UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
---------------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ending June 30, 1999
---------------
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
---------------------------------------
Lexington B & L Financial Corp.
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)
(Registrant's telephone number) 660-259-2247
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 July 31, 1999, there were 1,008,645 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes No X
--- ---
1
LEXINGTON B & L FINANCIAL CORP.
FORM 10-QSB
JUNE 30, 1999
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 7-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-18
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 19
ITEM 2 - CHANGES IN SECURITIES 19
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 19
ITEM 5 - OTHER INFORMATION 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES
-2-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, September 30,
1999 1998
-------- -------
(Unaudited)
ASSETS
Cash and due from banks................................................................... $ 1,747 $ 1,890
Interest-bearing deposits................................................................. 6,063 7,095
Investment securities
Available-for-sale, at fair value......................................................... 7,471 2,373
Held-to-maturity (estimated market value of $24,306
at June 30, 1999 and $15,189 at September 30, 1998........................................ 24,847 14,965
Federal funds sold........................................................................ - 975
Stock in Federal Home Loan Bank of Des Moines ("FHLB").................................... 535 520
Loans receivable, less allowance for loan losses of $599
at June 30, 1999 and $599 at September 30, 1998........................................... 62,844 62,315
Premises and equipment.................................................................... 1,078 956
Cost in excess of net assets acquired..................................................... 956 1,012
Other assets.............................................................................. 2,024 1,660
-------- -------
TOTAL ASSETS $107,565 $93,761
======== =======
LIABILITIES
Deposits.................................................................................. $ 85,020 $76,764
Advances from borrowers for taxes and insurance........................................... 130 166
Advances from FHLB........................................................................ 5,494 140
Notes payable............................................................................. 273 368
Other liabilities......................................................................... 848 730
-------- -------
TOTAL LIABILITIES 91,765 78,168
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share; 500,000 shares
Authorized, none outstanding.............................................................. - -
Common stock, $.01 par value per share; 8,000,000 shares
Authorized, 1,265,000 issued and outstanding ............................................. 13 13
Additional paid-in-capital................................................................ 12,271 12,261
Retained earnings - substantially restricted.............................................. 8,661 8,547
Unearned ESOP shares...................................................................... (690) (767)
Unearned MRDP shares...................................................................... (212) (354)
Treasury stock at cost, 256,315 shares.................................................... (4,130) (4,130)
Accumulated other comprehensive income (loss)............................................. (113) 23
-------- -------
TOTAL STOCKHOLDERS' EQUITY 15,800 15,593
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,565 $93,761
======== =======
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,
1999 1998 1999 1998
-------- --------- -------- ---------
(Unaudited) (Unaudited)
Interest Income
Mortgage loans........................................................................ $ 940 $1,078 $2,884 $3,138
Other loans........................................................................... 345 280 1,057 972
Investment securities and interest-bearing deposits................................... 554 362 1,451 1,053
Federal funds sold.................................................................... 11 30 55 85
------ ------ ------ ------
TOTAL INTEREST INCOME 1,850 1,750 5,447 5,248
Interest Expense
Deposits.............................................................................. 1,026 935 3,004 2,759
Advances from FHLB.................................................................... 67 5 157 16
Notes payables........................................................................ 9 12 28 35
------ ------ ------ ------
TOTAL INTEREST EXPENSE 1,102 952 3,189 2,810
------ ------ ------ ------
NET INTEREST INCOME 748 798 2,258 2,438
Provision for loan losses............................................................. - 11 26 20
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOANS LOSSES 748 787 2,232 2,418
------ ------ ------ ------
Non-interest Income
Service charges and other fees........................................................ 61 80 173 201
Commission, net....................................................................... 26 15 64 37
Income from foreclosed assets......................................................... -- (5) 1 (5)
Gain (loss) on sale of investments.................................................... -- -- 7 1
Other................................................................................. 55 9 106 48
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 142 99 351 282
------ ------ ------ ------
Non-interest Expense
Employee compensation and benefits.................................................... 398 397 1,158 1,228
Occupancy costs....................................................................... 55 45 155 136
Advertising........................................................................... 6 8 26 28
Data processing....................................................................... 31 25 91 81
Federal insurance premiums............................................................ 8 10 23 32
Other................................................................................. 158 171 481 476
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 656 656 1,934 1,981
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 234 230 649 719
Income Taxes.......................................................................... 86 73 233 255
------ ------ ------ ------
NET INCOME $ 148 $ 157 $ 416 $ 464
====== ====== ====== ======
Basic Earnings Per Share.............................................................. $0.16 $0.16 $0.46 $0.47
====== ====== ====== ======
Diluted Earnings Per Share............................................................ $0.16 $0.15 $0.46 $0.45
====== ====== ====== ======
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,
1999 1998
-------- -------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................................. $ 416 $ 464
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization............................................................................. 62 73
Amortization of premiums and discounts.................................................................... (9) (7)
Provisions for loan losses................................................................................ 26 20
Amortization of cost in excess of net assets acquired..................................................... 56 56
ESOP shares released...................................................................................... 87 128
Gain (loss) on called securities held-to-maturity......................................................... 8 -
Loss on sale of foreclosed real estate.................................................................... - 6
Amortization of MRDP...................................................................................... 143 252
Amortization of salary continuation plan costs............................................................ 59 56
Other changes to assets and liabilities increasing (decreasing) cash flows, net........................... (389) (189)
-------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 459 859
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturity/sale of securities available-for-sale............................................... 1,680 1,311
Proceeds from maturity/call of securities held-to-maturity................................................. 8,803 8,704
Purchase of securities available-for-sale.................................................................. (6,971) (1,393)
Purchase of securities held-to-maturity.................................................................... (18,694) (8,953)
Proceeds from sale of foreclosed real estate............................................................... - 48
Net (increase) decrease in Federal funds sold.............................................................. 975 900
Loans originated, net of repayments........................................................................ (555) (503)
Purchase of premises and equipment......................................................................... (184) (279)
Cash paid in the acquisition of Lafayette Bancshares, Inc. ................................................ - (1,245)
Cash acquired in acquisition of Lafayette Bancshares, Inc. ................................................ - 1,551
-------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (14,946) 141
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits................................................................................... 8,256 2,707
Net decrease in advances from borrowers for property taxes and insurance................................... (37) (47)
Repayment of notes payable................................................................................. (95) (95)
Proceeds from FHLB advances................................................................................ 6,600 -
Repayment of FHLB advances................................................................................. (1,246) (135)
Dividends paid............................................................................................. (151) (168)
Redemption (purchase) of FHLB stock........................................................................ (15) 58
Purchase of treasury stock................................................................................. - (555)
-------- -------
NET CASH USED IN FINANCING ACTIVITIES 13,312 1,765
-------- -------
NET INCREASE (DECREASE) IN CASH (1,175) 2,765
Cash and cash equivalents, beginning of period............................................................. 8,985 6,818
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,810 $ 9,583
======== =======
See accompanying notes to Consolidated Financial Statements.
-5-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Additional Unearned
Common Paid-in Retained ESOP
Stock Capital Earnings Shares
------ ---------- -------- --------
Balance at September 30, 1997 $13 $12,116 $8,225 $(869)
Net income........................................... - - 658 -
Release of ESOP shares............................... - 64 - 102
Change in accumulative other
comprehensive income................................ - - - -
Repurchase of common stock........................... - - - -
Amortization of MRDP................................. - - - -
Dividend declared ($.30 per share)................... - - (336) -
Record acquisition of Lafayette
County Bank......................................... - 81 - -
------ ---------- -------- --------
Balance at September 30, 1998........................ 13 12,261 8,547 (767)
(Unaudited)
Net income........................................... - - 416 -
Release of ESOP shares............................... - 10 - 77
Change in accumulative other
comprehensive income................................ - - - -
Amortization of MRDP shares.......................... - - - -
Dividend declared ($.30 per share)................... - - (302) -
------ ---------- -------- --------
Balance at June 30, 1999............................. $13 $12,271 $8,661 $(690)
====== ========== ======== ========
Accumulated
Other Unearned Total
Comprehensive MRDP Treasury Stockholders'
Income Shares Stock Equity
------------- -------- -------- -------------
Balance at September 30, 1997 $ 29 $(656) $(3,206) $15,652
Net income........................................... - - - 658
Release of ESOP shares............................... - - - 166
Change in accumulative other
comprehensive income................................ (6) - - (6)
Repurchase of common stock........................... - - (2,390) (2,390)
Amortization of MRDP................................. - 302 - 302
Dividend declared ($.30 per share)................... - - - (336)
Record acquisition of Lafayette
County Bank......................................... - - 1,466 1,547
------------- -------- -------- -------
Balance at September 30, 1998........................ 23 (354) (4,130) 15,593
(Unaudited)
Net income........................................... - - - 416
Release of ESOP shares............................... - - - 87
Change in accumulative other
comprehensive income................................ (136) - - (136)
Amortization of MRDP shares.......................... - 142 - 142
Dividend declared ($.30 per share)................... - - - (302)
------------- -------- -------- -------
Balance at June 30, 1999............................. $(113) $(212) $(4,130) $15,800
============= ======== ======== =======
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, 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 June
30, 1999, interim financial statements. The results of operations for the period
ended June 30, 1999, 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, 1999, should be read in conjunction with the
Registrant's audited consolidated financial statements as of September 30, 1998
and for the year then ended included in the Registrant's 1998 Annual Report to
Shareholders. The significant accounting policies followed in the preparation of
the quarterly financial statements are the same as disclosed in the 1998 Annual
Report to Shareholders to which reference is made.
In November 1998 the Company formed a mortgage banking subsidiary, B & L
Mortgage, Inc., with a capitalization of $500,000. The mortgage-banking
subsidiary will operate within the markets served by the Company's subsidiary
banks originating residential mortgages for sale into the secondary mortgage
market.
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,
1999 1998 1999 1998
--------- --------- --------- --------
Balance, beginning of period................................... $ 596 $ 598 $ 599 $ 221
Allowance for loan losses of acquired bank................... - - - 391
Provision for loan losses - 11 26 20
Recoveries on loans charged-off.............................. 18 1 22 14
Charge-offs.................................................. (15) (11) (48) (47)
----- ----- ----- -----
Balance, end of period.......................................... $ 599 $ 599 $ 599 $ 599
===== ===== ===== =====
At June 30, 1999, non-performing assets were $657,000, which was 1.04% of total
loans and .61% of total assets. This balance consisted of $644,000 in loans not
accruing interest and $13,000 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, 1999 and September
30, 1998 (in thousands):
June 30, September 30,
1999 1998
-------- --------
Available-for-Sale, at fair value:
U.S. Government and federal agencies obligations................ $ 7,471 $ 2,373
======= =======
Amortized cost................................................... $ 7,641 $ 2,339
======= =======
Held-to-Maturity, at amortized cost:
U.S. Government and federal agencies obligations................ $20,492 $13,044
State and municipal obligations................................. 4,355 1,921
------- -------
Total held-to-maturity....................................... $24,847 $14,965
======= =======
Fair market value................................................ $24,306 $15,189
======= =======
-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,
1999 1998 1999 1998
-------- -------- -------- -------
Basic earning per share:
Income available to common stockholders......................... $ 148 $ 157 $ 416 $ 464
===== ===== ===== =====
Average common shares outstanding............................... 899 989 895 983
Basic earnings per share........................................ $0.16 $0.16 $0.46 $0.47
===== ===== ===== =====
Diluted earnings per share:
Income available to common stockholders......................... $ 148 $ 157 $ 416 $ 464
===== ===== ===== =====
Average common shares outstanding............................... 899 989 895 983
Dilative potential common shares outstanding due to common
stock options and awards..................................... 18 37 14 37
----- ----- ----- -----
Average number of common shares and dilutive potential shares
outstanding.................................................. 917 1026 909 1020
----- ----- ----- -----
Dilutive earnings per share...................................... $0.16 $0.15 $0.46 $0.45
===== ===== ===== =====
NOTE E--Statement of Comprehensive Income
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which requires the reporting and display of comprehensive income, defined as the
change in equity (net assets) of a business enterprise from transactions and
other events and circumstances from nonowner sources. This Statement is
effective for fiscal years beginning after December 31, 1997. The adoption of
this Statement did not have an impact on the Company's consolidated financial
position, results of operations or cash flows. The Company's reportable source
of comprehensive income is from the unrealized holding gains (losses) on
available-for-sale securities. The following sets forth the Statement of
Comprehensive Income for the three and nine month periods ending June 30, 1999
and 1998 (in thousands):
Statement of Comprehensive Income
Three Months Ended Nine Months Ended
------------------- ------------------
June 30, June 30,
1999 1998 1999 1998
--------- -------- --------- -------
(Unaudited)
Net income..................................................................... $ 148 $ 157 $ 416 $ 464
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during the period................ (120) - (136) 6
----- ----- ----- -----
Comprehensive income........................................................... $ 28 $ 157 $ 280 $ 470
===== ===== ===== =====
-8-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F--Employee Stock Ownership Plan
In connection with its conversion to stock form, 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 funds from the Company in an amount
sufficient to purchase 101,200 shares (8% of the Common Stock issued in the
stock offering). The loan is secured by the shares purchased and will be repaid
by the ESOP with funds from contributions made by B & L Bank, dividends received
by the ESOP and any other earnings on ESOP assets. B & L Bank presently expects
to contribute approximately $149,600, including interest, annually to the ESOP.
Contributions will be applied to repay interest on the loan first, then the
remainder will be applied to principal. The loan is expected to be repaid in
approximately 10 years. Shares purchased with the loan proceeds are held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants in proportion to their compensation relative to
total compensation of all active participants. Benefits generally become 25%
vested after each year of credited service beyond one year. Vesting is
accelerated upon retirement, death or disability of the participant. Forfeitures
are returned to B & L Bank or reallocated to other participants to reduce future
funding costs. Benefits may be payable upon 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 of the ESOP is eliminated in consolidation and the shares
pledged as collateral are reported as unearned ESOP shares in the consolidated
statements of financial condition. Contributions to the ESOP shall be sufficient
to pay principal and interest currently due under the loan agreement. As shares
are committed to be released from collateral, the Company reports compensation
expense equal to the average market price of the shares for the respective
period, and the shares become outstanding for earnings per share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as a reduction of
debt and accrued interest. ESOP compensation expense was $28,177 and $86,958 for
three and nine months ended June 30, 1999, respectively, compared to $41,693and
$ 127,884 for the three and nine months ended June 30, 1998, respectively.
A summary of ESOP shares at June 30, 1999 is as follows:
Shares Allocated 24,524
Shares released for allocation 7,668
Unreleased shares 69,008
--------
TOTAL 101,200
========
Fair value of unreleased shares $810,844
========
NOTE G--Management Recognition and Development Plan
Under the Company's Management Recognition and Development plan ("MRDP") 50,600
shares of common stock were awarded to certain directors, officers and employees
of the Company and the B&L Bank. The awards 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, 1999, 20,240 shares were vested. The
Company recognized $43,204 and $142,506 as MRDP compensation expense for the
three and nine months ended June 30, 1999,respectively, and $75,444 and $252,126
for the three and nine months ended June 30, 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.
-9-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE H--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 the 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.
NOTE I--Acquisition
On October 1, 1997, the Company acquired Lafayette Bancshares, Inc., the holding
company for Lafayette County Bank, for $2,587,000 comprised of $1,039,000 in
cash and 96,111 shares of stock valued at $1,548,000. In addition, the Company
acquired the remaining minority interest of Lafayette County Bank for cash
amounting to $196,000. Also, approximately $185,000 of expenses were incurred in
connection with the acquisition. The transaction was accounted for under the
purchase method of accounting, with $1,063,000 recorded as cost in excess of net
assets acquired.
-10-
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, 1999 and
1998 as well as those material changes in liquidity and capital resources that
have occurred since September 30, 1998.
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 B & L Mortgage, Inc. are included in the accompanying
operating income for the three and nine months ended June 30, 1999.
The following should be read in conjunction with the Company's 1998 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,
1999 1998 1999 1998
--------- --------- -------------- --------------
Per Share Data
Basic earnings per share.............................. $ 0.16 $ 0.16 $ 0.46 $ 0.47
Diluted earnings per share............................ $ 0.16 $ 0.15 $ 0.46 $ 0.45
Cash dividends ....................................... $ 0.15 $ 0.15 $ 0.30 $ 0.30
Selected Ratios
Return on average assets.............................. 0.55% 0.66% 0.54% 0.66%
Return on average stockholders' equity................ 3.73% 3.75% 3.53% 3.69%
Efficiency ratio...................................... 71.46% 70.90% 71.98% 70.77%
---------------At------------
June 30, September 30,
1999 1998
------ ------
Tangible book value ................................... $14.72 $14.46
Market price (closing price at end of period).......... $11.75 $13.00
Selected Ratios
Loans to deposits..................................... 74.62% 81.96%
Allowance for loan losses to loans.................... 0.94% 0.95%
Equity to total assets................................ 14.69% 16.63%
Consolidated net income for the nine month period ended June 30, 1999 was
$416,000, a decline of $48,000 or 10.3% from the same period last year. Diluted
earnings per share increased 1 cent to 46 cents or 2.2% over a year ago. The
decrease in net income for the nine month period can be attributed to lower net
interest income, which declined $180,000, and to a $6,000 increase in the
provision for loan losses, offset by a $47,000 decline in non-interest expenses
and a $69,000 increase in non-interest income.
-11-
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, 1999 was
$148,000, a decrease of $9,000 or 5.7% from the same period last year. Diluted
earnings per share increased 1 cent to 16 cents per share over the three month
period ended June 30, 1998. The decrease in net income for the quarter ended
June 30, 1999 compared to the same period a year ago was the result of lower net
interest income off set by higher non-interest income.
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, 1999 vs 1998 June 30, 1999 vs 1998
Change Due to Change Due to
Analysis of change in net interest income Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest income:
Loans.................................................... $ 18 $ (91) $(73) $(26) $(143) $(169)
Investment securities & interest bearing deposits 199 (7) 192 470 (72) 398
Federal funds sold....................................... (16) (3) (19) (21) (9) (30)
---- ----- ---- ---- ----- -----
Total interest income............................. 201 (101) 100 423 (224) 199
Interest expense
Deposits................................................. 128 (37) 91 196 49 245
Advances from FHLB....................................... 63 (1) 62 145 (4) 141
Notes payable............................................ (3) - (3) (7) - (7)
---- ----- ---- ---- ----- -----
Total interest expense........................... 188 (38) 150 334 45 379
---- ----- ---- ---- ----- -----
Net interest income........................................ $ 13 $ (63) $(50) $ 89 $(269) $(180)
==== ===== ==== ==== ===== =====
-12-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Analysis of changes in net interest income
Three Months Ended Nine Months Ended
June 30, 1998 vs 1997 June 30, 1998 vs 1997
Change Due to Change Due to
Analysis of change in net interest income Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest income:
Loans.................................................. $369 $ 48 $417 $ 883 $ 398 $1,281
Investment securities & interest bearing deposits 225 (68) 157 821 (363) 458
Federal funds sold..................................... 15 15 30 42 43 85
---- ---- ---- ------ ----- ------
Total interest income........................... 609 (5) 604 1,746 78 1,824
Interest expense - -
Deposits............................................... 410 (48) 362 1,179 (141) 1,038
Advances from FHLB..................................... 3 2 5 8 8 16
Notes payable.......................................... 6 6 12 25 10 35
---- ---- ---- ------ ----- ------
Total interest expense......................... 419 (40) 379 1,212 (123) 1,089
---- ---- ---- ------ ----- ------
Net interest income...................................... $190 $ 35 $225 $ 534 $ 201 $ 735
==== ==== ==== ====== ===== ======
Total interest income for the three and nine month periods ended June 30, 1999
increased $100,000 and $199,000, respectively, from the comparable periods a
year ago. Interest expense for the three and nine periods ended June 30, 1999
increased $150,000 and $379,000, respectively, over the same periods last year.
The following tables provides summaries of average assets and liabilities, and
the corresponding average rates earned/paid (in thousands):
Nine Months Ended Nine Months Ended
June 30, 1999 June 30, 1998
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- --------- -------
Interest Earning Assets
Loans................................................ $62,315 $3,941 8.46% $62,706 $4,110 8.76%
Investment securities & interest-bearing deposits 34,604 1,451 5.61% 23,494 1,053 5.99%
Federal funds sold................................... 1,525 55 4.82% 2,081 85 5.46%
------- ------ ----- ------- ------ ----
Total Earning Assets/Average Yield................. 98,444 5,447 7.40% 88,281 5,248 7.95%
Interest Bearing Liabilities
Deposits............................................. 77,604 3,004 5.18% 70,690 2,759 5.22%
Advances from FHLB................................... 3,978 157 5.28% 332 16 6.44%
Notes payable........................................ 363 28 10.31% 470 35 9.96%
------- ------ ----- ------- ------ ----
Total Interest Bearing Liabilities/Average Rate $81,945 3,189 5.20% $71,492 2,810 5.26%
------ ------
Net Interest Income.................................... $2,258 $2,438
====== ======
Net Interest Spread.................................... 2.19% 2.77%
Net Interest Margin.................................... 3.07% 3.69%
-13-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income - continued
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- --------- --------
Interest Earning Assets
Loans................................................ $ 62,984 $1,285 8.18% $62,164 $1,358 8.76%
Investment securities & interest-bearing deposits 38,978 554 5.70% 25,004 362 5.81%
Federal funds sold................................... 901 11 4.90% 2,227 30 5.40%
-------- ------ ----- ------- ------ -----
Total Earning Assets/Average Yield................. 102,863 1,850 7.21% 89,395 1,750 7.85%
Interest Bearing Liabilities
Deposits............................................. 80,636 1,026 5.10% 71,597 935 5.24%
Advances from FHLB................................... 5,261 67 5.11% 315 5 6.37%
Notes payable........................................ 352 9 10.26% 463 12 10.40%
-------- ------ ----- ------- ------ -----
Total Interest Bearing Liabilities/Average Rate $ 86,249 1,102 5.12% $72,375 952 5.28%
------ ------
Net Interest Income.................................... $ 748 $ 798
====== ======
Net Interest Spread.................................... 2.09% 2.58%
Net Interest Margin.................................... 2.92% 3.58%
The decrease in net interest income for the three and nine months ended June 30,
1999 can be attributed to a narrowing interest spread. The net interest spread
declined 49 basis points and 58 basis points, respectively, for the three and
nine month periods ended June 30, 1999 compared with the same periods a year
ago. The narrower net interest spread can be partly attributed to competitive
pressures which kept the Company from lowering interest rates paid on retail
deposits in amounts sufficient to compensate for the decline in the yield on
earnings assets. The cost of funds declined 16 and 4 basis points,
respectively, during the three and nine month periods ended June 30, 1999 from
levels reported for the same periods last year. The yield on earning assets
declined 64 and 55 basis points, respectively, for the three and nine months
ended June 30, 1999 as a result of lower market rates of interest on loans and a
larger balance of lower yielding investment securities and interest-bearing
deposits.
Risk Elements of Loan Portfolio
Non-performing assets included 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,
1999 1998
------------- -------------
Non-accrual loans............................................... $ 644 $ 524
Loans past due 90 days or more and still accruing interest...... 13 57
Foreclosed real estate and other repossessed assets............. 0 9
----- -----
$ 657 $ 590
===== =====
Non-performing assets at June 30, 1999 were .61% of total assets, compared to
.63% of total assets at September 30, 1998. Non-accrual loans at June 30, 1999
consisted primarily of residence real estate loans, commercial and commercial
real estate loans.
-14-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Provision for Loan Losses/Allowance for Loan Losses
The provision for loan losses increased $6,000, for the nine months ended June
30, 1999 compared to the same period a year ago. Increased loan loss recoveries
was the primary reason for no provision for the three months ended June 30,
1999. Loan charge offs totaled $15,000 and $48,000 for the three and nine month
periods ended June 30, 1999 compared to $11,000 and $47,000, respectively,
during the three and nine month periods ended June 30, 1998. Loan recoveries
were $22,000 for the nine months ended June 30, 1999 compared to $14,000 for the
same period last year. The allowance for loan losses at June 30, 1999 was
$599,000 or .94% of outstanding loans compared to $599,000 or .95% at September
30, 1998.
Non-Interest Income
Non-interest income for the three month period ended June 30, 1999 of $142,000
increased $43,000 over the three month period ended June 30, 1998. For the nine
month period ended June 30, 1999 non-interest income of $351,000 increased
$69,000 over the $282,000 reported for the same period last year. The increase
in non-interest income for the three and nine month periods ended June 30, 1999
can be attributed to mortgage banking fees generated by the newly formed
mortgage banking subsidiary, B & L Mortgage, Inc., and from increased insurance
commissions.
Non-Interest Expense
Non-interest expense decreased $47,000 for the nine months ended June 30, 1999
compared to the same period last year. Salary and benefit expense accounted for
the majority of the decrease. The decrease in salary and benefit expense can be
attributed to lower cost associated with the Management Recognition and
Development Plan which amounted to $142,000 during the nine months ended June
30, 1999 compared to $252,000 for the same period last year. Also contributing
to lower salary and benefit expense was the cost of the ESOP plan which amounted
to $87,000, a decreased of $41,000 from the nine months ended June 30, 1998.
Income Taxes
The effective income tax rate for the three months ended June 30, 1999 was 36.7%
compared to 31.7% for the same period last year. The lower effective tax rate
during the quarter ended June 30, 1998 can be attributed to a $12,500 tax credit
received from the Missouri Development Finance Board.
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 sources 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, 1999, total stockholders' equity of $15,800,000 represented 14.7% of
total assets compared to $15,593,000 or 16.6% of total assets at September 30,
1998. These levels of primary capital exceed regulatory requirements and the
Company's peer group average.
-15-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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
26.5% at June 30, 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 June 30,
1999.
Minimum
B & L Bank Required
Ratios at Capital
June 30, 1999 Ratios
------------- --------------
Risk-based capital............................... 29.80% 8.00%
Core capital..................................... 15.50% 4.00%
Tangible capital................................. 15.50% 1.50%
Lafayette County Bank
Under Federal Deposit Insurance Corporation 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, 1999.
Lafayette
County Minimum
Bank Required
Ratios at Capital
June 30, 1999 Ratios
------------- ----------
Risk-based capital..................................... 14.60% 8.00%
Tier 1 capital to net risk-weighted assets............ 13.40% 4.00%
Tangible equity ratio................................. 6.90% 4.00%
YEAR 2000
The Federal Financial Institutions Examination Council requires all insured
financial institutions to complete an inventory of core computer functions and
set priorities for meeting the Year 2000 conversion goals. The Company has
completed the assessment, analysis, planning and renovation phases of its Year
2000 plan. The Company's comprehensive Year 2000 plan addresses all computer
functions, such as those data processing applications processed in-house and
those preformed by third parties, and other non-computer critical functions,
such as building facilities and security systems, to insure they will be
operational when Year 2000 arrives.
-16-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
YEAR 2000 (Con't)
As part of the plan, the Company identified those systems and business
applications which are mission critical, that is, systems and business
applications which, if they failed, would render the Company incapable of
performing core business processes. As of June 30, 1999, renovation and
certification of Year 2000 compliant of such identified mission-critical
applications was completed.
In addition to Year 2000 compatibility of all the Company's applications, the
Year 2000 plan addresses the relationship with loan customers, vendors and
service providers, which the failure of any of these parties to address Year
2000 issues could result in significant disruptions of business and costs to the
Company. The Company has assessed such relationships which are considered to be
material and from the responses received all third-party vendors and service
providers are addressing their Year 2000 readiness. Third-party vendors and
service providers were identified by an analysis of each banking operation
performed.
As a part of the Company's Year 2000 business resumption contingency plan,
provisions have been adopted to follow up on the progress of third-party vendors
and service providers to ascertain their progress in achieving Year 2000
readiness. Such follow up provisions are summarized as follows:
Activating Contingency Plan
Follow up Date Trigger Date
Third-party vendors:
Mission-critical suppliers of data/software that interfaces
with our mission-critical banking systems June 30, 1999 August 31, 1999
Service providers:
Mission-critical providers of utilities i.e. electric
telephone, water and gas June 30, 1999 September 30,1999
If progress is not satisfactory by trigger dates, the contingency plan dictates
the Company is to pursue alternatives.
All compliance certifications received to date have been reviewed and related
software/hardware has been tested in-house to verify Year 2000 readiness. As
future certifications are received they will be tested and verified.
In addition to the analysis of the core banking operations, loan officers
reviewed the potential effect of Year 2000 on the Company's major commercial and
multi-family borrowers. The results of the assessment showed that there was
little or no exposure from any of the Company's large borrowers and no reserves
were considered necessary.
Since all mission-critical software/hardware has been tested and certified Year
2000 compliant, Management's worst-case Year 2000 scenario is that it would be
unable to operate such software/hardware because of electric or telephone
failure. Management's plan to meet this contingency will be to print out all
customer and banking records at December 31, 1999 and to manually post
transactions until such power or telephone failures are restored. Validation of
the Company's Business Resumption Contingency Plan ("BRCP") is scheduled during
the quarter ended September 30, 1999.
The Company has not engaged any independent reviews to report on the Company's
Year 2000 exposure or the BRCP plan . Senior Company operations personnel, not
involved in the development of the BRCP Plan, will review the adequacy and
coverage of the Plan and the results of the validation test. The Company has
used third-party proxy testing of mission-critical banking systems/hardware.
Third-party proxy tests and our own independent tests on banking processes
performed in-house have been completed. The results of those tests revealed that
all mission-critical software/hardware is Year 2000 compliant. Mission-critical
banking processes performed by service providers has been tested by third-party
proxy tests and has been certified Year 2000 compliant.
-17-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
YEAR 2000 (Con't)
The Company estimates that its total costs for Year 2000 remediation will be
approximately $131,000. Expenditures to date total approximately $95,000. Cost
for hardware and software upgrade comprises the largest components of the total
estimated costs. Personnel cost and outside proxy testing cost are included in
the estimate of Year 2000 remediation cost. Year 2000 expenditures are expensed
as incurred. It is not expected that Year 2000 costs or activities will have a
material adverse impact on operations of the Company.
-18-
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
On July 31, 1999 the Corporation announced that it has been authorized by its
Board of Directors to repurchased up to 10% of the Corporation's outstanding
common stock, or 100,869 shares. The repurchases generally would be conducted
through open market purchases, and unsolicited negotiated transactions or other
types of repurchases. No shares will be repurchased directly from directors or
officers of the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8K
Registrant filed no Current Reports on Form 8-K during the quarter ended
June 30, 1999.
-19-
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 8/10/99 By: /s/ William J. Huhmann
------------------- --------------------------
Chief Financial Officer
Date 8/11/99 By: /s/ E. Steva Vialle
------------------- --------------------------
Executive Vice President
-20-