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 December 31, 1996
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.)
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 [ ]
As of February 10, 1997, 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-QSB
DECEMBER 31, 1996
INDEX PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-9
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 10
ITEM 2 - CHANGES IN SECURITIES 10
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 10
ITEM 5 - OTHER INFORMATION 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, September 30,
1996 1996
------ ------
(Unaudited)
ASSETS
Cash $ 323 $ 649
Interest-bearing deposits 6,916 5,619
Certificates of deposit 1,525 2,525
Investment securities available-for-sale,
at fair value 2,910 2,906
Investment securities held-to-maturity
(estimated market value of $1,016
at December 31, 1996 and $1,005 at
September 30, 1996) 861 848
Mortgage-backed securities available-
for-sale, at fair value 2,018 2,063
Stock in Federal Home Loan Bank of
Des Moines 464 464
Loans receivable (allowance for loan
losses of $201 at December 31, 1996
and September 30, 1996) 45,378 45,348
Accrued interest receivable 342 302
Premises and equipment 375 381
Other assets 538 565
------ ------
TOTAL ASSETS $61,650 $61,670
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $42,337 $42,237
Advances from borrowers for taxes
and insurance 36 163
Other liabilities 265 508
------ ------
TOTAL LIABILITIES 42,638 42,908
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value per
share; 500 shares authorized, none
outstanding --- ---
Common stock, $.01 par value per share;
8,000 shares authorized, 1,265
issued and outstanding at December 31
and September 30, 1996 13 13
Paid-in capital 12,077 12,071
Retained earnings-substantially
restricted 7,854 7,649
Unrealized gain on securities available-
for-sale, net of taxes 14 ---
Unearned ESOP shares (946) (971)
------ ------
TOTAL STOCKHOLDERS' EQUITY 19,012 18,762
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,650 $61,670
======= =======
See accompanying notes to Consolidated Financial Statements
-1-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31,
1996 1995
------ ------
(Unaudited)
Interest Income
Mortgage loans $ 885 $ 790
Other loans 65 48
Investment securities and
interest-bearing deposits 177 93
Mortgage-backed securities 33 39
------ ------
TOTAL INTEREST INCOME 1,160 970
Interest Expense on Deposits 600 575
------ ------
NET INTEREST INCOME 560 395
Provision for Loan Losses 1 ---
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 559 395
Non-interest Income
Service charges and other fees 7 9
Commissions, net 5 11
Income from foreclosed assets --- 8
Other 8 ---
------ ------
TOTAL NON-INTEREST INCOME 20 28
Non-interest Expense
Employee salaries and benefits 129 104
Occupancy cost 15 14
Advertising 6 6
Data processing 14 13
Federal insurance premium 26 24
Other 68 42
------ ------
TOTAL NON-INTEREST EXPENSE 258 203
------ ------
INCOME BEFORE INCOME TAXES 321 220
Income Taxes 116 69
------ ------
NET INCOME $ 205 $ 151
====== ======
Net Income Per Share $ .18 *
*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)
Three Months Ended
December 31,
1996 1995
------ ------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 205 $ 151
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 7 7
Amortization of premiums and discounts (10) (14)
Gain on sales of foreclosed real estate --- (8)
Provisions for loan losses 1 ---
Stock and patronage dividends --- (9)
ESOP shares released 31 ---
Changes to assets and liabilities increasing
(decreasing) cash flows
Accrued interest receivable (41) (2)
Other assets (26) (4)
Other liabilities (197) 28
------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (30) 149
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of
mortgage-backed securities available-for-sale 59 160
Proceeds from maturities of certificates of
deposit 1,000 ---
Loans originated, net of repayments (31) 127
Proceeds from sales of foreclosed real estate --- 40
------ ------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,028 327
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 100 462
Net decrease in advances from borrowers for
property taxes and insurance (127) (121)
------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (27) 341
------ ------
NET INCREASE IN CASH 971 817
Cash and cash equivalents, beginning of period 6,268 3,582
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,239 $4,399
====== ======
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 December 31, 1996 and the
period then ended 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 December 31, 1996 interim financial statements. The results of
operations for the period ended December 31, 1996 are not necessarily
indicative of the operating results for the full year. The consolidated
interim financial statements as of December 31, 1996 should be read in
conjunction with the Registrant's audited consolidated financial statements as
of September 30, 1996 and for the year then ended included in the
Registrant's 1996 Annual Report to Shareholders.
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 of $566,046 were $12,083,954, 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 December 31, 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 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 $31,417 for the
three months ended December 31, 1996.
A summary of ESOP shares at December 31, 1996 is as follows:
Shares committed for release 6,632
Unreleased shares 94,568
-------
TOTAL 101,200
Fair value of unreleased shares $1,276,668
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 the Company's shares held by the ESOP 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.
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", as amended by FASB 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125". SFAS 125, as amended, 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 accounted 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.
-5-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E--Accounting Changes (Continued)
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 receivables 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 material changes in results
of operations during the three months periods ended December 31, 1996 and 1995
as well as those material changes in liquidity and capital resources that have
occurred since September 30, 1996.
The following should be read in conjunction with the Company's 1996 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.
Comparison of the three months ended December 31, 1996 to the three months
ended December 31, 1995 Financial Condition. Cash decreased $326,000,
interest-bearing deposits increased $1,297,000 and certificates of deposit
decreased $1,000,000 during the quarter ended December 31, 1996. These
changes resulted from a restructuring of the mix of interest-bearing deposits
and certificates of deposit.
Nonperforming assets were $566,000 or .92% of total assets at December 31,
1996, compared to $778,000 or 1.3% of total assets at September 30, 1996.
Net Income. Net income was $205,000 for the quarter ended December 31,
1996, compared to $151,000 for the quarter ended December 31, 1995. Net
interest income after provision for loan losses increased $164,000,
non-interest income decreased $8,000 and non-interest expense increased
$55,000. Income tax expense increased $47,000 due to the increase in income
before income tax.
Net Interest Income. Net interest income of $560,000 for the quarter
ended December 31, 1996 increased by $165,000 or 42% from $395,000 for the
quarter ended December 31, 1995. Interest income increased $190,000 while
interest expense increased $25,000.
Interest Income. Interest income increased by $190,000 or 20% from
$970,000 for the quarter ended December 31, 1995 to $1,160,000 for the quarter
ended December 31, 1996. Interest income from loans receivable increased
$95,000 from $790,000 for the quarter ended December 31, 1995 to $885,000 for
the quarter ended December 31, 1996. The increase was due to an increase in
the average balance of loans outstanding and upward interest rate adjustments
on adjustable rate mortgages. Interest income on other loans increased by
$17,000 from $48,000 for the quarter ended December 31, 1995 to $65,000 for
the quarter ended December 31, 1996. The increase was due to an increase in
both the average balance of loans outstanding and rates earned on loans.
Interest and dividend income on investment securities and interest bearing
deposits increased $84,000 from $93,000 for the quarter ended December 31,
1995 to $177,000 for the quarter ended December 31, 1996. This increase was
primarily due to proceeds from the stock conversion being invested in
investment securities and interest-bearing deposits. Interest income from
mortgage-backed securities decreased $6,000 from $39,000 for the quarter ended
December 31, 1995 to $33,000 for the quarter ended December 31, 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.
Non-interest Expense. Non-interest expense increased $55,000 or 27%
from $203,000 for the quarter ended December 31, 1995 to $258,000 for the
quarter ended December 31, 1996. This increase was primarily due to a $25,000
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 plan and a $26,000 increase in other non-interest
expenses related to compliance with public company requirements.
-7-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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.
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. At
December 31, 1996, B & L Bank had approved loan commitments totaling $595,000
and had undisbursed loans in process of $275,000.
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. Non-interest expense as a percentage of average
assets at 1.68% 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 December 31, 1996 certificates of deposit amount to $38 million or 83.7% of
B & L Bank's total deposits, including $19.1 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 currently 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
22.41% at December 31, 1996 and its short-term liquidity ratio at December 31,
1996 was 18.54%. 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.
-8-
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)
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 December 31, 1996.
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in thousands)
------- -----------
Tangible capital $12,843 21.6%
Tangible capital requirement 893 1.5
------- -----------
EXCESS $11,950 20.1%
Core capital $12,843 21.6%
Core capital requirement 1,785 3.0
------- -----------
EXCESS $11,058 18.6%
Risk-based capital $12,978 43.8%
Risk-based capital requirement 2,373 8.0
------- -----------
EXCESS $10,605 35.8%
-9-
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
-10-
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: February 10, 1997 By: /s/ Erwin Oetting, Jr.
President and Chief Executive Officer
Date: February 10, 1997 By: /s/ E. Steva Vialle
Treasurer and Chief Financial Officer