                 |

 

**Members ofAmerican Institute of Certified Public Accountants and West Virginia Society ofCertified Public Accountants**

 

32

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Logan County BancShares, Inc. and Subsidiary

ConsolidatedStatement of Condition

December 31, 2001 and 2000

 

ASSETS

 
|                                                        |   | **2001**    |        | **2000**    |   |
|-------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| CASH AND DUE FROM BANKS                                     |   | $           | 7,072,209   |        | $      | 4,686,547 |   |
| INVESTMENT SECURITIES:                                      |   |        |        |        |   |
| Available for sale                                          |   | 36,355,332  |        | 29,617,886  |   |
| Held to maturity                                            |   | 0           |        | 0           |   |
| Total Investment Securities                                 |   | 36,355,332  |        | 29,617,886  |   |
| FEDERAL FUNDS SOLD                                          |   | 7,150,000   |        | 4,280,000   |   |
|                                                        |   |        |        |        |   |
| LOANS:                                                      |   |        |        |        |   |
| Mortgage Loans                                              |   | 53,718,980  |        | 52,596,774  |   |
| Installment Loans                                           |   | 13,977,895  |        | 13,518,168  |   |
| Commercial and Other Loans                                  |   | 49,210,538  |        | 47,525,670  |   |
| Total Loans                                                 |   | 116,907,413 |        | 113,640,612 |   |
|                                                        |   |        |        |        |   |
| Less: Unearned Interest                                     |   | 0           |        | 0           |   |
| Reserve for Loan Losses                                     |   | 1,152,777   |        | 702,008     |   |
| Net Loans                                                   |   | 115,754,636 |        | 112,938,604 |   |
|                                                        |   |        |        |        |   |
| BANK PREMISES AND EQUIPMENT                                 |   | 3,383,539   |        | 3,594,002   |   |
|                                                        |   |        |        |        |   |
| INTEREST RECEIVABLE                                         |   | 973,167     |        | 1,708,259   |   |
|                                                        |   |        |        |        |   |
| OTHER ASSETS                                                |   | 910,396     |        | 654,674     |   |
|                                                        |   | $           | 171,599,279 |        | $      | 157,479,972 |   |
|                                                        |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                   |
|                                                        |
| DEPOSITS:                                                   |   |        |        |        |   |
| Non-Interest Bearing                                        |   | $           | 27,571,238  |        | $      | 23,343,157 |   |
| Interest Bearing                                            |   | 21,370,908  |        | 19,435,265  |   |
| Savings Deposits                                            |   | 39,803,797  |        | 32,287,308  |   |
| Time Certificates                                           |   | 63,282,186  |        | 63,657,059  |   |
| Total Deposits                                              |   | 152,028,129 |        | 138,722,789 |   |
|                                                        |   |        |        |        |   |
| FEDERAL FUNDS PURCHASED                                     |   | 2,000,000   |        | 2,000,000   |   |
|                                                        |   |        |        |        |   |
| ACCRUED AND OTHER LIABILITIES                               |   | 673,204     |        | 717,919     |   |
|                                                        |   |        |        |        |   |
| FEDERAL INCOME TAXES PAYABLE:                               |   |        |        |        |   |
| Current                                                     |   | (17,765     | )           | 17,796      |   |
| Deferred                                                    |   | 115,581     |        | 7,252       |   |
| TOTAL LIABILITIES                                           |   | 154,799,149 |        | 141,465,756 |   |
|                                                        |   |        |        |        |   |
| STOCKHOLDERS’ EQUITY:                                  |   |        |        |        |   |
| Common Stock — $1.67 par value;                        |   |        |        |        |   |
| Authorized — 780,000 shares,                           |   |        |        |        |   |
| Outstanding — 716,991 sharesin 2000 and 1999           |   | 1,300,000   |        | 1,300,000   |   |
| Surplus                                                     |   | 2,408,426   |        | 2,408,426   |   |
| Retained Earnings                                           |   | 13,916,868  |        | 13,236,733  |   |
| Net unrealized amortizationon securities  available forsale |   | 35,034      |        | (70,745     | )      |
| Treasury Stock                                              |   | (860,198    | )           | (860,198    | )      |
| TOTAL STOCKHOLDERS’ EQUITY                             |   | 16,800,130  |        | 16,014,216  |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY             |   | $           | 171,599,279 |        | $      | 157,479,972 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

33

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LoganCounty BancShares, Inc. and Subsidiary

ConsolidatedStatements of Income

Forthe Years Ended Decmeber 31, 2001, 2000, and 1999

 
|                                                |   | **2001**   |      | **2000**   |   | **1999**   |   |
|-----------------------------------------------------|--------|------------|-----------|------------|--------|------------|--------|
| INTEREST INCOME:                                    |   |       |      |       |   |       |   |
| Loans, Including Fees                               |   | $          | 9,981,814 |       | $      | 9,513,879  |   | $ | 8,613,254 |   |
|                                                |   |       |      |       |   |       |   |
| Investment Securities:                              |   |       |      |       |   |       |   |
| Available for Sale                                  |   | 1,354,163  |      | 1,885,787  |   | 1,840,356  |   |
| Held to Maturity                                    |   | 0          |      | 0          |   | 67,844     |   |
|                                                |   |       |      |       |   |       |   |
| Federal Funds Sold                                  |   | 753,745    |      | 108,011    |   | 231,723    |   |
| Total Interest Income                               |   | 12,089,722 |      | 11,507,677 |   | 10,753,177 |   |
|                                                |   |       |      |       |   |       |   |
| INTEREST EXPENSE:                                   |   |       |      |       |   |       |   |
|                                                |   |       |      |       |   |       |   |
| Deposits                                            |   | 4,661,023  |      | 4,758,575  |   | 4,323,357  |   |
| Other Borrowings                                    |   | 140,000    |      | 68,950     |   | 54,416     |   |
| Total Interest Expense                              |   | 4,801,023  |      | 4,827,525  |   | 4,377,773  |   |
| NET INTEREST INCOME                                 |   | 7,288,699  |      | 6,680,152  |   | 6,375,404  |   |
|                                                |   |       |      |       |   |       |   |
| PROVISION FOR LOAN LOSSES                           |   | 700,000    |      | 100,000    |   | 22,500     |   |
| NET INTEREST INCOME AFTERPROVISION FOR  LOAN LOSSES |   | 6,588,699  |      | 6,580,152  |   | 6,352,904  |   |
| OTHER INCOME:                                       |   |       |      |       |   |       |   |
| Service Fees                                        |   | 628,220    |      | 668,719    |   | 637,221    |   |
| Other                                               |   | 72,694     |      | 100,516    |   | 56,072     |   |
| Securities Gains (Losses)                           |   | 6,248      |      | 0          |   | 6,054      |   |
|                                                |   | 707,162    |      | 769,235    |   | 699,347    |   |
| OTHER EXPENSES:                                     |   |       |      |       |   |       |   |
| Salaries and Benefits                               |   | $          | 2,216,849 |       | $      | 2,147,995  |   | $ | 2,018,797 |   |
| Taxes Other Than Payroll & Income               |   | 84,970     |      | 69,879     |   | 61,432     |   |
| Depreciation                                        |   | 269,956    |      | 273,478    |   | 179,323    |   |
| Repairs and Maintenance                             |   | 222,734    |      | 178,994    |   | 181,477    |   |
| Fees Paid to Directors                              |   | 79,950     |      | 78,850     |   | 73,650     |   |
| Equipment Rental                                    |   | 41,384     |      | 40,963     |   | 41,735     |   |
| FDIC & Fidelity Insurance                       |   | 112,347    |      | 98,603     |   | 77,783     |   |
| Data Processing                                     |   | 513,965    |      | 475,161    |   | 482,814    |   |
| Bank Stationery and Printing                        |   | 162,939    |      | 119,180    |   | 132,754    |   |
| Professional Fees                                   |   | 86,235     |      | 71,273     |   | 61,395     |   |
| Other Operating Expenses                            |   | 839,321    |      | 631,022    |   | 586,131    |   |
|                                                |   | 4,630,650  |      | 4,185,398  |   | 3,897,291  |   |
|                                                |   |       |      |       |   |       |   |
| INCOME BEFORE INCOME TAXES                          |   | 2,665,211  |      | 3,163,989  |   | 3,154,960  |   |
|                                                |   |       |      |       |   |       |   |
| INCOME TAXES:                                       |   |       |      |       |   |       |   |
| Current                                             |   | 1,123,259  |      | 1,132,515  |   | 1,118,623  |   |
| Deferred                                            |   | (213,669   | )         | (1,247     | )      | 11,980     |   |
| NET INCOME                                          |   | $          | 1,755,621 |       | $      | 2,032,721  |   | $ | 2,024,357 |   |
|                                                |   |       |      |       |   |       |   |
| PER SHARE OF COMMON STOCK:NET INCOME                |   | $          | 2.45      |       | $      | 2.84       |   | $ | 2.83 |   |

 

The accompanying notes are an integral part of theseconsolidatedfinancial statements.

 

34

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Logan CountyBancShares, Inc. and Subsidiary

ConsolidatedStatement of Stockholders’ Equity

For The Years EndedDecember 31, 2001, 2000 and 1999

 
|                                               |   |       |      |        |   |         |      |         |       | **ACCUMULATED**   |   |       |   |
|----------------------------------------------------|--------|------------|-----------|-------------|--------|--------------|-----------|--------------|------------|-------------------|--------|------------|--------|
|                                               |   |       |      |        |   |         |      |         |       | **OTHER**         |   |       |   |
|                                               |   | **COMMON** |      |        |   | **RETAINED** |      | **TREASURY** |       | **COMPREHENSIVE** |   |       |   |
|                                               |   | **STOCK**  |      | **SURPLUS** |   | **EARNINGS** |      | **STOCK**    |       | **INCOME, NET**   |   | **TOTAL**  |   |
| Balance-December 31, 1998                          |   | $          | 1,300,000 |        | $      | 2,408,426    |      | $            | 11,170,503 |              | $      | (860,198   | )      | $ | 40,219 |   | $ | 14,058,950 |   |
|                                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Comprehensive Income                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Net Income — 1999                             |   |       |      |        |   | 2,024,357    |      |         |       |              |   | 2,024,357  |   |
| Net unrealized gain onsecurities availablefor Sale |   |       |      |        |   |         |      |         |       | (681,233          | )      | (681,233   | )      |
| Total Comprehensiveincome                          |   |       |      |        |   | $            | 2,024,357 |         |       |              | $      | (681,233   | )      | $ | 1,343,124 |   |
| Dividends on 716,991 sharesof Common Stock @ $1.34 |   |       |      |        |   | (958,381     | )         |         |       |              |   | (958,381   | )      |
| Balance-December 31, 1999                          |   | $          | 1,300,000 |        | $      | 2,408,426    |      | $            | 12,236,479 |              | $      | (860,198   | )      | $ | (641,014 | ) | $ | 14,443,693 |   |
|                                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Comprehensive Income                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Net Income — 2000                             |   |       |      |        |   | 2,032,721    |      |         |       |              |   | 2,032,721  |   |
| Net unrealized gain onsecurities availablefor sale |   |       |      |        |   |         |      |         |       | 570,269           |   | 570,269    |   |
| Total Comprehensiveincome                          |   |       |      |        |   | $            | 2,032,721 |         |       |              | $      | 570,269    |   | $ | 2,602,990 |   |
|                                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Dividends on 716,991 sharesof Common Stock @ $1.44 |   |       |      |        |   | (1,032,467   | )         |         |       |              |   | (1,032,467 | )      |
| Balance-December 31, 2000                          |   | $          | 1,300,000 |        | $      | 2,408,426    |      | $            | 13,236,733 |              | $      | (860,198   | )      | $ | (70,745 | ) | $ | 16,014,216 |   |
|                                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Comprehensive Income                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Net Income — 2001                             |   |       |      |        |   | 1,755,621    |      |         |       |              |   | 1,755,621  |   |
| Net unrealized gain onsecurities availablefor sale |   |       |      |        |   |         |      |         |       | 105,779           |   | 105,779    |   |
| Total Comprehensiveincome                          |   | $          | 1,755,621 |        | $      | 105,779      |      | $            | 1,861,400  |              |   |       |   |   |   |   |
|                                               |   |       |      |        |   |         |      |         |       |              |   |       |   |
| Dividends on 716,991 sharesof Common Stock @ $1.50 |   |       |      |        |   | (1,075,487   | )         |         |       |              |   | (1,075,487 | )      |
| Balance-December 31, 2001                          |   | $          | 1,300,000 |        | $      | 2,408,426    |      | $            | 13,916,868 |              | $      | (860,198   | )      | $ | 35,034 |   | $ | 16,800,130 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

 

35

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Logan CountyBancShares, Inc. and Subsidiary

Consolidated Statement ofChange in Cash Flows

For the YearsEnded December 31, 2001, 2000 and 1999

 

INCREASES(DECREASES) IN CASH AND CASH EQUIVALENTS

 

 
|                                                                            |   | **2001**    |       | **2000**   |   | **1999**    |   |
|---------------------------------------------------------------------------------|--------|-------------|------------|------------|--------|-------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                           |   |        |       |       |   |        |   |
| Net Income                                                                      |   | $           | 1,755,621  |       | $      | 2,032,271   |   | $ | 2,024,357 |   |
| Adjustments to reconcile net incometo net cash provided by operatingactivities: |   |        |       |       |   |        |   |
| Depreciation and Amortization                                                   |   | 269,956     |       | 277,506    |   | 179,323     |   |
| Provision For Loan Losses                                                       |   | 700,000     |       | 100,000    |   | 22,500      |   |
| Provision For Deferred Taxes                                                    |   | (213,669    | )          | (1,247     | )      | 11,980      |   |
| (Gain) Loss on Sale of Securities                                               |   | (6,248      | )          | 0          |   | (6,054      | )      |
| Premium Amortization and Accretion on InvestmentSecurities                      |   | (3,356      | )          | (5,060     | )      | 4,207       |   |
| Increases (Decreases) in IncomeTaxes Payable                                    |   | (35,561     | )          | 35,373     |   | (46,091     | )      |
| (Increases) Decreases inInterest Receivable and Other Assets                    |   | 503,222     |       | 32,608     |   | (686,703    | )      |
| Increases (Decreases) inInterest Payable & Other Liab.                      |   | (44,715     | )          | (119,149   | )      | 108,479     |   |
| Market Value AdjustmentAmortization                                             |   | 4,028       |       | 4,028      |   | 4,028       |   |
| Net Cash Provided byOperating Activities                                        |   | 2,929,278   |       | 2,356,330  |   | 1,616,026   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                           |   |        |       |       |   |        |   |
| Proceeds from Sale of Investment Sec:                                           |   |        |       |       |   |        |   |
| Available for Sale                                                              |   | 8,006,248   |       | 0          |   | 8,418,000   |   |
| Held to Maturity                                                                |   | 0           |       | 0          |   | 1,000,000   |   |
| Proceeds from Maturities of Inv. Sec:                                           |   |        |       |       |   |        |   |
| Available for Sale                                                              |   | 41,000,000  |       | 7,400,000  |   | 4,000,000   |   |
| Held to Maturity                                                                |   | 0           |       | 0          |   | 1,500,000   |   |
| Purchase of Investment Securities:                                              |   |        |       |       |   |        |   |
| Available for Sale                                                              |   | (55,583,423 | )          | (5,943,619 | )      | (18,365,433 | )      |
| Held to Maturity                                                                |   | 0           |       | 0          |   | 0           |   |
| Net (Increases) DecreasesFederal Funds Sold                                     |   | (2,870,000  | )          | (4,280,000 | )      | 7,520,000   |   |
| Net (Increases) Decreases inCommercial Loans                                    |   | (1,684,868  | )          | (2,555,021 | )      | (7,131,049  | )      |
| Net (Increases) Decreases inReal Estate Loans                                   |   | (1,122,206  | )          | (1,434,191 | )      | (5,074,720  | )      |
| Net (Increases) Decreases inInstallment Loans                                   |   | (459,727    | )          | (178,648   | )      | (2,238,777  | )      |
| Purchase of Bank Premisesand Equipment                                          |   | (59,493     | )          | (93,479    | )      | (1,868,083  | )      |
| Net Cash Used by Investing Activities                                           |   | (12,773,469 | )          | (7,084,958 | )      | (12,240,062 | )      |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                          |   |        |       |       |   |        |   |
|                                                                            |   |        |       |       |   |        |   |
| Net Increases  (Decreases) in Demand Deposits                                   |   | $           | 6,163,724  |       | $      | 4,447,940   |   | $ | (605,526 | ) |
| Net Increases  (Decreases) in Savings Deposits                                  |   | 7,516,489   |       | 1,263,647  |   | 1,207,064   |   |
| Net Increases  (Decreases) in Time Deposits                                     |   | (374,873    | )          | 5,392,497  |   | 2,597,299   |   |
| Net Increases  (Decreases) in Federal Funds Purchased                           |   | 0           |       | (7,840,000 | )      | 9,840,000   |   |
| Proceeds from  Issuance of Common Stock                                         |   | 0           |       | 0          |   | 0           |   |
| Dividends Paid                                                                  |   | (1,075,487  | )          | (1,032,437 | )      | (958,381    | )      |
| Net Cash  Provided by Financing Activities                                      |   | $           | 12,229,853 |       | $      | 2,231,647   |   | $ | 12,080,456 |   |
|                                                                            |   |        |       |       |   |        |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                           |   | 2,385,662   |       | (2,496,977 | )      | 1,456,420   |   |
|                                                                            |   |        |       |       |   |        |   |
| Cash and Cash  Equivalents at Beginning of Year                                 |   | 4,686,547   |       | 7,183,524  |   | 5,727,104   |   |
| Cash and Cash  Equivalents at End of Year                                       |   | $           | 7,072,209  |       | $      | 4,686,547   |   | $ | 7,183,524 |   |
|                                                                            |   |        |       |       |   |        |   |
| Supplemental  Disclosures of Cash Flow Information Cash Paid for:               |   |        |       |       |   |        |   |
|                                                                            |   |        |       |       |   |        |   |
| Interest                                                                        |   | $           | 4,876,027  |       | $      | 4,762,739   |   | $ | 4,325,850 |   |
| Income Taxes                                                                    |   | $           | 1,118,983  |       | $      | 1,117,740   |   | $ | 1,164,714 |   |
|                                                                                 |        |             |            |            |        |             |        |  |  |  |  |  |  |  |  |  |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

36

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Logan CountyBancShares, Inc. and Subsidiary

Notes toConsolidated Financial Statements

December 31, 2001,2000 and 1999

 

1.             Summary of SignificantAccounting Policies:

 

                A.            Basis of Consolidation:

 

                TheConsolidated Financial Statements of Logan CountyBancShares, Inc. andits subsidiaries include the accounts ofLogan CountyBancShares, Inc. a bank holding company and itswholly ownedsubsidiaries, Logan Bank & Trust Company. As further discussed in Note 13,the Company’s subsidiaries weremerged into LoganBank & Trust Company on May 28, 1996. Themerger was accountedfor under the pooling of interest methodof accounting and norestatement was necessary. All material intercompany balances and transactionshave been eliminated inconsolidation.

 

                B.            Nature of Operations:

 

In 2001 The Bank changedto a Federal charter,and providesfull bankingservices. As a Federal bank, the Bank is subjectto regulation by theFederal Reserve System and the Federal Deposit Insurance Corporation. TheCompany is also subject toregulation by the Federal Reserve Bank.

 

                C.            Estimates in the FinancialStatements:

 

                Thepresentation of the financial statements in conformitywith  generally accepted  accounting principles requiresmanagement to make estimates andassumptions that affect thereported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduringthe reporting period. Actual results could differ fromthoseestimates.

 

                D.            Cash and Cash Equivalents:

 

For purposes of reportingcash flows, cash and cash equivalents include cash on hand and amounts due frombanks.

 

37

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                E.             InvestmentSecurities:

 

The Banks’ Investmentsecurities are classified in two categories and accounted for as follows:

 

Securities to be Held to Maturity: Bonds, notes anddebenturesfor which the bank has the positive intent andability to hold tomaturity are reported at cost, adjusted foramortization ofpremiums and accretion of discounts which arerecognized ininterest income, using the Constant Yield Method, over the period to maturity.

 

SecuritiesAvailable for Sale: Securities available forsale consist ofbonds, notes, debentures, and certain equitysecurities notclassified as securities held to maturity.These securities arecarried at their fair value. Unrealizedgains and (losses),net of tax, are reported as a net amountin a  separate component of Shareholders’  Equity untilrealized.

 

Gains and losseson sale of securities available for saleare determined usingthe Specific-Indentification Method.

 

                F.             Loans:

 

Loans are stated at theamount of unpaid principal, reduced by unearned income and an allowance forloan losses. Interest income on loans is recognized on the accrual basisexceptfor those loans in a nonaccrual income status. The accrual of interest on impairedloans is discontinued when management believes, after consideration of economicandbusiness conditions and  collection  efforts, that  theborrowers’ financial condition is suchthat collection of interest is doubtful. When interest accrual is discontinued,interestincome is subsequently recognized only to the extentcash payments arereceived.

 

38

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The reserve for loanlosses is established through aprovision for loanlosses charged to expense. The reserve is an amount that management believes willbe adequate to absorblosses on existing loans that may becomeuncollectible based on evaluations of the collectibility of loans and priorloan loss experience. The evaluations take into consideration suchfactorsas changes in the nature and volume of the loanportfolio, overallportfolio quality, review of specific problem loans, and current economicconditions that may affect the borrowers’ ability to pay.  Loans are charged against theallowancefor loan losses when management believes that thecollection of theprincipal is unlikely.

 

The allowance for loanlosses on impaired loans isdetermined using the present value ofestimated future cashflows of the loan, discounted at theloan’s effective interestrate or the fair value of the underlyingcollateral. A loanis considered to be impaired when it isprobable that allprincipal and interest amounts will notbe collected accordingto the loan contract. The entire changein present value ofexpected cash flows is reported asprovision for loan lossesin the same manner in which impairment initially was recognized or as a reduction in theamount of provision for loan losses that otherwise would bereported.

 

Certain loan originationfees and direct organizationcosts are capitalized and recognized asan adjustment of the yield on the related loan.

 

                G.            Bank Premises and Equipment:

 

Bank premises andequipment are stated at cost, lessaccumulateddepreciation.  Depreciation is providedover theestimated useful lives of the assets as follows:

 
|                             |   | **Method**     |   | **Range of Lives** |
|----------------------------------|--------|----------------|--------|--------------------|
| Banking House                    |   | S/L, MACRS     |   | 10 - 40 years      |
|                             |   |           |   |               |
| Furniture, Fixtures andEquipment |   | S/L, DDB,MACRS |   | 3  - 20 years      |

 

39

----

 

                H.            Real Estate Acquired ThroughForeclosure:                   

 

Real estate acquiredthrough foreclosure is carried atthelower of the recorded investment in the property or itsfair value. The value of the underlying loan iswritten downto the fair value ofthe real estate to be acquired by achargeto the allowance for loan losses, if necessary. Anysubsequentwrite-downs are charged to operating expenses.

 

                I.              Income Taxes:

 

The Company and itssubsidiary files a consolidatedfederalincome tax return.  The Subsidiary ischarged orcredited an amount equal to the incometax that would have been applicable on a separate return basis

 

The Company uses theliability method for computing deferred income taxes. Under the liabilitymethod, deferred income taxes are based on the change during the year in thedeferred tax liability or asset established for theexpectedfuture tax consequences of differences inthe financial reporting and tax bases of assets and liabilities.  Thedifferencesrelate principally to premises and equipment, unrealized gains and losses oninvestment securities availableforsale, and the allowance for loan losses.

 

                J.             Per Share Information:

 

Primary earnings pershare are computed by dividing netincomeby the weighted average number of shares of commonstockoutstanding and the number of shares of common stock which would be assumedoutstanding under the treasury-stock method.

 

                K.            Comprehensive Income:

 

Comprehensive incomeconsists of net income and other comprehensive income.  Other comprehensive income includesunrealized gains and losses on securities availablefor salewhich are also recognized as a separatecomponent of equity. The accounting standard that requires reportingcomprehensive income first applies for 1998, with priorinformation restatedto be comparable.

 

40

----

 

 

                L.             New Accounting Pronouncements:

 

Beginning January 1,2001, a new accounting standard willrequireall derivatives to be recorded at fair value. Unless designated as hedges,changes in these fair values will berecordedin  the income statement.  Fair value changesinvolving hedges willgenerally be recorded by offsetting gains and losses on the hedge and on thehedged item, even if the fair value of the hedged item is nototherwise recorded.This is not expectedto have a material effect, but the effectwilldepend on derivative holdings when this standard applies.

 

 

41

----

 

 

2.             InvestmentSecurities:

 

The carrying amounts ofinvestment in securities as shown in the consolidatedbalance sheets of the bank and their approximate fullvalues at December 31 wereas follows: 

 
|                                         |   |          |       | **Gross**      |   | **Gross**      |   |       |    |
|----------------------------------------------|--------|---------------|------------|----------------|--------|----------------|--------|------------|---------|
|                                         |   | **Amortized** |       | **Unrealized** |   | **Unrealized** |   | **Fair**   |    |
|                                         |   | **Cost**      |       | **Gains**      |   | **Loss**       |   | **Value**  |    |
| VALUES FOR THE  YEARENDED DECEMBER 31, 2000: |   |          |       |           |   |           |   |       |    |
|                                         |   |          |       |           |   |           |   |       |    |
| Securities  Available for Sale               |   |          |       |           |   |           |   |       |    |
|                                         |   |          |       |           |   |           |   |       |    |
| U.S. Treasury  Securities                    |   | $             | 1,992,000  |           | $      | 1,347          |   | $          | 0       |   | $ | 1,993,347 |   |
|                                         |   |          |       |           |   |           |   |       |    |
| Federal Agency  Securities                   |   | 27,500,000    |       | 0              |   | 125,462        |   | 27,374,539 |    |
|                                         |   |          |       |           |   |           |   |       |    |
| Equity  Securities                           |   | 250,000       |       | 0              |   | 0              |   | 250,000    |    |
|                                         |   | $             | 29,742,000 |           | $      | 1,347          |   | $          | 125,462 |   | $ | 29,617,886 |   |
|                                         |   |          |       |           |   |           |   |       |    |
| VALUES FOR THE  YEARENDED DECEMBER 31, 2001: |   |          |       |           |   |           |   |       |    |
|                                         |   |          |       |           |   |           |   |       |    |
| Securities  Available for Sale               |   |          |       |           |   |           |   |       |    |
|                                         |   |          |       |           |   |           |   |       |    |
| U.S. Treasury  Securities                    |   | $             | 3,490,661  |           | $      | 0              |   | $          | 1,131   |   | $ | 3,489,530 |   |
|                                         |   |          |       |           |   |           |   |       |    |
| Federal Agency  Securities                   |   | 32,553,208    |       | 62,594         |   | 0              |   | 32,615,802 |    |
|                                         |   |          |       |           |   |           |   |       |    |
| Equity  Securities                           |   | 250,000       |       | 0              |   | 0              |   | 250,000    |    |
|                                         |   | $             | 36,293,869 |           | $      | 62,594         |   | $          | 1,131   |   | $ | 36,355,332 |   |

 

 

42

----

 

The par value ofsecurities pledged to secure public deposits and for otherpurposes amounted to $14,598,233 in 2001 and$23,135,696 in 2000.

 

The amortized cost andestimated market value of investment in debtsecuritiesat December 31, 2001, by contractural maturity, are shown below.Expected maturities will differ from contractualmaturities because borrowersmay have the right tocall or prepay obligations with or without call asprepaymentpenalties.

 
|                             |   | **Securities  to be Held****to Maturity** |   | **Securities  Available****For Sale** |   |
|----------------------------------|--------|-------------------------------------------|--------|---------------------------------------|--------|
|                             |   | **Amortized**                             |   | **Fair**                              |   | **Amortized** |   | **Fair** |   |
|                             |   | **Cost**                                  |   | **Value**                             |   | **Cost** |   | **Value** |   |
| Due in one year  orless          |   | $                                         | 0      |                                  | $      | 0 |   | $ | 3,490,661 |   | $ | 3,489,529 |   |
|                             |   |                                      |   |                                  |   |   |   |   |   |
| Due from one  year tofive years  |   | 0                                         |   | 0                                     |   | 24,553,208 |   | 24,583,303 |   |
|                             |   |                                      |   |                                  |   |   |   |   |   |
| Due from five  years toten years |   | 0                                         |   | 0                                     |   | 8,250,000 |   | 8,282,500 |   |
|                             |   |                                      |   |                                  |   |   |   |   |   |
| Due after ten  years$0           |   | $                                         | 0      |                                  | $      | 0 |   | $ | 36,293,869 |   | $ | 36,355,332 |   |

 

3.             Restriction on Cash, Due from Banks and ContingentLiabilities:

 

The Bank is required tomaintain average balances with the Federal ReserveBank.The average required reserve balances were $1,382,000. and 934,000. For 2001and 2000 respectively. The Bank has various claims and suits pending atDecember 31, 2001 arising in the ordinary course ofits business. It is theopinion of managementand legal counsel that such litigation will not materiallyaffect the Bank’s financial position or earnings.

 

 

 

43

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4.             Loans:

 

Major classifications ofloans at December 31, 2001 and 2000 areasfollows:

 
|                        |                   | **2001**    |        | **2000**    |    |
|-----------------------------|------------------------|-------------|-------------|-------------|---------|
| Mortgage Loans              |                   | $           | 53,718,980  |        | $       | 52,596,774 |   |
| Installment  Loans          |                   | 13,977,895  |        | 13,518,168  |    |
| Commercial and  Other Loans |                   | 49,210,538  |        | 47,525,670  |    |
|                        |                   | 116,907,413 |        | 113,640,612 |    |
| Less:                       | Unearned  Interest     |        | 0           |        | 0       |   |
|                        | Reserve for Loan  Loss |        | 1,152,777   |        | 702,008 |   |
|                        |                   | $           | 115,754,636 |        | $       | 112,938,604 |   |

 

                Loans on which accrual of interest has beendiscontinued orreduced amounted to$864,772. and $425,754. at December 31, 2001 and2000respectively.  Had the above loans notbeen placed on anon-accrual status,income for the Company would have increasedapproximately$43,875. and $45,998. for the two years.

 

                The Company’s recorded  investment inimpaired  loans wasapproximately $1,564,327. at December 31, 2001 and$1,057,618. at December 31, 2000.  Of that amount in 2001, $646,002. representsloans for which an allowance for loan losses,amounting to $518,385.,has been establishedunder SFAS 114. The average recorded investmentinimpaired loans was approximately $1,250,972. for 2001 and $997,116.for 2000. Interest income recognized on impaired loans wasapproximately$45,357. for the  year endedDecember  31, 2001.

 

Reserve for Loan Losses:

 

                Transactions in the reserve for loan losses for theyears wereas follows:

 
|                                     |   | **2001** |      | **2000** |   | **1999** |   |
|------------------------------------------|--------|----------|-----------|----------|--------|----------|--------|
| Balance at  Beginning of Year            |   | $        | 702,008   |     | $      | 700,553  |   | $ | 701,275 |   |
| Provision  Charged to Operating Expenses |   | 700,000  |      | 100,000  |   | 22,500   |   |
| Recoveries  credited to Reserve          |   | 7,890    |      | 7,125    |   | 5,494    |   |
| Losses Charged  to Reserve               |   | (257,121 | )         | (105,670 | )      | (28,716  | )      |
| Balance at End  of Year                  |   | $        | 1,152,777 |     | $      | 702,008  |   | $ | 700,553 |   |

 

 

44

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                The balance of the reserve for loan losses for incometaxpurposes was $281,723. at December 31,2001 and 2000.

 

                Certain directors and executive officers of the Bankandcompanies in which they have beneficialownership, were loancustomers of the Bankduring 2001 and 2000. Such loans were made intheordinary course of business at the Banks’ normal credit terms andinterest rates. An analysis of the 2001 activity withrespect to alldirector andexecutive officer loans is as follows:

 
| **Balance** |      | **New Loans** |   | **Loan Payments** |   | **Balance** |
|-------------|-----------|---------------|--------|-------------------|--------|-------------|
| **1999**    |      | **2001**      |   | **2001**          |   | **2001**    |
| $           | 2,765,252 |          | $      | 981,430           |   | $           | 689,676 |   | $ | 3,057,006 |
|             |           |               |        |                   |        |             |  |  |  |  |

 

 

 

45

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5.             BankPremises and Equipment:

 

Bankpremises and equipment are summarized as follows:

 
|                             |   | **2001**  |      | **2000**  |   |
|----------------------------------|--------|-----------|-----------|-----------|--------|
| Land                             |   | $         | 949,972   |      | $      | 949,972 |   |
| Banking House                    |   | 3,183,011 |      | 3,171,374 |   |
| Furniture, Fixtures andEquipment |   | 2,432,565 |      | 2,382,842 |   |
|                             |   | 6,565,548 |      | 6,504,188 |   |
| Less:Accumulated                 |   |      |      |      |   |
| Depreciation                     |   | 3,182,009 |      | 2,910,187 |   |
| Bank Premises and Equipment      |   | $         | 3,383,539 |      | $      | 3,594,001 |   |
|                                  |        |           |           |           |        |  |  |  |  |  |  |  |

 

Depreciationexpense amounted  to $269,956.,$277,506., and$179,323., in 2001, 2000 and 1999 respectively.  Expenditures formaintenance and repairs are charged againstoperations as incurred.

 

6.             OperatingLease Commitments:

 

TheCompany has entered into lease agreements for certain premises at three of itsfacility locations. Future minimum lease payments under the leases during thefive years subsequent toDecember 31, 2001 are as follows:

 

 
| **Year** |   | **Amount** |
|----------|--------|------------|
| 2002     |   | $          | 21,400 |
| 2003     |   | $          | 21,400 |
| 2004     |   | $          | 21,400 |
| 2005     |   | $          | 21,400 |
| 2006     |   | $          | 21,400 |

 

7.             FederalFunds Purchased:

 

AtDecember 31, 2000, the combined weighted average interestrates related tofederal funds purchased was 5.88%. Maturitiesrelated to such borrowings for the yearwere not greater 90 days. In 2001the repurchase agreement average interest was 7.00%.

 

 

46

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8.             Federal IncomeTaxes:

 

The provisions forFederal income taxes for the years ended December 31,2001, 2000, and 1999 were less than the respectiveamounts that would result fromapplyingthe statutory Federal and state income tax rates, due primarily to the Banks’investment income and expense accruals. 

 

A reconciliation of thedifference between the U. S. statutory income taxrateand the effective tax rates with resulting dollar amounts are shown in thefollowing table:

 
|                                |   | **2001**   |    | **2000**    |   | **1999**   |   |
|-------------------------------------|--------|------------|---------|-------------|--------|------------|--------|
|                                |   | **Amount** |    | **Percent** |   | **Amount** |   | **Percent** |   | **Amount** |   | **Percent** |   |
| Tax Expense atStatutory Rate        |   | $          | 907,953 |        | 34.00  | %          | $      | 1,044,203 |   | 34.00 | % | $ | 1,037,245 |   | 34.00 | % |
| State income taxnet of tax benefits |   | 78,724     |    | 3.89        | %      | 92,802     |   | 3.02 | % | 104,238 |   | 3.42 | % |
|                                |   | 986,677    |    | 37.89       | %      | 1,137,005  |   | 37.02 | % | 1,141,483 |   | 37.42 | % |
|                                |   |       |    |        |   |       |   |   |   |   |   |   |   |
| Security  Transactions              |   | 0          |    | 0.00        | %      | 0          |   | 0.00 | % | (786 | ) | —0.03 | % |
| Loan LossProvision                  |   | 153,262    |    | 5.74        | %      | (1,457     | )      | —0.05 | % | (8,661 | ) | —0.28 | % |
| Pension Accruals                    |   | 4,443      |    | 0.17        | %      | 4,338      |   | 0.14 | % | 3,400 |   | 0.11 | % |
| Other                               |   | (21,123    | )       | —0.79  | %      | (7,371     | )      | —0.24 | % | (16,813 | ) | —0.55 | % |
| Deferred IncomeTax                  |   | (213,669   | )       | —8.00  | %      | (1,247     | )      | 0.04 | % | 11,980 |   | 0.39 | % |
|                                |   | $          | 909,590 |        | 35.01  | %          | $      | 1,131,268 |   | 36.83 | % | $ | 1,130,603 |   | 37.06 | % |

 

                The tax effect ofsignificant temporary differences which comprise non-currentdeferred tax assets and liabilities as of December 31,2001 and 2000 are as follows: 

 
|                        |   | **2001** |    | **2000** |   |
|-----------------------------|--------|----------|---------|----------|--------|
| Assets:                     |   |     |    |     |   |
| Market Value  Allowance     |   | $        | 24,897  |     | $      | 21,297 |   |
| Reserve for Loan  Loss      |   | 374,553  |    | 142,897  |   |
| Allowances for  Investments |   | (54,492  | )       | 53,369   |   |
| Gross Deferred  Tax Asset   |   | 344,958  |    | 217,563  |   |
|                        |   |     |    |     |   |
| Liabilities:                |   |     |    |     |   |
| Property and  Equipment     |   | 116,971  |    | 71,165   |   |
| Net Deferred Tax  Asset     |   | $        | 227,987 |     | $      | 146,398 |   |

 

 

47

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9.             Employee Benefit Plans:

 

During 1997 the Companyterminated the qualified definedbenefitpension plan. The Company’s subsidiary adopted a qualified profit sharing and401K employee benefit plan coveringsubstantiallyall employees. The contributions to the plans are at the discretion of theplans’ advisory board and amounted to$125,165.in 2001 and $114,358. in 2000.

 

10.                                 Financial Instruments withOff-Balance-Sheet Risk and FinancialInstrumentswith Concentration of Credit Risk:

 

The Bank is party tofinancial instruments withoff-balance-sheetrisk in the normal course of business to meet thefinancingneeds of its customers.  These financialinstruments include loan commitments, unused credit loan limits, and standbyletters of credit. The instruments involve, to varying degrees,elementsof credit and interest rate risk in excess of the amount recognized in thefinancial statements.

 

The Bank’s exposure tocredit loss in the event ofnonperformance by theother party to the financial instrument forloancommitments and standby letters of credit is represented by the contractualamount of those instruments.  The Bankuses thesame credit  policies in making commitments and conditional obligations as it does foron-balance-sheet instruments.

 

Commitments to extendcredit are agreements to  lend to acustomer as long as there is no violation of anycondition established in the contract. Commitments generally have fixed expiration dates or other terminationclauses and may require payment of a fee. Since many of thecommitments are expected toexpire without beingdrawn upon, the total commitment amounts donotnecessarily represent future cash requirements.  The exposureto credit loss in theevent of nonperformance by the other party to the financial instrument forthese commitments is represented by the contractual amount.  The credit risk involved in issuingletters of credit is essentially the same as thatinvolved inextending loan commitments to customers.

 

 

48

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                The total amounts of off-balance-sheet financialinstrumentswith credit risk are as follows:

 
|                       |   | **December  31,** |       |
|----------------------------|--------|-------------------|------------|
|                       |   | **2001**          |       | **2000** |   |
| Loan commitments           |   | $                 | 10,281,000 |   | $ | 11,236,000 |   |
| Standby letters  of credit |   | $                 | 990,000    |   | $ | 678,000 |   |

 

                The Bank subsidiary grants retail, commercial andcommercialreal estate loans to customers located throughoutWest Virginia and Eastern Kentucky.

 

                The Bank evaluates each customer’s creditworthinesson acase-by-case basis.  The amount of collateral obtained, if deemednecessary by the Bank upon extension of credit, isbased onmanagement’s credit evaluation of thecustomer.  Collateral heldvaries but may include accounts receivable, inventory,property,plant and equipment and income-producingcommercial properties. Although the Bank has a diversified loan portfolio, asubstantialportion of the debtors’ ability to honortheir contracts isdependent upon theeconomic conditions in each loan’s respectivelocation.

 

11.           REGULATORY MATTERS

 

                The various regulatory agencies having supervisoryauthority over financial institutions have adopted risk-based capitalguidelines which define the adequacy of the capitallevels ofregulated institutions.  These risk based capital guidelinesrequire minimun levels of capital based upon the riskrating of assets and certain off-balance-sheet items.  Assets andoff-balance-sheetitems are assigned regulatory risk-weightsrangingfrom 0% to 100% depending on their level of credit risk.The guidelines classify capital in two tiers, Tier Iand Tier II, the sum of which is total capital. Tier I capital is essentiallycommon equity, less intangible assets. Tier II capital isessentiallyqualifying long-term debt and a portion of thereservefor loan losses.

 

                The Company and Bank actual capital amounts andratios arepresented below in thousands of dollars: 

 

 

49

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|                         |   |        |   |            |   |         |   |            |   | **For  Capital** |   |           |   |     |   |
|------------------------------|--------|-------------|--------|-----------------|--------|--------------|--------|-----------------|--------|------------------|--------|----------------|--------|----------|--------|
|                         |   |        |   |            |   |         |   |            |   | **Adequacy**     |   | **To be Well** |   |
|                         |   | **Company** |   | **Bank**        |   | **Purposes** |   | **Capitalized** |   |
| **As of  December 31, 2001** |   | **Amt.**    |   | ** Ratio** |   | **Amt.**     |   | **Ratio**       |   | **Amt.**         |   | **Ratio**      |   | **Amt.** |   | **Ratio** |   |
| Total Capital  (to Risk      |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Weighted Assets)             |   | 16,014      |   | 14.91           | %      | 15,692       |   | 14.65           | %      | 8,590            |   | 8.00           | %      | 10,738   |   | 10.00 | % |
|                         |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Tier I Capital  (to Risk     |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Weighted Assets)             |   | 16,147      |   | 15.04           | %      | 15,825       |   | 14.77           | %      | 4,295            |   | 4.00           | %      | 6,442    |   | 6.00 | % |
|                         |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Tier I Capital  (to          |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Average Assets)              |   | 16,147      |   | 10.31           | %      | 15,825       |   | 10.27           | %      | 6,265            |   | 4.00           | %      | 7,831    |   | 5.00 | % |
|                         |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Total Capital  (to Risk      |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Weighted Assets)             |   | 16,800      |   | 16.21           | %      | 16,568       |   | 15.99           | %      | 8,290            |   | 8.00           | %      | 10,362   |   | 10.00 | % |
|                         |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Tier I Capital  (to          |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Weighted Assets)             |   | 16,741      |   | 16.16           | %      | 16,509       |   | 15.93           | %      | 4,145            |   | 4.00           | %      | 6,217    |   | 6.00 | % |
|                         |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Tier I Capital  (to Risk     |   |        |   |            |   |         |   |            |   |             |   |           |   |     |   |   |   |
| Ave`rage Assets)             |   | 16,741      |   | 9.63            | %      | 16,509       |   | 9.49            | %      | 6,955            |   | 4.00           | %      | 8,694    |   | 5.00 | % |

 

 

50

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The Company’s principal source of funds for dividendpaymentsis dividends received from the subsidiary  Bank.  Bankingregulationslimit the amount of dividends that may be paid withoutprior approval of regulatory agencies. Under theseregulations, the amount of dividends that may be paidin any calendar year islimited to the currentyear’s net profits, as defined, combinedwiththe retained net profits of the preceding two years, subject to the capital requirements as defined above. During2002, theBank could, without  priorapproval,  declare dividends  ofapproximately$2,066,230. plus any 2002 net profits returned to thedate of the dividend declaration.

 

12.           Disclosures aboutFair Value of Financial Instruments

 

The following methods andassumptions were used to estimatethefair value of each class of financial instruments for which itis practicable to estimate that value:

 

Cash and Cash Equivalents— For those short-term instruments,thecarrying amount is a reasonable estimate of fair value.

 

Investment Securities —For investment securities, fair valuesarebased on quoted market prices or dealer quotes.

 

Loans — Fair value isestimated by discounting the future cashflowsusing the current rates at which similar loans would bemade to borrowers with similar credit ratings and forthe sameremaining maturities.

 

Deposit Liabilities — Thefair value of demand  deposits,savings accounts, and certain money market deposits istheamount payable on demand at the reportingdate. The fair value of fixed-maturity certificates ofdeposit is estimatedby discounting futurecash flows using the rates currentlyofferedfor deposits of similar remaining maturities.

                                                

Securities Sold UnderAgreements to Repurchase — For theseshort-terminstruments, the carrying amount is a reasonableestimateof fair value.

 

Federal Home Loan BankAdvances — Rates currently available totheCompany for advances with similar terms and remainingmaturities are used to estimate fair value of existingdebt.

 

Note Payable — Thecarrying value of variable rate borrowedfundsis a reasonable estimate of fair value.

 

51

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Commitments to ExtendCredit and Standby Letters of Credit —Commitmentsto extend credit and standby letters of creditrepresentagreements to lend to a customer at the market ratewhenthe loan is extended, thus the commitments and letters ofcredit are not considered to have a fair value.

 

                                                The fair values of the Company’sfinancial instruments at December 31, 2001 are as follows:

 
|                        |   | **Carrying  Amount** |        | **Fair  Value** |   |
|-----------------------------|--------|----------------------|-------------|-----------------|--------|
| Financial  assets:          |   |                 |        |            |   |
| Cash and cash  equivalents  |   | $                    | 7,072,209   |            | $      | 7,072,209 |   |
| Investment  securities      |   | 36,292,869           |        | 36,355,332      |   |
| Loans                       |   | 116,907,413          |        | 116,770,613     |   |
| Less: Res. for  loan losses |   | (1,152,777           | )           | (1,152,777      | )      |
|                        |   |                 |        |            |   |
|                        |   | $                    | 159,119,714 |            | $      | 159,045,377 |   |
| Financial  liabilities:     |   |                 |        |            |   |
| Deposits                    |   | $                    | 152,028,129 |            | $      | 152,317,807 |   |

 

 

52

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13.           Stockholders’Equity:

 

OnJune 16, 1999, the Board of Directors declared a stock dividend of three sharesof common stock for each two shares of

commonstock outstanding. All related financial information including earnings pershare gives retroactive effect to issuance of this stock dividend. This resultsin a total authorized common stock of 780,000 shares and 716,991 sharesoutstanding at December 31, 2001 and 2000.

 

14.           ParentOnly Condensed Financial Information:

 
|                                                               |   | **December  31,** |       |
|--------------------------------------------------------------------|--------|-------------------|------------|
| **Condensed Balance Sheet:**                                       |   | **2001**          |       | **2000** |   | **1999** |   |
| Assets:                                                            |   |              |       |   |   |   |   |
| Cash                                                               |   | $                 | 420,887    |   | $ | 360,466 |   | $ | 375,496 |   |
| Other Assets                                                       |   | 268,295           |       | 254,875 |   | 264,674 |   |
| Investment in Subsidiary                                           |   | 16,510,065        |       | 15,692,172 |   | 14,091,689 |   |
|                                                               |   |              |       |   |   |   |   |
|                                                               |   | $                 | 17,199,247 |   | $ | 16,307,513 |   | $ | 14,731,859 |   |
|                                                               |   |              |       |   |   |   |   |
| Liabilities and  Equity:                                           |   |              |       |   |   |   |   |
| Accrued  Liabilities                                               |   | $                 | 399,117    |   | $ | 293,297 |   | $ | 288,166 |   |
| Common Stock                                                       |   | 1,300,000         |       | 1,300,000 |   | 1,300,000 |   |
| Surplus                                                            |   | 2,408,426         |       | 2,408,426 |   | 2,408,426 |   |
| Retained  Earnings                                                 |   | 13,951,902        |       | 13,165,988 |   | 11,595,465 |   |
| Treasury Stock                                                     |   | (860,198          | )          | (860,198 | ) | (860,198 | ) |
|                                                               |   |              |       |   |   |   |   |
|                                                               |   | $                 | 17,199,247 |   | $ | 16,307,513 |   | $ | 14,731,859 |   |
|                                                               |   |              |       |   |   |   |   |
| Condensed  Statement of Income:                                    |   |              |       |   |   |   |   |
| Equity in Net  Earnings of Subsidiary                              |   | $                 | 1,787,359  |   | $ | 2,062,681 |   | $ | 2,051,846 |   |
| Other Income                                                       |   | 8,208             |       | 7,203 |   | 14,800 |   |
| Operating  Expenses                                                |   | 39,946            |       | 37,163 |   | 42,289 |   |
|                                                               |   |              |       |   |   |   |   |
| Net Income                                                         |   | $                 | 1,755,621  |   | $ | 2,032,721 |   | $ | 2,024,357 |   |
|                                                               |   |              |       |   |   |   |   |
| Condensed  Statement of Changes****in****Cash Flow:                |   |              |       |   |   |   |   |
| Cash Flows From Increases (Decreases) in Cash and Cash Equivalents |   |              |       |   |   |   |   |
| Operating  Activities:                                             |   |              |       |   |   |   |   |
| Net Income                                                         |   | $                 | 1,755,621  |   | $ | 2,032,721 |   | $ | 2,032,721 |   |
| Net Change in  Other Assets                                        |   | (13,420           | )          | 9,799 |   | 9,799 |   |
| Net Change in  Accrued Liabilities                                 |   | 105,820           |       | 5,131 |   | 5,131 |   |
|                                                               |   |              |       |   |   |   |   |
| Net Cash  Provided by Operating****Activities                      |   | 1,848,021         |       | 2,047,651 |   | 2,047,651 |   |
|                                                               |   |              |       |   |   |   |   |
| Cash Flows From  Investing Activities:                             |   |              |       |   |   |   |   |
| Net Change in  Investment in****Subsidiary                         |   | (712,113          | )          | (1,030,214 | ) | (1,030,214 | ) |
|                                                               |   |              |       |   |   |   |   |
| Net Cash  Provided (Used) in****Investing Activities               |   | (712,113          | )          | (1,030,214 | ) | (1,030,214 | ) |
|                                                               |   |              |       |   |   |   |   |
| Cash Flows From                                                    |   |              |       |   |   |   |   |
| Financing  Activities:                                             |   |              |       |   |   |   |   |
| Dividends                                                          |   | 1,075,487         |       | (1,032,467 | ) | (1,032,467 | ) |
|                                                               |   |              |       |   |   |   |   |
| Net Cash Used in  Financing****Activities                          |   | 1,075,487         |       | (1,032,467 | ) | (1,032,467 | ) |
|                                                               |   |              |       |   |   |   |   |
| Net Change in  Cash and Cash****Equivalents During the Year        |   | 60,421            |       | (15,030 | ) | (15,030 | ) |
|                                                               |   |              |       |   |   |   |   |
| Cash Account:                                                      |   |              |       |   |   |   |   |
| Beginning of  Year                                                 |   | 360,466           |       | 375,496 |   | 375,496 |   |
|                                                               |   |              |       |   |   |   |   |
| End of Year                                                        |   | $                 | 420,887    |   | $ | 360,466 |   | $ | 360,466 |   |

 

 

53

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ITEM 9 — DISAGREEMENTSON ACCOUNTING AND FINANCIAL DISCLOSURE 

 

 

 

 

 

None.

 

 

PART III.

 

ITEM 10 — DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT

 

 

 

The information appearingon Page of the Corporation’s Proxy Statement, dated May 8, 2002, isincorporated herein by reference in response to this item.

 

 

Executive Officers of theRegistrant:

 

 
| **Name**            |   | **Age** |   | **Position and Office**                                                                                                                                                                                                                         |
|---------------------|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Harvey Oakley       |   | 81      |   | Chairman of the Board

and President, Logan County BancShares, Inc. Mr.  Oakley has been an officer and Director of Logan Bank & Trust Company  since 1963, a attorney at law, and Circuit Judge, State of West Virginia.                   |
|                |   |    |   |                                                                                                                                                                                                                                            |
| Eddie D. Canterbury |   | 53      |   | Executive Vice President

and CEO of Logan County BancShares, Inc. Mr.  Canterbury has been President/CEO of Logan Bank & Trust Company since  1998 and Sr. Vice President since 1980. He is a Director of Logan Bank &  Trust Company. |

 

 

54

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ITEM 11 –EXECUTIVECOMPENSATION

 

                The informationappearing in the Corporation’s Definitive Proxy Statement, dated May 8, 2002,is incorporated herein by 

reference in response to this item.

 

ITEM12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

                The information appearing in theCorporation’s Definitive Proxy Statement, dated May 8, 2002, is incorporatedherein by reference in response to this item.

 

ITEM13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

                The informationappearing in the Corporation’s Definitive Proxy Statement, dated May 8, 2002,is incorporated herein by reference in response to this item.

 

ITEM 14 –EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

AND REPORTS ON FORM 8–K

 

                None.

 

 

55

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**Logan County BancShare****s, Inc.**

 

**POST OFFICEBOX 597 •****LOGAN,WEST VIRGINIA 25601 •****(304) 752-0280 •****(304) 752-4649**

 

May 28, 2002

 

Dear Stockholder:

 

                YourBoard of Directors is pleased to invite you to attend the Annual Meeting ofStockholders of Logan County BancShares, Inc. on May 28, 2002, at 3:00 p.m. TheNotice of Meeting and Proxy Statement are attached.

 

                Themeeting will be held at Logan Bank and Trust Company’s lobby, Washington andMain Street, Logan, West Virginia. The business of the meeting will be theelection of the Directors and to transact such other business as may properlycome before the meeting.

 

                Wehope that you can attend the meeting. In any event, please mark, date and signthe enclosed proxy and return it in the accompanying envelope.

 

 

 

LOGANCOUNTY BANCSHARES, INC.

 

| Harvey  Oakley     |   | Eddie  Canterbury             |
|--------------------|--------|-------------------------------|
| President/Chairman |   | Executive  Vice President/CEO |

 

 

 

 

 

 

 

 
| **Logan  Bank &Trust** |   | **Fountain  Place Bank Of** |   | **Chapmanville  Bank Of**   |   | **Man Bank  Of**   |   | **Harts  Bank Of**   |
|----------------------------|--------|-----------------------------|--------|-----------------------------|--------|--------------------|--------|----------------------|
| **LB&T**               |   | **LB&T**                |   | **LB&T**                |   | **LB&T**       |   | **LB&T**         |
| **Logan, WV  25601**       |   | **Logan, WV  25601**        |   | **Chapmanville,  WV 25508** |   | **Man, VW  25635** |   | **Harts, WV  25524** |

 

 

56

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LOGAN COUNTY BANCSHARES, INC.

Proxy for the Annual Meeting of Shareholders

To be Held May 28, 2002

 

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

 

                Theundersigned hereby appoints Harvey Oakley and Eddie Canterbury, or any of them,proxies or proxy of the undersigned with full power of substitution to vote, asdesignated below, the shares of the undersigned at the Annual Meeting of theShareholders of Logan County Bancshares, Inc. to be held at Logan Bank andTrust Company’s office, Corner of Washington Avenue and Main Street, Logan,West Virginia, on May 28, 2002, at 3:00 p.m. and at any and all adjournmentsthereof, with all of the powers the undersigned would possess if personallypresent.

 
| 1.     | Proposal to approve the  nominated Board of Directors.                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                              |
|   | o   FOR                                                                                                                                                                 | o   AGAINST | o   ABSTAIN |
|   |                                                                                                                                                                              |
| 2.     | In their discretion, the  proxies are authorized to vote upon such other business and on such other  matters as may properly come before the meeting or any adjournments thereof, |

 

                Theshares as represented by this Proxy will be voted as specified by theundersigned.  If no specification ismade, this Proxy will be cast FOR Proposal.

 
| Number of Shares:     |   |           | Date: | , | 2002 |
|-----------------------|--------|----------------|-------|---|------|
|                  |   |           |
|                  |   |           |
|                  |   |           |
|                  |   |           |
| Certificate  Name (s) |   | Signature  (s) |

 

 

                Pleasesign in the manner in which your stock is registered. When signing as attorney,administrator, trustee or guardian, please give your full title as such. Forjoint accounts, each Joint Tenant should sign. If a corporation, please sign infull corporate name by President or other authorized officer. If a partnership,please sign in partnership name by authorized person.

 

 

57

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LOGAN COUNTY BANCSHARES, INC.

P.O. BOX 597

LOGAN, WEST VIRGINIA 25601

 

MAY 8, 2002

 

PROXY STATEMENT

 

 

SOLICITATIONAND REVOCABILITY OF PROCESS

 

                ThisProxy Statement is furnished in connection with the solicitation by the Boardof Directors of Logan County BancShares, Inc. (Corporation) of proxies for theAnnual Meeting of Stockholders of the corporation to be held May 28, 2002, andany adjournment thereof.   Sharesrepresented by properly executed proxies which are received in time and notrevoked will be voted at the meeting in the manner described in theproxies.  Any proxy may be revoked atany time before it is exercised.

 

INFORMATIONAS TO VOTING SECURITIES

 

                TheBoard of Directors has fixed the close of business on April 26, 2002, as therecord date for the determination of stockholders entitled to notice of and tovote at the Annual Meeting.  At therecord date, 716,991 shares of Common Stock of the Corporation were outstandingand entitled to be voted at the meeting. Each share of Common Stock is entitledto one vote.

 

ELECTIONOF DIRECTORS

 

                TheBoard of Directors of the Corporation has, in accordance with the bylaws, fixedthe number of Directors of the Corporation at not less than three. Accordingly,nine Directors are proposed to be elected to serve until the next AnnualMeeting of Stockholders and until their respective successors are duly electedand have qualified. It is intended that shares represented by proxies solicitedby the Board of Directors will, unless contrary instructions are given, bevoted in favor of the election as Directors of the nominees listed below. Ifany nominee is unavailable for election, the shares may be voted for asubstitute nominee. The following nominees have been proposed to serve asDirectors of the Corporation. They are:

 

 

58

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|              |   |    |   |                                    |   | **COMMON STOCK BENEFICIALLY OWNED** |
|-------------------|--------|---------|--------|-----------------------------------------|--------|-------------------------------------|
| **NAME**          |   | **AGE** |   | **PRINCIPAL OCCUPATION**                |   |
| Harvey Oakley     |   | 81      |   | President/Chairman of the  Board,       |   | (A)                                 | 51,564 |
|              |   |    |   | Logan County BancShares,  Inc.;         |   |                                |   |
|              |   |    |   | Attorney at Law; Chairman  of the       |   |                                |   |
|              |   |    |   | Board of Logan Bank and  Trust.         |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| Clell Peyton      |   | 65      |   | Director, Logan Bank and  Trust         |   |                                | 10,773 |
|              |   |    |   | Retired, Nationwide  Insurance Company. |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| Earle B. Queen    |   | 74      |   | Director, Logan Bank and  Trust;        |   | (B)                                 | 19,755 |
|              |   |    |   | President, James Funeral  Home.         |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| LaVeta Jean Ray   |   | 70      |   | Retired Counselor,                      |   | (C)                                 | 7,428 |
|              |   |    |   | Chapmanville High School.               |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| William W. Wagner |   | 69      |   | Director, Logan Bank and  Trust,        |   | (D)                                 | 15,500 |
|              |   |    |   | Former Director and  Executive Comm.,   |   |                                |   |
|              |   |    |   | United Bancshares; Former  Chairman     |   |                                |   |
|              |   |    |   | Eagle Bancorp, Inc.                     |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| Eddie Canterbury  |   | 53      |   | Director and Executive  Vice President/ |   | (E)                                 | 7,700 |
|              |   |    |   | CEO, Logan County  BancShares, Inc.;    |   |                                |   |
|              |   |    |   | Director and President/CEO              |   |                                |   |
|              |   |    |   | Logan Bank and Trust.                   |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| Walter D. Vance   |   | 51      |   | Vice President, Logan  County           |   | (F)                                 | 4,569 |
|              |   |    |   | BancShares, Inc.; Vice  President,      |   |                                |   |
|              |   |    |   | Aracoma Drug Company.                   |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| Glenn T. Yost     |   | 44      |   | Director, Logan Bank and  Trust;        |   | (G)                                 | 28,963 |
|              |   |    |   | President, W.W. McDonald  Land Co.;     |   |                                |   |
|              |   |    |   | President, Triadelphia  Land Co.;       |   |                                |   |
|              |   |    |   | President, Bruce McDonald  Holding Co.  |   |                                |   |
|              |   |    |   |                                    |   |                                |   |
| David McCormick   |   | 54      |   | Director, Logan Bank and  Trust;        |   | (H)                                 | 38,058 |
|              |   |    |   | President, McCormick’s,  Inc.;     |   |                                |   |
|              |   |    |   | President, Bodaco, Co.                  |   |                                |   |

 

 

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| (A)    |   | Includes 6,982 shares  jointly owned with spouse.                                                                                                                                                                                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                             |
| (B)    |   | Includes 18,000 shares  owned by Earle B. Queen, Trust, 355 shares owned by Funeral Services, Inc.  and 400 shares owned by Queen Brothers, Inc.                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                             |
| (C)    |   | Includes 1,428 shares  jointly owned with sister, Erma Ray Butcher.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                             |
| (D)    |   | Includes 654 shares  jointly owned with spouse.                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                             |
| (E)    |   | Includes 357 shares owned  in IRA and 200 shares jointly owned with spouse.                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                             |
| (F)    |   | Includes 849 shares owned  by Aracoma Drug Company.                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                             |
| (G)    |   | Includes 1,125 shares  jointly owned with spouse; and 27,164 shares for which voting and investment  powers are deemed, 20,625 shares owned by W.W, McDonald Land Company; 5,863  shares owned by Bruce McDonald Holding Company; 675 shares owned by  Triadelphia Land Company. |
|   |   |                                                                                                                                                                                                                                                                             |
| (H)    |   | Includes 37,908 shares  owned by Bodaco, Co.                                                                                                                                                                                                                                     |

 

EXECUTIVECOMPENSATION

 

                AllExecutive Officers of Logan County BancShares, Inc. were compensated $7,200.00in Director’s fees during 2001.

 

OTHERMATTERS

 

                Asof the date of this Proxy Statement, the Board of Directors was not aware ofany matters not referred to in the form proxy that would be presented foraction at the meeting. If any other business comes before the meeting, thepersons named in the proxy will have discretionary authority to vote the sharesrepresented by them in accordance with their best judgement.

 

DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS

 

                Allproposals must be submitted to the Board of Directors 30 days prior to theAnnual Meeting of Stockholders.

 

 

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**NOTICE TO SHAREHOLDERS**

 

The Annual Disclosure Statement, whichcontains certain financial information, of Logan Bank and Trust Company isavailable upon request.

 

Pleasecontact the New Accounts Department at

 

| Logan Bank and Trust  Company        |
|--------------------------------------|
| 43 Washington Avenue                 |
| PO Box 597                           |
| Logan, West Virginia 25601–0597 |
| Phone: (304) 752–1166           |

 

 

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SIGNATURES

 

                Pursuantto the requirements of section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|   | LOGAN COUNTY BANCSHARES,  INC. |
|--------|--------------------------------|
|   | (Registrant)                   |
|   |                           |
|   | /s/ Eddie Canterbury           |
|   | Eddie Canterbury               |
|   | Executive Vice  President/CEO  |
|   |                           |
|   | March 26, 2002                 |

 

                Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed on the dates indicated.

 
| **SIGNATURE**         |   |                                            | **DATE**                            |
|-----------------------|--------|-------------------------------------------------|-------------------------------------|
|                  |   |                                            |                                |
| /s/ Frank H. Oakley   |   |                                            |                                |
| Frank H. Oakley       |   | Director                                        | March  26, 2002                     |
|                  |   |                                            |                                |
| /s/ Harvey Oakley     |   |                                            |                                |
| Harvey Oakley         |   | Director,  President/Chairman of the Board | March  26, 2002                     |
|                  |   |                                            |                                |
| /s/ Clell Peyton      |   |                                            |                                |
| Clell Peyton          |   | Director                                        | By:                       | /s/ Eddie Canterbury |   | March  26, 2002 |
|                  |   |                                            | Eddie Canterbury, Attorney  in Fact |   |
| /s/ Earle B. Queen    |   |                                            | Date: March 26, 2002                |   |
| Earle B. Queen        |   | Director                                        | March  26, 2002                     |
|                  |   |                                            |                                |
| /s/ Lavetta J. Ray    |   |                                            |                                |
| Lavetta J. Ray        |   | Director                                        | March  26, 2002                     |
|                  |   |                                            |                                |
| /s/ Walter D. Vance   |   |                                            |                                |
| Walter D. Vance       |   | Director                                        | March  26, 2002                     |
|                  |   |                                            |                                |
| /s/ William W. Wagner |   |                                            |                                |
| William W. Wagner     |   | Director                                        | March  26, 2002                     |
|                  |   |                                            |                                |
| /s/ Eddie Canterbury  |   |                                            |                                |
| Eddie Canterbury      |   | Executive Vice President  and Director          | March  26, 2002                     |
| Director              |   |                                            |                                |
|                       |        |                                                 |                                     |  |  |  |

 

 

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