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, 1995
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. Employer
Incorporation or organization) Identification No.)
P.O. Box 190, Lexington, MO 64067
(Address of principal executive offices) (Zip Code)
816-257-2447
(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 [ ]
*The registrant became subject to the filing requirements of the Act on April
11, 1996 upon consummation of the conversion of The Lexington Building & Loan
Association, F.A. (currently known as B & L Bank) from the mutual to stock
form of ownership.
As of August 9, 1996, there were 1,265,000 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes [ X ] No [ ]
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
FORM 10-QBS
JUNE 30, 1996
INDEX PAGE
- - ----- ----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-11
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 12
ITEM 2 - CHANGES IN SECURITIES 12
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 12
ITEM 5 - OTHER INFORMATION 12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, September 30,
1996 1995
(Unaudited)
------- -------
ASSETS
Cash and cash equivalents, including interest-
bearing accounts of $9,727 at June 30, 1996 and
$2,908 at September 30, 1995 $10,434 $ 3,583
Certificates of deposit 2,525 25
Investment securities available-for-sale 2,898 893
Investment securities held-to-maturity
(estimated market value of $1,054 at June 30,
1996 and $841 at September 30, 1995) 875 718
Mortgage-backed securities available-for-sale 2,177 2,535
Stock in Federal Home Loan Bank of Des Moines 464 455
Loans receivable, net (reserves for loan losses
of $201 at June 30, 1996 and September 30, 1995) 40,809 41,111
Accrued interest receivable 224 152
Premises and equipment, net 387 408
Foreclosed real estate --- 28
Other assets 501 73
------- -------
TOTAL ASSETS $61,294 $49,981
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $42,190 $42,401
Advances from borrowers for taxes and insurance 130 174
Other liabilities 236 211
TOTAL LIABILITIES 42,556 42,786
Commitments and contingencies
Common stock, $.01 par value per share; 8,000
shares authorized, 1,265 issued and outstanding 13 ---
Paid-in capital 12,109 ---
Retained earnings-substantially restricted 7,611 7,189
Unrealized gain on securities available-for-sale,
net of taxes --- 6
Unearned compensation (995) ---
TOTAL STOCKHOLDERS' EQUITY 18,738 7,195
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,294 $49,981
See accompanying notes to Consolidated Financial Statements
-1-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Interest Income:
Interest on mortgage loans $ 795 $ 755 $ 2,394 $ 2,166
Interest on other loans 60 40 123 104
Interest and dividend income on
investment securities and interest-
bearing deposits 161 90 379 214
Mortgage-backed securities 36 45 113 140
-------- -------- -------- --------
TOTAL INTEREST INCOME 1,052 930 3,009 2,624
Interest Expense:
Customer deposits 602 548 1,755 1,428
-------- -------- -------- --------
NET INTEREST INCOME 450 382 1,254 1,196
Provision for losses on loans 2 18 12 33
NET INTEREST INCOME AFTER PROVISION -------- -------- -------- --------
FOR LOAN LOSSES 448 364 1,242 1,163
Noninterest Income:
Service charges and other fees 7 5 18 34
Commissions, net 8 8 20 16
Income from foreclosed assets 1 1 9 2
Loss on sale of investments --- --- --- (47)
Other 22 1 25 4
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 38 15 72 9
Noninterest Expense:
Employee salaries and benefits 150 79 404 267
Occupancy cost 15 13 45 39
Federal insurance premium 24 23 73 69
Data processing 15 12 46 37
Advertising 2 2 8 7
Expense on foreclosed real estate --- --- --- 8
Other 28 40 94 109
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSE 234 169 670 536
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 252 210 644 636
Income Taxes 94 76 222 222
-------- -------- -------- --------
NET INCOME $ 158 $ 134 $ 422 $ 414
Earnings per share $ .14 * $ .36 *
*Operating as The Lexington Building & Loan Association, F.A., a mutual
institution.
See accompanying notes to Consolidated Financial Statements
-2-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
June 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 422 $ 414
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22 18
Amortization of premiums and discounts (43) (40)
(Gain) loss on sales of foreclosed real estate (9) (1)
Loss on sales of securities available-for-sale --- 47
Provisions for losses on loans receivable 12 33
Stock and patronage dividends 16 ---
Changes to assets and liabilities increasing/(decreasing)
cash flows:
Accrued interest receivable (71) (29)
Other assets (454) 15
Other liabilities 27 (72)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (78) 385
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of mortgage-backed
securities available-for-sale 339 407
Proceeds from sales of securities available-for-sale --- 430
Proceeds from maturities of certificates of deposit --- 769
Loans originated, acquired and principal payments
on loans receivable, net 306 (957)
Proceeds from sales of foreclosed real estate 37 70
Purchase of certificates of deposit (2,500) ---
Purchase of securities held-to-maturity (105) ---
Purchase of securities available-for-sale (2,001) ---
Purchase of premises and equipment --- (21)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,924) 698
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (212) 1,324
Net decrease in advances from borrowers for
property taxes and insurance (44) (27)
Proceeds from sale of common stock 11,109 ---
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,853 1,297
-------- --------
NET INCREASE IN CASH 6,851 2,380
Cash, beginning of period 3,583 1,295
-------- --------
CASH, END OF PERIOD $10,434 $ 3,675
See accompanying notes to Consolidated Financial Statements
-3-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Presentation
The consolidated interim financial statements as of June 30, 1996 included in
this report have been prepared by the Registrant 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, 1996
interim financial statements. The results of operations for the period ended
June 30, 1996 are not necessarily indicative of the operating results for the
full year. The September 30, 1995 Consolidated Statement of Financial
Condition presented with the interim financial statements was audited and
received an unqualified opinion.
NOTE B--Formation of Holding Company and Conversion to Stock Form
On June 5, 1996, Lexington B & L Financial Corp. ("Registrant" or "Company")
became the holding company for The Lexington Building & Loan Association, F.A.
& Subsidiary upon the Association's conversion from a federally chartered
mutual savings and loan association to a federally chartered capital stock
savings bank. In connection with the conversion, The Lexington Building &
Loan Association, F.A. changed its name to B & L Bank. The conversion was
accomplished through the sale and issuance by the Registrant of 1,265,000
shares of common stock at $10 per share. Proceeds from the sale of common
stock, net of expenses incurred to date of $528,565 were $12,121,435,
inclusive of $1,012,000 related to shares held by B & L Bank's Employee Stock
Ownership Plan ("ESOP"). The financial statements included herein have not
been restated as a result of the consummation of the conversion.
NOTE C--Earnings Per Share
Earnings per share data is not relevant for any period prior to June 30, 1996
since the Registrant had no stockholders prior to the initial stock offering
completed June 5, 1996. Earnings per share is presented for June 30, 1996
based on the average shares issued and outstanding during the period.
NOTE D--Employee Stock Ownership Plan
In connection with the conversion to stock form as described in Note B, 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.
-4-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D--Employee Stock Ownership Plan (Continued)
The Company accounts for its ESOP in accordance with Statement of Position
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 balance
sheets. 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 $16,216 for the three
months and nine months ended June 30, 1996.
A summary of ESOP shares at June 30, 1996 is as follows:
Shares committed for release $ 1,653
Unreleased shares 99,547
-------
TOTAL $ 101,200
Fair value of unreleased shares $ 995,470
NOTE E--Accounting Changes
Effective June 5, 1996, the Company adopted Statement of Position ("SOP")
93-6, "Employers' Accounting for Employee Stock Ownership Plans". SOP 93-6
applies to shares acquired by employee stock ownership plans after December
31, 1992 but not yet committed to be released as of the beginning of the year
SOP 93-6 is adopted. SOP 93-6 changes the measure of compensation expenses
recorded by employers for leveraged employee stock ownership plans from the
cost of the ESOP shares to the fair value of the ESOP shares during the
periods in which they become committed to be released. To the extent that
fair value of B & L Bank's ESOP shares differ from the cost of such shares,
the differential will be charged or credited to equity. Employers with
internally leveraged employee stock ownership plans such as the Company will
not report the loans receivable from the ESOP as an asset and will not report
the ESOP debt from the employer as a liability.
B & L Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, an amendment of SFAS No. 114", effective
October 1, 1995. These statements address the accounting by creditors for
impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
small-balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at lower of cost or fair value,
leases, and debt securities. B & L Bank considers all one-to four-family
residential mortgage loans, construction loans, and all consumer and other
loans to be smaller homogeneous loans.
These statements apply to all loans that are restructured involving a
modification of terms. Loans within the scope of these statements are
considered impaired when, based on current information and events, it is
probable that all principal and interest will not be collected in accordance
with the contractual terms of the loans. Management determines the impairment
of loans based on knowledge of the borrower's ability to repay the loan
according to the contractual agreement as well as the borrower's
repayment history.
-5-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E--Accounting Changes (Continued)
Management applies its normal loan review procedures in determining when a
loan is impaired. B & L Bank applies SFAS No. 114 on a loan by loan basis.
All nonaccrual loans are considered impaired. Impaired loans are measured
based on present value of expected cash flows, the loan's observable market
price or the fair value of the underlying collateral. If the value computed
is less than the recorded value, a valuation allowance is recorded for the
difference as a component of the provision for loan loss expense. Management
has elected to continue to use its existing nonaccrual methods for recognizing
interest income on impaired loans.
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. In June, 1995, the FASB issued SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and the extinguishment of
liabilities based on consistent application of a financial components approach
that focuses on control. It distinguishes transfers of financial assets
that are sales from transfers that are secured borrowings. Under the
financial components approach, after a transfer of financial assets, an entity
recognizes all financial and servicing assets it controls and liabilities it
has incurred and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The financial components approach
focuses on the assets and liabilities that exist after the transfer. Many of
these assets and liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the criteria for a sale,
the transfer is accounting for as a secured borrowing with pledge of
collateral.
SFAS 125 extends the "available for sale" or "trading" approach in SFAS 115 to
nonsecurity financial assets that can contractually be repaid or otherwise
settled in such a way that the holder of the assets would not recover
substantially all of its recorded investment. SFAS 125 also amends SFAS 115
to prevent a security from being classified as held to maturity if the
security can be prepaid or otherwise settled in such a way that the holder of
the security would not recover substantially all of its recorded investment.
SFAS 125 provides implementation guidance for accounting for (i)
securitizations, (ii) transfers of partial interests, (iii) servicing of
financial assets, (iv) securities lending transactions, (v) repurchase
agreements including "dollar rolls", (vi) loan syndications and
participations, (vii) risk participations in banker's acceptances, (viii)
factoring arrangements, (ix) transfers of receivable with recourse, (x)
transfers of sales type and direct financing lease receivables, and (xi)
extinguishments of liabilities.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and its to be
applied prospectively. Earlier or retroactive application is not permitted.
In addition, the extension of the SFAS 125 approach to certain nonsecurity
financial assets and the amendment of SFAS 115 is effective for financial
assets held on or acquired after January 1, 1997. Reclassifications that are
necessary because of the amendment do not call into question an entity's
ability to hold other debt securities to maturity in the future. Management
of the Association does not expect the adoption of SFAS 125 will have a
material effect on B & L Bank's financial position or results of operations.
-6-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The discussion and analysis included herein covers certain changes in results
of operations during the three and nine month periods ended June 30, 1996 and
1995 as well as those material changes in liquidity and capital resources that
have occurred since September 30, 1995.
The following should be read in conjunction with the Company's Prospectus
dated April 11, 1996, 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.
Proposed Federal Legislation
The U.S. Congress has passed legislation, which the President is expected to
sign, that would repeal the reserve method of accounting for thrift bad debt
reserves (including the percentage-of-taxable-income) for tax years beginning
after December 31, 1995. This would require B & L Bank to account for bad
debts using the specific charge-off method of the experience method. Under
the proposed legislation, the change in accounting method that eliminates the
reserve method would trigger bad debt reserve recapture for post-1987 excess
reserves over a six-year period. At June 30, 1996, B & L Bank's post-1987
excess reserves amounted to $122,000 which have been provided for in the
income tax provision since 1987. A special provision suspends recapture of
post-1987 excess reserves for up to two years if, during those years, the
institution satisfies a "residential loan requirement". This requirement
would be met if the principal amount of the institution's residential loans
exceeds a base year amount, which is determined by reference to the average of
the institution's loans during the six taxable years ending before January 1,
1996. However, notwithstanding this special provision, recapture would be
required to begin no later than the first taxable year beginning after
December 31, 1997.
The deposits of B & L Bank are presently insured by the Savings Association
Insurance Fund ("SAIF"), which together with the Bank Insurance Fund ("BIF"),
are the two insurance funds administered by the FDIC. On August 8, 1995, the
FDIC revised the premium schedule for BIF-insured banks to provide a range of
.04% to .31% of deposits (as compared to the current range of .23% to .31% of
deposits for SAIF-insured institutions). On November 14, 1995, the FDIC again
revised the premium schedule for BIF-insured institutions to eliminate
premiums for all well capitalized institutions (except for the statutory
minimum annual assessment of $2,000) and to provide a range of .03% to .27% of
deposits for all other institutions. It is anticipated that SAIF will not be
adequately recapitalized until 2002, absent a substantial increase in premium
rates or the imposition of special assessments or other significant
developments, such as a merger of SAIF and BIF. As a result of this
disparity, a recapitalization plan has been proposed, which provides for a
one-time assessment of approximately .80% to be imposed on all deposits
assessed at SAIF rates in order to recapitalize SAIF and eliminate the
disparity. Based on B & L Bank's assessable deposits of $42.7 million at
March 31, 1995 (the measurement date established by the proposed legislation),
a one-time assessment of .80% would equal approximately $342,000 before the
effect of income taxes. Certain aspects of the legislation remain to be
resolved and thereof no assurance can be given as to whether or in what form
the legislation will be enacted or its effect on B & L Bank.
Comparison of the three months ended June 30, 1996 to the three months ended
June 30, 1995
Financial Condition. Cash and cash equivalents increased $5.8 million
during the quarter ended June 30, 1996 resulting primarily from funds received
from stock conversion proceeds. Conversion proceeds funded the majority of
the increases in certificates of deposit, available-for-sale investments and
investments held to maturity. Nonperforming assets were $602,000 or .98% of
total assets at June 30, 1996, compared to $714,000 or 1.4% of total assets at
March 31, 1996.
-7-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Comparison of the three months ended June 30, 1996 to the three months ended
June 30, 1995 (Continued)
Net Income. Net income was $158,000 for the quarter ended June 30, 1996,
compared to $134,000 for the quarter ended June 30, 1995. Net interest income
after provision for loan losses increased $84,000 noninterest income increased
$23,000 and noninterest expense increased $65,000. Income tax expense
increased $18,000 due to the decrease in income before income tax.
Net Interest Income. Net interest income of $450,000 for the quarter
ended June 30, 1996 increased by $68,000 or 18% from $382,000 for the quarter
ended June 30, 1995. Interest income increased $122,000 while interest
expense increased $54,000.
Interest Income. Interest income increased by $122,000 or 13% from
$930,000 for the quarter ended June 30, 1995 to $1,052,000 for the quarter
ended June 30, 1996. Interest income from loans receivable increased $40,000
from $755,000 for the quarter ended June 30, 1995 to $795,000 for the quarter
ended June 30, 1996. The increase was due to upward adjustable rate mortgages
adjustments. Interest income on other loans increased by $20,000 from $40,000
for the quarter ended June 30, 1995 to $60,000 for the quarter ended June 30,
996. The increase was due to an increase in loans and rates on loans.
Interest and dividend income on investment securities and interest bearing
deposits increased $71,000 from $90,000 for the quarter ended June 30, 1995 to
$161,000 for the quarter ended June 30, 1996. This increase was primarily due
to proceeds from the stock conversion being invested in daily interest-bearing
deposits and then a portion of the proceeds invested in investment securities.
Interest income from mortgage-backed securities decreased $9,000 from $45,000
for the quarter ended June 30, 1995 to $36,000 for the quarter ended June 30,
1996. The decrease resulted from the monthly proceeds from principal payments
on mortgage-backed securities creating a decrease in the average balances in
the investment.
Noninterest Expense. Noninterest expense increased $65,000 or 38% from
$169,000 for the quarter ended June 30, 1995 to $234,000 for the quarter ended
June 30, 1996. This increase was primarily due to a $71,000 increase in
employee salaries and benefits which was due to the hiring of additional
employees, implementation of a salary continuation plan and implementation
of the ESOP in the current quarter as well as annual salary increases
effective January 1, 1996.
Comparison of the nine months ended June 30, 1996 to the nine months ended
June 30, 1995
Financial Condition. Total assets for June 30, 1996 increased by $11.3
million as compared to September 30, 1995. Cash and cash equivalents
increased $6.9 million, certificates of deposit increased $2.5 million,
investment securities available-for-sale increased $2.0 million as a result of
stock conversion proceeds.
Nonperforming assets of $574,000 or 1.15% of total assets at September
30, 1995 increased to $602,000 or .98 % of total assets at June 30, 1996.
Net Income. Net income for the nine months ended June 30, 1996 increased
$18,000 from $414,000 for the nine months ended June 30, 1995 to $422,000 for
the nine months ended June 30, 1996. Net interest income after provision for
loan losses increased $79,000 from $1,196,000 for the nine months ended June
30, 1995 to $1,242,000 for the nine months ended June 30, 1996. Noninterest
income increased $63,000, noninterest expense increased $134,000 and income
taxes did not change.
Net Interest Income. Net interest income of $1,254,000 for the nine
months ended June 30, 1996 increased by $58,000 from the net interest income
of $1,196,000 for the nine months ended June 30, 1995. Total interest income
and interest expense increased $385,000 and $327,000, respectively, for the
nine months ended June 30, 1996.
-8-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Comparison of the nine months ended June 30, 1996 to the nine months ended
June 30, 1995 (Continued)
Interest Income. Total interest income increased $385,000 from
$2,624,000 for the nine months ended June 30, 1995 to $3,009,000 for the nine
months ended June 30, 1996. The increase was due primarily from increases in
interest income on mortgage loans, consumer loans and investments securities
and interest bearing deposits. Interest income on mortgage-backed securities
decreased. The interest income from mortgage loans increased by $228,000 from
$2,166,000 for the nine months ended June 30, 1995 to $2,394,000 for the nine
months ended June 30, 1996. This increase was primarily due to adjustable
rate mortgages adjusting upwards. The interest income on other loans
increased $19,000 from $104,000 to $123,000 for the nine months ended June
30,1996. This increase was due to an increase in loans and rates on loans.
Interest and dividend income on investment securities and interest-
bearing deposits increased $184,000 from $214,000 for the nine months ended
June 30, 1995 to $379,000 for the nine months ended June 30, 1996. The
increase was primarily due to increased funds in daily interest-bearing
accounts and investment of the proceeds from the stock conversion. The
interest income on mortgage-backed securities decreased by $27,000 from
$140,000 for the nine months ended June 30, 1995 to $113,000 for the
nine months ended June 30, 1996. The decrease resulted from the monthly
proceeds from principal payments on mortgage-backed securities creating a
decrease in the average balances in the investment. Approximately $339,000 of
principal repayments were received on mortgage-backed securities during the
nine months ended June 30, 1996.
Interest Expense. Total interest expense increased $327,000 from
$1,428,000 for the nine months ended June 30, 1995 to $1,755,000 for the nine
months ended June 30, 1996. The increase was due primarily to higher
customer deposits for most of the nine months ended June 30, 1996, which, in
turn, was due to interest in the conversion and stock offering.
Provision for Loan Losses. Provision for loan losses decreased by
$21,000 for the nine months ended June 30 1996. Actual loan losses, net of
recoveries, were $12,000 and $33,000 for the nine months ended June 30, 1996
and 1995, respectively.
Noninterest Income. Noninterest income increased by $63,000 from $9,000
for the nine months ended June 30, 1995 to $72,000 for the nine months ended
June 30, 1996. The increase was primarily the result of a gain on sale of
equity position in Financial Information Trust of $17,000 during the nine
months ended June 30, 1996 and a loss of $47,000 on FHLB bond to fund
loan demand for the nine months ended June 30, 1995.
Noninterest Expense. Noninterest expense increased by $134,000 from
$536,000 for the nine months ended June 30, 1995 to $670,000 for the nine
months ended June 30, 1996. Employee salaries and benefits increased by
$137,000 resulting from an additional employee, implementation of the salary
continuation plan, implementation of the ESOP and increases in employees'
annual salaries at January 1, 1996. Occupancy costs increased $6,000, federal
insurance premium increased $9,000, advertising costs increased $1,000,
expenses on foreclosed real estate decreased $8,000 and other decreased
$15,000.
Liquidity and Capital Resources
B & L Bank's primary sources of funds are deposits, proceeds from principal
and interest payments on loans, mortgage-backed securities, investment
securities and net operating income. While maturities and scheduled
amortization of loans and mortgage-backed securities are a somewhat
predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
-9-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (Continued)
B & L 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.
During fiscal years 1992, 1993 and 1994, B & L Bank (then The Lexington
Building & Loan Association) used its sources of funds primarily to fund loan
commitments, pay maturing savings certificates and deposit withdrawals. At
June 30, 1996, B & L Bank had approved loan commitments totaling $1.1 million
and had undisbursed loans in process of $320,000.
Liquid funds necessary for normal daily operations are maintained in a working
checking account and a daily time account with the Federal Home Loan Bank of
Des Moines. It is B & L Bank's current policy to maintain adequate collected
balances in those deposit accounts to meet daily operating expenses, customer
withdrawals, and fund loan demand. Funds received from daily operating
activities are deposited on a daily basis in the checking account and
transferred, when appropriate, to the daily time account to enhance income.
Normal daily operating expenses are not expected to change significantly in
the foreseeable future. Noninterest expense as a percentage of average assets
at 1.25% is expected to remain basically constant. Interest expense is
expected to increase gradually as the rates on existing interest bearing
transaction accounts are increased and maturing certificates of deposit are
reinvested at currently higher interest rates. The interest expense increase
is expected to be offset partially as interest rates are increased on current
adjustable-rate loans and securities and as maturing investments are
reinvested at higher interest rates. Customer deposits are expected to remain
stable.
At June 30, 1996, certificates of deposit amount to $38 million or 83.7% of B
& L Bank's total deposits, including $14.4 million of fixed rate certificates
scheduled to mature within twelve months. Historically, B & L Bank has been
able to retain a significant amount of its deposits as they mature. Management
believes it has adequate resources to fund all loan commitments from savings
deposits, loan payments and maturities of investment securities.
The Office of Thrift Supervision requires a thrift institution to maintain an
average daily balance of liquid assets (cash and eligible investments) equal
to at least 5% of the average daily balance of its net withdrawable deposits
and short-term borrowing. In addition, short-term liquid assets currently
must constitute 1% of the sum of net withdrawable deposit accounts plus
short-term borrowings. B & L Bank's liquidity ratio was 34.06% at June 30,
1996 and its short-term liquidity ratio at June 30, 1996 was 30.44%. 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, 1996.
Percent of Adjusted
Amount Total Assets
------ ------------
(Unaudited)
(Dollars in thousands)
Tangible capital $13,660 23.0%
Tangible capital requirement 889 1.5
------- ------
EXCESS $12,771 21.5%
-10-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (Continued)
Percent of Adjusted
Amount Total Assets
------ ------------
(Unaudited)
(Dollars in thousands)
Core capital $13,660 23.0%
Core capital requirement 1,778 3.0
------- ------
EXCESS $11,882 20.0%
Risk-based capital $13,818 50.5%
Risk-based capital requirement 2,187 8.0
------- ------
EXCESS $11,631 42.5%
-11-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor B & L Bank is a party to any material legal
proceedings at this time. From time to time B & L Bank is 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
-12-
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 August 9, 1996 By: /s/ERWIN OETTING, JR.
---------------------
Erwin Oetting, Jr.
President and Chief
Executive Officer
Date August 9, 1996 By: /s/E. STEVA VIALLE
-------------------
E. Steva Vialle
Vice President and
Chief Financial Officer