UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending December 31, 1999
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to___________
Commission File Number 0-28120
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Lexington B & L Financial Corp.
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Missouri 43-1739555
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( State or other jurisdiction of I.R.S (I.R.S. Employer
Employer Incorporation or organization) Identification No.)
919 Franklin Avenue, Lexington, Mo. 64067
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(Address of principal executive offices) (Zip Code)
660-259-2247
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(Registrant's telephone number)
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 twelve 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.
Yes X No________
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As of February 9, 2000, there were 855,583 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes__________ No X
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LEXINGTON B & L FINANCIAL CORP.
FORM 10-QSB
DECEMBER 31, 1999
INDEX PAGE
- ----- ----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-13
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 14
ITEM 2 - CHANGES IN SECURITIES 14
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 14
ITEM 5 - OTHER INFORMATION 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, September 30,
1999 1999
---- ----
ASSETS (Unaudited)
Cash and due from banks................................................................. $ 3,571 $ 1,872
Interest-bearing deposits............................................................... 2,507 4,219
Investment securities
Available-for-sale, at fair value...................................................... 7,245 8,354
Held-to-maturity (fair value of $22,886 and $23,701, respectively,).................... 23,744 24,346
Federal funds sold...................................................................... 569 518
Stock in Federal Home Loan Bank of Des Moines ("FHLB").................................. 535 535
Loans held for sale..................................................................... 238 467
Loans receivable, less allowance for loan losses of $611 at
December 31, 1999 and $599 at September 30, 1999....................................... 61,739 62,126
Accrued interest receivable............................................................. 960 1,025
Premises and equipment.................................................................. 1,287 1,180
Foreclosed real estate.................................................................. 32 32
Cost in excess of net assets acquired................................................... 919 937
Other assets............................................................................ 987 1,082
-------- --------
TOTAL ASSETS $104,333 $106,693
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits............................................................................... $ 83,156 $ 85,150
Advances from borrowers for taxes and insurance........................................ 23 182
Advances from FHLB..................................................................... 5,134 5,162
Notes payable.......................................................................... 273 273
Other liabilities....................................................................... 1,525 816
-------- --------
TOTAL LIABILITIES 90,111 91,583
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares authorized, none issued................. - -
Common stock, $.01 par value; 8,000,000 shares authorized,
1,265,000 shares issued and outstanding................................................ 13 13
Additional paid-in-capital.............................................................. 12,284 12,277
Retained earnings - substantially restricted............................................ 8,962 8,905
Accumulated other comprehensive income.................................................. (188) (133)
Unearned ESOP shares.................................................................... (639) (665)
Unearned MRDP shares.................................................................... (151) (182)
Treasury stock at cost (404,117 and 332,215 shares, respectively)....................... (6,059) (5,105)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 14,222 15,110
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $104,333 $106,693
======== ========
See accompanying notes to consolidated financial statements.
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31,
1999 1998
---- ----
(Unaudited)
Interest Income
Mortgage loans..................................................... $ 981 $ 958
Other loans........................................................ 338 370
Investment securities and interest-bearing deposits................ 539 393
Federal funds sold................................................. 10 21
------ ------
TOTAL INTEREST INCOME 1,868 1,742
Interest Expense
Deposits........................................................... 1,008 968
Advances from FHLB................................................. 67 23
Notes payable...................................................... 7 9
------ ------
TOTAL INTEREST EXPENSE 1,082 1,000
------ ------
NET INTEREST INCOME 786 742
Provision for loan losses........................................... 12 13
------ ------
Net Interest Income After Provision for loan losses 774 729
Noninterest Income
Service charges and other fees..................................... 75 55
Commission, net.................................................... 9 11
Gain ( loss) on sale of investments................................ - 6
Other.............................................................. 36 13
------ ------
TOTAL NONINTEREST INCOME 120 85
Noninterest Expense
Employee compensation and benefits................................. 359 367
Occupany costs..................................................... 49 49
Advertising........................................................ 12 14
Data processing.................................................... 25 28
Federal insurance premiums......................................... 8 8
Professional and consulting fees................................... 34 26
Amortization of intangible assets arising from acquisitions 19 19
Other.............................................................. 118 84
------ ------
TOTAL NONINTEREST EXPENSE 624 595
------ ------
INCOME BEFORE INCOME TAXES 270 219
Income taxes........................................................ 84 75
------ ------
NET INCOME $ 186 $ 144
====== ======
Basic Earnings Per Share............................................ $0.23 $0.16
====== ======
Diluted Earnings Per Share.......................................... $0.22 $0.16
====== ======
See accompanying notes to consolidated financial statements.
-2-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
December 31,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited)
Net income $ 186 $ 144
Adjustments to reconcile net income to net cash provided by operating
activities Depreciation and amortization................................. 22 23
Amortization of premiums and discounts.................................... (2) (1)
Amortization of deferred loan fees........................................ 1 -
Provision for salary continuation plan costs.............................. 21 19
Amortization of cost in excess of net assets acquired..................... 19 19
Gain on held-to-maturity securities....................................... - (6)
Provision for loan losses................................................. 12 13
Originations of loans held for sale....................................... (1,235) -
Proceeds from sale of loans held for sale................................. 1,463 -
ESOP shares released...................................................... 33 30
Amortization of MRDP...................................................... 31 50
Changes to assets and liabilities increasing (decreasing) cash flows
Accrued interest receivable.............................................. 64 (15)
Other assets............................................................. 94 12
Other liabilities........................................................ (51) (43)
------- -------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES 658 245
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities/sales of securities available-for-sale............ 1,031 190
Proceeds from maturities/sales of securities held-for-sale................. 600 5,000
Net (increase) decrease in federal funds sold.............................. (51) (1,400)
Net (increase) decrease in loans receivable................................ 374 1,874
Purchase of securities available-for-sale.................................. - (324)
Purchase of securities held-to-maturity.................................... - (8,701)
Purchase of premises and equipment......................................... (129) (78)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,825 (3,439)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits........................................ (1,995) 3,028
Net increase (decrease) in advances from borrowers for property
taxes and insurance....................................................... (159) (143)
Proceeds from FHLB advances................................................ - 5,150
Repayments of FHLB advances................................................ (28) (2)
Purchase of treasury stock................................................. (314) -
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,496) 8,033
------- -------
NET INCREASE (DECREASE) IN CASH (13) 4,839
Cash and due from banks, beginning of year................................. 6,091 8,985
------- -------
CASH AND DUE FROM BANKS, END OF YEAR $ 6,078 $13,824
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest..................................................... $ 1,035 $ 948
======= =======
See accompanying notes to consolidated financial statements.
-3-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Accumulated
Additional Other Unearned Unearned Total
Common Paid-In Retained Comprehensive ESOP MRDP Treasury Stockholders'
Stock Capital Earnings Income (Loss) Shares Shares Stock Equity
------ ---------- -------- ------------- -------- -------- -------- -------------
Balance at September 30, 1998.... $13 $12,261 $8,548 $ 23 $(767) $(355) $(4,130) $15,593
Comprehensive income:
Net income...................... - - 660 - - - - 660
Other Comprehensive income
(loss) - unrealized loss on
securities available-for-sale,
net of reclassification
adjustments for amounts
Included in net income, net
of tax benefit of $80.......... - - - (156) - - - (156)
------ ---------- -------- ------------- -------- -------- -------- -------------
Total comprehensive income....... - - 660 (156) - - - 504
------ ---------- -------- ------------- -------- -------- -------- -------------
Repurchase of common stock....... - - - - - - (975) (975)
Release of ESOP shares........... - 16 - - 102 - - 118
Release of MRDP shares........... - - - - - 173 - 173
Dividends paid ($.30 per share).. - - (303) - - - - (303)
------ ---------- -------- ------------- -------- -------- -------- -------------
Balance at September 30, 1999.... 13 12,277 8,905 (133) (665) (182) (5,105) 15,110
(Unaudited)
Comprehensive income:
Net income...................... - - 186 - - - - 186
Other Comprehensive income
(loss) - unrealized loss on
securities available-for-sale,
net of reclassification
adjustments for amounts
Included in net income, net
of tax benefit of $28.......... - - - (55) - - - (55)
------ ---------- -------- ------------- -------- -------- -------- -------------
Total comprehensive income....... - - 186 (55) - - - 131
------ ---------- -------- ------------- -------- -------- -------- -------------
Repurchase of common stock....... - - - - - - (954) (954)
Release of ESOP shares........... - 7 - - 26 - - 33
Release of MRDP shares........... - - - - - 31 - 31
Dividends paid ($.15 per share).. - - (129) - - - - (129)
------ ---------- -------- ------------- -------- -------- -------- -------------
Balance at December 31, 1999..... $13 $12,284 $8,962 $(188) $(639) $(151) $(6,059) $14,222
====== ========== ======== ============= ======== ======== ======== =============
See accompanying notes to consolidated financial statements.
-4-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--Basis of Presentation
- -----------------------------
The consolidated interim financial statements as of December 31, 1999 and for
the period then ended include the accounts of Lexington B & L Financial Corp.
and its wholly-owned subsidiaries, B &L Bank, Lafayette County Bank, and B & L
Mortgage, Inc. and a wholly-owned subsidiary of B&L Bank. This report has been
prepared by Lexington B & L Financial Corp. ("Registrant" or "Company") without
audit. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation are reflected in the
December 31, 1999, interim financial statements. The results of operations for
the period ended December 31, 1999, are not necessarily indicative of the
operating results that may be expected for the full year. The consolidated
interim financial statements as of December 31, 1999, should be read in
conjunction with the Registrant's audited consolidated financial statements as
of September 30, 1999 and for the year then ended included in the Registrant's
1999 Annual Report to Shareholders. The significant accounting policies followed
in the preparation of the quarterly financial statements are the same as
disclosed in the 1999 Annual Report to Shareholders to which reference is made.
NOTE B--Allowance for Loan Losses
- ---------------------------------
The following is a summary of the allowance for loan losses (in thousands):
Three Months Ended
December 31,
1999 1998
---- ----
Balance, September 30.............................. $ 599 $ 599
Provision for loan losses......................... 12 13
Recoveries on loans charged-off................... 7 2
Charge offs....................................... (7) (13)
----- ----
Balance, December 31............................... $ 611 $ 601
===== =====
At December 31, 1999, non-performing assets were $386,000, which was .62% of
total loans and .37% of total assets. This balance consisted of $346,000 in
loans not accruing interest, $32,000 of foreclosed real estate, and $8,000 in
loans past due 90 days or more and still accruing interest.
NOTE C--Investment Securities
- -----------------------------
Investment securities, consist of the following at December 31, 1999 and
September 30, 1999 (in thousands):
December 31, September 30,
1999 1999
---- ----
Available-for-Sale, at fair value:
U.S. Government and federal agency obligations.... $ 7,245 $ 8,354
------ -------
Held-to-Maturity, at amortized cost:
U.S. Government and federal agency obligations.... $19,383 $19,988
State and municipal obligations................... 4,361 4,358
------- -------
Total held-to-maturity......................... $23,744 $24,346
------- -------
Fair market value................................... $22,886 $23,701
------- -------
-5-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D--Earnings Per Share
- --------------------------
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The following table presents the computation of EPS:
Three Months ended
December 31,
1999 1998
------------------
(In thousands, except
per share amounts)
Basic earnings per share:
Income available to common stockholders................................................... $ 186 $ 144
====== ======
Average common shares outstanding......................................................... 823 892
====== ======
Basic earnings per share.................................................................. $ 0.23 $ 0.16
====== ======
Diluted earnings per share:
Income available to common stockholders................................................... $ 186 $ 144
====== ======
Average common shares outstanding......................................................... 823 892
Dilutive potential common shares outstanding due to common stock options and awards....... 20 24
------ ------
Average number of common shares and dilutive potential shares outstanding................. 843 916
====== ======
Diluted earnings per share.................................................................. $ 0.22 $ 0.16
====== ======
NOTE E--Stock Options
- ---------------------
The Company has authorized the adoption of a stock option plan. Under the stock
option plan, options to acquire 126,500 shares of the Company's common stock may
be granted to certain officers, directors and employees of the Company or the B
& L Bank. The options will enable the recipient to purchase stock at an exercise
price equal to the fair market value of the stock at the date of the grant. On
June 11, 1997, the Company granted options for 101,200 shares for $15.125 per
share. The options will vest over the five years following the date of grant and
are exercisable for up to ten years. No options have been exercised as of
December 31, 1999.
-6-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F--Employee Stock Ownership Plan
- -------------------------------------
B & L Bank established an ESOP for the exclusive benefit of participating
employees (all salaried employees who have completed at least 1000 hours of
service in a twelve-month period and have attained the age of 21). The ESOP
borrowed $1,012,000 from the Company to fund the purchase of 101,200 shares of
the Company's common stock. The loan is secured solely by the shares purchased
and will be repaid by the ESOP in equal quarterly installments through of
principal and interest payable at 8.25% through March 2006. B & L Bank makes
quarterly contributions to the ESOP which are equal to the debt service less
dividends received on unallocated ESOP shares. B & L Bank contributes
approximately $149,600, including interest, annually to the ESOP. Shares are
released from collateral and allocated to participating employees, based on the
proportion of loan principal and interest repaid and compensation of the
participants. Forfeitures will be reallocated to participants on the same basis
as other contributions in the plan year. Benefits are payable upon a
participant's retirement, death, disability or separation from service. Since B
& L Bank's annual contributions are discretionary, benefits payable under the
ESOP cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position
("SOP") 93-6, Employers' Accounting for Employee Stock Ownership Plans.
Accordingly, the debt and related interest expense of the ESOP are eliminated in
consolidation and the shares pledged as collateral are reported as unearned ESOP
shares in the consolidated statements of financial condition. As shares are
committed to be released from collateral, the Company reports compensation
expense equal to the average fair value of the shares committed to be released.
Dividends on allocated shares will be charged to stockholders' equity. Dividends
on allocated shares are recorded as a reduction of the ESOP loan. ESOP expense
was $32,218 for the three months ended December 31, 1999 compared to $30,235 for
the same period ended December 31, 1998.
A summary of ESOP shares at December 31, 1999 is as follows:
Shares Allocated 34,747
Shares released for allocation 2,556
Unreleased shares 63,897
--------
Total 101,200
--------
Fair value of unreleased shares $830,661
========
NOTE G--Management Recognition and Development Plan
- ---------------------------------------------------
The Board of Directors adopted (November 27, 1996) and the shareholders
subsequently approved (January 27, 1997) a management recognition and
development plan ("MRDP"). Under the MRDP, 50,600 shares of common stock were
awarded to certain directors, officers and employees of the Company and the B&L
Bank. The award will not require any payment by the recipients and will vest
over five years beginning one year after the date of the award (June 11, 1997).
At December 31, 1999, 20,240 shares were vested. The Company recognized $30,307
and $49,651 as MRDP compensation expense for the three months ended December 31,
1999 and 1998, respectively. The amortization method used attributes a higher
percentage of compensation cost to earlier years than to the later years of the
service period.
-7-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
The discussion and analysis included herein covers material changes in results
of operations during the three month periods ended December 31, 1999 and 1998 as
well as those material changes in liquidity and capital resources that have
occurred since September 30, 1999.
In November 1998, the Company formed a mortgage banking subsidiary, B & L
Mortgage, Inc. The mortgage banking subsidiary was capitalized with $500,000 and
has been originating residential mortgages for resale in the secondary mortgage
market. The operations of the new mortgage subsidiary are included in the
accompanying operating income starting with the three month period ended
December 31, 1998
The following should be read in conjunction with the Company's 1999 Annual
Report to Shareholders, which contains the latest audited financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained therein. Therefore, only
material changes in financial condition and results of operation are discussed
herein.
Three Months Ended At
------------------ ---------------------------
December 31, December 31, September 30,
------------ ------------ -------------
1999 1998 1999 1999
---- ---- ---- ----
Per Share Data
Basic earnings per share.......................................... $ .23 $ .16
Diluted earnings per share........................................ .22 .16
Cash dividends.................................................... .15 .15
Book value (Tangible)............................................. $15.45 $15.19
Market price (closing price at end of period)........................ $13.00 $12.50
Selected Ratios
Loans to deposits................................................. 75.27% 74.21%
Allowance for loan losses to loans................................... .98% .96%
Equity to total assets............................................ 13.63% 14.16%
Return on equity.................................................. 4.97% 3.97%
Return on assets.................................................. .70% .63%
Efficiency ratio.................................................. 66.41% 69.77%
Summary
Consolidated net income for the three month period ended December 31, 1999 was
$186,000; a $42,000 or 29.2% increase over the same period last year. Basic
earnings per share of 23 cents increased 7 cents or 43.8% compared to the same
period ended December 31, 1998. Diluted earnings per share increased 6 cents to
22 cents from the 16 cents per share earned for the three month period ended
December 31, 1998. The increase in net income for the first quarter ended
December 31, 1999 compared to the same period a year ago was the result of
higher net interest income and increased service charges and mortgage-banking
fees. However, higher non-interest expenses partially offset the effect of these
favorable variances.
-8-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income
The following table summarizes the changes in net interest income, by major
categories of earning assets and interest bearing liabilities, identifying
changes related to volume and rate. Changes not solely due to volume or rate
changes are allocated pro rata to volume and rate. Management believes this
allocation method, applied on a consistent basis, provides meaningful
comparisons between periods (in thousands):
Analysis of change in net interest income
Three Months Ended Three Months Ended
------------------ ------------------
December 31, 1999 vs 1998 December 31, 1998 vs 1997
------------------------- -------------------------
Change Due To Change Due To
------------- -------------
Average Average Average Average
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest income:
Loans.................................... $ 16 $ (25) $ (9) $ (24) $ (26) $ (50)
Investment securities & interest
bearing deposits........................ 172 (26) 146 73 (24) 49
Federal funds sold....................... (13) 2 (11) 4 (13) (9)
------- ------ ----- ------ ------ -----
Total interest income................. 175 (49) 126 53 (63) (10)
Interest expense:
Deposits................................. 82 (42) 40 29 23 52
Advances from FHLB ...................... 47 (3) 44 14 4 18
Notes payable............................ (2) - (2) (2) (1) (3)
------- ------ ----- ------ ------ -----
Total interest expense................ 127 (45) 82 41 26 67
------- ------ ----- ------ ------ -----
Net interest income....................... $ 48 $ (4) $ 44 $ 12 $ (89) $ (77)
======= ====== ===== ====== ====== =====
-9-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income-continued
Total interest income for the three month period ended December 31, 1999
increased $126,000 or 7.2%, over the comparable period a year ago. Interest
expense for the three month periods ended December 31, 1999, increased $82,000
or 8.2% over the same period a year ago. The following table provides summaries
of average assets and liabilities and the corresponding average rates
earned/paid (in thousands):
Three Months Ended Three Months Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- -------- -------
Interest Earning Assets
Loans............................... $ 62,711 $1,319 8.34% $61,959 $1,328 8.50%
Investment securities & interest
bearing deposits.................... 39,200 539 5.46% 27,281 393 5.72%
Federal funds sold.................. 810 10 4.90% 2,074 21 4.02%
-------- ------ ----- ------- ------ ----
Total Earning Assets/Average Yield 102,721 1,868 7.22% 91,314 1,742 7.57%
Interest Bearing Liabilities
Deposits............................ 78,798 1,008 5.08% 72,481 968 5.30%
Advances from FHLB.................. 5,151 67 5.16% 1,595 23 5.72%
Notes payable....................... 273 7 10.17% 388 9 9.20%
-------- ------ ----- ------- ------ ----
Total Interest Bearing Liabilities/
Average Yield....................... 84,222 1,082 5.10% 74,464 1,000 5.33%
------ ------
Net Interest Income.................. $ 786 $ 742
====== ======
Net interest Spread.................. 2.12% 2.24%
Net Interest Margin.................. 3.04% 3.22%
Net interest income for the three month period ended December 31, 1999 was
$786,000, a 5.94% increase over the same period last year. The increase in net
interest income was due primarily to a higher volume of earning assets.
Offsetting the effects of the higher volume of earning assets was a narrowing of
the net interest spread, which declined 12 basis points to 2.12% for the quarter
ended December 31, 1999. The decrease in the net interest spread can be partly
attributed to the change in the mix of earning assets which resulted in a larger
percentage of the Company's earning assets invested in securities, which return
a lower yield than loans. The increase in securities was the result of match
funding an increase in short-term public deposits. The decrease in the cost of
funds of 23 basis points can be attributed to certificates of deposits on which
the average interest rate has declined as a result of certificates written or
renewed during the low interest rate environment early in 1999. Also,
contributing to the lower cost of funds was the increased volume of public
deposits which carry a lower rate of interest.
-10-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Risk Elements of Loan Portfolio
Non-performing assets include non-accrual loans, loans 90 days or more
delinquent and still accruing interest, foreclosed real estate and other
repossessed assets. The following table presents non-performing assets for the
periods indicated, (in thousands):
December 31, September 30,
1999 1999
------------ -------------
Non-accrual loans........................................... $ 346 $ 377
Loans past due 90 days or more and still accruing interest.. 8 --
Foreclosed real estate and other repossessed assets......... 32 32
----- -----
Total non-performing assets................................ $ 386 $ 457
===== =====
Non performing assets at December 31, 1999 were .37% of total assets, compared
to .43% of total assets at September 30, 1999. Non-accrual loans at December 31,
1999 consisted primarily of residential real estate loans, commercial and
commercial real estate loans.
Provision for Loan Losses/Allowance for Loan Losses
The provision for loan losses decreased $1,000 for the three months ended
December 31, 1999 compared to the same period a year ago. Loan charge offs
totaled $7,000 for the three month period ended December 31, 1999 compared to
$13,000 during the three month period ended December 31, 1998. Loan recoveries
were $7,000 during the quarter ended December 31, 1999 and $2,000 for the
comparable period last year. The allowance for loan losses at December 31, 1999
was $611,000 or .98% of outstanding loans compared to $599,000 or .96% at
September 30, 1999.
Non-Interest Income
Non-interest income for the three month period ended December 31, 1999 of
$120,000 increased $35,000 over the three month period ended December 31, 1998.
The increase in non-interest income resulted from a increases in mortgage-
banking fees of $24,000 and deposit service charges and other fees of $20,000.
Non-Interest Expense
Non-interest expense of $624,000 increased $29,000 or 4.9% from the same
period last year. Salaries and benefit cost decreased $8,000 during the quarter
ended December 31, 1999 from the same period last year primarily from a
reduction in the cost of Management Recognition and Development Plan and the
ESOP Plan. The Management Recognition Development Plan expense was $31,000 for
the quarter ended December 31, 1999, compared to $50,000 for the same period
last year. ESOP expense of $33,000 increased $3,000 over the amount expensed in
the three month period ended December 31, 1998. Other operating expenses
increased $34,000 during the quarter ended December 31, 1999 over the same
period a year ago as a result of a general increase in miscellaneous expenses.
Income Taxes
The lower effective income tax rate for the three months ended December 31,
1999 of 31% compared to 34% for the same period last year can be attributed to
an increase in tax-exempt interest income on the Company's state and municipal
securities portfolio.
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LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
- -------------------------------
The Company's subsidiaries, B & L Bank and Lafayette County Bank, must
maintain an adequate level of liquidity to ensure availability of sufficient
funds to support loan growth and deposit withdrawals, satisfy financial
commitments and to take advantage of investment opportunities.
The primary source of liquidity for the Company's subsidiaries is liability
liquidity, which is the ability to raise new funds and renew maturing
liabilities. Principal sources of liability liquidity are customer deposits and
advances from Federal Home Loan Bank, of which both bank subsidiaries are
members. Asset liquidity is typically provided through proceeds from principal
and interest payments on loans, mortgage-backed securities, investment
securities and net operating income. While scheduled maturities and amortization
of loans, investment securities and mortgage-backed securities are somewhat
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
Liquid funds necessary for normal daily operations are maintained with the
Federal Home Loan Bank of Des Moines ("FHLB") and correspondent banks. Excess
funds over balances required to cover bank charges for services are sold in
overnight Federal funds or transferred to time deposit accounts at the FHLB.
At December 31, 1999, total stockholders equity of $14,222,000 represented
13.6% of total assets compared to $15,110,000 or 14.2% of total assets at
September 30, 1999 and exceeded regulatory requirements and the Company's peer
group average.
Liquidity and Capital Resources-continued
B & L Bank
The Office of Thrift Supervision currently requires a thrift institution to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 4% of the average daily balance of its net
withdrawable deposits and short-term borrowing. B & L Bank's liquidity ratio was
20.3% at December 31, 1999. B & L Bank consistently maintains liquidity levels
in excess of regulatory requirements, and believes this is an appropriate
strategy for proper asset and liability management.
The Office of Thrift Supervision requires institutions such as B & L Bank to
meet certain tangible, core, and risk-based capital requirements. Tangible
capital generally consists of stockholders' equity minus certain intangible
assets. Core capital generally consists of stockholders' equity. The risk-based
capital requirements presently address risk related to both recorded assets and
off-balance sheet commitments and obligations. The following table summarizes B
& L Bank's capital ratios and the ratios required by regulation at December 31,
1999.
Minimum
B & L Bank Required
Ratios at Capital
December 31, 1999 Ratios
------------------ ---------
Risk-based capital................. 22.8% 8.0%
Core capital....................... 12.4% 3.0%
Tangible capital................... 12.4% 1.5%
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LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Lafayette County Bank
The Federal Deposit Insurance Corporation adopted capital-related regulations
under FDICA. Under those regulations, a bank will be adequately capitalized if
it: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio of
Tier I capital to risk-adjusted assets of 4% or greater; (iii) had a ratio of
Tier I capital to adjusted total assets of 4% or greater, and (iv) was not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific capital level for any capital
measure. The following table summaries Lafayette County Bank's capital ratios
and ratios required by regulation at December 31, 1999.
Lafayette Minimum
County Bank Required
Ratios at Capital
December 31, 1999 Ratios
----------------- --------
Risk-based capital............................................... 17.1% 8.0%
Tier 1 capital to net risk-weighted assets....................... 15.9% 4.0%
Tangible equity ratio............................................ 7.5% 4.0%
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LEXINGTON B & L FINANCIAL CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor its banking subsidiaries, B & L Bank or Lafayette
County Bank, are a party to any material legal proceedings at this time. From
time to time the Company's banking subsidiaries are involved in various claims
and legal actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item 27 Financial Data Schedule
(b) Reports on Form 8K
Registrant filed no Current Reports on Form 8-K during the quarter ended
December 31, 1999.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Lexington B & L Financial Corp.
Date 2-10-2000 By: /s/ William J. Huhmann
------------------ ---------------------------
Date 2-11-2000 By: /s/ E. Steva Vialle
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