<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
Annual Report Persuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the calendar year ended December 31, 1997 Commission File No.2-95114
-----------------------
LOGAN COUNTY BANCSHARES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as 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 Telephone Number, including area code: (304) 752-2080
Securities Registered Pursuant To Section 12(b) of The Act:
NONE
Name of each exchange
Title of Each Class on which registered
Securities Registered Pursuant to Section 12(g) of The Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. (X)Yes ( )No.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date:
Class Outstanding at March 23, 1997
Common Stock ($2.50 Par Value) 478,000 Shares
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Aggregate market value of voting stock Based on last trade price
$16,730,000 $35.00
Documents Incorporated by Reference
(NONE)
<PAGE>
LOGAN COUNTY BANCSHARES, INC.
FORM 10 - K
INDEX
-----
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ITEM 1 - Business ...................................... 3 - 6
ITEM 2 - Properties .................................... 7
ITEM 3 - Legal Proceedings ............................. 7
ITEM 4 - Submission of Matters to a Vote of Security
Holders ....................................... 7
ITEM 5 - Market for the Registrant's Common Stock
and Related Security Holder Matters ........... 8
ITEM 6 - Selected Financial Data ....................... 9
ITEM 7 - Management's Discussion and Analysis .......... 10 - 27
ITEM 8 - Financial Statements and Supplemental Data .... 28 - 51
ITEM 9 - Disagreements on Accounting and Financial
Disclosures ................................... 52
ITEM 10 - Directors and Executive Officers of the
Registrant .................................... 52
ITEM 11 - Executive Compensation ........................ 53
ITEM 12 - Security Ownership of Certain Beneficial
Owners and Management ......................... 53
ITEM 13 - Certain Relationships and Related
Transactions................................... 53
ITEM 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8K ............................ 53
PROXY MATERIALS ......................................... 54 - 60
SIGNATURES .............................................. 61
</TABLE>
<PAGE>
ITEM 1 - BUSINESS
LOGAN COUNTY BANCSHARES, INC.
Logan County BancShares, Inc. is a bank holding company which was
organized under the laws of the State of West Virginia in 1985. On May 17,
1985, the Corporation acquired all the outstanding capital stock of Logan
Bank & Trust Company (LB&T) and also all of the outstanding stock of Bank of
Chapmanville (BC). Both of these subsidiaries are banking corporations
organized under the laws of the State of West Virginia. On May 28, 1996, the
subsidiary banks; Loan Bank & Trust Company and Bank of Chapmanville entered
into a merger agreement whereby they would be merged into Logan Bank & Trust
Company. The merger was completed after proper regulatory approval and was
accounted for under the pooling of interest method of accounting.
Logan Bank & Trust Company was organized in 1963, and still operates at
its original location at the corner of Washington and Main Streets in Logan,
West Virginia. The Company also has a separate drive-up facility and
mini-bank also located on Main Street in Logan, and in early February 1996
opened a new full-service branch in the Man area. In November 1996, the bank
acquired a branch facility from another financial institution located at
Harts, West Virginia. The facility at Route 10 North, Harts, is operated as a
full service branch of the bank. Logan Bank & Trust Company is a member of
the Federal Reserve System and deposits are insured pursuant to the Federal
Deposit Insurance Act.
Logan Bank & Trust Company provides a complete range of retail banking
services to individuals and small and medium size businesses. Their services
include checking, savings, NOW, certificates of deposit and money market
deposit accounts, business loans, individual loans, mortgage loans, home
equity loans, consumer loans for various other purposes, other
consumer-oriented financial services including safety deposit box accounts,
IRA accounts and night depository. The Company also operates several
automatic teller machines at three strategic locations in Logan County which
provide 24-hour working services to customers of Logan Bank & Trust Company.
The Company is a member of the Cirrus ATM network which has over 100
locations in West Virginia and more than 10,000 locations in 47 states.
Logan Bank & Trust Company provides depository lending and related
financial services to commercial, retail, industrial, financial and
governmental customers. The lending function includes short and medium term
loans, letters of credit, inventory and accounts receivable financing and
real estate construction lending. The Company also offers a discount investment
brokerage service through a sub-contract arrangement with a larger financial
institution.
The Chapmanville Bank of LB&T bank has one location situated on Railroad
Avenue in Chapmanville, West Virginia.
This facility also provides a complete range of retail banking services
to individuals and small and medium sized businesses. These services include
checking, savings, NOW, certificates of deposit and money market account
deposits. Business loans, individual loans, mortgage loans, home equity
loans, consumer loans for various other purposes are provided as well. In
addition, the Bank offers consumer oriented financial services such as IRA
accounts, night depository, safety deposit boxes and other banking related
services.
3
<PAGE>
LOGAN BANK & TRUST COMPANY, Continued
The branch also provides depository, lending and related financial
services to commercial, retail, industrial, financial and governmental
customers. The lending function includes short and medium-term loans, letters
of credit, inventory and accounts receivable financing, and real estate
construction lending as do all the branches of Logan Bank & Trust Company.
INVESTMENT CONSIDERATIONS
An investment in the shares offered hereby involves certain risks. A
subscription for shares should be made only after careful considerations set
forth below and elsewhere in this Offering Circular, and should be undertaken
only by persons who can afford an investment involving such risks.
MARKET FOR THE COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The shares of Logan County Bancshares, Inc. are infrequently traded in
the over-the-counter and are not listed on the National Association of
Security Dealers Automated Quotation System (NASDAQ) or on any exchange.
Management is not aware of any security dealer which makes a market in the
stock; therefore, no active trading market should be deemed to exist.
The sales price for Logan County Bancshares, Inc. stock are determined
by negotiations between individual buyers and sellers. Although Logan keeps
no records of sale prices paid for Logan stock and has no direct knowledge of
such prices, for purposes of presentation, Corporation's management estimates
the approximate market value ranges for 1996 and 1995 to be as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Sale Price: Quarter Quarter Quarter Quarter
- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1997 Common Stock $28-$30 $28-$30 $30-$35 $35-$35
1996 Common Stock $24-$25 $24-$25 $25-$30 $25-$30
Per Share Dividends
Declared:
- -------------------
1997 Common Stock $0.30 $0.32 $0.35 $0.63
1996 Common Stock $0.00 $0.45 $0.00 $0.70
</TABLE>
COMPETITION
Vigorous competition exists in the market area of Logan County
BancShares, Inc. In addition to the three other banks located with the
market area, the location is in a relatively close proximity to two
population centers of the State. There is also competition for deposits and
related financial services from non-bank institutions such as savings and
loans, insurance companies and brokerage firms, all of which are active in
the area. Loans are provided by those institutions as well in addition to the
finance companies. Since the Bank Holding Company Act, passed by the West
Virginia Legislature in 1982, local banks have been joining bank holding
companies around the State. Of the five banks located in Logan County, only
one is a unit bank. The other four are members of various multi-bank holding
companies. Logan County BancShares, Inc. has been able to compete effectively
within the county by having one institution located in the county seat (Logan
Bank & Trust Company), and Branches located in the high-growth area of the
county. Also, to stimulate growth, Logan County BancShares, Inc. is the only
bank holding company owned and controlled from within the county.
4
<PAGE>
SUPERVISION AND REGULATION
The Corporation is a bank holding company within the meaning of the
Bank Holding Company Act of 1956 (the Act) and is registered as such with the
Board of Governors of the Federal Reserve System (the Reserve Board). As a bank
holding company, the Corporation is required to file with the Federal Reserve
Board an annual report and such other information as may be required. The
Federal Reserve Board may also make examinations of the corporation. In
addition, the Federal Reserve Board has the authority (which it has not
exercised) to regulate provisions of certain bank holding company debt.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of or direct or indirect ownership or control of more than 5% of the
voting shares of any bank which is not already majority-owned. The Act also
prohibits a bank holding company, with certain exceptions, from itself engaging
in or acquiring direct or indirect control of more than 5% of the voting shares
of any company engaged in non-banking activities. One of the principal
exceptions to these prohibitions is for engaging or acquiring shares of a
company engaged in activities found by the Federal Reserve Board by order or
regulation to be so closely related to banking or managing banks as to be a
proper incident thereto. The Act prohibits the acquisition by a bank holding
company of more than 5% of the outstanding voting shares of a bank located
outside the State in which the operations of its banking subsidiaries are
principally conducted, unless such an acquisition is specifically authorized by
statute of the State in which the bank acquired is located. The Act and
regulations of the Federal Reserve Board also prohibit a bank holding company
and its subsidiaries from engaging in certain tie-in arrangements in connection
with any extension of credit or provision of any property or services.
Logan Bank & Trust Company is an insured bank organized under the
Banking Law of the State of West Virginia and is a member of the Federal Reserve
System. Accordingly, their operations are subject to Federal and State laws
applicable to commercial banks with trust powers and to regulation by the
Commissioner of Banking and the West Virginia State Banking Commissioner, the
Federal Reserve Board and the Federal Deposit Insurance Corporation. Among other
restrictions, the West Virginia Banking laws state that banks organized
thereunder may pay dividends only out of undivided profits. Under the Federal
Reserve Act, the approval of the Federal Reserve Board is required for dividends
declared by a state member bank which in any year exceeds the net profits of
such bank for that year, as defined, combined with retained net profits for the
two preceding years.
5
<PAGE>
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the banking industry and of Logan Bank &
Trust Company is affected by the credit policies of monetary authorities
including the Federal Reserve System. An important function of the Federal
Reserve System is to regulate the national supply of bank credit in order to
control recessionary and inflationary pressures. Among the instruments of
monetary policy used by the Federal Reserve to implement these objectives are
open market operations in the U. S. Government securities, changes in the
discount rate on member bank borrowings, and changes in reserve requirements
against member bank deposits. These means are used in varying combinations to
influence overall growth of bank loans, investments and deposits and may also
affect interest rates charged on loans or paid for deposits. The monetary
policies of the Federal Reserve authorities have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to have such an effect in the future.
In view of changing conditions in the national economy and in the money
markets, as well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve system, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or their effect on
the business and earnings of the Corporation, and Logan Bank & Trust Company.
FOREIGN OPERATIONS
The corporation and subsidiaries have no foreign operations.
EXECUTIVE OFFICERS
For information concerning the Executive Officers of the Corporation,
please see Item 10.
6
<PAGE>
ITEM 2 - PROPERTIES
The principal offices of the corporation are shared with those of Logan
Bank & Trust Company and are situated in Logan, West Virginia. This building, a
two-story bank and office building, is owned by Logan Bank & Trust company, as
is a mini-bank and drive-up facility which is located near-by. In addition, a
one-story office and bank building is located on Railroad Avenue in
Chapmanville, West Virginia. During 1996 the Bank opened two other branch
facilities in West Virginia. Both are one-story office and bank buildings
located at Rt. 10, South Man, West Virginia and Rt.10 North at Harts, West
Virginia.
ITEM 3 - LEGAL PROCEEDINGS
There are no legal actions or proceedings pending to which the
Corporation, or its subsidiaries, are a party.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE>
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The shares of Logan County BancShares, Inc. are infrequently traded in
the over-the-counter and are not listed on the National Association of Security
Dealers Automated Quotation System (NASDAQ) or on any exchange. Management is
not aware of any security dealer which makes a market in the stock; therefore,
no active trading market should be deemed to exist.
The sales price for Logan County BancShares, Inc. stock are determined
by negotiations between individual buyers and sellers. Although Logan keeps no
records of sales prices paid for Logan stock and has no direct knowledge of such
prices, for purposes of presentation, Corporation's management estimates the
approximate market value ranges for 1996 and 1995 to be as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Sales Price: Quarter Quarter Quarter Quarter
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
1997 Common Stock $28-$30 $28-$30 $30-$35 $35-$35
1996 Common Stock $24-$25 $24-$25 $25-$30 $25-$30
Per Share Dividends Declared:
-----------------------------
1997 Common Stock $0.30 $0.32 $0.35 $0.63
1996 Common Stock $0.00 $0.45 $0.00 $0.70
</TABLE>
8
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARY
(In Thousands of Dollars)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: 1997 1996 1995 1994 1993
----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Interest Revenue $ 8,693 $ 7,359 $ 6,664 $ 6,040 $ 5,639
Total Interest Expense 3,605 2,988 2,687 2,243 2,225
------- ------- ------- ------- -------
Net Interest Revenue 5,088 4,371 3,977 3,797 3,414
Provision for Possible
Loan Losses 107 40 59 271 383
------- ------- ------- ------- -------
Net Interest Revenue After
Provision for Possible
Loan Losses 4,981 4,331 3,918 3,526 3,031
Other Operating Revenue 1,264 1,000 731 529 969
Other Operating Expense (3,294) (3,026) (2,794) (2,690) (2,724)
------- ------- ------- ------- -------
Income Before Income Taxes 2,951 2,305 1,855 1,365 1,276
Income Taxes 1,057 767 643 300 462
------- ------- ------- ------- -------
Net Income $ 1,894 $ 1,538 $ 1,212 $ 1,065 $ 814
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Per Common Share:
Net Income $4.04 $3.29 $2.59 $2.28 $1.74
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Cash Dividends Declared $1.60 $1.15 $0.95 $0.70 $0.655
------- ------- ------- ------- -------
------- ------- ------- ------- -------
At December 31:
Total Loans $84,898 $70,872 $63,685 $59,437 $52,485
Total Assets 121,850 107,380 94,719 89,872 82,052
Total Deposits 108,107 95,233 83,717 79,709 77,388
Long-Term Debt 0 0 0 0 0
Total Shareholders' Equity 12,983 11,415 10,391 9,555 8,986
Selected Ratios:
Rate of Return on Average:
Total Assets 1.62% 1.52% 1.32% 1.20% 0.98%
Shareholders' Equity 15.18% 14.00% 11.98% 11.38% 9.20%
Tier 1 Capital to Total
Assets at Year End 11.09% 10.89% 10.90% 11.47% 11.58%
Average Total Share-
holders' Equity to
Average total Assets 10.66% 10.88% 10.99% 10.58% 10.69%
Common Dividend Payout
Ratio 39.60% 34.95% 36.66% 30.76% 36.68%
Nonaccrual and Re-
structured Business
Loans as a Percentage
of Total Loans 0.64% 0.96% 2.64% 2.70% 4.34%
</TABLE>
9
<PAGE>
ITEM 7 - Management's Discussion and Analysis
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTRODUCTION
The Management's Discussion and Analysis reviews and discusses the
financial condition of Logan County BancShares, Inc. and Subsidiaries. Included
are (a) the results of operations for 1997 and (b) discussion of liquidity
including an asset and liability sensitivity analysis, and (c) an analysis of
earnings, dividends, and capital. The discussion and analysis discloses any
material changes and any infrequent events and known trends as they relate to
liquidity, capital resources and results of operations. The information
presented reflects the activities of the holding company and the subsidiary
bank, Logan Bank & Trust Company.
To assist in understanding and evaluating major changes in Logan County
BancShares, Inc.'s financial position and results of operations, this discussion
emphasizes a comparison of the years 1997 to 1996, 1996 to 1995, and 1995 to
1994, and also presents five year information in instances where appropriate.
This discussion should be read concurrently with the audited financial
statements including notes to those statements.
The following definitions apply to terms used in this report:
AVERAGE BALANCES: All balances have been computed on the basis of
monthly averages.
NET INTEREST INCOME: Interest and related fee income on earning assets,
reduced by total interest paid on interest bearing deposits and borrowed funds.
This net amount, when divided by average earning asset balances becomes net
interest margin.
NET NON-INTEREST EXPENSE: Non-interest expenses reduced by the amount
of non-interest income.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is provided through short-term investments, payments on
outstanding loans, and the ability to attract new deposits or borrow funds. At
December 31, 1997, and 1996, the funds available within one year from
investments and loans were $26,641,000. and $29,962,000.
Logan County BancShares, Inc.'s deposit mix has increased by
$12,874,000. in 1997, $11,515,000. in 1996, and $4,008,000. in 1995. The
increase in those years across the deposit mix which points out a marketing
strategy that has attracted new customers to the Bank. Time deposits represented
the major growth in the deposit mix. They increased by $10,968,000., $8,619,000.
and $7,911,000. respectively in 1997, 1996 and 1995. The shift in 1997 and 1996
was from Savings accounts into Time deposits due to the Banks' promotional
activities; offering competitive interest rates for short-term and long-term
CD's. Demand deposits contributed to the growth in the deposit mix by increasing
$2,999,000. in 1997, $785,000. in 1996, and $1,111,000. in 1995. Savings
deposits showed slight decreases in 1997 after remaining stable over the past
five years. These changes are predominantly due to the fluctuating interest
rates by the Federal Reserve and movement of savings to time deposits by the
consumer in order to obtain a better interest rate. At December 31, 1997 and
1996, 28.86% and 29.43% of the total deposits were in demand deposits, while
27.09% and 32.03% were in savings and 44.04% and 38.48% were in time deposits,
respectively. The stable growth in deposits gives the Bank a firm deposit base
to meet the lending demand and market fluctuations.
10
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
During 1997, 1996 and 1995, banks have been faced with a highly
competitive atmosphere in the sense of maintaining a continuity of growth. Logan
County BancShares, Inc. has maintained a community bank approach which enhances
its performance over those years. The merger of Bank of Chapmanville into Logan
Bank & Trust Company enabled the Company to operate more efficiently and thereby
capture a sizeable portion of the market for deposits in the fastest growing
area of Logan County, West Virginia. Also, with the addition of the Man Branch
of Logan Bank & Trust and Harts Bank of Logan Bank & Trust in 1996, the company
has expanded its current market. See Table I. for a five-year summary of
financial data.
Capital planning is essentially the management process that allocates
capital resources in a manner that generates the highest income, while
maintaining sufficient liquidity, at the lowest degree of risk attainable.
Moreover, it is the philosophy of Logan County BancShares, Inc. to nurture that
growth by planning for steady, long-range profits rather than the high-risk,
high-exposure techniques. As noted in Table I. the ratio of net income to
average assets was 1.52%, 1.32%, and 1.20%, for the years ended December 31,
1997, 1996 and 1995, respectively. Through the periods presented, management has
allocated new funds into the higher-yielding loans and holding the investment
securities nearly constant. Although the improvement in the local economy had
been at a slow pace through 1994 in 1995, 1996 and 1997 overall loan demand and
deposit growth show a marked increase due to marketing the community bank
service approach.
Table I. represents a summary of financial data for the previous five
years.
11
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE I. - SUMMARY OF FINANCIAL DATA FOR FIVE YEARS
(In thousands of dollars)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Year End Balances:
Total Assets $121,850 $107,380 $94,719 $89,871 $82,052
Total Earning Assets 113,088 99,542 91,968 84,025 77,388
Total Deposits 108,107 95,233 83,717 79,709 72,319
Stockholders' Equity 12,983 11,415 10,391 9,555 8,986
Income for the Year:
Total Interest Income 8,693 7,359 6,664 6,040 5,639
Total Interest Expense 3,605 2,988 2,686 2,243 2,225
Net Interest Income 5,088 4,371 3,978 3,797 3,414
Provision for Loan
Losses 107 40 59 271 383
Non-Interest Income 1,264 1,000 731 529 969
Non-interest expense 4,351 3,793 3,438 2,990 3,186
Net Income 1,893 1,538 1,212 1,065 814
Per Share Data
Net Income 4.04 3.29 2.59 2.28 1.74
Stockholders' Equity 27.66 24.41 22.22 20.43 19.22
Cash Dividends 1.60 1.15 0.950 0.700 0.655
Key Ratios
Net Income To:
Average Assets 1.62% 1.52% 1.32% 1.20% 0.98%
Average Stockholders'
Equity 15.18% 14.00% 11.98% 11.38% 9.20%
Average Stockholders'
Equity to Average
Assets 10.66% 10.88% 10.99% 10.58% 10.69%
</TABLE>
12
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
<CAPTION>
TABLE II. - RATE ANALYSIS OF INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
(In Thousands of Dollars)
1997 1996 1995
------------------------------- ---------------------------- ----------------------------
Average Income Average Average Income Average Average Income Average
Balance (Expense) Yield Balance (Expense) Yield Balance (Expense) Yield
-------- -------- ------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans
(Net of Reserves & Discounts):
Commercial $ 33,292 $ 2,959 8.89% $ 28,476 $ 2,493 8.75% $ 25,389 $ 2,182 8.59%
Real Estate 37,305 3,153 8.45% 31,897 2,681 8.41% 30,108 2,466 8.19%
Consumer 7,225 678 9.38% 5,521 525 9.51% 5,650 517 9.15%
-------- ------- ---- -------- -------- ---- -------- -------- ----
Total Net Loans 77,822 6,790 8.67% 65,894 5,699 8.65% 61,147 5,165 8.45%
-------- ------- ---- -------- -------- ---- -------- -------- ----
Investment Securities:
Taxable 2,949 146 4.95% 8,337 567 6.80% 12,244 667 5.45%
Non-Taxable 59 4 6.78% 95 12 12.63% 175 20 11.43%
Available for Sale 19,463 1245 6.39% 10,206 559 5.48% 6,360 430 6.76%
Total Investment
-------- ------- ---- -------- -------- ---- -------- -------- ----
Securities 22,471 1,395 6.21% 18,638 1,138 6.11% 18,779 1,117 5.95%
-------- ------- ---- -------- -------- ---- -------- -------- ----
Federal Funds Sold and
Securities Purchased
Under Option to Resell 9,290 509 5.48% 9,827 525 5.34% 6,693 389 5.81%
-------- ------- ---- -------- -------- ---- -------- -------- ----
Total Earning Assets $109,583 $ 8,694 7.93% $ 94,359 $ 7,362 7.80% $ 86,619 $ 6,671 7.70%
-------- ------- ---- -------- -------- ---- -------- -------- ----
-------- ------- ---- -------- -------- ---- -------- -------- ----
Interest Bearing Liabilities:
Savings & Interest
Bearing Demand $ 48,523 $ 1,334 2.75% $ 46,952 $ 1,286 2.74% $ 46,936 $ 1,366 2.91%
Time Deposits 40,815 2,271 5.56% 31,006 1,694 5.46% 25,352 1,320 5.21%
-------- ------- ---- -------- -------- ---- -------- -------- ----
Total Interest Bearing
Liabilities $ 89,338 $ 3,605 4.03% $ 77,958 $ 2,980 3.82% $ 72,288 $ 2,686 3.72%
-------- ------- ---- -------- -------- ---- -------- -------- ----
-------- ------- ---- -------- -------- ---- -------- -------- ----
</TABLE>
13
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE III. - VOLUME ANALYSIS OF CHANGE IN INTEREST INCOME AND INTEREST EXPENSE
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1997 Vs. 1996 1996 Vs. 1995
--------------------------- ----------------------------
Interest Income Expense Increase (Decrease) Due To Increase (Decrease) Due To
Change In Change In
1997 1996 1995 Volume Rate Total Volume Rate Total
-------- -------- -------- ------ -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON
EARNING ASSETS:
LOANS:
Commercial $2,959 $2,493 $2,182 $438 $28 $466 $265 $46 $311
Real Estate 3,153 2,681 2,466 469 3 472 145 70 215
Consumer 678 525 517 178 (25) 153 (12) 20 8
----- ----- ----- ----- ---- ----- ---- ---- ----
Total Loans 6,790 5,699 5,165 1,085 6 1,091 398 136 534
----- ----- ----- ----- ---- ----- ---- ---- ----
SECURITIES:
Taxable 146 567 667 (366) (55) (421) (213) 113 (100)
Tax Exempt 4 9 13 (4) (1) (5) (4) 0 (4)
Available for Sale 1,245 559 430 507 179 686 259 (130) 129
----- ----- ----- ----- ---- ----- ---- ---- ----
Total Securities 1,395 1,135 1,110 137 123 260 42 (17) 25
----- ----- ----- ----- ---- ----- ---- ---- ----
FEDERAL FUNDS SOLD AND
SECURITIES PURCHASED:
Under Agreement to
Resell 509 525 388 (29) 13 (16) 183 (46) 137
----- ----- ----- ----- ---- ----- ---- ---- ----
TOTAL INTEREST INCOME ON
EARNING ASSETS 8,694 7,359 6,663 1,193 142 1,335 623 73 696
----- ----- ----- ----- ---- ----- ---- ---- ----
INTEREST EXPENSE ON
INTEREST BEARING LIABILITIES:
Savings and Interest Bearing
Demand Deposits 1,334 1,286 1,366 43 5 48 0 (80) (80)
Time Deposits 2,271 1,694 1,320 536 41 577 296 78 374
----- ----- ----- ----- ---- ----- ---- ---- ----
TOTAL INTEREST EXPENSE ON
INTEREST BEARING LIABILITIES 3,605 2,980 2,686 579 46 625 296 (2) 294
----- ----- ----- ----- ---- ----- ---- ---- ----
NET INTEREST INCOME $5,089 $4,379 $3,977 $614 $96 $710 $327 $75 402
----- ----- ----- ----- ---- ----- ---- ---- ----
----- ----- ----- ----- ---- ----- ---- ---- ----
</TABLE>
14
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
LOAN PORTFOLIO
--------------
The loan portfolio of Logan County BancShares, Inc. continues to
represent the largest component of earning assets. Loan activity has
continued to increase due to the Bank's emphasis on lending; as shown on
Table IV, the Bank has contributed substantially to liquidity by structuring
the loan portfolio in such a manner as to have approximately 26.41% of the
total loans due within one year. Further, the company has 11.77% of the loan
portfolio in floating rates loans.
TABLE IV - REMAINING MATURITIES OF LOANS AT DECEMBER 31, 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
COMMERCIAL,
FINANCIAL AND REAL ESTATE
AGRICULTURAL MORTGAGES INSTALLMENTS TOTAL
------------- ----------- ------------ ----------
MATURITIES
----------
<S> <C> <C> <C> <C>
Due Within One Year $14,248 $5,467 $2,728 22,443
Due One to Five Years 11,619 16,580 5,098 33,297
Due After Five Years 9,776 18,810 667 29,253
----- ------ --- ------
Total Loans $35,643 $40,857 $8,493 $84,993
----- ------ --- ------
----- ------ --- ------
Due After One Year at Fixed Rate $15,632 $29,852 $5,765 $51,249
Due After One Year at Floating
Rate 5,763 5,538 0 11,301
----- ------ --- ------
Total Loans Due After
One Year $21,395 $35,390 $5,765 $62,550
----- ------ --- ------
----- ------ --- ------
</TABLE>
15
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
LOAN LOSSES AND CREDIT RISKS
The allowance for loan losses is established by charging expenses at an
amount which will maintain the allowance for loan losses at a level sufficient
to provide for potential loan losses. Loan losses are charged directly to the
allowance when they occur and recoveries are credited to the allowance. The
amount of the provision is based on past loan loss experience, management's
evaluation of the loan portfolio under current economic conditions, and such
other factors as in management's best judgement deserve current recognition in
estimating loan losses. Tables V. and VI. represent a summary of loan loss
experience for the years 1997, 1996, 1995, 1994 and 1993.
TABLE V. - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Amount of Loans Outstanding
at End of Period $84,321 $70,872 $63,685 $59,437 $52,485
------- ------- ------- ------- -------
Monthly Average
Amount of Loans $78,430 $65,894 $61,147 $57,205 $48,541
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Balance of Allowance for
Possible Loan Losses at
Beginning of Period $681 $662 $606 $516 $430
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Loans Charged Off:
Commercial $103 $3 $0 $72 $293
Real Estate 0 17 0 0 24
Consumer 13 5 8 111 24
------- ------- ------- ------- -------
Total Loans Charged Off 116 25 8 183 341
------- ------- ------- ------- -------
Recoveries of Loans Previously
Charged Off:
Commercial 0 0 0 0 43
Real Estate 0 1 0 0 0
Consumer 1 3 5 2 2
------- ------- ------- ------- -------
Total Recoveries 1 4 5 2 45
------- ------- ------- ------- -------
Net Loans Charged Off: 116 21 3 181 296
------- ------- ------- ------- -------
Additions to Allowance:
Charged to Expense 107 40 59 271 382
------- ------- ------- ------- -------
Balance at End of Period $673 $681 $662 $606 $516
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of Net Charge-Offs
During Period to
Average Loans 0.0015% 0.003% 0.005% 0.316% 0.610%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
16
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE VI. - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993
--------------------- --------------------- --------------------- --------------------- ---------------------
% 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
--------- -------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $422 1.03% $435 1.41% $423 1.51% $358 1.47% $324 1.33%
Real Estate 144 0.40% 141 0.41% 137 0.44% 140 0.46% 140 0.60%
Consumer 107 1.27% 105 1.58% 102 1.85% 108 1.93% 52 0.97%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total $673 0.79% $681 0.95% $662 1.03% $606 1.01% $516 0.97%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
17
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS
Non-performing assets consist of (a) loans not accruing interest any
longer due to doubts about future collectability, (b) loans more than ninety
days past due for the last principal or interest payment, and (c) other real
estate owned by the Bank taken originally as loan collateral. Table VII.
provides a five-year summary of the components involved in non-performing assets
as of year end.
Loans are determined to be nonaccruing when it has been determined that
the ability of the Bank to collect the unpaid balance of such loans is highly
unlikely due to the financial position of the borrower and general economic
conditions. The determination of such classification is made by bank management
on a case-by-case basis for problem loans. Generally, a review of each loan
ninety days or more past due is made monthly and such loans deemed uncollectable
become classified as nonaccrual.
Loans are determined to be ninety days delinquent when such a period of
time has elapsed since the last payment of principal or interest was made. At
such a time, consideration as to whether to classify the loan as nonaccruing is
made. However, until such classification is made, interest will continue to be
accrued.
Other real estate consists of real property that the Bank originally
took as collateral for loans but has since acquired title to when the borrowers
defaulted and the Bank bid on the property in question at public auction.
TABLE VII. - CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial Loans $35,643 $30,974 $27,977 $24,312 $24,288
Real Estate Loans 40,858 34,100 30,848 30,122 23,343
Consumer Loans 8,493 6,649 5,522 5,609 5,369
------ ------ ------ ------ ------
Subtotal 84,994 71,723 64,347 60,043 53,000
Less: Unearned Income 96 170 0 0 0
------ ------ ------ ------ ------
Subtotal 84,898 71,553 64,347 60,043 53,000
Less: Reserve for Loan
Losses 673 681 662 606 516
------ ------ ------ ------ ------
Net Loans $84,225 $70,872 $63,685 $59,437 $52,484
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Non-Performing Assets
Non-Accruing Loans $546 $687 $1,700 $1,620 $2,279
Loans Past Due 90 Days 1,031 739 1,614 491 331
Other Real Estate Owned 172 260 181 186 227
------ ------ ------ ------ ------
Total Non-Performing Assets $1,749 $1,686 $3,495 $2,297 $2,837
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
18
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
SECURITIES
The securities portfolio of Logan County BancShares, Inc. is the second
largest area of resource allocation. Investments provide liquidity and serve as
a hedge offsetting the increased sensitivity of deposits caused by deregulation.
In the past, the Bank had been developing a large portfolio of tax-exempt
securities with extended maturities. This portfolio was used to offset the tax
effects of a large spread between asset yield and funds cost. However, due to
the combined effects of inflation, deregulation, and the costs of funds, that
portfolio has bee depleted. The Company has been shifting the concentration of
the portfolio from tax exempt securities into more profitable, higher-yielding
assets
Securities include those classified as held to maturity and available
for sale. Tax exempt investments decreased by $65,000. in 1997 and 1996. As
noted above the decreases were primarily due to maturities in these types of
securities. The change in securities in 1997 was under 10% of the portfolio and
represented minor shifting between categories. In 1996, all categories of
investment securities increased by $4,943,000. representing a 30.04% increase
from 1995. The components of this increase were U.S. agencies increasing by
$7,189,000. and U.S. governments decreasing by $2,431,000. During 1995,
investment securities decreased by $4,210,000. or 20.38%, consisting of
decreases of U.S. Government Securities at $2,529,000., U.S. Agencies at
$1,626,000. and State and Municipal of $55,000.
Logan County BancShares, Inc. adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994. Accordingly, all debt securities, that Logan
County BancShares does not have the ability or management does not have the
positive intent to hold to maturity, are classified as "securities available for
sale" and are carried at market value.
TABLE VIII. - MATURITY DISTRIBUTION OF SECURITIES AT DECEMBER 31, 1996
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Over
Over Five
One One Year Years
Year Through Through Over
December 31, 1996 or Five Ten Ten Market
Dollars in thousands Less Years Years Years Total Value
--------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government:
Available for sale 0 0 0 0 0 0
Held for maturity 1,500 0 0 0 1,500 1,498
U.S. Federal Agency Security
Available for sale 2,700 8,991 4,250 0 15,941 15,958
Held to maturity 0 1,500 995 0 2,495 2,509
State and municipal obligations:
Available for sale 0 0 0 0 0 0
Held to maturity 0 0 0 0 0 0
Total securities:
Available for sale 2,700 8,991 4,250 0 15,941 15,958
Held to maturity 1,500 1,500 995 0 3,995 4,007
----- ----- ----- ---- ------ ------
Total 4,200 10,491 5,245 0 19,936 19,965
Percent of total 21.07% 84.53% 1.16% 0.00% 100.00% 93.77%
Weighted average yield** 4.02% 6.95% 7.14% 0.00% 6.23% 6.23%
</TABLE>
** The weighted average yields are based on carrying value and
effective yields are weighted for the scheduled maturity of each security.
19
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
OTHER INCOME
Service fee income increased in 1997 to $1,224,000., up by $276,000.
over 1996 and up $250,000. in 1995 to $948,000., this growth was 29.11% and
38.82% respectively. This growth reflects increased emphasis by the bank on
overall fee income. The other fees decreased by $18,000. due to
reclassification of commission on check charge fees in DDA accounts to
miscellaneous income. Security gains are directly related to the volume of
security sales.
TABLE IX - OTHER INCOME
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------------------
1997 Over 1996 1996 Over 1995
--------------- ----------------
1997 1996 1995 Amount Percent Amount Percent
------ ------ ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Service Fee $1,224 $ 948 $698 $276 29.11% $250 38.82%
Other Fees 34 52 32 (18) -34.62% 20 62.50%
Securities:
Gain (Loss) 5 0 1 5 100.00% (1) -100.00%
------ ------ ---- ------ ------- ------ -------
Total Other
Income $1,263 $1,000 $731 $263 26.30% $269 36.80%
------ ------ ---- ------ ------- ------ -------
------ ------ ---- ------ ------- ------ -------
</TABLE>
20
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
OTHER EXPENSES
Other expenses increased by $328,000. to $3,965,000. in 1997. This
increase was generally due to activity in all areas of the subsidiary bank.
Salaries and benefits increased $152,000. or 9.81% due to normal salary
adjustments while other operating expenses increased by $129,000. or 25.35% due
to the growth trend of the Company and increased activities.
In 1997 and 1996 taxes remained stable showing small changes of 1,000.
in 1997 and 2,000. in 1995. Depreciation expense increased from 1996 to 1995.
This increase is attributable to the opening of two branch facilities at Man and
Harts, West Virginia.
Repairs and maintenance, directors' fees, equipment rental, data
processing and Bank stationery expenses vary from year to year based on the
Company's demand. These types of expenses are not directly related to the income
function and, therefore, increase or decrease sporadically.
FDIC and Fidelity insurance showed a small increase in 1997 after
decreasing $86,000. in 1996 due to reevaluation of liability by the FDIC and
lower rates attributable to such reevaluation.
TABLE X. - OTHER EXPENSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
----------------------------------
1997 Over 1996 1996 Over 1995
---------------- ----------------
1997 1996 1995 AMOUNT PERCENT AMOUNT PERCENT
---- ---- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and
Benefits $1,701 $1,549 $1,381 $152 9.81% $168 12.16%
Taxes 70 71 69 (1) -0.14% 2 2.89%
Depreciation 153 144 117 9 6.25% 27 23.08%
Repairs and
Maintenance 176 120 98 56 46.67% 22 23.47%
Fees Paid to
Directors 66 98 102 (32) -32.65% (4) -3.92%
Equipment Rental 25 26 22 (1) -3.85% 4 18.18%
FDIC & Fidelity
Insurance 74 72 158 2 2.78% (86) -54.43%
Data Processing 287 266 241 21 7.89% 25 10.37%
Bank Stationery 103 110 81 (7) -6.36% 29 35.80%
Bank Operating
Expenses 638 509 471 129 25.35% 38 8.07%
------ ------ ------ ---- ----- ---- ----
Total $3,293 $2,965 $2,740 $328 11.06% $225 8.21%
------ ------ ------ ---- ----- ---- ----
------ ------ ------ ---- ----- ---- ----
</TABLE>
21
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
EARNINGS AND DIVIDENDS
As demonstrated in Table XI., Logan County BancShares, Inc. strives to
achieve a favorable dividend payout rate to the shareholders. In 1997,
records were set in terms of net income, total assets and dividends. The
growth in assets and utilization of them have produced a 22.80% increase in
net income and a 13.74% increase in equity for the year. In 1996, the
company continued the trend of growth in all areas presented. Net income
grew 27.03% along with dividends of 21.10%, assets increased 13.37% while
equity increased 9.85%. In 1994 the company showed growth in all areas with
an 30.82% growth in Net Income, 9.53% in total assets and a 6.33% increase
in Equity. In 1995 income increased $147,000. or 13.80%, therefore,
increasing equity 8.75% to $10,391,000. Assets grew 5.39%, primarily due to
the growth in net loans of $4,304,000. Dividends increased $.25 per share or
35.71%. Over the four years compared there appears to be a positive growth
trend.
TABLE XI. - THREE-YEAR SUMMARY OF EARNINGS AND DIVIDENDS
<TABLE>
<CAPTION>
Per Share Percent Change Over Prior Year
--------------------------- --------------------------------
Dividend Net Net Total
Payout Income Dividends Income Dividends Assets Equity
-------- ------ --------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 30.76% $2.28 $0.70 36.03% 6.87% 9.53% 6.33%
1995 36.66% $2.59 $0.95 13.60% 35.71% 5.39% 8.75%
1996 34.95% $3.29 $1.15 27.03% 21.10% 13.37% 9.85%
1997 39.60% $4.04 $1.60 22.80% 39.13% 13.47% 13.74%
</TABLE>
EARNING ASSETS
Table XII. represents analysis of average earning assets and interest
bearing liabilities for the years ended December 31, 1997, 1996 and 1995.
During 1997, the earning assets grew by $15,224,000. or 16.13% to
$109,583. which has been the trend over the last three years. Loans
make up 71.02% of these assets and increased by $11,928,000., while
securities increased by $3,833,000. In 1996, the earning assets grew by
$7,740,000. or 8.94% to $94,359,000., the loan portfolio comprized
69.83% of earning assets and increased by $4,748,000. or 7.76% in the
year. During 1995, the total earning assets grew by $3,623,000. or
4.37% to $86,619,000., this growth was funded by growth in deposits,
along with a move of funds from investments. In 1995, these assets grew
$3,942,000. or 6.89%, and in all years, the primary item of growth was
the loan portfolio.
INTEREST BEARING LIABILITIES
Interest bearing liabilities include interest bearing demand deposits,
savings accounts, time deposits and borrowed funds. These are the prime
sources of funds for Logan County BancShares, Inc. to support earning
assets. Total average interest bearing liabilities increased $11,380,000. or
14.59% in 1997, $5,670,000. or 7.84% in 1996 and 5.46% or 3,745,000. in
1995. In all years the Company has maintained a stable net interest margin
while experiencing growth in the underlying deposits. These factions have
lead to positive increases in amounts of net interest margins. The company
has been able to match earning yields with costs of funds over the past
three years to maintain a stable net interest margin.
22
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE XII. - ANALYSIS OF EARNING ASSETS A AND INTEREST BEARING LIABILITIES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996 Year Ended December 31, 1995
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
EARNING ASSETS:
LOANS:
Commercial $33,292 $2,959 8.89% $28,476 $2,493 8.75% $25,389 $2,182 8.59%
Real Estate 37,305 3,153 8.45% 31,897 2,681 8.41% 30,108 2,466 8.19%
Consumer 7,225 678 9.38% 5,521 525 9.51% 5,650 517 9.15%
--------- ------- ------- --------- ------- ------- --------- ------- -------
Total Loans 77,822 6,790 8.67% 65,894 5,699 8.65% 61,147 5,165 8.45%
--------- ------- ------- --------- ------- ------- --------- ------- -------
INVESTMENT SECURITIES:
Taxable 2,949 146 4.95% 8,337 567 6.80% 12,244 667 5.45%
Tax Exempt * 59 4 6.78% 95 12 12.63% 175 20 11.43%
Available for Sale 19,463 1245 6.39% 10,206 559 5.48% 6,360 430 6.76%
--------- ------- ------- --------- ------- ------- --------- ------- -------
Total Securities 22,471 1,395 6.21% 18,638 1,138 6.11% 18,779 1,117 5.95%
--------- ------- ------- --------- ------- ------- --------- ------- -------
FEDERAL FUNDS SOLD 9,290 509 5.48% 9,827 525 5.34% 6,693 389 5.81%
--------- ------- ------- --------- ------- ------- --------- ------- -------
TOTAL EARNING ASSETS $109,583 $8,694 7.89% $94,359 $7,362 7.80% $86,619 $6,671 7.70%
------- -------- ------- -------- ------- ------
------- -------- ------- -------- ------- ------
NON-EARNING ASSETS:
Cash and Due from Banks 3,677 3,546 2,989
Bank Premises 2,133 1,942 1,364
Other Assets 1,565 1,128 1,108
--------- --------- ---------
TOTAL NON-EARNING ASSETS $7,375 $6,616 $5,461
--------- --------- ---------
TOTAL ASSETS $116,958 $100,975 $92,080
--------- --------- ---------
--------- --------- ---------
</TABLE>
* Shown at tax equivalent amount given statutory tax rate @ 34%
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE XII.--ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
(CONTINUED)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996 Year Ended December 31, 1995
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST BEARING LIABILITIES:
Savings Deposits and
Interest Bearing:
DDA $ 48,523 $ 1,334 2.75% $ 46,952 $ 1,286 2.74% $46,936 $ 1,366 2.91%
Time Deposits 40,815 2,271 5.56% 31,006 1,694 5.46% 25,352 1,320 5.21%
------- ----- ---- ------- ----- ---- ------ ----- ----
Total Interest Bearing
Liabilities 89,338 $ 3,605 4.03% 77,958 $ 2,980 3.82% 72,288 $ 2,686 3.72%
------- ----- ---- ------- ----- ---- ------ ----- ----
------- ----- ---- ------- ----- ---- ------ ----- ----
NON-INTEREST BEARING
LIABILITIES AND CAPITAL
Demand Deposits 14,067 11,037 9,036
Accrued Expenses 1,074 995 636
Capital 12,479 10,985 10,120
------- ------- ------
Total Non-Interest
Bearing Liabilities and
Capital 27,620 23,017 19,792
------- ------- ------
Total Liabilities and
Stockholders' Equity $116,958 $100,975 $92,080
------- ------- ------
------- ------- ------
NET INTEREST MARGIN $109,583 $ 5,089 4.60% $ 94,359 $ 4,382 4.64% $86,619 $ 3,985 4.60%
------- ----- ---- ------- ----- ---- ------ ----- ----
------ ----- ---- ------- ----- ---- ------ ----- ----
</TABLE>
24
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE XIII. - ASSET AND LIABILITY MATURITY RATE SENSITIVITY
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Total Over
0 - 90 91-180 181-365 One Year One Year Total
------ ------ ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans 17,477 $ 1,683 $ 3,281 $ 22,441 $ 62,457 $ 84,898
Investments 4,200 0 0 4,200 15,753 19,953
Fed. Funds Sold 8,910 0 0 8,910 0 8,910
-------- -------- -------- -------- -------- --------
Total Earning
Assets 30,587 1,683 3,281 35,551 78,210 113,761
-------- -------- -------- -------- -------- --------
Interest Bearing
Liabilities:
Demand Deposits 17,662 0 0 17,662 0 17,662
Savings 11,715 9,787 7,785 29,287 0 29,287
CD's-$100,000
and Over 1,507 2,580 5,457 9,544 3,994 13,538
Other Time 6,192 9,567 11,572 27,331 6,742 34,073
-------- -------- -------- -------- -------- --------
Total Interest
Bearing Liability 37,076 21,934 24,814 83,824 10,736 94,560
-------- -------- -------- -------- -------- --------
Interest
Sensitivity Gap $ 6,489) ($20,251) ($21,533) ($48,273) $ 67,474 $ 19,201
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Cumulative Gap ($ 6,489) ($26,740) ($48,273) ($43,273) $ 19,201 $ 19,201
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Rate Sensitive
Assets/Rate
Sensitive
Liabilities
(Cumulative
Percentage) 82.50% 54.68% 42.41% 42.41% 120.31% 120.31%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
25
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
ASSET AND LIABILITY MATURITY RATE SENSITIVITY
---------------------------------------------
Asset and liability management is responsible for the planning,
implementation, and control process for determining asset mix and maturity
features relative to liability maturities in such a way that net interest margin
will be maximized. A major tool for such a process is gap management of the
Bank's interest sensitive assets to interest sensitive liabilities.
The negative gap position as presented in the following table for
maturities of one year or less is offset by the substantial positive gap
position for maturities greater than one year. The earnings of Logan County
BancShares, Inc. are sufficient to withstand the short term negative gap
position. Should a large fluctuation occur, increasing the cost of funds,
management would consider increasing service charges and non-interest fees which
management determines the market would bear in order to negate increased rate
costs. An additional response, at the option of management, would be liquidation
of certain long-term investments, and conversion of those funds into short-term
securities.
Bank management recognized the concentration of large certificates of
deposit. The Bank's policy of asset-liability management matches both rates and
maturities so the Bank will not have a liquidity problem or allow income to be
affected by a change in rates.
All demand and savings deposits are considered highly volatile, although
experience has shown these accounts to be stable regardless of economic cycles.
Interest on savings and other transactional accounts have generally remained
constant over periods of interest rate changes. Therefore, deposits and savings
are classified as "over one year" to represent a more realistic rate sensitive
gap.
26
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis
of Financial Position and Results of Operations
TABLE XIV. - AVERAGE BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and Due from Banks $ 3,677 $ 3,546 $ 2,989 $ 3,166 $ 2,608
Investment Securities:
Available for Sale 16,689 10,206 6,360 5,011 0
Held to Maturity 5,782 8,432 12,419 14,838 20,803
---------- ---------- ---------- ---------- ----------
Total Investments 22,471 18,638 18,779 19,849 20,803
---------- ---------- ---------- ---------- ----------
Federal Funds Sold. 9,290 9,827 6,693 5,942 8,072
Loans
Real Estates 37,449 31,897 30,108 27,351 19,899
Installment 7,402 5,606 5,650 5,579 5,379
Commercial & Other. 33,714 29,144 26,020 24,837 23,775
---------- ---------- ---------- ---------- ----------
78,565 66,647 61,778 57,767 49,053
Less: Unearned Discount 129 85 0 0 0
---------- ---------- ---------- ---------- ----------
78,436 66,562 61,778 57,767 49,053
Allowance For Loan Losses 614 (668) (631) (562) (512)
---------- ---------- ---------- ---------- ----------
Net Loans 77,822 65,894 61,147 57,205 48,541
---------- ---------- ---------- ---------- ----------
Banking Premises 2,133 1,942 1,364 1,412 1,494
Accrued Interest and
Other Assets 1,565 1,128 1,108 920 1,229
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $ 116,958 $ 100,975 $ 92,080 $ 88,494 $ 82,747
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand Deposits $ 31,007 $ 27,940 $ 26,287 $ 25,402 $ 23,812
Savings Deposits 31,582 30,049 29,685 35,401 31,888
Time Deposits 40,816 31,006 25,352 17,556 17,241
---------- ---------- ---------- ---------- ----------
Total Deposits 103,405 88,995 81,324 78,359 72,941
Other Liabilities 1,074 995 636 775 960
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 104,479 89,990 81,960 79,134 73,901
STOCKHOLDERS' EQUITY 12,479 10,985 10,120 9,360 8,846
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 116,958 $ 100,975 $ 92,080 $ 88,494 $ 82,747
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
27
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Report on Financial Statements....................... 29
Report of Independent Certified Public Accountants................ 30
Financial Statements:
Logan County BancShares, Inc. and Subsidiaries:
Consolidated Statement of Condition as of
December 31, 1997 and 1996........................... 31 - 32
Consolidated Statement of Income as of December
31, 1997, 1996 and 1995.............................. 33 - 34
Consolidated Statement of Changes in Stock-
holders' Equity for the Years Ended
December 31, 1997, 1996 and 1995................. 35
Consolidated Statement of Cash Flows for the
Years Ended December 31, 1997, 1996,
and 1995......................................... 36 - 37
Notes to Consolidated Financial Statements................ 38 - 51
</TABLE>
28
<PAGE>
[Letterhead]
To Our Stockholders, Customers and Friends:
We are pleased to present the 1997 Annual Report of Logan County
BancShares, Inc. and its subsidiary, Logan Bank & Trust Company. The year
1997 continued our growth trend of the 90's and set new records in total
assets, earnings and dividends. Total assets grew by $14,470,494., an 13.48%
increase, to $121,850,039. during 1997. Our four offices were able to
increase loans by $13,270,884., a substantial commitment to the communities
that they serve. Record earnings of $1,894,123., or $4.04 per share, enabled
the Board of Directors to return to our stockholders dividends of $754,724
for the year and continue an excellent capital position of $12,982,988., or
11.10% of average assets. The return on average assets of 1.62% and return on
equity of 15.5% set new standards in terms of overall performance.
Continuing our direction of focusing on community needs, our subsidiary,
Logan Bank & Trust Company, has upgraded and improved the products and
services in each of its offices. The management and staff of each office seek
to offer their communities customized services which make a difference in the
economics health and prosperity of its citizens. Our Directors and management
team believe the basis of our past, current and future success to be the
growth and development of our market area. Our four conveniently located
offices, extended operation hours and new Telebank services allow us to offer
the region greater access to financial services. As a service oriented
organization, we will continue to focus on the needs of our customers and we
are confident this approach will be as rewarding in the future as it has been
in the past. With involved business leaders as directors, a strong innovative
management team and efficient dedicated staff, we look to 1998 to offer
opportunities for all of us.
We are thankful for the support of our customers, staff and community and
look forward to the coming year. Logan County BancShares, Inc. and its
subsidiary, Logan Bank & Trust Company, stand ready to service the financial
needs of Southern West Virginia.
Respectfully,
/s/ Harvey Oakley /s/ Eddie Canterbury
Harvey Oakley Eddie Canterbury
Chairman Executive Vice President/CEO
29
<PAGE>
[LOGO] McNEAL, WILLIAMSON & CO.
Certified Public Accountants
Donald M. McNeal, CPA Daniel L. Williamson, CPA
Post Office Box 1839 525 Tiller St., Cherry Tree 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 County BancShares, Inc. and Subsidiary
We have audited the accompanying consolidated statements of condition of
Logan County BancShares, Inc., and Subsidiary as of December 31, 1997, and
1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Logan County
BancShares, Inc. and Subsidiary as of December 31, 1997, and 1996, and the
consolidated results of its operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ McNEAL, WILLIAMSON & CO.
Logan, West Virginia
February 27, 1998
30
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Condition
December 31, 1997 and 1996
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
CASH AND DUE FROM BANKS $5,267,333 $4,434,697
-------------- -------------
INVESTMENT SECURITIES:
Available for sale 15,957,955 14,326,484
Held to maturity 3,994,584 7,068,905
-------------- -------------
Total Investment Securities 19,952,539 21,395,389
-------------- -------------
FEDERAL FUNDS SOLD 8,910,000 7,275,000
LOANS:
Mortgage Loans 40,857,352 34,100,157
Installment Loans 8,493,116 6,648,703
Commercial and Other Loans 35,643,093 30,973,817
-------------- -------------
Total Loans 84,993,561 71,722,677
Less: Unearned Interest 95,849 169,566
Reserve-Loan Losses 672,563 681,375
-------------- -------------
Net Loans 84,225,149 70,871,736
-------------- -------------
BANK PREMISES AND EQUIPMENT 2,125,350 2,120,424
INTEREST RECEIVABLE 828,979 658,079
OTHER ASSETS 540,689 624,220
-------------- -------------
$121,850,039 $107,379,545
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
31
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Condition
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
DEPOSITS:
Non-Interest Bearing $13,546,696 $10,464,668
Interest Bearing 17,661,719 17,564,923
Savings Deposits 29,287,477 30,560,306
Time Certificates 47,610,875 36,642,682
------------- ------------
Total Deposits 108,106,767 95,232,579
ACCRUED AND OTHER LIABILITIES 723,042 688,753
FEDERAL INCOME TAXES PAYABLE:
Current (17,563) 39,209
Deferred 54,805 4,068
------------- -------------
TOTAL LIABILITIE 108,867,051 95,964,609
------------- -------------
STOCKHOLDERS' EQUITY:
Common Stock-$2.50 par value;
Authorized - 520,000 share,
Outstanding-478,000 shares
in 1997 and 467,612 shares
in 1996 1,300,000 1,274,030
Surplus 2,408,426 2,070,816
Retained Earnings 10,125,449 8,986,050
Net unrealized amortization
on securities available for
sale 9,311 (55,762)
Treasury Stock (860,198) (860,198)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 12,982,988 11,414,936
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $121,850,039 $107,379,545
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
32
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statements of Income
For the Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, Including Fees $6,789,421 $5,699,356 $5,165,171
Investment Securities:
Available for Sale 1,047,951 558,591 429,597
Held to Maturity 347,762 576,290 680,361
Federsl Funds Sold 508,539 524,878 388,552
----------- ----------- -----------
Total Interest Income 8,693,673 7,359,115 6,663,681
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 3,605,404 2,979,998 2,686,408
Other Borrowings 0 7,764 0
----------- ----------- -----------
Total Interest Expense 3,605,404 2,987,762 2,686,408
----------- ----------- -----------
NET INTEREST INCOME 5,088,269 4,371,353 3,977,273
PROVISION FOR LOAN LOSSES 107,000 40,000 59,363
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,981,269 4,331,353 3,917,910
----------- ----------- -----------
OTHER INCOME:
Service Fees 1,224,231 948,377 697,964
Other 33,697 52,247 31,506
Securities Gains (Losses) 5,457 (176) 1,618
----------- ----------- -----------
1,263,385 1,000,448 731,088
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Income
For The Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OTHER EXPENSES:
Salaries and Benefits $1,701,231 $1,548,685 $1,381,498
Taxes Other Than Payroll & Income 70,208 70,939 68,742
Depreciation 152,804 144,671 117,273
Repairs and Maintenance 176,049 120,439 97,714
Fees Paid to Directors 66,275 97,425 101,675
Equipment Rental 25,217 25,664 21,795
FDIC & Fidelity Insurance 74,187 72,207 158,065
Data Processing 286,349 265,726 241,237
Bank Stationery and Printing 102,914 110,207 81,359
Professional Fees 76,059 73,389 67,883
Other Operating Expenses 562,027 435,803 403,067
----------- ----------- -----------
3,293,320 2,965,155 2,740,308
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,951,334 2,366,646 1,908,690
INCOME TAXES:
Current 1,030,248 848,554 668,121
Deferred 26,963 (19,977) 28,718
----------- ----------- -----------
NET INCOME $1,894,123 $1,538,069 $1,211,851
----------- ----------- -----------
----------- ----------- -----------
PER SHARE OF COMMON STOCK:
NET INCOME $4.04 $3.29 $2.59
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
34
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
For The Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
ON AVAILABLE
COMMON RETAINED TREASURY FOR SALE
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
------ ------- -------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1994 $1,274,030 $2,070,816 $7,218,115 ($860,198) ($147,768) $9,554,995
Dividends on 467,612 shares
Common Stock @ $.95 (444,232) (444,232)
Net Income - 1995 1,211,851 1,211,851
Net Change in Unrealized
Appreciation Securities
Available for Sale 68,606 68,606
----------- ----------- ------------ ----------- ------------ -------------
Balance-December 31, 1995 $1,274,030 $2,070,816 $7,985,734 ($860,198) ($79,162) $10,391,220
Dividends on 467,612 shares
Common Stock @ $1.15 (537,753) (537,753)
Net Income - 1996 1,538,069 1,538,069
Net Change in Unrealized
Appreciation Securities
Available for Sale 23,400 23,400
----------- ----------- ------------ ----------- ------------ -------------
Balance-December 31, 1996 $1,274,030 $2,070,816 $8,986,050 ($860,198) ($55,762) $11,414,936
Issuance of 10,388 Shares
of Common Stock 25,970 337,610 363,580
Dividends on 467,612 shares
Common Stock @ $1.60 (754,724) (754,724)
Net Income - 1997 1,894,123 1,894,123
Net Change in Unrealized
Appreciation Securities
Available for Sale 65,073 65,073
----------- ----------- ------------ ----------- ------------ -------------
Balance-December 31, 1997 $1,300,000 $2,408,426 $10,125,449 ($860,198) $9,311 $12,982,988
----------- ----------- ------------ ----------- ------------ -------------
----------- ----------- ------------ ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Change in Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ---- ----
<S> <C> <C> <C>
Net Income $1,894,123 $1,538,069 $1,211,851
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization 157,804 144,671 117,273
Provision For Loan Losses 107,000 40,000 59,363
Provision For Deferred Taxes 26,963 (19,977) 28,718
(Gain) Loss on Sale of Securities (5,457) 176 (1,618)
Premium Amortization and
Accretion on Investment
Securities (2,529) 12,485 28,499
Increases (Decreases) in
Income Taxes Payable (56,772) 24,750 (132,589)
(Increases) Decreases in
Interest Receivable and
Other Assets (107,229) (248,380) 60,698
Increases (Decreases) in
Interest Payable & Other Liab 34,288 94,463 136,042
Market Value Adjustment
Amortization 4,028 4,028 4,028
------------- ------------- -------------
Net Cash Provided by
Operating Activities 2,052,219 1,590,285 1,512,265
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Investment Sec:
Available for Sale 5,494,543 1,500,000 1,500,000
Held to Maturity 500,000 500000 0
Proceeds from Maturities of Inv. Sec:
Available for Sale 500,000 1,000,000 3,305,000
Held to Maturity 2,565,000 3,810,000 (503,125)
Purchase of Investment Securities:
Available for Sale (7,500,000) (10,233,781) 0
Held to Maturity 0 (1,491,328) 0
Net (Increases) Decreases
Federal Funds Sold (1,635,000) 195,000 (4,150,000)
Net (Increases) Decreases
Commercial Loans (4,785,088) (3,017,344) (3,668,364)
Net (Increases) Decreases
Real Estate Loans (6,757,195) (3,251,649) (726,547)
Net (Increases) Decreases
Installment Loans (1,918,130) (957,386) 87,087
Purchase of Bank Premises
and Equipment (166,758) (548,693) (470,764)
------------- ------------- -------------
Net Cash Used by
Investing Activities (13,702,628) (12,495,181) (4,626,713)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
36
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Changes in Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increases (Decreases) in
Demand Deposits $3,178,825 $784,399 $1,111,134
Net Increases (Decreases) in
Savings Deposits (1,272,829) 2,111,565 (5,014,305)
Net Increases (Decreases) in
Time Deposits 10,968,193 8,619,996 7,910,782
Proceeds from Issuance of Common
Stock 363,580 0 0
Dividends Paid (754,724) (537,753) (444,232)
--------------- --------------- ---------------
Net Cash Provided by Financing
Activities $12,483,045 $10,978,207 $3,563,379
--------------- --------------- ---------------
Net Increase (Decrease) in Cash
and Cash Equivalents 832,636 73,411 448,931
Cash and Cash Equivalents at
Beginning of Year 4,434,697 4,361,286 3,912,355
--------------- --------------- ---------------
Cash and Cash Equivalents at
End of Year $5,267,333 $4,434,697 $4,361,286
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental Disclosures of Cash
Flow Information Cash Paid for:
Interest $3,542,170 $2,951,541 $2,648,334
Income Taxes $1,105,303 $817,985 $691,982
</TABLE>
The accompanying notes are an integral part of these
financial statements.
37
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies:
A. Basis of Consolidation:
The Consolidated Financial Statements of Logan County BancShares,
Inc. and its subsidiaries include the accounts of Logan County
BancShares, Inc. a bank holding company and its wholly owned
subsidiaries, Logan Bank & Trust Company and Bank of Chapmanville. As
further discussed in Note 13, the Company's subsidiaries were merged
into Logan Bank & Trust Company on May 28, 1996. The merger was
accounted for under the pooling of Interest Method of accounting and
no restatement was necessary. All material intercompany balances and
transactions have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform with 1997 presentations.
B. Nature of Operations:
The Banks operate under State bank charters, and provide full
banking services, including trust services. As state banks, the Banks
are subject to regulation by the West Virginia State Banking Commission
and the Federal Deposit Insurance Corporation. The Company is also
subject to regulation by the Federal Reserve Bank.
C. Estimates in the Financial Statements:
The presentation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
D. Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and amounts due from banks.
E. Investment Securities:
Effective with the issuance of SFASB 115, (Accounting For Certain
Investments in Debt and Equity Securities), the Banks' Investment
securities are classified in two categories and accounted for as follows:
Securities to be Held to Maturity: Bonds, notes and debentures for
which the banks have the positive intent and ability to hold to maturity
are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income, suing
the Constant Yield Method, over the period to maturity.
Securities Available for Sale: Securities available for sale
consist of bonds, notes, debentures, and certain equity securities not
classified as securities held to maturity. These securities are carried
at their fair value. Unrealized gains and (losses), net of tax, are
reported as a net amount in a separate component of Shareholders' Equity
until realized. Gains and losses on sale of securities available for
sale are determined using the Specific-Indentification Method.
38
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies (Continued):
F. Loans:
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. Interest income on
loans is recognized on the accrual basis except for those loans in a
nonaccrual income status. The accrual of interest on impaired loans is
discontinued when management believes, after consideration of economic
and business conditions and collection efforts, that the borrowers'
financial condition is such that collection of interest is doubtful.
When interest accrual is discontinued, interest income is subsequently
recognized only to the extent cash payments are received.
The reserve for loan losses is established through a provision for
loan losses charged to expense. The reserve is an amount that management
believes will be adequate to absorb losses on existing loans that may
become uncollectible based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrowers' ability to pay. Loans
are charged against the allowance for loan losses when management
believes that the collection of the principal is unlikely.
The allowance for loan losses on impaired loans is determined using
the present value of estimated future cash flows of the loan, discounted
at the loan's effective interest rate or the fair value of the
underlying collateral. A loan is considered to be impaired when it is
probable that all principal and interest amounts will not be collected
according to the loan contract. The entire change in present value of
expected cash flows is reported as provision for loan losses in the same
manner in which impairment initially was recognized or as a reduction in
the amount of provision for loan losses that otherwise would be reported.
Certain loan origination fees and direct origination costs are
capitalized and recognized as an adjustment of the yield on the related
loan.
G. Bank Premises and Equipment:
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful lives
of the assets as follows:
<TABLE>
<CAPTION>
Methods Range of Lives
------- --------------
<S> <C> <C>
Banking House S/L, ACRS 10 - 40 years
Furniture, Fixtures and
Equipment S/L, DDB,ACRS 3 - 20 years
</TABLE>
39
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies (Continued):
H. Real Estate Acquired Through Foreclosure:
Real estate acquired through foreclosure is carried at the lower of
the recorded investment in the property or its fair value. The value of
the underlying loan is written down to the fair value of the real estate
to be acquired by a charge to the allowance for loan losses, if
necessary. Any subsequent write-downs are charged to operating expenses.
I. Income Taxes:
The Company and its subsidiaries file a consolidated federal income
tax return. The Subsidiarys are charged or credited an amount equal to
the income tax that would have been applicable on a separate return
basis.
The Company uses the liability method for computing deferred income
taxes. Under the liability method, deferred income taxes are based on
the change during the year in the deferred tax liability or asset
established for the expected future tax consequences of differences in
the financial reporting and tax bases of assets and liabilities. The
differences relate principally to premises and equipment, unrealized
gains and losses on investment securities available for sale, and the
allowance for loan losses.
J. Per Share Information:
Primary earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding and
the number of shares of common stock which would be assumed outstanding
under the treasury-stock method.
K. Impact of New Accounting Standards:
The Financial Accounting Standards Board has issued several new
accounting pronouncements with provisions becoming effective in 1997 and
1998. These pronouncements include SFAS No. 125, "Accounting for
Transfers of Assets and Servicing of Financial Assets and
Extinguishments of Liabilities"; SFAS No. 129, "Disclosures of
Information about Capital Structures"; SFAS No. 130, "Reporting
Comprehensive Income"; and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". Certain provisions of SFAS No.
125 were applicable in 1997 and their adoption has no significant
impact. The Company is in the process of fully evaluating all the new
pronouncements and expects to adopt them in 1998 in accordance with the
requirements. Such adoption is not expected to have a significant impact
on the financial position of the Company or the results of its
operations.
40
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31, 1997, 1996 and 1995
2. Investment Securities:
The carrying amounts of investment in securities as shown in the
consolidated balance sheets of the bank and their approximate full
values at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
VALUES FOR THE YEAR
ENDED DECEMBER 31, 1997:
Securities Available for Sale
Federal Agency Securities $15,691,620 $62,343 $46,008 $15,707,955
Equity Securities 250,000 0 0 250,000
------------- ------------- ------------- -------------
$15,941,620 $62,343 $46,008 $15,957,955
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Securities to be Held to Maturity
Federal Agency Securities 2,494,352 33,143 0 2,527,495
U.S. Treasury Securities 12,500,232 0 1,867 1,498,365
State and Municipal
Securities 0 0 0 0
------------- ------------- ------------- -------------
$3,994,584 $33,143 $1,867 $4,025,860
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
ENDED DECEMBER 31, 1996:
Securities Available for Sale
Federal Agency Securities $14,174,312 $50,659 $148,487 $14,076,484
Equity Securities 250,000 0 0 250,000
------------- ------------- ------------- -------------
$14,424,312 $50,659 $148,487 $14,326,484
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Securities to be Held to
Maturity
Federal Agency Securities 2,992,590 34,990 3,125 3,024,455
U.S. Treasury Securities 4,011,315 0 22,875 3,988,440
State and Municipal
Securities 65,000 1,133 0 66,133
------------- ------------- ------------- -------------
$7,068,905 $36,123 $26,000 $7,079,028
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
41
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated
Financial Statements
December 31, 1997, 1996 and 1995
2. Investment Securities: (continued)
The par value of securities pledged to secure public deposits and
for other purposes amounted to $6,638,406 in 1997 and $5,996,628 in 1996.
The amortized cost and estimated market value of investment in debt
securities at December 31, 1997, by contractural maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call as prepayment penalties.
<TABLE>
<CAPTION>
Securities to be Held Securities Available
to Maturity For Sale
------------------------ ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $1,500,232 $1,498,365 $2,700,000 $2,665,390
Due from one year to five years. 2,494,352 2,527,495 8,991,620 9,026,470
Due from five years to ten years 0 0 4,250,000 4,266,095
Due after ten years 0 0 0 0
---------- ---------- ----------- -----------
$3,994,584 $4,025,860 $15,941,620 $15,957,955
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
3. Restriction on Cash and Due from Banks and Contingent Liabilities:
The Bank is required to maintain average balances with the Federal
Reserve Bank. The average required reserve balances were $655,000. and
375,000. for 1997 and 1996 respectively. The Bank has various claims and
suits pending at December 31, 1997 arising in the ordinary course of its
business. It is the opinion of management and legal counsel that such
litigation will not materially affect the Bank's financial position or
earnings.
42
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
4. Loans:
Major classifications of loans at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Mortgage Loans $40,857,352 $34,100,157
Installment Loans 8,493,116 6,648,703
Commercial and Other Loans 35,643,093 30,973,817
------------- -------------
84,993,561 71,722,677
Less: Unearned Interest 95,849 169,566
Reserve for Loan Loss 672,563 681,375
------------- -------------
$84,225,149 $70,871,736
------------- -------------
------------- -------------
</TABLE>
Loans on which accrual of interest has been discontinued or reduced
amounted to $546,442. and $686,517. at December 31, 1997 and 1996
respectively. Had the above loans not been placed on a non-accrual
status, income for the Company would have increased approximately
$34,488., and $56,537. for the two years.
The Company's recorded investment in impaired loans was
approximately $843,471. at December 31, 1997 and $838,000. at December
31, 1996. Of that amount in 1996, $548,000. represents loans for which
an allowance for loan losses, amounting to $360,490., has been
established under SFAS 114. The average recorded investment in impaired
loans was approximately $840,736. for 1997 and $887,000. for the year
ended, December 31, 1996. Interest income recognized on impaired loans
was approximately $39,566. for the year ended December 31, 1997.
Reserve for Loan Losses:
Transactions in the reserve for loan losses for the years were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Balance at Beginning of Year $681,375 $661,647 $605,829
Provision Charged to
Operating Expenses 107,000 40,000 59,363
Recoveries credited to
Reserve 1,138 4,662 4,884
Losses Charged to Reserve (116,950) (24,934) (8,429)
----------- ---------- ----------
Balance at End of Year $672,563 $681,375 $661,647
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The balance of the reserve for loan losses for income tax purposes
was $281,723. at December 31, 1997 and 1996.
43
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
5. Bank Premises and Equipment:
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land $ 404,847 $ 404,847 $ 370,972
Banking House 2,445,752 2,420,262 2,068,335
Furniture, Fixtures and
Equipment 1,568,611 1,454,091 1,288,494
---------- ---------- ----------
4,419,210 4,279,200 3,727,801
Less: Accumulated
Depreciation 2,293,860 2,158,776 2,011,399
---------- ---------- ----------
Bank Premises and Equipment $2,125,350 $2,120,424 $1,716,402
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Depreciation expense amounted to $157,804., $144,671., and
$117,273. in 1997, 1996 and 1995 respectively. Expenditures for
maintenance and repairs are charged against operations as incurred.
6. Operating Lease Commitments:
The Company has entered into lease agreements for certain premises
at two of its facility locations. Future minimum lease payments under
the leases during the five years subsequent to December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1998 $11,400
1999 $11,400
2000 $11,400
2001 $11,400
2002 $11,400
</TABLE>
44
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
7. Federal Income Taxes:
The provisions for Federal income taxes for the years ended
December 31, 1997, 1996, and 1995 were less than the respective amounts
that would result from applying the statutory Federal and state income
tax rates, due primarily to the Banks' investment income and expense
accruals.
A reconciliation of the difference between the U. S. statutory
income tax rate and the effective tax rates with resulting dollar
amounts are shown in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
--------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax Expense at
Statutory Rate $975,261 34.00% $783,743 34.00% $630,651 34.00%
State income tax
net of tax benefits 82,920 2.89% 61,520 2.67% 53,834 2.90%
--------- ------- ------- ------- ------- -------
1,058,181 36.89% 845,263 36.67% 684,485 36.90%
Tax Exempt Interest (7,430) -0.26% (3,003) -0.13% (4,706) -0.25%
Security Transactions 413 0.00% (2,598) -0.11% (763) -0.04%
Loan Loss Provision (2,996) -0.01% 6,708 0.29% 18,700 1.01%
Pension Accruals (11,918) -0.42% 3,680 0.16% (20,454) -1.10%
Other (6,002) -0.21% (1,496) -0.06% (9,141) -0.49%
Deferred Income Tax 26,963 0.94% (19,977) -0.87% 28,718 1.54%
--------- ------- ------- ------- ------- -------
$1,057,211 36.93% $828,577 35.95% $696,839 37.57%
--------- ------- ------- ------- ------- -------
--------- ------- ------- ------- ------- -------
</TABLE>
The tax effect of significant temporary differences which comprise
non-current deferred tax assets and liabilities as of December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Assets:
Market Value Allowance $24,890 $42,066
Reserve for Loan Loss 132,885 135,958
Pension Cost 0 15,318
-------- --------
Gross Deferred Tax Asset 157,775 193,342
-------- --------
Liabilities:
Allowance for Investments 5,880 3,896
Property and Equipment 69,713 38,235
-------- --------
Net Deferred Tax Asset $82,182 $151,211
-------- --------
-------- --------
</TABLE>
45
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
8. Employee Benefit Plans:
During 1997 the Company terminated the qualified defined benefit
pension plan. The Company's subsidiary adopted a qualified profit
sharing and 401K employee benefit plan covering substantially all
employees. The contributions to the plans are at the discretion of the
plans' advisory boards and amounted to $85,264. in 1997.
The Bank Holding Company had a qualified defined benefit pension
plan which is available to employees meeting certain age and service
requirements. The total pension expense for the years 1996 and 1995 was
$71,101. and $35,482. respectively. The Company's policy was to fund
pension costs at the maximum amount that can be deducted for Federal
Income tax purposes.
The following is a summary of the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31,
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation $276,949 $215,686
----------- -----------
----------- -----------
Projected benefit obligation $703,635 $571,545
Plan assets at fair value. 625,279 515,619
----------- -----------
Projected Benefit Obligation
Less Than Plan Assets ($78,356) ($55,926)
Unrecognized net asset at transition,
net of amortization (72,419) (79,002)
Unrecognized net loss from past
experience different from that assumed 104,110 117,236
----------- -----------
Accrued Pension Cost Included
In Other Liabilities ($46,665) ($17,692)
----------- -----------
----------- -----------
Service cost - benefits earned during
the period $41,461 $36,252
Interest cost on projected benefit
obligation 49,072 39,663
Actual return on plan assets (49,495) (40,316)
Net amortization and deferral (3,108) (6,471)
----------- -----------
Net Periodic Pension Cost $37,930 $29,128
----------- -----------
----------- -----------
</TABLE>
At year end 1996 and 1995, an 8% weighted average discount rate and
a 5% rate of increase in future compensation levels was used to
determine the actual present value of the projected benefit obligation.
The projected long-term rate of return on plan assets was 8% in 1996 and
1995.
46
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
9. Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentration of Credit Risk:
The Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments, unused
credit loan limits, and standby letters of credit. The instruments
involve, to varying degrees, elements of credit and interest rate risk
in excess of the amount recognized in the financial statements.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for loan commitments and
standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. At December 31, 1996, the Bank has $5,207,000. of loan
commitments outstanding with $1,051,000. expiring in excess of one year.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for these commitments is represented
by the contractual amount. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
commitments to customers.
47
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
9. Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentration of Credit Risk (Continued):
The total amounts of off-balance-sheet financial instruments with
credit risk are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1995
---------- ----------
<S> <C> <C>
Loan commitments $6,678,000 $5,031,000
Standby letters of credit $271,000 $176,000
</TABLE>
The Bank subsidiaries grant retail, commercial and commercial real
estate loans to customers located throughout West Virginia and Eastern
Kentucky.
The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral held varies but may
include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties. Although the Bank has a
diversified loan portfolio, a substantial portion of the debtors'
ability to honor their contracts is dependent upon the economic
conditions in each loan's respective location.
10. Regulatory Matters
The various regulatory agencies having supervisory authority over
financial institutions have adopted risk-based capital guidelines which
define the adequacy of the capital levels of regulated institutions.
These risk based capital guidelines require minimun levels of capital
based upon the risk rating of assets and certain off-balance-sheet
items. Assets and off-balance-sheet items are assigned regulatory
risk-weights ranging from 0% to 100% depending on their level of credit
risk. The guidelines classify capital in two tiers, Tier I and Tier II,
the sum of which is total capital. Tier I capital is essentially common
equity, less intangible assets. Tier II capital is essentially
qualifying long-term debt and a portion of the reserve for loan losses.
The Company and Bank actual capital amounts and ratios are
presented below in thousands of dollars:
<TABLE>
<CAPTION>
For Capital
Adequacy To be Well
Company Bank Purposes Capitalized
------------ ------------ ------------ -------------
As of December 31, 1997 Amt. Ratio Amt. Ratio Amt. Ratio Amt. Ratio
----- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) 12,983 16.57% 12,650 16.23% 6,266 8.00% 7,833 10.00%
Tier I Capital (to Risk
Weighted Assets) 12,974 16.56% 12,641 16.22% 3,133 4.00% 4,700 6.00%
Tier I Capital (to Risk
Average Assets) 12,974 11.09% 12,641 10.85% 4,678 4.00% 5,848 5.00%
As of December 31, 1996
Total Capital (to Risk
Weighted Assets) 11,415 16.76% 11,457 16.95% 5.447 8.00% 6,809 10.00%
Tier I Capital (to Risk
Weighted Assets) 11,471 16.85% 11,513 17.03% 2,724 4.00% 4,085 6.00%
Tier I Capital (to Risk
Average Assets) 11,471 11.36% 11,513 11.49% 4,039 4.00% 5,049 5.00%
</TABLE>
48
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
The Company's principal source of funds for dividend payments is
dividends received from the subsidiary Banks. Banking regulations limit
the amount of dividends that may be paid without prior approval of
regulatory agencies. Under these regulations, the amount of dividends
that may be paid in any calendar year is limited to the current year's
net profits, as defined, combined with the retained net profits of the
preceding two years, subject to the capital requirements as defined
above. During 1998, the Bank could, without prior approval, declare
dividends of approximately $2,139,715. plus any 1998 net profits
returned to the date of the dividend declaration.
11. Disclosures about fair value of financial instruments
The following methods and assumptions were used to estimate the
value of each class of financial instruments for which it is icable to
estimate that value:
Cash and Cash Equivalents -- For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities -- For investment securities, fair values are
based on quoted market prices or dealer quotes.
Loans -- Fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposit Liabilities -- The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated by discounting future cash flows
using the rates currently offered for deposits of similar remaining
maturities.
Securities Sold Under Agreements to Repurchase -- For these
short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Federal Home Loan Bank Advances -- Rates currently available to the
Company for advances with similar terms and remaining maturities
are used to estimate fair value of existing debt.
Note Payable -- The carrying value of variable rate borrowed funds
is a reasonable estimate of fair value.
Commitments to Extend Credit and Standby Letters of Credit Commitments
to extent credit and standby letters of credit represent agreements to
lend to a customer at the market rate when the loan is extended, thus
the commitments and letters of credit are not considered to have a
fair value.
The fair values of the Company's financial instruments at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $5,267,333 $5,267,333
Federal funds sold 8,910,000 8,910,000
Investment securities 19,936,204 19,983,815
Loans 84,897,712 83,855,427
Less: Res. for loan losses (672,563) (672,563)
------------- -------------
$118,338,686 $117,344,012
------------- -------------
------------- -------------
Financial liabilities:
Deposits $108,106,767 $108,336,768
------------- -------------
------------- -------------
</TABLE>
49
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
12. Stockholders' Equity:
In November 1997, the Company completed a sale of 10,388 shares of
common stock at a price of $35.00 per share. Total proceeds to the
Company were $363,580. Earnings per share has been computed using a
weighted average number of shares outstanding.
13. Merger and Acquisition:
On May 28, 1996 the Company and its subsidiaries, Logan Bank &
Trust Company and Bank of Chapmanville entered into a merger agreement
whereby the bank subsidiaries would merge into Logan Bank & Trust
Company. The merger was completed after proper approval by the
directors, shareholders and regulatory agencies. Since surviving bank
was still a wholly owned subsidiary of the company, the transaction was
accounted for under the pooling of interest method and no restatement of
prior periods was necessary.
In February, Logan Bank & Trust Company opened a branch located in
Man, West Virginia. This full service branch services the southern part
of Logan County and its neighboring counties. In November, Logan Bank &
Trust Company acquired a branch facility located in Harts, West Virginia
from another financial institution. Under the purchase agreement, the
bank acquired all the real and personal property and assumed the
deposits related to the branch. The income and expenses of operating
these branch facilities are included in the consolidated statement of
income from their opening dates.
14. Parent Only Condensed Financial Information:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
Condensed Balance Sheet: 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Assets:
Cash $455,124 $354,485 $265,395
Other Assets 264,685 264,396 22,922
Investment in Subsidiaries 12,575,912 11,379,008 10,395,102
------------ ------------ ------------
$13,295,721 $11,997,889 $10,683,419
------------ ------------ ------------
------------ ------------ ------------
Liabilities and Equity:
Accrued Liabilities $312,733 $582,953 $292,199
Common Stock 1,300,000 1,274,030 1,274,030
Surplus 2,408,426 2,070,816 2,070,816
Retained Earnings 10,134,760 8,930,288 7,906,572
Treasury Stock (860,198) (860,198) (860,198)
------------ ------------ ------------
$13,295,721 $11,997,889 $10,683,419
------------ ------------ ------------
------------ ------------ ------------
Condensed Statement of Income:
Equity in Net Earnings of
Subsidiary $1,886,554 $1,635,759 $1,254,870
Other Income 18,757 37,414 25,527
Operating Expenses 11,188 135,104 68,546
------------ ------------ ------------
Net Income $1,894,123 $1,538,069 $1,211,851
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
50
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
14. Parent Only Condensed Financial Information (Continued):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Condensed Statement of Changes
in Cash Flow:
Cash Flows From Increases (Decreases)
in Cash and Cash Equivalents
Operating Activities:
Net Income $1,894,123 $1,538,069 $1,211,851
Net Change in Other Assets (289) (241,475) 29,912
Net Change in Accrued Liabilities (270,220) 290,754 (33,914)
------------ ----------- -----------
Net Cash Provided by Operating
Activities 1,623,614 1,587,348 1,207,849
------------ ----------- -----------
Cash Flows From Investing Activities:
Net Change in Investment in
Subsidiaries (1,131,831) (960,505) (680,637)
------------ ----------- -----------
Net Cash Provided (Used) in
Investing Activities (1,131,831) (960,505) (680,637)
------------ ----------- -----------
Cash Flows From
Financing Activities:
Dividends (754,724) (537,753) (444,232)
Sale of Common Stock 363,580 0 0
------------ ----------- -----------
Net Cash Used in Financing
Activities (391,144) (537,753) (444,232)
------------ ----------- -----------
Net Change in Cash and Cash
Equivalents During the Year 100,639 89,090 82,980
Cash Account:
Beginning of Year 354,485 265,395 182,415
------------ ----------- -----------
End of Year $ 455,124 $ 354,485 $ 265,395
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
51
<PAGE>
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing on Page of the Corporation's Proxy
Statement, dated April 8, 1998, is incorporated herein by reference in
response to this item.
Executive Officers of the Registrant:
<TABLE>
<CAPTION>
Name Age Position and Office
---- --- -------------------
<S> <C> <C>
Harvey Oakley 77 Chairman of the Board--
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.
Frank H. Oakley 82 President--Logan County
BancShares, Inc. Mr.
Oakley has been the
President of Logan Bank &
Trust Company since 1963
and is Chairman of the
Board of Bray and Oakley
Insurance Agency, Inc.
Eddie D. Canterbury 49 Executive Vice President
and CEO of Logan County
BancShares, Inc. Mr.
Canterbury has been the
Executive Vice President/CEO
of Logan Bank & Trust
Company since 1983 and
Sr. Vice President since
1980. He is a Director of
Logan Bank & Trust Company.
</TABLE>
52
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The information appearing in the Corporation's Definitive Proxy
Statement, dated April 8, 1998, is incorporated herein by reference in
response to this item.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information appearing in the Corporation's Definitive Proxy
Statement, dated April 8, 1998, is incorporated herein by reference in
response to this item.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Corporation's Definitive Proxy
Statement, dated April 8, 1998 is incorporated herein by reference in
response to this item.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
None.
53
<PAGE>
April 8, 1998
Dear Stockholder:
Your Board of Directors is pleased to invite you to attend the Annual
Meeting of Stockholders of Logan County BancShares, Inc. on April 28, 1998,
at 3:00 p.m. The Notice of Meeting and Proxy Statement are attached.
The meeting will be held at Logan Bank and Trust Company's lobby,
Washington and Main Street, Logan, West Virginia. The business of the
Meeting will be the election of the Directors and to transact such other
business as may properly come before the meeting.
We hope that you can attend the meeting. In any event, please mark,
date and sign the enclosed proxy and return it in the accompanying envelope.
LOGAN COUNTY BANCSHARES, INC.
/s/ Harvey Oakley /s/ Eddie Canterbury
Harvey Oaklay Eddie Canterbury
Chairman Executive Vice President/CEO
54
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 8, 1988
The Annual Meeting of Stockholders of Logan County BancShares, Inc. will
be held at Logan Bank and Trust Company's lobby at 3:00 p.m. on April 28,
1998, for the following purposes:
1. To elect Directors of the Corporation
2. To transact such other business as may properly
come before the meeting.
Only stockholders of record at the close of business on March 27, 1998,
are entitled to notice of and to vote at the meeting.
55
<PAGE>
LOGAN COUNTY BANCSHARES, INC.
Proxy for the Annual Meeting of Shareholders
To be Held April 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harvey Oakley and Eddie Canterbury, or
any of them, proxies or proxy of the undersigned with full power of
substitution to vote, as designated below, the shares of the undersigned at
the Annual Meeting of the Shareholders of Logan County BancShares, Inc. to be
held at Logan Bank and Trust Company's office, Corner of Washington Avenue
and Main Street, Logan, West Virginia, on April 28, 1998 at 3:00 p.m. and at
any and all adjournments thereof, with all of the powers the undersigned
would possess if personally present.
1. Proposal to approve the nominated Board of Directors.
/ / FOR / / AGAINST / /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.
The shares as represented by this Proxy will be voted as specified by the
undersigned. If no specification is made, this Proxy will be cast FOR
Proposal.
Number of Shares:____________________ Date:__________________________, 1998
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Certificate Name(s) Signature(s)
Please sign in the manner in which your stock is registered. When signing
as attorney, administrator, trustee or guardian, please give your full title
as such. For joint accounts, each Joint Tenant should sign. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
56
<PAGE>
LOGAN COUNTY BANCSHARES, INC.
P.O. BOX 597
LOGAN, WEST VIRGINIA 25601
APRIL 8,1998
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROCESS
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Logan County BancShares, Inc. (Corporation) of
proxies for the Annual meeting of Stockholders of the Corporation to be held
April 28, 1998, and any adjournment thereof. Shares represented by properly
executed proxies which are received in time and not revoked will be voted at
the meeting in the manner described in the proxies. Any proxy may be revoked
at any time before it is exercised.
INFORMATION AS TO VOTING SECURITIES
The Board of Directors has fixed the close of business on March 27, 1998
as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting. At the record date, 478,000 shares of
Common Stock of the Corporation were outstanding and entitled to be voted at
the meeting. Each share of Common Stock is entitled to one vote.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation has, in accordance with the
bylaws, fixed the number of Directors of the Corporation at not less than
three. Accordingly, ten Directors are proposed to be elected to serve until
the next Annual Meeting of Stockholders and until their respective successors
are duly elected and have qualified. It is intended that shares represented
by proxies solicited by the Board of Directors will, unless contrary
instructions are given, be voted in favor of the election as Directors of the
nominees listed below. If any nominee is unavailable for election, the
shares may be voted for a substitute nominee. The following nominees have
been proposed to serve as Directors of the Corporation. They are:
<TABLE>
<CAPTION>
COMMON STOCK
NAME AGE PRINCIPAL OCCUPATION BENEFICIALLY OWNED
- ------------------- --- -------------------- ------------------
<S> <C> <C> <C>
Frank H. Oakley 83 President, Logan County 33,106
BancShares, Inc.; Chairman,
Bray & Oakley Insurance
Agency, Inc.; President,
Logan Bank and Trust.
57
<PAGE>
COMMON STOCK
NAME AGE PRINCIPAL OCCUPATION BENEFICIALLY OWNED
- ------------------- --- -------------------- ------------------
Harvey Oakley 77 Chairman of the Board, Logan (A) 28,835
County BancShares, Inc.;
Attorney at Law; Chairman of
the Board of Logan Bank and
Trust.
Clell Peyton 61 Director, Logan Bank and Trust 7,064
Retired, Nationwide Insurance
Company.
Earle B. Queen 70 Director, Logan Bank and Trust; (B) 12,837
President, James Funeral Home.
LaVeta Jean Ray 66 Retired Counselor, Chapmanville (C) 4,952
High School.
William W. Wagner 65 Director, Logan Bank and Trust; (D) 8,356
Director and Executive
Committee, United BancShares;
Former Chairman Eagle Bancorp,
Inc.
Eddie Canterbury 49 Director and Executive Vice 3,238
President/CEO Logan County
BancShares, Inc.; Director and
Executive Vice President/CEO,
Logan Bank and Trust.
Walter D. Vance 47 Vice President, Logan County (E) 3,040
BancShares, Inc.; Vice President,
Arecoma Drug Company.
Glenn T. Yost 40 Director, Logan Bank and Trust; (F) 19,409
President, W. W. McDonald Land
Co.; President, Tridelphia Land
Company; President, Bruce
McDonald Holding Co.
David McCormick 50 Director, Logan Bank and Trust; (G) 25,372
President, McCormick's, Inc.;
President, Bodaco, Co.
</TABLE>
58
<PAGE>
(A) Includes 4,144 shares jointly owned with spouse.
(B) Includes 12,000 shares owned by Earle B. Queen, Trust, 137 shares owned
by Funeral Services, Inc. and 150 shares owned by Queen Brothers, Inc.
(C) Includes 952 shares jointly owned with sister, Erma Ray Butcher.
(D) Includes 436 shares jointly owned with spouse.
(E) Includes 566 shares owned by Aracoma Drug Company.
(F) Includes 750 shares jointly owned with spouse; and 18,109 shares for
which voting and investment powers are deemed; 13,750 shares owned by W.W.
McDonald Land Company; 3,909 shares owned by Bruce McDonald Holding Company;
450 shares owned by Tridelphia Land Company.
(G) Includes 25,272 shares owned by Bodaco, Co.
Executive Compensation
All Executive Officers of Logan County BancShares, Inc. were compensated
$8,000.00 in Director's fees during 1997.
Other Matters
As of the date of this Proxy Statement, the Board of Directors was not
aware of any matters not referred to in the form proxy that would be
presented for action at the meeting. If any other business comes before the
meeting, the persons named in the proxy will have discretionary authority to
vote the shares represented by them in accordance with their best judgement.
Date for Submission of Stockholder Proposals
All proposals must be submitted to the Board of Directors 30 days prior to
the Annual Meeting of Stockholders.
59
<PAGE>
NOTICE TO SHAREHOLDERS
The Annual Disclosure Statement, which contains certain financial information,
of Logan Bank and Trust Company is available upon request.
Please contact the New Accounts Department at:
Logan Bank and Trust Company
43 Washington Avenue
Post Office 597
Logan, West Virginia 23601-0597
Phone: (304) 752-1166
60
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LOGAN COUNTY BANCSHARES, INC.
(Registrant)
-----------------------------
Eddie Canterbury
Executive Vice President/CEO
March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on the dates indicated.
SIGNATURE
Frank H. Oakley Director, President
Harvey Oakley Director, Chairman of the Board
Clell Peyton Director By:
----------------------
Eddie Canterbury
Attorney in Fact
Date:
March 25, 1998
Earle B. Queen Director
Lavetta J. Ray Director
Walter D. Vance Director
William W. Wagner
- --------------------------- Executive Vice President
Eddie Canterbury and Director
Director
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 5,267,333 4,434,697 0
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 8,910,000 7,275,000 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 15,957,955 14,326,484 0
<INVESTMENTS-CARRYING> 2,494,352 2,992,590 0
<INVESTMENTS-MARKET> 2,527,495 3,024,455 0
<LOANS> 84,897,712 71,553,111 0
<ALLOWANCE> 672,563 681,375 0
<TOTAL-ASSETS> 121,850,039 107,379,545 0
<DEPOSITS> 108,106,767 95,233,579 0
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 760,284 732,030 0
<LONG-TERM> 0 0 0
0 0 0
0 0 0
<COMMON> 1,300,000 1,274,030 0
<OTHER-SE> 11,683,038 10,140,906 0
<TOTAL-LIABILITIES-AND-EQUITY> 121,850,039 107,379,545 0
<INTEREST-LOAN> 6,789,421 5,699,356 5,165,171
<INTEREST-INVEST> 1,395,713 1,134,881 1,109,958
<INTEREST-OTHER> 508,539 524,878 388,552
<INTEREST-TOTAL> 8,693,673 7,359,115 6,663,681
<INTEREST-DEPOSIT> 3,605,404 2,979,998 2,686,408
<INTEREST-EXPENSE> 3,605,404 2,979,998 2,686,408
<INTEREST-INCOME-NET> 5,088,269 4,371,353 3,977,273
<LOAN-LOSSES> 107,000 40,000 59,363
<SECURITIES-GAINS> 5,457 (176) 1,618
<EXPENSE-OTHER> 3,293,320 2,965,155 2,740,308
<INCOME-PRETAX> 2,951,334 2,366,646 1,908,690
<INCOME-PRE-EXTRAORDINARY> 1,894,123 1,538,069 1,211,851
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,844,123 1,538,069 1,211,851
<EPS-PRIMARY> 4.04 3.29 2.59
<EPS-DILUTED> 4.04 3.29 2.59
<YIELD-ACTUAL> 4.60 4.64 4.60
<LOANS-NON> 546,442 686,517 0
<LOANS-PAST> 1,031,000 739,000 0
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 681,375 661,647 605,829
<CHARGE-OFFS> 116,950 24,934 8,429
<RECOVERIES> 1,138 4,662 4,884
<ALLOWANCE-CLOSE> 672,563 681,375 661,647
<ALLOWANCE-DOMESTIC> 672,563 681,375 661,647
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
