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
ITEM 3 - LEGAL PROCEEDINGS
There are no legal actions or proceedings pending to which the Corporation, or its subsidiaries, are a party.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5
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:
ITEM 6
ITEM 6 -- SELECTED FINANCIAL DATA
LOGAN COUNTY BANCSHARES, INC. AND SUBSIDIARY
(In Thousands of Dollars)
ITEM 7
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.
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.
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)
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)
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)
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)
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
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
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)
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)
** The weighted average yields are based on carrying value and effective yields are weighted for the scheduled maturity of each security.
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)
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.
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)
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
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.
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)
* Shown at tax equivalent amount given statutory tax rate @ 34%
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)
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.
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)
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)
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
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
[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
Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Condition December 31, 1998 and 1997
ASSETS ------
The accompanying notes are an integral part of these consolidated financial statements.
Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Condition December 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
Logan County BancShares, Inc. and Subsidiary Consolidated Statements of Income For the Years Ended December 31, 1998, 1997, and 1996
The accompanying notes are an integral part of these consolidated financial statements.
Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Income For the Years Ended December 31, 1998, 1997 and 1996
The accompanying notes are an integral part of these consolidated financial statements.
Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Stockholders' Equity For the Years Ended December 31, 1998, 1997 and 1996
The accompanying notes are an integral part of these consolidated financial statements.
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
The accompanying notes are an integral part of these financial statements.
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
The accompanying notes are an integral part of these financial statements.
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.
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:
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.
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:
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.
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.
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:
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:
The balance of the reserve for loan losses for income tax purposes was $281,723. at December 31, 1998 and 1997.
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:~
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:~
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:
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:
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.
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.
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.
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:
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:
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:
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:
Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996
14. Parent Only Condensed Financial Information (Continued):
ITEM 9
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10
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:
ITEM 11
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
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
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
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
None.
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.
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.
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.
(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.
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