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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 June 30, 2000
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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
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Commission File Number 0-28120
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Lexington B & L Financial Corp.
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Missouri 43-1739555
- ---------------------------------------- -------------------
(State or other jurisdiction of I.R.S. (I.R.S. Employer
Employer Incorporation or organization) Identification NO.)
919 Franklin Avenue, Lexington, Mo 64067
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
816-259-2247
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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
----- -----
As of August 4, 2000, there were 794,883 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
JUNE 30, 2000
INDEX PAGE
- ----- ----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-16
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 17
ITEM 2 - CHANGES IN SECURITIES 17
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 17
ITEM 5 - OTHER INFORMATION 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, September 30,
2000 1999
---- ----
(Unaudited)
ASSETS
Cash and due from banks....................................................... $ 1,838 $ 1,872
Interest-bearing deposits..................................................... 1,666 4,219
Investment securities
Available-for-sale, at fair value........................................... 7,728 8,354
Held-to-maturity (fair value of $21,588 and $23,701, respectively,)......... 22,434 24,346
Federal funds sold............................................................ 464 518
Stock in Federal Home Loan Bank of Des Moines ("FHLB")........................ 543 535
Loans held for sale........................................................... 477 467
Loans receivable, less allowance for loan losses of $625 at June 30, 2000
and $599 at September 30, 1999............................................... 63,413 62,126
Accrued interest receivable................................................... 1,056 1,025
Premises and equipment........................................................ 1,531 1,180
Foreclosed real estate........................................................ - 32
Cost in excess of net assets acquired......................................... 882 937
Other assets.................................................................. 1,136 1,082
-------- --------
TOTAL ASSETS.............................................................. $103,168 $106,693
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits.................................................................... $ 83,004 $ 85,150
Advances from borrowers for taxes and insurance............................. 127 182
Advances from FHLB.......................................................... 5,034 5,162
Notes payable............................................................... 273 273
Other liabilities........................................................... 1,015 816
-------- --------
TOTAL LIABILITIES......................................................... 89,453 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.................................................. 12,292 12,277
Retained earnings - substantially restricted................................ 9,244 8,905
Accumulated other comprehensive income...................................... (217) (133)
Unearned ESOP shares........................................................ (588) (665)
Unearned MRDP shares........................................................ (95) (182)
Treasury stock at cost (470,117 and 332,215 shares, respectively)........... (6,934) (5,105)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................................ 13,715 15,110
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $103,168 $106,693
======== ========
See accompanying notes to consolidated financial statements.
-3-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
Interest Income
Mortgage loans.............................................. $1,027 $ 940 $3,002 $2,884
Other loans................................................. 350 345 1,017 1,057
Investment securities and interest-bearing deposits......... 498 554 1,539 1,451
Federal funds sold.......................................... 55 11 120 55
------ ------ ------ ------
TOTAL INTEREST INCOME......................................... 1,930 1,850 5,678 5,447
Interest Expense
Deposits.................................................... 1,018 1,026 3,053 3,004
Advances from FHLB.......................................... 63 67 197 157
Notes payable............................................... 7 9 21 28
------ ------ ------ ------
TOTAL INTEREST EXPENSE........................................ 1,088 1,102 3,271 3,189
------ ------ ------ ------
NET INTEREST INCOME......................................... 842 748 2,407 2,258
Provision for loan losses..................................... 16 - 42 26
------ ------ ------ ------
Net Interest Income After Provision for loan losses........... 826 748 2,365 2,232
Noninterest Income
Service charges and other fees.............................. 72 61 210 173
Commission, net............................................. 19 26 44 64
Income (loss) from foreclosed assets........................ - - (3) 1
Gain (loss) on sale of investments.......................... 7 - 7 7
Other....................................................... 39 55 105 106
------ ------ ------ ------
TOTAL NONINTEREST INCOME...................................... 137 142 363 351
Noninterest Expense
Employee compensation and benefits.......................... 359 398 1,088 1,158
Occupany costs.............................................. 51 55 151 155
Advertising................................................. 7 6 26 26
Data processing............................................. 28 31 83 91
Federal insurance premiums.................................. 5 8 17 23
Professional and consulting fees............................ 34 19 113 82
Amortization of intangible assets arising from acquisitions. 18 18 56 56
Other....................................................... 98 121 317 343
------ ------ ------ ------
TOTAL NONINTEREST EXPENSE..................................... 600 656 1,851 1,934
------ ------ ------ ------
INCOME BEFORE INCOME TAXES.................................... 363 234 877 649
Income taxes.................................................. 123 86 290 233
------ ------ ------ ------
NET INCOME.................................................... $ 240 $ 148 $ 587 $ 416
====== ====== ====== ======
Basic Earnings Per Share...................................... $ 0.34 $ 0.16 $ 0.78 $ 0.46
====== ====== ====== ======
Diluted Earnings Per Share.................................... $ 0.33 $ 0.16 $ 0.76 $ 0.46
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
-4-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
June 30,
2000 1999
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................................ $ 588 $ 416
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization................................................... 66 62
Amortization of premiums and discounts.......................................... (6) (9)
Amortization of deferred loan fees.............................................. 6 -
Provision for salary continuation plan costs.................................... 64 59
(Loss) on sale of foreclosed real estate........................................ 3 -
Amortization of cost in excess of net assets acquired........................... 55 56
Gain on held-to-maturity securities............................................. (7) (7)
Provision for loan losses....................................................... 42 26
Originations of loans held for sale............................................. (4,120) -
Proceeds from sale of loans held for sale....................................... 4,110 -
ESOP shares released............................................................ 92 87
Amortization of MRDP............................................................ 87 143
Changes to assets and liabilities increasing (decreasing) cash flows............ (29) (389)
------- -------
NET CASH FLOW PROVIDED BY OPERATING ACTIVIES...................................... 951 444
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities/sales of securities available-for-sale.................. 1,092 1,680
Proceeds from maturities/sales of securities held-to-maturity.................... 2,112 8,818
Net (increase) decrease in federal funds sold.................................... 54 975
Net (increase) decrease in loans receivable...................................... (1,306) (555)
Purchase of securities available-for-sale........................................ (578) (6,971)
Purchase of securities held-to-maturity.......................................... (199) (18,694)
Purchase of premises and equipment............................................... (417) (184)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............................... 758 (14,931)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits.............................................. (2,146) 8,256
Net increase (decrease) in escrowed funds from borrowers for taxes/insurance..... (55) (37)
Repayment of notes payable....................................................... - (95)
Proceeds from FHLB advances...................................................... - 6,600
Repayments of FHLB advances...................................................... (128) (1,246)
Purchase of FHLB stock........................................................... (8) (15)
Dividends........................................................................ (130) (151)
Purchase of treasury stock....................................................... (1,829) -
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............................... (4,296) 13,312
------- -------
NET INCREASE (DECREASE) IN CASH................................................... (2,587) (1,175)
Cash and due from banks, beginning of year........................................ 6,091 8,985
------- -------
CASH AND DUE FROM BANKS, END OF YEAR.............................................. $ 3,504 $ 7,810
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest......................................................... $ 3,245 $ 3,182
======= =======
Cash paid for income taxes..................................................... $ 304 $ 338
======= =======
Noncash investing and financing-loans to facilitate sale of real estate........ $ 29 $ -
======= =======
See accompanying notes to consolidated financial statements.
-5-
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............................ - - 587 - - - - 587
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 $40............ - - - (84) - - - (84)
------ ------- ------ ----- ----- ------ ------ -------
Total comprehensive income............. - - 587 (84) - - - 503
------ ------- ------ ----- ----- ------ ------- -------
Repurchase of common stock............. - - - - - - (1,829) (1,829)
Release of ESOP shares................. - 15 - - 77 - - 92
Release of MRDP shares................. - - - - - 87 - 87
Dividends paid ($.30 per share)........ - - (248) - - - - (248)
------ ------- ------ ----- ----- ------ ------- -------
Balance at June 30, 2000............... $ 13 $12,292 $9,244 $(217) $(588) $ (95) $(6,934) $13,715
====== ======= ====== ===== ===== ====== ======= =======
See accompanying notes to consolidated financial statements.
-6-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--Basis of Presentation
- -----------------------------
The consolidated interim financial statements as of June 30, 2000 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 June
30, 2000, interim financial statements. The results of operations for the period
ended June 30, 2000, are not necessarily indicative of the operating results
that may be expected for the full year. The consolidated interim financial
statements as of June 30, 2000, 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 Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Balance, beginning of period........... $ 616 $ 596 $ 599 $ 599
Provision for loan losses............ 16 - 42 26
Recoveries for loan losses........... 1 18 9 22
Charges-offs......................... (8) (15) (25) (48)
----- ----- ----- -----
Balance, end of period................. $ 625 $ 599 $ 625 $ 599
===== ===== ===== =====
At June 30, 2000, non-performing assets were $479,000, which was .75% of total
loans and .46% of total assets. This balance consisted of $434,000 in loans not
accruing interest, $45,000 in loans past due 90 days or more and still accruing
interest.
NOTE C--Investment Securities
- -----------------------------
Investment securities consist of the following at June 30, 2000 and
September 30, 1999 (in thousands):
June 30, September 30,
2000 1999
---- ----
Available-for-sale, at fair value:
U.S. Government and federal agency obligations ...... $ 7,728 $ 8,354
======== ========
Held-to-Maturity, at amortized Cost:
U.S. Government and federal agency obligations ...... 18,581 19,988
State and municipal obligations ..................... 3,853 4,358
-------- --------
Total held-to-maturity .................... $ 22,434 $ 24,346
======== ========
Fair market value ....................................... $ 21,588 $ 23,701
======== ========
-7-
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 (in thousands, except for
per share amounts):
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Basic earnings per share:
Income available to common stockholders .......................... $ 240 $ 148 $ 587 $ 416
Average common shares outstanding................................. 708 899 758 895
Basic earnings per share ......................................... $ 0.34 $ 0.16 $ 0.78 $ 0.46
====== ====== ====== ======
Diluted earnings per share:
Income available to common stockholders .......................... $ 240 $ 148 $ 587 $ 416
Average common shares outstanding ................................ 708 899 758 895
Dilutive potential common shares outstanding due to common
stock options and awards ....................................... 20 18 18 14
------ ------ ------ ------
Average number of common shares and dilutive potential shares
outstanding .................................................... 728 917 776 909
------ ------ ------ ------
Dilutive earnings per share ...................................... $ 0.33 $ 0.16 $ 0.76 $ 0.46
====== ====== ====== ======
NOTE E--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 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 June 30, 2000, 30,365 shares were vested. The Company recognized $26,008 and
$86,621, respectively, as MRDP compensation expense for the three and nine
months ended June 30, 2000, and $43,204 and $142,506, respectively, for the
three and nine months ended June 30, 1999. The amortization method used
attributes a higher percentage of compensation cost to earlier years than to the
later years of the service period.
-8-
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 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 unallocated shares are recorded as a reduction of the ESOP loan. ESOP expense
was $26,812 and $91,256 for the three and nine-month periods ended June 30,
2000, respectively, compared to $28,177 and $86,958 for the same periods a year
ago.
A summary of ESOP shares at June 30, 2000 is as follows:
Shares Allocated 34,747
Shares released for allocation 7,668
Unreleased shares 58,785
--------
Total 101,200
--------
Fair value of unreleased shares $566,100
========
NOTE G--Stock Options
- ---------------------
Under the Company's 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 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 beeen exercised as of June 30, 2000.
NOTE H--Contingencies
- ---------------------
On March 28, 2000 the Company entered into a contract in the amount of
$2,561,000 for the construction of a new banking facility to be located in
Lexington, Missouri. The new facility is being built to accommodate the merger
of the Company's two banking subsidiaries. Construction is expected to be
completed in December 2000. As of June 30, 2000, a total of $130,000 has been
paid to date.
-9-
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 and nine-month periods ended June 30,
2000 and 1999 as well as those material changes in liquidity and capital
resources that have occurred since September 30, 1999.
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 Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
------ ------ ------ ------
Per share Data
Basic earnings per share......... $0.34 $0.16 $0.78 $0.46
Dulited earnings per share....... $0.33 $0.16 $0.76 $0.46
Cash dividends................... $0.15 $0.15 $0.30 $0.30
Selected Ratios
Return on average assets......... 0.92% 0.55% 0.75% 0.54%
Return on stockholders' equity... 7.05% 3.73% 5.54% 3.53%
Efficiency ratio................. 59.39% 71.69% 64.75% 71.98%
--------------At---------------
June 30, September 30,
2000 1999
--------- ------------
Book value (tangible)................................... $ 16.15 $ 15.19
Market price (closing price at end of period............ $ 9.63 $ 12.50
Selected Ratios:
Loans to deposits...................................... 77.73% 74.21%
Allowance for loan losses to loans..................... 0.98% 0.95%
Equity to total assets................................. 13.29% 14.16%
Summary
Consolidated net income for the nine-month period ended June 30, 2000 was
$587,000, an increase of $171,000 or 41.1% over the same period last year. Basic
earnings per share of 78 cents increased 32 cents over a year ago and diluted
earnings per share increased 30 cents to 76 cents per share. The increase in net
income for the nine-month period can be attributed to a $149,000 increase in net
interest income, a $12,000 increase in non-interest income, and a decline in
non-interest expense of $83,000.
-10-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Summary (con't)
Consolidated net income for the three-month period ended June 30, 2000 was
$240,000, a $92,000 or 62.2% increase over the same period last year. Basic
earnings per share of 34 cents increased 18 cents compared to the same period
ended June 30,1999. Diluted earnings per share of 33 cents, increased 17 cents
over the 16 cents per share earned for the three month period ended June 30,
1999. The increase in net income for the quarter ended June 30, 2000 compared to
the same period a year ago was the result of a $94,000 increased net interest
income and a decline of $56,000 in non-interest expense.
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):
Three Months Ended Nine Months Ended
------------------------------- ---------------------------------
June 30, 2000 vs 1999 June 30, 2000 vs 1999
--------------------- ---------------------
Change Due To Change Due To
--------------------- ---------------------
Average Average Average Average
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
Interest income:
Loans........................................ $ 10 $ 82 $ 92 $ 39 $ 39 $ 78
Investment securities & interest bearing
deposits.................................... (93) 37 (56) (14) 102 88
Federal funds sold........................... 40 4 44 49 16 65
------- ------- ------- ------- ------- -------
Total interest income.................. (43) 123 80 74 157 231
Interest expense:
Deposits..................................... (11) 3 (8) 84 (34) 50
Advances from FHLB........................... (3) (1) (4) 43 (4) 39
Notes payable................................ (2) - (2) (7) - (7)
------- ------- ------- ------- ------- -------
Total interest expense.................. (16) 2 (14) 120 (38) 82
------- ------- ------- ------- ------- -------
Net interest income............................ $ (27) $121 $94 $(46) $195 $149
======= ======= ======= ======= ======= =======
-11-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Total interest income for the three and nine-month periods ended June 30, 2000
increased $80,000 and $231,000, respectively, over comparable periods last year.
Interest expense for the quarter decreased $14,000 and increased $82,000 for the
nine months ended June 30, 2000, over the same periods 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
June 30, 2000 June 30, 1999
----------------------------- --------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- -------- ------- ------- --------- ------
Interest Earning Assets
Loans........................... $ 63,479 $ 1,377 $ 8.72% $ 62,984 $ 1,285 $ 8.18%
Investment securities & interest
bearing deposits............... 32,846 498 6.10% 38,978 554 5.70%
Federal funds sold.............. 3,481 55 6.35% 901 11 4.90%
------- ------ ------- ------- ----- ----
Total Earning Assets/Average Yield 99,806 1,930 7.78% 102,863 1,850 7.21%
Interest Bearing Liabilities
Deposits......................... 79,957 1,018 5.12% 80,636 1,026 5.10%
Advances from FHLB............... 5,055 63 5.01% 5,261 67 5.11%
Notes payable.................... 273 7 10.31% 352 9 10.26%
------ ------ ------- ------- ----- -----
Total Interest Bearing Liabilities/
Average Yield................... 85,285 1,088 5.13% 86,249 1,102 5.12%
------ -----
Net Interest Income................. $ 842 $ 748
======= ======
Net interest Spread................. 2.65% 2.09%
Net Interest Margin................. 3.39% 2.92%
12
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income - continued
Nine Months Ended Nine Months Ended
June 30, 2000 June 30, 1999
-------------------------------- ---------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- --------- -------- --------- --------- -------
Interest Earning Assets
Loans................................ $ 62,900 $ 4,019 8.53% $ 62,315 $ 3,941 8.46%
Investment securities & interest
bearing deposits.................... 34,267 1,539 6.00% 34,604 1,451 5.61%
Federal funds sold................... 2,677 120 5.99% 1,525 55 4.82%
-------- ------- ----- -------- ------- -----
Total Earning Assets/Average Yield 99,844 5,678 7.60% 98,444 5,447 7.40%
Interest Bearing Liabilities
Deposits............................. 79,689 3,053 5.12% 77,604 3,004 5.18%
Advances from FHLB................... 5,109 197 5.15% 3,978 157 5.28%
Notes payable........................ 273 21 10.28% 363 28 10.31%
-------- ------- ----- ------- ------- -----
Total Interest Bearing Liabilities/
Average Yield..................... 85,071 3,271 5.14% 81,945 3,189 5.20%
------- -------
Net Interest Income................... $ 2,407 $ 2,258
======= =======
Net interest Spread................... 2.46% 2.20%
Net Interest Margin................... 3.22% 3.07%
Net interest income for the three and nine month periods ended June 30,
2000 was $842,000 and $2,407,000, respectively. Net interest income increased
$94,000 and $149,000, respectively, for the three and nine month periods ended
June 30, 2000 over the same periods last year. The increase in net interest
income for the quarter and nine months ended June 30, 2000 can be attributed to
an improvement in the net interest spread. The net interest spread increased 56
and 26 basis points, respectively, in the quarter and nine-month periods ended
June 30, 2000, over the comparable periods a year ago. The increased in the net
interest spread can be partly attributed to a higher yield on earning assets.
For the quarter the cost of funds increased one basis point and decreased six
basis points for the nine months ended June 30, 2000, compared to the same
periods a year ago.
-13-
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):
June 30, September 30,
2000 1999
----- ----
Non-accrual loans................................................ $ 434 $ 425
Loans past due 90 days or more and still accruing interest....... 45 5
Foreclosed real estate and other repossessed assets.............. - 32
------ ------
Total non-performing assets...................... $ 479 $ 462
------ ------
Non-performing assets at June 30, 2000 were .46% of total assets, compared to
.43% of total assets at September 30, 1999. Non-accrual loans at June 30, 2000
consisted primarily of residential real estate loans, commercial and commercial
real estate loans.
Provision for Loan Losses/Allowance for Loan Losses
The provisions for loan losses for the three and nine months ended June 30,
2000 were $16,000 and $42,000, respectively, compared to a $26,000 provision for
the nine month period and no provision in the three month period ended June 30,
1999. Loan charge offs totaled $8,000 and $25,000 for three and nine-month
periods ended June 30, 2000 compared to $15,000 and $48,000, respectively,
during the three and nine-month periods ended June 30, 1999. Loan recoveries for
the three and nine-month periods ended June 30, 2000 were $1,000 and $9,000,
respectively, compared to $18,000 and $22,000, respectively, for the same three
and nine month-periods ended last year. The allowance for loan losses at June
30, 2000 was $625,000 or .98% of outstanding loans compared to $599,000 or .95%
at September 30, 1999. The increased provisions for loan losses can be
attributed to a $1,313,000 increase in outstanding loans since September 30,
1999. At June 30, 2000, non-preforming loans totalled $479,000 or .75% of total
loans, compared to $657,000 or 1.04% of total loans at June 30, 1999.
Non-Interest Income
Non-interest income for the three-month period ended June 30, 2000 of
$137,000 decreased $5,000 from the three month period ended June 30, 1999. For
the nine-month period ended June 30, 2000, non-interest income of $363,000
increased $12,000 over the $351,000 reported for the same period last year. The
increase in non-interest income for the nine months ended June 30, 2000 resulted
primarily from increases in service charges and other fees.
Non-Interest Expense
Non-interest expense of $600,000 and $1,851,000, respectively, for the three
and nine months ended June 30, 2000, decreased $56,000 and $83,000,
respectively, from the comparable periods a year ago. Salaries and benefit cost
decreased $39,000 and $70,000, respectively, during the three and nine months
ended June 30, 2000 from the same periods last year. The decrease in salaries
and benefits is primarily from a reduction in the cost of Management Recognition
and Development Plan. The Management Recognition Development Plan expense of
$26,000 and $87,000, respectively, for the quarter and nine months ended June
30, 2000, decreased $17,000 and $56,000, respectively, from amounts reported for
the same periods last year.
The operating expense efficiency ratio, non-interest expense less
amortization of goodwill divided by net revenue, was 59.4% and 64.8%,
respectively, for the three and nine month periods ended June 30, 2000, a
significant improvement over the 71.7% and 72.0%, respectively, for the same
periods a year ago. The improvement in the expense efficiency ratio can be
attributed to lower operating expenses and to an increase in net revenues.
-14-
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 ("FLHB") 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 June 30, 2000, total stockholders' equity of $13,715,000 represented 13.3%
of total assets compared to $15,110,000 or 14.2% of total assets at September
30, 1999. These levels of primary capital exceed regulatory requirements and the
Company's peer group average.
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
withdraw able deposits and short-term borrowing. B & L Bank's liquidity ratio
was 15.2% at June 30, 2000. 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 general 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 June 30,
2000.
Minimum
B & L Bank Required
Ratios at Capital
June 30, 2000 Ratios
------------- ---------
Risk-based capital.................... 23.7% 8.0%
Core capital.......................... 13.3% 4.0%
Tangible capital...................... 13.3% 1.5%
-15-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources con't
- -------------------------------------
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, (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 summarizes Lafayette County Bank's capital ratios
and ratios required by regulation at June 30, 2000.
Lafayette Minimum
County Bank Required
Ratios at Capital
June 30, 2000 Ratios
------------- --------
Risk-based capital..................................... 16.7% 8.0%
Tier 1 capital to net risk-weighted assets............. 15.4% 4.0%
Tangible equity ratio.................................. 7.7% 4.0%
Commitments-Stock Repurchase
- ----------------------------
On December 22, 1999 and March 22, 2000 the Company's Board of Directors
authorized Management to purchase up to 10% and 5%, respectively, of the
Company's outstanding common stock. During the nine months ended June 30, 2000
approximately 137,902 shares have been purchased for $1,829,000.
-16-
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
None
ITEM 27 FINANCIAL DATA SCHEDULE
-17-
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 8/9/2000 By: /s/ Erwin Oetting, Jr.
------------------- --------------------------
Erwin Oetting, Jr.
President and Chief
Executive Officer
Date 8/9/2000 By: /s/ E. Steva Vialle
------------------- --------------------------
E. Steva Vialle
-18-