<PAGE>
<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, 1998 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:
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
$19,120,000 $40.00
Documents Incorporated by Reference
(NONE)
1
<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......................... 10-30
ITEM 8 - Financial Statements and Supplemental Data................... 31-53
ITEM 9 - Disagreements on Accounting and Financial Disclosures........ 54
ITEM 10 - Directors and Executive Officers of the
Registrant................................................... 54
ITEM 11 - Executive Compensation....................................... 55
ITEM 12 - Security Ownership of Certain Beneficial
Owners and Management........................................ 55
ITEM 13 - Certain Relationships and Related Transactions............... 55
ITEM 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8K................................................... 55
PROXY MATERIALS........................................................ 56-61
SIGNATURES............................................................. 62
</TABLE>
2
<PAGE>
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; Logan 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 persuant to the Federal
Deposit Insurance Act.
Logan Bank & Trust Company provided 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 provided 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, individuals 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>
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 1998 and 1997 to be as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Sale Price: Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1998 Common Stock $35-$40 $40-$40 $40-$40 $40-$40
1997 Common Stock $28-$30 $28-$30 $30-$35 $35-$35
Per Share Dividends
Declared:
- ---------
1998 Common Stock $0.39 $0.40 $0.41 $0.57
1997 Common Stock $0.30 $0.32 $0.35 $0.63
</TABLE>
COMPETITION
Vigorous competition exists in the market area of Logan County
BancShares,Inc. In addition to the three other banks located within 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>
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 preceeding years.
5
<PAGE>
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 1998 and 1997 to be as
follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Sales Price: Quarter Quarter Quarter Quarter
- ------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
1998 Common Stock $35-$40 $40-$40 $40-$50 $40-$40
1997 Common Stock $28-$30 $28-$30 $30-$35 $35-$35
</TABLE>
<TABLE>
<CAPTION>
Per Share Dividends Declared
- ----------------------------
<S> <C> <C> <C> <C>
1998 Common Stock $0.39 $0.40 $0.41 $0.57
1997 Common Stock $0.30 $0.32 $0.35 $0.63
</TABLE>
8
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA
LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARY
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31: 1998 1997 1996 1995 1994
- ----------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Interest Revenue $ 9,964 $ 8,693 $ 7,359 $ 6,664 $ 6,040
Total Interest Expense 4,260 3,605 2,988 2,687 2,243
-------- -------- -------- -------- --------
Net Interest Revenue 5,704 5,088 4,371 3,977 3,797
Provision for Possible
Loan Losses 90 107 40 59 271
-------- -------- -------- -------- --------
Net Interest Revenue After
Provision for Possible
Loan Losses 5,614 4,981 4,331 3,918 3,526
Other Operating Revenue 989 1,264 1,000 731 529
Other Operating Expense (3,269) (3,294) (3,026) (2,794) (2,690)
-------- -------- -------- -------- --------
Income Before Income Taxes 2,974 2,951 2,305 1,855 1,365
Income Taxes 1,083 1,057 767 643 300
-------- -------- -------- -------- --------
Net Income $ 1,891 $ 1,894 $ 1,538 $ 1,212 $ 1,065
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per Common Share:
Net Income $ 3.96 $ 4.04 $ 3.29 $ 2.69 $ 2.28
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Cash Dividends Declared $ 1.77 $ 1.60 $ 1.15 $ 0.95 $ 0.70
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
At December 31:
Total Loans $ 95,139 $ 84,898 $ 70,872 $ 63,685 $ 59,437
Total Assets 139,278 121,850 107,380 94,719 89,872
Total Deposits 124,420 108,107 95,233 83,717 79,709
Long-Term Debt 0 0 0 0 0
Total Shareholders' Equity 14,060 12,983 11,415 10,391 9,555
Selected Ratios:
Rate of Return on Average:
Total Assets 1.43% 1.62% 1.52% 1.32% 1.20%
Shareholders' Equity 13.99% 15.18% 14.00% 11.98% 11.38%
Tier 1 Capital to Total
Assets at Year End 10.09% 11.09% 10.89% 10.90% 11.47%
Average Total Shareholders'
Equity to Average total Assets 10.22% 10.66% 10.88% 10.99% 10.58%
Common Dividend Payout Ratio 44.70% 39.60% 34.95% 36.66% 30.76%
Nonaccrual and Restructured
Business Loans as a Percentage
of Total Loans 0.53% 0.64% 0.96% 2.64% 2.70%
</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 Subsidiary. Included
are (a) the results of operations for 1998 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 1998 to 1997, 1997 to 1996, and 1996 to
1995, 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, 1998, and 1997, the funds available within one
year from investments and loans were $27,105,000. and $26,641,000.
Logan County BancShares, Inc.'s deposit mix has increased by $16,313,000.
in 1998, $12,874,000. in 1997, and $11,515,000. in 1996. these increases in the
deposit mix 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 $8,056,000., $10,968,000. and $8,619,000. respectively in 1998,
1997 and 1996. In 1998 all catagories grew while 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
$42744,891 in 1998, $2,999,000. in 1997, and $785,000. in 1996. Savings deposits
showed slight decreases in 1998 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, 1998 and 1997, 31.29%
and 28.86% of the total deposits were in demand deposits, while 23.96% and
27.09% were in savings and 44.74% and 44.02% 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>
During 1998, 1997 and 1996, 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 effeciently 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 1.43%, 1.62%, and 1.52%, for the years ended December 31,
1998, 1997 and 1996, 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 1996, 1997 and 1998 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>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Year End Balances:
Total Assets $139,278 $121,850 $107,380 $ 94,719 $ 89,871
Total Earning Assets 130,454 113,088 99,542 91,968 84,025
Total Deposits 124,420 108,107 95,233 83,717 79,709
Stockholders' Equity 14,059 12,983 11,415 10,391 9,555
Income for the Year:
Total Interest Income 9,964 8,693 7,359 6,664 6,040
Total Interest Expense 4,260 3,605 2,988 2,686 2,243
Net Interest Income 5,704 5,088 4,371 3,978 3,797
Provision for Loan
Losses 90 107 40 59 271
Non-Interest Income 989 1,264 1,000 731 529
Non-interest expense 4,712 4,351 3,793 3,438 2,990
Net Income 1,891 1,893 1,538 1,212 1,065
Per Share Data
Net Income 3.96 4.04 3.29 2.59 2.28
Stockholders' Equity 29.41 27.66 24.41 22.22 20.43
Cash Dividends 1.77 1.60 1.15 0.950 0.700
Key Ratios
Net Income To:
Average Assets 1.43% 1.62% 1.52% 1.32% 1.20%
Average Stockholders'
Equity 13.99% 15.18% 14.00% 11.98% 11.38%
Average Stockholders'
Equity to Average
Assets 10.22% 10.66% 10.88% 10.99% 10.58%
</TABLE>
12
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE II. - RATE ANALYSIS OF INTEREST EARNING ASSETS AND INTEREST BEARING
LIABILITIES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- --------------------------- ---------------------------
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 (nst of Reserves & Discounts)
(Net of Reserves & Discounts):
Commercial $ 36,041 $ 3,209 8.90% $ 33,292 $ 2,959 8.89% $ 28,476 $ 2,493 8.75%
Real Estate 43,454 3,704 8.52% 37,305 3,153 8.45% 31,897 2,681 8.41%
Consumer 10,394 937 9.01% 7,225 678 9.38% 5,521 525 9.51%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total Net Loans 89,889 7,850 8.73% 77,822 6,790 8.67% 65,894 5,699 8.65%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Investment Securities:
Taxable 3,245 187 5.76% 2,949 146 4.95% 8,337 567 6.80%
Non-Taxable 0 0 0.00% 59 4 6.78% 95 9 9.47%
Available for Sale 18,763 1210 6.45% 19,463 1245 6.39% 10,206 559 5.48%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total Investment
Securities 22,008 1,397 6.35% 22,471 1,395 6.21% 18,638 1,135 6.09%
-------- -------- ----- -------- -------- ----- -------- -------- -----
FederaleraldFundsdSoldeandities
Securities Purchased
Under Option to Resell 13,203 717 5.43% 9,290 509 5.48% 9,827 525 5.34%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total Earning Assets $125,100 $ 9,964 7.96% $109,583 $ 8,694 7.93% $ 94,359 $ 7,359 7.80%
-------- -------- ----- -------- -------- ----- -------- -------- -----
-------- -------- ----- -------- -------- ----- -------- -------- -----
IntereserestrBearingbLiabilities:
Savings & Interest
Bearing Demand $ 50,133 $ 1,345 2.68% $ 48,523 $ 1,334 2.75% $ 46,952 $ 1,286 2.74%
Time Deposits 52,055 2,915 5.61% 40,815 2,271 5.56% 31,006 1,694 5.46%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total Interest Bearing
Liabilities $102,188 $ 4,260 4.17% $ 89,338 $ 3,605 4.03% $ 77,958 $ 2,980 3.82%
-------- -------- ----- -------- -------- ----- -------- -------- -----
-------- -------- ----- -------- -------- ----- -------- -------- -----
</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>
1998 Vs. 1997 1997 Vs. 1996
-------------------------- ---------------------------
Interest Income Expense Increase (Decrease) Due To Increase (Decrease) Due To
Change In Change In
1998 1997 1996 Volume Rate Total Volume Rate Total
INTEREST INCOME ON -------- -------- -------- ------- --------- ------ ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
LOANS:
Commercial $ 3,209 $ 2,959 $ 2,493 $ 245 $ 5 $ 250 $ 438 $ 28 $ 466
Real Estate 3,704 3,153 2,681 520 31 551 469 3 472
Consumer 937 678 525 297 (38) 259 178 (25) 153
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Loans 7,850 6,790 5,699 1,062 (2) 1,060 1,085 6 1,091
------- ------- ------- ------- ------- ------- ------- ------- -------
SECURITIES:
Taxable 187 146 567 15 26 41 (366) (55) (421)
Tax Exempt 0 4 9 (4) 0 (4) (4) (1) (5)
Available for Sale 1,210 1,245 559 (45) 10 (35) 507 179 686
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Securities 1,397 1,395 1,135 (34) 36 2 137 123 260
------- ------- ------- ------- ------- ------- ------- ------- -------
FEDERAL FUNDS SOLD AND
SECURITIES PURCHASED:
Under Agreement to
Resell 717 509 525 214 (6) 208 (29) 13 (16)
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INTEREST INCOME ON
EARNING ASSETS 9,964 8,694 7,359 1,242 28 1,270 1,193 142 1,335
------- ------- ------- ------- ------- ------- ------- ------- -------
INTEREST EXPENSE ON
INTEREST BEARING LIABILITIES:
Savings and Interest Bearing
Demand Deposits 1,345 1,334 1,286 41 (30) 11 43 5 48
Time Deposits 2,915 2,271 1,694 625 19 644 536 41 577
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INTEINTERESTEEXPENSE ON
INTEREST BEARING LIABILITIES 4,260 3,605 2,980 666 (11) 655 579 46 625
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INTEREST INCOME $ 5,704 $ 5,089 $ 4,379 $ 576 $ 39 $ 615 $ 614 $ 96 $ 710
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
14
<PAGE>
Logan County BancShars, 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 23.88% of the total loans due within one year.
Further, the company has 10.68% of the loan portfolio in floating rates loans.
TABLE IV - REMAINING MATURITIES OF LOANS AT DECEMBER 31, 1998
(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 $ 9,824 $ 7,027 $ 5,872 22,723
Due One to Five Years 11,543 19,769 4,976 36,288
Due After Five Years 16,571 19,292 266 36,129
------- ------- ------- -------
Total Loans $37,938 $46,088 $11,114 $95,140
------- ------- ------- -------
------- ------- ------- -------
Due After One Year at Fixed Rate $24,061 $34,139 $ 4,055 62,255
Due After One Year at Floating
Rate 4,053 4,922 1,187 10,162
------- ------- ------- -------
Total Loans Due After
One Year $28,114 $39,061 $ 5,242 $72,417
------- ------- ------- -------
------- ------- ------- -------
</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 1998, 1997, 1996, 1995 and 1994.
TABLE V. - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
Amount of Loans Outstanding ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
at End of Period $94,402 $84,225 $70,872 $63,685 $59,437
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Monthly Average
Amount of Loans $89,182 $78,430 $65,894 $61,147 $57,205
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Balance of Allowance for
Possible Loan Losses at
Beginning of Period $ 673 $ 681 $ 662 $ 606 $ 516
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Loans Charged Off:
Commercial . $ 14 $ 103 $ 3 $ 0 $ 72
Real Estate 0 0 17 0 0
Consumer 51 13 5 8 111
------- ------- ------- ------- -------
Total Loans Charged Off 65 116 25 8 183
------- ------- ------- ------- -------
Recoveries of Loans Previously
Charged Off:
Commercial 1 0 0 0 0
Real Estate 0 0 1 0 0
Consumer 2 1 3 5 2
------- ------- ------- ------- -------
Total Recoveries 3 1 4 5 2
------- ------- ------- ------- -------
Net Loans Charged Off: 62 116 21 3 181
------- ------- ------- ------- -------
Additionsions to Allowance:
Charged to Expense 90 107 40 59 271
------- ------- ------- ------- -------
Balancece at End of Period $ 701 $ 673 $ 681 $ 662 $ 606
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of Net Charge-Offs
During Period to
Average Loans 0.069% 0.148% 0.003% 0.005% 0.316%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
16
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE VI. - ALLOCATITABLE VI.O-AALLOCATIONAOF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994
--------------------- -------------------- -------------------- --------------------- ---------------------
% 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 $463 1.22% $422 1.03% $435 1.41% $423 1.51% $358 1.47%
Real Estate 163 0.35% 144 0.40% 141 0.41% 137 0.44% 140 0.46%
Consumer 75 0.67% 107 1.27% 105 1.58% 102 1.85% 108 1.93%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total $701 0.74% $673 0.79% $681 0.95% $662 1.03% $606 1.01%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
</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,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial Loans $37,938 $35,643 $30,974 $27,977 $24,312
Real Estate Loans 46,088 40,858 34,100 30,848 30,122
Consumer Loans 11,114 8,493 6,649 5,522 5,609
------- ------- ------- ------- -------
Subtotal 95,140 84,994 71,723 64,347 60,043
Less: Unearned Income 36 96 170 0 0
------- ------- ------- ------- -------
Subtotal 95,104 84,898 71,553 64,347 60,043
Less: Reserve for Loan LossesLoan
Losses 701 673 681 662 606
------- ------- ------- ------- -------
Net Loans $94,403 $84,225 $70,872 $63,685 $59,437
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Non-Performing Assets
Non-Accruing Loans $ 509 $ 546 $ 687 $ 1,700 $ 1,620
Loans Past Due 90 Days 3,310 1,031 739 1,614 491
Other Real Estate Owned 94 172 260 181 186
------- ------- ------- ------- -------
Total Non-Performing Assets $ 3,913 $ 1,749 $ 1,686 $ 3,495 $ 2,297
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</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. The change in securities in 1997 was under 10% of the portfolio and
represented minor shifting between categories. In 1998, all categories of
investment securities increased by $7,841,000. representing a 39.30% increase
from 1997. The components of this increase were U.S. agencies increasing by
$7,359,000. and U.S. governments increasing by $482,000. During 1996, investment
securities increased by $4,949,000. or 30.04%, consisting of decreases of U.S.
Government Securities at $2,431,000., offset by increase in U.S. Agencies of
$7,189,000.
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, 1998
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Over
Over Five
One One Year Years
Year Through Through Over
December 31, 1998 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 1,982 0 0 0 1,982 1,981
Held for maturity 0 0 0 0 0 0
U.S. Federal Agency Security
Available for sale 0 2,995 20,250 0 23,245 23,317
Held to maturity 1,500 996 0 0 2,496 2,525
Total securities:
Available for sale 1,982 2,995 20,250 0 25,227 25,298
Held to maturity 1,500 996 0 0 2,496 2,525
----- ----- ------ ---- ------ ------
Total 3,482 3,991 20,250 0 27,723 27,823
Percent of total 12.56% 14.38% 73.04% 0.00% 100.00% 100.03%
Weighted average yield** 6.31% 6.70% 6.21% 0.00% 6.35% 6.35%
</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
In 1998, the company adjusted their focus from increased collection of fees
to promoting a growth in deposits. As a result, the service fees declined
$298,000., a 24.35% decrease over 1997. Other income decreased by $274,000. or
21.69% as a result of these changes.
TABLE IX - OTHER INCOME
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------------------------------
1998 Over 1997 1997 Over 1996
------------------- -------------------
1998 1997 1996 Amount Percent Amount Percent
------ ------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Service Fee $ 926 $1,224 $ 948 ($ 298) 29.11% $ 276 29.11%
Other Fees 63 34 52 29 -34.62% (18) -34.62%
Securities:
Gain (Loss) 0 5 0 (5) 100.00% 5 100.00%
------ ------ ------ ------ ------ ------ ------
Total Other
Income $ 989 $1,263 $1,000 ($ 274) 21.69% $ 263 26.30%
------ ------ ------ ------ ----- ------ -----
------ ------ ------ ------ ----- ------ -----
</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 continued to increase in 1998 by $333,000. to
$3,629,000. This growth was due to the overall growth of the company
and its expansion of customer services. The largest components of the
increase was salaries and benefits of $157,000. and data porcessing of
$133,000. While both are related to the subsidiary bank's growth and
increased service, the data processing cost also reflect preliminary Y2K
cost incurred to evaluate the systems used by the company. These cost
amount to $42,000. in 1998.
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 $168,000. or 12.17% due to normal
salary adjustments while other operating expenses increased slightly by
$19,386. or 4.29% due to overall efforts to control operating costs.
In 1998 the increase in taxes were due to increased property taxes.
Depreciation expense increased throughout the period. This increase is
attributable to the opening of two branch facilities at Man and Harts, West
Virginia and updating bank equipment.
Repairs and maintenance, directors' fees, equipment rental, 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 decreased $86,000. in 1998 and 1997
decreasing $86,000. in 1996 due to reevaluation of liability by the FDIC
and lower rates attributable to such reevaluation.
21
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
TABLE X. - OTHER EXPENSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
-------------------------------------------------
1998 Over 1997 1997 Over 1996
--------------------- --------------------
1998 1997 1996 AMOUNT PERCENT AMOUNT PERCENT
---- ---- ---- ------ ------- ------ -------
Salaries and
<S> <C> <C> <C> <C> <C> <C> <C>
Benefits $1,858 $1,701 $1,549 $157 10.14% $152 9.81%
Taxes 78 70 71 8 11.43% (1) -0.14%
Depreciation 165 153 144 11 7.19% 9 6.25%
Repairs and
Maintenance 181 176 120 5 2.84% 56 46.67%
Fees Paid to
Directors 69 66 98 3 4.54% (32) -32.65%
Equipment Rental 24 25 26 (1) -4.00% (1) -3.85%
FDIC & Fidelity
Insurance 78 74 72 3 4.05% 2 2.78%
Data Processing 421 287 266 133 46.34% 21 7.89%
Bank Stationery 121 103 110 18 17.47% (7) -6.36%
Bank Operating
Expenses 634 638 509 (4) 0.63% 129 25.35%
------- ------- ------- ------- -------- ------- --------
Total $3,629 $3,293 $2,965 $333 10.11% $328 11.06%
------- ------- ------- ------- -------- ------- --------
------- ------- ------- ------- -------- ------- --------
</TABLE>
22
<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 1998 the
companies continued to grow in terms of total assets and equity by 14.30% and
8.29% respectively, net income per dividend by 1.98% due to overall market
changes. Dividends increased by 10.63% to reflect the companies desire to reward
the shareholder while maintaining an excellent capital base. 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%.
TABLE XI. - THREE-YEAR SUMMARY OF EARNINGS AND DIVIDENDS
<TABLE>
<CAPTION>
Per Share Percent ChanteChangePOver Prior Year
------------------------------------- -----------------------------------------------
Dividend Net Net Total
Payout Income Dividends Income Dividends Assets Equity
-------- ------ --------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
1998 44.69% $3.96 $1.77 -1.98% 10.63% 14.30% 8.29%
</TABLE>
23
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
EARNING ASSETS
Table XII. represents analysis of average earning assets and
interest bearing liabilities for the years ended December 31, 1998, 1997
and 1996.
In the period presented average earning assets grew by $15,517,000.
in 1998, $15,224,000. in 1997 and $7,740,000. in 1996. This growth
represented increases of 14.16% in 1998, 16.13% in 1997 and 8.94% in
1996. The loan portfolio is the major component of earning assets which
grew by $12,067,000. 15.51% in 1998, $11,928,000. or 18.10% in 1997 and
$4,748,000. or 7.76% in 1996. The company also allocated to the
investment portfolio a portion of the growth to maintain liquity and
fund future loan requirements.
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 $12,850,000. or 14.38% in 1998,
$11,380,000. or 14.59% in 1997 and $5,670,000. or 7.84% in 1996. In all years
the Company has maintained a stable net interest margin while experiencing
growth in the underlying deposits. These factors 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.
24
<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 AND INTEREST BEARING LIABILITIES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1997 Year Ended December 31, 1996
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
ASSETS: Balance Interest Rate Balance Interest Rate Balance Interest Rate
EARNING ASSETS: ------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS:
Commercial $ 36,041 $ 3,209 8.90% $ 33,292 $ 2,959 8.89% $ 28,476 $ 2,493 8.75%
Real Estate 43,453 3,704 8.52% 37,305 3,153 8.45% 31,897 2,681 8.41%
Consumer 10,395 937 9.01% 7,225 678 9.38% 5,521 525 9.51%
-------- -------- ---- -------- -------- ---- -------- -------- -----
Total Loans 89,889 7,850 8.73% 77,822 6,790 8.67% 65,894 5,699 8.65%
-------- -------- ---- -------- -------- ---- -------- -------- -----
INVESTMENT SECURITIES:
Taxable 3,245 187 5.76% 2,949 146 4.95% 8,337 567 6.80%
Tax Exempt * 0 0 0.00% 59 4 6.78% 95 12 12.63%
Available for Sale 18,763 1210 6.45% 19,463 1245 6.39% 10,206 559 5.48%
-------- -------- ---- -------- -------- ---- -------- -------- ------
Total Securities 22,008 1,397 6.35% 22,471 1,395 6.21% 18,638 1,138 6.11%
-------- -------- ---- -------- -------- ---- -------- -------- ------
FEDERAL FUNDS SOLD 13,203 717 5.43% 9,290 509 5.48% 9,827 525 5.34%
-------- -------- ---- -------- -------- ---- -------- -------- ------
TOTAL EARNING ASSETS $125,100 $ 9,964 7.96% $109,583 $ 8,694 7.89% $ 94,359 $ 7,362 7.80%
-------- ---- -------- ---- -------- ------
-------- ---- -------- ---- -------- ------
NON-EARNING ASSETS:
Cash and Due from Banks 4,168 3,677 3,546
Bank Premises 2,113 2,133 1,942
Other Assets 901 1,565 1,128
-------- -------- --------
TOTAL NON-EARNING ASSETS $7,182 $7,375 $6,616
-------- -------- --------
TOTAL ASSETS $132,282 $116,958 $100,975
-------- -------- --------
-------- -------- --------
</TABLE>
* Shown at tax equivalent amount given statutory tax rate @ 34%
25
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1997 Year Ended December 31, 1996
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
Savings Deposits and Interest
Bearing:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DDA $50,133 $1,345 2.68% $48,523 $1,334 2.75% $46,952 $1,286 2.74%
Time Deposits 52,055 2,915 5.61% 40,815 2,271 5.56% 31,006 1,694 5.46%
------- ------ ----- ------- ------ ----- ------- ------ -----
Total Interest Bearing
Liabilities 102,188 $4,260 4.17% 89,338 $3,605 4.03% 77,958 $2,980 3.82%
------- ------ ----- ------- ------ ----- ------- ------ -----
------ ----- ------ ----- ------ -----
ND CAPITAL:
Demand Deposits 15,253 14,067 11,037
Accrued Expenses 1,014 1,074 995
Capital 13,827 12,479 10,985
-------- -------- --------
Total Non-Interest Bearing
Liabilities and Capital 30,094 27,620 23,017
-------- -------- --------
Total Liabilities and
Stockholders' Equity $132,282 $116,958 $100,975
-------- -------- --------
NTEREST MARGIN $125,100 $5,704 1.70% $109,583 $5,089 4.60% $94,359 $4,382 4.64%
------- ------ ----- ------- ------ ----- ------- ------ -----
------- ------ ----- ------- ------ ----- ------- ------ -----
</TABLE>
26
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTEREST RATE SENSITIVITY ANALYSIS
----------------------------------
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.
27
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
TABLE XIII. - INTEREST RATE SENSITIVITY ANALYSIS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Total Over
0 - 90 91-180 181-365 One Year One Year Total
------ ------ ------- -------- -------- -----
Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans $ 16,469 $ 2,129 $ 4,125 $ 22,723 $ 72,417 $ 95,140
Investments 1,982 1,500 0 3,482 24,241 27,723
Fed. Funds Sold 7,520 0 0 7,520 0 7,520
--------- --------- --------- --------- --------- ---------
Total Earning
Assets 25,971 3,629 4,125 33,725 96,658 130,383
--------- --------- --------- --------- --------- ---------
Interest Bearing
Liabilities:
Demand Deposits 20,644 0 20,644 0 20,644
Savings 11,928 9,964 7,925 29,817 0 29,817
CD's-$100,000OO,OOO
and Over 5,009 3,722 8,617 17,348 2,824 20,172
Other Time 8,991 6,152 17,445 32,588 2,907 35,495
--------- --------- --------- --------- --------- ---------
Total Interest
Bearing Liability 46,572 19,838 33,987 100,397 5,731 106,128
--------- --------- --------- --------- --------- ---------
Interest
Sensitivity Gap ($ 20,601) ($ 16,209) ($ 29,862) ($ 66,672) $ 93,927 $ 27,255
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Cumulative Gap ($ 20,601) ($ 36,810) ($ 66,672) ($ 66,672) $ 27,255 $ 27,255
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Rate Sensitive
Assets/Rate te
Sensitive Lia-
Liabilities
(Cumulative
Percentage) 55.76% 44.57% 33.59% 33.59% 122.85% 122.85%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
28
<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>
1998 1997 1996 1995 1994
ASSETS: ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and Due from Banks $ 4,168 $ 3,677 $ 3,546 $ 2,989 $ 3,166
Investment Securities:
Available for Sale 18,763 16,689 10,206 6,360 5,011
Held to Maturity 3,245 5,782 8,432 12,419 14,838
--------- --------- --------- --------- ---------
Total Investments 22,008 22,471 18,638 18,779 19,849
--------- --------- --------- --------- ---------
Federal Funds Sold 13,203 9,290 9,827 6,693 5,942
Loans
Real Estates 43,454 37,449 31,897 30,108 27,351
Installment 10,459 7,402 5,606 5,650 5,579
Commercial & Other 36,041 33,714 29,144 26,020 24,837
--------- --------- --------- --------- ---------
89,954 78,565 66,647 61,778 57,767
Less: Unearned Discount 65 129 85 0 0
--------- --------- --------- --------- ---------
89,889 78,436 66,562 61,778 57,767
Allowance For Loan Losses (707) (614) (668) (631) (562)
--------- --------- --------- --------- ---------
Net Loans 89,182 77,822 65,894 61,147 57,205
--------- --------- --------- --------- ---------
Banking Premises 2,113 2,133 1,942 1,364 1,412
Accrued Interest and
Other Assets 1,608 1,565 1,128 1,108 920
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 132,282 $ 116,958 $ 100,975 $ 92,080 $ 88,494
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand Deposits $ 35,332 $ 31,007 $ 27,940 $ 26,287 $ 25,402
Savings Deposits 30,054 31,582 30,049 29,685 35,401
Time Deposits 52,055 40,816 31,006 25,352 17,556
--------- --------- --------- --------- ---------
Total Deposits 117,441 103,405 88,995 81,324 78,359
Other Liabilities 1,014 1,074 995 636 775
--------- --------- --------- --------- ---------
TOTAL LIABILITIES 118,455 104,479 89,990 81,960 79,134
STOCKHOLDERS' EQUITY 13,827 12,479 10,985 10,120 9,360
--------- --------- --------- --------- ---------
TOTAL LIABLIABILITIES ANDCKHOLDERS'
STOCKHOLDERS' EQUITY $ 132,282 $ 116,958 $ 100,975 $ 92,080 $ 88,494
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
29
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Year 2000 Assessment
Management has initiated a Company-wide program to assess its data
processing, information systems and customer service programs to ensure the
Company's operating capabilities in the year 2000. Currently, the Company's
subsidiary Bank, LB & T, uses EDS, a regional provider of financial
institution data processing, as it's primary provider of computer services
and data processing. EDS has certified it's hardware and software are Year
2000, and beyond, complaint.
As required by Regulatory guidelines, the company has contracted with
EDS to perform Y2K testing. This testing will include Data Processing, ATM's,
Debit Cards, Financial and Communications Systems. The estimated cost for
this testing is approximately $55,000. The Company has also contracted to
have their computer hardware evaluated for Year 2000 compliance and estimates
additional computer hardware and software costs to be approximately
$105,000. These cost will be capitalized and amortized over five years. It is
the opinion of management that the cost of converting these systems and the
annual amortization, thereof, will not materially impact the results of
operation or its financial position.
We anticipate having all testing completed by June, 1999 and upgrading
completed by August, 1999. There are many factors involved in upgrading these
systems, such as: conversion of data, employee training and implementation.
There can be no assurances this process will not have a material effect on
the company's operations.
While management believes its planning efforts are adequate to address
its Year 2000 concerns, there is no guarantee the systems of other companies
on which the Company's systems and operations rely will function properly and
not have an adverse effect on the
30
<PAGE>
LOGAN COUNTY BANCSHARES, INC.
POST OFFICE BOX 597 - LOGAN, WEST VIRGINIA 25601
(304) 752-0280 - (304) 752-4648
To Our Stockholders, Customers and Friends:
We are proud to present the 1998 annual report of Logan County
BancShares, Inc. and its subsidiary, Logan Bank and Trust Company. In 1998 we
were able to build on the strong foundation of growth that has been our
trademark in the 90's. Total assets grew by $17,428,326, or 14.30%, to a
record of $139,278,365. This growth was largely invested in the region by
increasing loans by $10,146,160, showing a continued committment to our
service area. Earnings of $1,891,113, or $3.96 per share, in 1998 not only
strengthens our capital position but also provided to our shareholders a
return of dividends of $846,059. The return on average assets of $1.43 and
return on equity of 13.99% are high performance goals for any organization.
Our foundation of being a positive force in meeting the financial needs
of our customer, community and region has always been our philosophy.
Building on this cornerstone, our subsidiary, Logan Bank and Trust Company,
is preparing to face the challenge of the new millennium by being innovative,
dedicated and committed. Our directors, management team and staff are
involved community leaders who strive to help our customers reach their
financial goals. This foundation of local involvement, committment to perform
and dedication to provide up-to-date financial products has been our basis of
past, current and future success. Our long tradition of customer service is
reflected by our staff at our four conveniently located offices and planned
fifth location off Corridor G. Our committment to making financial services
available and easily accessible to our region continues to be a major focus
in our planning. We are confident that trying to make a positive difference
for our customers will make the future brighter for the region as a whole.
To meet the challenge ahead we ask for the support of our customers and
community. Working together, Logan County Bancshares, Inc. and its
subsidiary, Logan Bank and Trust Company, are ready to provide our region
financial services to meet its future needs.
Respectfully,
Harvey Oakley Eddie Canterbury
Chairman/President Executive Vice President/CEO
Logan Bank & Trust Chapmanville Bank Of Man Bank Of Harts Bank Of
L B & T L B & T L B & T L B & T
Logan, WV 25601 Chapmanville, WV 25508 Man, WV 25535 Harts, WV 25524
31
<PAGE>
[Letterhead]
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, 1998, and
1997, 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, 1998. 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, 1998, and 1997, and the
consolidated results of its operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
McNeal, Williamson & Co.
Logan, West Virginia
February 27, 198
Members of American Institute of Certified Public Accountants and West
Virginia Society of Certified Public Accountants
32
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Condition
December 31, 1998 and 1997
ASSETS
------
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 5,727,104 $ 5,267,333
------------ ------------
INVESTMENT SECURITIES:
Available for sale 25,298,347 15,957,955
Held to maturity 2,496,108 3,994,584
------------ ------------
Total Investment Securities 27,794,455 19,952,539
------------ ------------
FEDERAL FUNDS SOLD 7,520,000 8,910,000
LOANS:
Mortgage Loans 46,087,863 40,857,352
Installment Loans 11,113,712 8,493,116
Commercial and Other Loans 37,938,146 35,643,093
------------ ------------
Total Loans 95,139,721 84,993,561
Less: Unearned Interest 36,190 95,849
Reserve for Loan Losses 701,275 672,563
------------ ------------
Net Loans 94,402,256 84,225,149
------------ ------------
BANK PREMISES AND EQUIPMENT 2,085,318 2,125,350
INTEREST RECEIVABLE 1,103,008 828,979
OTHER ASSETS 646,224 540,689
------------ ------------
$139,278,365 $121,850,039
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
33
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Condition
December 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
DEPOSITS:
<S> <C> <C>
Non-Interest Bearing $ 18,291,587 $ 13,546,696
Interest Bearing 20,644,421 17,661,719
Savings Deposits 29,816,897 29,287,477
Time Certificates 55,667,264 47,610,875
--------------- ---------------
Total Deposits 124,420,169 108,106,767
ACCRUED AND OTHER LIABILITIES 680,209 723,042
INCOME TAXES PAYABLE:
Current 28,514 (17,563)
Deferred 90,523 54,805
--------------- ---------------
TOTAL LIABILITIES 125,219,415 108,867,051
--------------- ---------------
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 1,300,000
Surplus 2,408,426 2,408,426
Retained Earnings 11,170,503 10,125,449
Net unrealized amortization
on securities available for
sale 40,219 9,311
Treasury Stock (860,198) (860,198)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 14,058,950 12,982,988
--------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 139,278,365 $ 121,850,039
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
34
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statements of Income
For the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C>
Loans, Including Fees $ 7,850,317 $ 6,789,421 $ 5,699,356
Investment Securities:
Available for Sale 1,210,113 1,047,951 558,591
Held to Maturity 187,046 347,762 576,290
Federal Funds Sold 716,608 508,539 524,878
--------- --------- ---------
Total Interest Income 9,964,084 8,693,673 7,359,115
--------- --------- ---------
INTEREST EXPENSE:
Deposits 4,259,739 3,605,404 2,979,998
Other Borrowings 0 0 7,764
--------- --------- ---------
Total Interest Expense 4,259,739 3,605,404 2,987,762
--------- --------- ---------
NET INTERESINTEREST INCOME 5,704,345 5,088,269 4,371,353
PROVISION FOR LOAN LOSSES 90,000 107,000 40,000
--------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,614,345 4,981,269 4,331,353
--------- --------- ---------
OTHER INCOME:
Service Fees 925,644 1,224,231 948,377
Other 63,206 33,697 52,247
Securities Gains (Losses) 0 5,457 (176)
--------- --------- ---------
988,850 1,263,385 1,000,448
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
35
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Income
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
OTHER EXPENSES:
<S> <C> <C> <C>
Salaries and Benefits $ 1,857,732 $ 1,701,231 $ 1,548,685
Taxes Other Than Payroll & Income 78,289 70,208 70,939
Depreciation 164,474 152,804 144,671
Repairs and Maintenance 181,403 176,049 120,439
Fees Paid to Directors 69,275 66,275 97,425
Equipment Rental 24,377 25,217 25,664
FDIC & Fidelity Insurance 77,540 74,187 72,207
Data Processing 420,897 286,349 265,726
Bank Stationery and Printing 121,268 102,914 110,207
Professional Fees 81,145 76,059 73,389
Other Operating Expenses 553,053 562,027 435,803
-------------- ------------- -------------
3,629,453 3,293,320 2,965,155
-------------- ------------- -------------
INCOME BEFORE INCOME TAXES 2,973,742 2,951,334 2,366,646
INCOME TAXES:
Current 1,079,990 1,030,248 848,554
Deferred 2,639 26,963 (19,977)
-------------- ------------- -------------
NET INCOME $ 1,891,113 $ 1,894,123 $ 1,538,069
-------------- ------------- -------------
-------------- ------------- -------------
PER SHARE OF COMMON STOCK:
NET INCOME $ 3.96 $ 4.04 $ 3.29
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
36
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996
<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, 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 - 1995 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
Dividends on 478,000 shares
Common Stock @ $1.77 (846,059) (846,059)
Net Income - 1998 1,891,113 1,891,113
Net Change in Unrealized
Appreciation Securities
Available for Sale 30,908 30,908
---------- ---------- ---------- ---------- --------- ------------
Balance-December 31, 1998 $1,300,000 $2,408,426 $11,170,503 ($860,198) $40,219 $14,058,950
---------- ---------- ---------- ---------- --------- ------------
---------- ---------- ---------- ---------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
37
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Change in Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ---- ----
<S> <C> <C> <C>
Net Income $ 1,891,113 $ 1,894,123 $ 1,538,069
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization 164,474 157,804 144,671
Provision For Loan Losses 90,000 107,000 40,000
Provision For Deferred Taxes 2,639 26,963 (19,977)
(Gain) Loss on Sale of Securities 0 (5,457) 176
Premium Amortization and Accre-
tion on Investment Securities (8,666) (2,529) 12,485
Increases (Decreases) in Income
Taxes Payable 46,077 (56,772) 24,750
(Increases) Decreases in Interest
Receivable and Other Assets (388,951) (107,229) (248,380)
Increases (Decreases) in Interest
Payable & Other Liabilities (33,071) 34,288 94,463
Market Value Adjustment
Amortization 4,028 4,028 4,028
-------------- -------------- ---------------
Net Cash Provided by
Operating Activities 1,767,643 2,052,219 1,590,285
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Investment Sec:
Available for Sale 15,750,000 5,494,543 1,500,000
Held to Maturity 0 500,000 500000
Proceeds from Maturities of Inv. Sec:
Available for Sale 2,750,000 500,000 1,000,000
Held to Maturity 1,500,000 2,565,000 3,810,000
Purchase of Investment Securities:
Available for Sale (27,779,025) (7,500,000) (10,233,781)
Held to Maturity 0 0 (1,491,328)
Net (Increases) Decreases
Federal Funds Sold 1,390,000 (1,635,000) 195,000
Net (Increases) Decreases in
Commercial Loans (2,309,156) (4,785,088) (3,017,344)
Net (Increases) Decreases in
Real Estate Loans (5,230,511) (6,757,195) (3,251,649)
Net (Increases) Decreases in
Installment Loans (2,727,440) (1,918,130) (957,386)
Purchase of Bank Premises
and Equipment (119,083) (166,758) (548,693)
-------------- -------------- ---------------
Net Cash Used by
Investing Activities (16,775,215) (13,702,628) (12,495,181)
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
38
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Changes in Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increases (Decreases) in
Demand Deposits $ 7,727,593 $ 3,178,825 $ 784,399
Net Increases (Decreases) in
Savings Deposits 529,420 (1,272,829) 2,111,565
Net Increases (Decreases) in
Time Deposits 8,056,389 10,968,193 8,619,996
Proceeds from Issuance of Common
Stock 0 363,580 0
Dividends Paid (846,059) (754,724) (537,753)
------------- -------------- --------------
Net Cash Provided by Financing
Activities $ 15,467,343 $ 12,483,045 $ 10,978,207
------------- -------------- --------------
Net Increase (Decrease) in Cash
and Cash Equivalents 459,771 832,636 73,411
Cash and Cash Equivalents at
Beginning of Year 5,267,333 4,434,697 4,361,286
------------- -------------- --------------
Cash and Cash Equivalents at
End of Year $ 5,727,104 $ 5,267,333 $ 4,434,697
------------- -------------- --------------
------------- -------------- --------------
Supplemental Disclosures of Cash
Flow Information Cash Paid for:
Interest $ 4,230,266 $ 2,951,541 $ 2,648,334
Income Taxes $ 1,033,913 $ 817,985 $ 691,982
</TABLE>
The accompanying notes are an integral part of these
financial statements.
39
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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. 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,
using 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.
40
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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>
41
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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 Subsidiary's 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:
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income". The Statement
establishes standards for reporting the components of comprehensive
income and requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income
includes net income as well as certain items that are reposted
directly within a separate component of stock- holders' equity and
bypass net income. The provisions of this Statement are effective
beginning with 1998 interim reporting. These disclosure requirements
will have no impact on financial position or results of operations.
L. Marketing Expense:
The Company charges all marketing expenses to operations when
incurred. No amounts have been established for any future benefits
relative to these expenditures.
42
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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, 1998:
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 $0 $62,343 $46,008 $15,707,955
U.S. Treasury Securities 0 0 0 250,000
State and Municipal
Securities 0 0 0 0
----------- ------- ------- -----------
$0 $62,343 $46,008 $15,957,955
----------- ------- ------- -----------
----------- ------- ------- -----------
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 1,500,232 0 1,867 1,498,395
State and Municipal
Securities 0 0 0 0
----------- ------- ------- -----------
$3,994,584 $33,143 $1,867 $4,025,890
----------- ------- ------- -----------
----------- ------- ------- -----------
</TABLE>
43
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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.
44
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statement
December 31, 1998, 1997 and 1996
4. Loans:
Major classifications of loans at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1997 1997
---- ----
<S> <C> <C>
Mortgage Loans $ 40,857,352 $ 40,857,352
Installment Loans 8,493,116 8,493,116
Commercial and Other Loans 35,643,093 35,643,093
84,993,561 84,993,561
Less: Unearned Interest 95,849 95,849
Reserve for Loan Loss 672,563 672,563
-------------------- --------------------
$ 84,225,149 $ 84,225,149
-------------------- --------------------
-------------------- --------------------
</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>
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
Balance at Beginning of Year $681,375 $681,375 $661,647
Provision Charged to
Operating Expenses 107,000 107,000 40,000
Recoveries credited to
Reserve 1,138 1,138 4,662
Losses Charged to Reserve (116,950) (116,950) (24,934)
-------- -------- --------
Balance at End of Year $672,563 $672,563 $681,375
-------- -------- --------
-------- -------- --------
</TABLE>
The balance of the reserve for loan losses for income tax purposes was
$281,723. at December 31, 1998 and 1997.
45
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
5. Bank Premises and Equipment:~
Bank premises and equipment are summarized as follows:~
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Land $ 404,847 $ 404,847 $ 404,847
Banking House 2,445,752 2,445,752 2,420,262
Furniture, Fixtures and
Equipment 1,568,611 1,568,611 1,454,091
---------- ---------- ----------
4,419,210 4,419,210 4,279,200
Less: Accumulated
Depreciation 2,293,860 2,293,860 2,158,776
---------- ---------- ----------
Bank Premises and Equipment $2,125,350 $2,125,350 $2,120,424
---------- ---------- ----------
---------- ---------- ----------
</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> <C>
1998 $11,400
1999 $11,400
2000 $11,400
2001 $11,400
2002 $11,400
</TABLE>
46
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
7. Federal Income Taxes:
The provisions for Federal income taxes for the years ended December
31, 1998, 1997, and 1996 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>
1998 1997 1996
----------------------------- ------------------------- ---------------------------
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>
47
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
8. Employee Benefit Plans:
During 1998 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 1998.
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
-------
<S> <C>
Actuarial present value of
accumulated benefit obligation $276,949
--------
--------
Projected benefit obligation $703,635
Plan assets at fair value 625,279
--------
Projected Benefit Obligation
Less Than Plan Assets ($78,356)
Unrecognized net asset at transition,
net of amortization (72,419)
Unrecognized net loss from past
experience different from that assumed 104,110
--------
Accrued Pension Cost Included
In Other Liabilities ($46,665)
--------
--------
Service cost - benefits earned during
the period $41,461
Interest cost on projected benefit
obligation 49,072
Actual return on plan assets (49,495)
Net amortization and deferral (3,108)
--------
Net Periodic Pension Cost $37,930
--------
--------
</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.
48
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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.
49
<PAGE>
Logan County BancShares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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,
1998 1997
---- ----
<S> <C> <C>
Loan commitments $6,678,000 $6,678,000
Standby letters of credit $271,000 $271,000
</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, 1998 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, 1997
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%
</TABLE>
50
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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 1999, the Bank
could, without prior approval, declare dividends of approximately $3,184,769,
plus any 1999 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 fair
value of each class of financial instruments for which it is practicable 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,
1998 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,727,104 $ 5,757,104
Federal funds sold 7,520,000 7,520,000
Investment securities 27,473,895 27,823,036
Loans 95,103,531 95,358,976
Less: Res. for loan losses (701,275) (701,275)
------------ ------------
$135,123,255 $135,727,841
------------ ------------
------------ ------------
Financial liabilities:
Deposits $124,420,169 $124,636,548
------------ ------------
------------ ------------
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 AND 1996
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: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets:
Cash $365,591 $455,124 $354,485
Other Assets 264,685 264,685 264,396
Investment in Subsidiaries 13,679,457 12,575,912 11,379,008
----------- ----------- -----------
$14,309,733 $13,295,721 $11,997,889
----------- ----------- -----------
----------- ----------- -----------
Liabilities and Equity:
Accrued Liabilities $250,783 $312,733 $582,953
Common Stock 1,300,000 1,300,000 1,274,030
Surplus 2,408,426 2,408,426 2,070,816
Retained Earnings 11,210,722 10,134,760 8,930,288
Treasury Stock (860,198) (860,198) (860,198)
----------- ----------- -----------
$14,309,733 $13,295,721 $11,997,889
----------- ----------- -----------
----------- ----------- -----------
Condensed Statement of Income:
Equity in Net Earnings of
Subsidiary $ 1,918,697 $ 1,886,554 $ 1,635,759
Other Income 18,750 18,757 37,414
Operating Expenses 46,334 11,188 135,104
----------- ----------- -----------
Net Income $ 1,891,113 $ 1,894,123 $ 1,538,069
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
52
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
14. Parent Only Condensed Financial Information (Continued):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997 1996
------------ ----------- ----------
<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 $ 1,891,113 $ 1,894,123 $1,538,069
Net Change in Other Assets 0 (289) (241,475)
Net Change in Accrued Liabilities (61,950) (270,220) 290,754
------------ ----------- ----------
Net Cash Provided by Operating
Activities 1,829,163 1,623,614 1,587,348
------------ ----------- ----------
Cash Flows From Investing Activities:
Net Change in Investment in
Subsidiaries (1,072,637) (1,131,831) (960,505)
------------ ----------- ----------
Net Cash Provided (Used) in
Investing Activities (1,072,637) (1,131,831) (960,505)
Cash Flows From
Financing Activities:
Dividends (846,059) (754,724) (537,753)
Sale of Common Stock 0 363,580 0
------------ ----------- ----------
Net Cash Used in Financing
Activities (846,059) (391,144) (537,753)
------------ ----------- ----------
Net Change in Cash and Cash
Equivalents During the Year (89,533) 100,639 89,090
Cash Account:
Beginning of Year 455,124 354,485 265,395
------------ ----------- ----------
End of Year $ 365,591 $ 455,124 $ 354,485
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
53
<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 7, 1999, 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 78 Chairman of the Board and
President
Logan County BancShares,
Inc. Mr. Oakley has been an
officer and Director of
Logan Bank & Trust Company
since 1963, a attorney at
law, and Circuit Judge,
State of West Virginia.
Eddie D. Canterbury 50 Executive Vice President and
CEO of Logan County
BancShares, Inc. Mr.
Canterbeuty 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>
54
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The information appearing in the Corporation's Definitive Proxy
Statement, dated April 7, 1999, 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 7, 1999, 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 7, 1999 is incorporated herein by reference in
response to this item.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
None.
55
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 7, 1999
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 27,
1999, for the following purposes:
1. To elect Directors of the Corporation
2. To authorize the Board to approve a 3 for 2 stock split effective May
31, 1999.
3. To authorize the Board to change the date of the annual meeting from
the fourth Tuesday of April to the fourth Tuesday of May.
4. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 26, 1999,
are entitled to notice of and to vote at the meeting.
56
<PAGE>
LOGAN COUNTY BANCSHARES, INC.
Proxy for the Annual Meeting of Shareholders
To be Held April 27, 1999
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 27, 1999 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: , 1999
------------------- -----------------
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
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.
57
<PAGE>
LOGAN COUNTY BANCSHARES, INC.
P.O. BOX 597
LOGAN, WEST VIRGINIA 25601
APRIL 7, 1999
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 27, 1999, 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 26,
1999, 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:
COMMON STOCK
NAME AGE PRINCIPAL OCCUPATION BENEFICIALLY OWNED
---- --- -------------------- ------------------
Frank H. Oakley 84 Chairman, Bray & Oakley 33,106
Insurance Agency, Inc.
58
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
NAME AGE PRINCIPAL OCCUPATION BENEFICIALLY OWNED
- ---------------------------- --- ------------------------------------------------------ ------------------
<S> <C> <C> <C> <C>
Harvey Oakley 78 President/Chairman of the Board, Logan County (A) 29,836
BancShares, Inc.; Attorney at Law; President/Chairman
of the Board of Logan Bank and Trust.
Clell Peyton 62 Director, Logan Bank and Trust; Retired, Nationwide 7,123
Insurance Company.
Earle B. Queen 71 Director, Logan Bank and Trust; President, James (B) 12,837
Funeral Home
LaVeta Jean Ray 67 Retired Counselor, Chapmanville High School (C) 4,952
William W. Wagner 66 Director, Logan Bank and Trust; Director and Executive (D) 8,356
Committee, United Bancshares; Former Chairman Eagle
Bancorp, Inc.
Eddie Canterbury 50 Director and Executive Vice President/CEO Logan County 3,302
Bancshares, Inc.; Director and Executive Vice
President/CEO, Logan Bank and Trust.
Walter D. Vance 48 Vice President, Logan County BancShares, Inc.; Vice (E) 3,046
President, Aracoma Drug Company.
Glenn T. Yost 41 Director, Logan Bank and Trust; President, W. W. (F) 19,309
McDonald Land Co.; President, Triadelphia Land Co.;
President, Bruce McDonald Holding Co.
David McCormick 51 Director, Logan Bank and Trust; President, (G) 25,372
McCormick's, Inc.; President, Bodaco, Co.
</TABLE>
59
<PAGE>
(A) Includes 4,470 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 Triadelphia Land Company.
(G) Includes 25,272 shares owned by Bodaco, Co.
Executive Compensation
- ----------------------
All Executive Officers of Logan County BancShares, Inc. were compensated
$5,200.00 in Director's fees during 1998.
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.
60
<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
PO Box 597
Logan, West Virginia 25601-0597
Phone: (304) 752-1166
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 5,727 5,267 0
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 7,520 8,910 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 25,298 15,558 0
<INVESTMENTS-CARRYING> 2,496 3,995 0
<INVESTMENTS-MARKET> 2,525 4,026 0
<LOANS> 95,140 84,594 0
<ALLOWANCE> 701 673 0
<TOTAL-ASSETS> 139,278 121,850 0
<DEPOSITS> 124,420 108,107 0
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 800 760 0
<LONG-TERM> 0 0 0
0 0 0
0 0 0
<COMMON> 1,300 1,300 0
<OTHER-SE> 12,759 11,683 0
<TOTAL-LIABILITIES-AND-EQUITY> 139,278 121,850 0
<INTEREST-LOAN> 7,850 6,789 5,699
<INTEREST-INVEST> 1,397 1,396 1,135
<INTEREST-OTHER> 717 509 525
<INTEREST-TOTAL> 9,964 8,694 7,359
<INTEREST-DEPOSIT> 4,260 3,605 2,980
<INTEREST-EXPENSE> 4,260 3,605 2,988
<INTEREST-INCOME-NET> 5,704 5,088 4,371
<LOAN-LOSSES> 90 107 40
<SECURITIES-GAINS> 0 5 0
<EXPENSE-OTHER> 3,629 3,293 2,965
<INCOME-PRETAX> 2,974 2,951 2,367
<INCOME-PRE-EXTRAORDINARY> 2,974 2,951 2,367
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,891 1,894 1,538
<EPS-PRIMARY> 3.96 4.04 3.29
<EPS-DILUTED> 3.96 4.04 3.24
<YIELD-ACTUAL> 4.70 4.60 4.64
<LOANS-NON> 509 546 687
<LOANS-PAST> 3,310 1,031 739
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 508 546 563
<ALLOWANCE-OPEN> 673 681 662
<CHARGE-OFFS> 65 116 25
<RECOVERIES> 3 1 4
<ALLOWANCE-CLOSE> 701 673 681
<ALLOWANCE-DOMESTIC> 701 673 681
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
