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 March 31, 1997
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)
816-259-2247
(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 May 7, 1997, there were 1,087,900 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
MARCH 31, 1997
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 7-10
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 11
ITEM 2 - CHANGES IN SECURITIES 11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 11
ITEM 5 - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31, September 30,
1997 1996
------------------------------
(Unaudited)
ASSETS
Cash $ 680 $ 649
Interest-bearing deposits 4,800 5,619
Certificates of deposit 1,525 2,525
Investment securities available-for-sale,
at fair value 3,495 2,906
Investment securities held-to-maturity
(estimated market value of $1,036 at
March 31, 1997 and $1,005 at September
30, 1996) 871 848
Mortgage-backed securities
available-for-sale, at fair value 1,959 2,063
Stock in Federal Home Loan Bank
of Des Moines 464 464
Loans receivable (allowance for loan
losses of $221 at March 31, 1997
and $201 at September 30, 1996) 44,628 45,348
Accrued interest receivable 369 302
Premises and equipment 368 381
Foreclosed real estate 11 ---
Other assets 578 565
-------- ----------
TOTAL ASSETS $59,748 $61,670
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $42,359 $42,237
Advances from borrowers for taxes
and insurance 88 163
Other liabilities 796 508
-------- --------
TOTAL LIABILITIES 43,243 42,908
Commitments and contingencies
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 at March 31, 1997
and September 30, 1996 13 13
Paid-in capital 12,088 12,071
Retained earnings-substantially restricted 8,005 7,649
Unrealized gain on securities
available-for-sale, net of taxes 18 ---
Treasury stock, 177,100 shares at cost (2,699) ---
Unearned ESOP shares (920) (971)
------- -------
TOTAL STOCKHOLDERS' EQUITY 16,505 18,762
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $59,748 $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 Six Months Ended
March 31, March 31,
1997 1996 1997 1996
-----------------------------------------------
(Unaudited)
INTEREST INCOME
Mortgage loans $ 869 $ 782 $1,754 $1,572
Other loans 69 49 134 97
Investment securities and
interest-bearing deposits 174 91 351 184
Mortgage-backed securities 31 38 64 77
------ ------ ------ ------
TOTAL INTEREST INCOME 1,143 960 2,303 1,930
Interest Expense on Deposits 568 578 1,148 1,153
------ ------ ------ ------
NET INTEREST INCOME 575 382 1,155 777
Provision for Loan Losses 20 10 21 10
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 555 372 1,134 767
NON-INTEREST INCOME
Service charges and other fees 6 2 13 11
Commissions, net 5 1 10 12
Income from foreclosed assets --- --- --- 8
Other 11 5 19 5
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 22 8 42 36
NON-INTEREST EXPENSE
Employee salaries and benefits164 108 313 212
Occupancy costs 18 15 33 29
Advertising 1 1 7 7
Data processing 20 18 34 31
Federal insurance premiums 2 33 28 48
Other 136 32 204 83
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 341 207 619 410
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 236 173 557 393
Income Taxes 85 66 201 135
------ ------ ------ ------
NET INCOME $ 151 $ 107 $ 356 $ 258
====== ====== ====== ======
Net Income Per Share $ 0.13 * $ 0.31 *
====== ====== ====== ======
* 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)
Six Months Ended
March 31,
1997 1996
-----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 356 $ 258
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 13 14
Amortization of premiums and discounts (17) (29)
Gain on sales of foreclosed real estate --- (8)
Provisions for loan losses 21 ---
Stock and patronage dividends --- (9)
ESOP shares released 68 ---
Changes to assets and liabilities increasing
(decreasing) cash flows
Accrued interest receivable (68) (12)
Other assets (66) (225)
Other liabilities (191) 20
-------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 116 9
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of
mortgage-backed securities available-for-sale 136 238
Proceeds from maturities of certificates of deposit 1,000 ---
Proceeds from maturities of investment
securities available-for-sale 400 ---
Purchase of investment securities available-for-sale (999) ---
Loans originated, net of repayments 688 363
Purchase of life insurance policies to fund
salary continuation plan --- (453)
Proceeds from sales of foreclosed real estate --- 40
-------- ------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 1,225 188
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 122 965
Net decrease in advances from borrowers for
property taxes and insurance (74) (103)
Purchase of treasury stock (2,177) ---
------- -------
NET CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES (2,129) 862
NET INCREASE (DECREASE) IN CASH (788) 1,059
Cash and cash equivalents, beginning of period 6,268 3,582
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,480 $4,641
======= ======
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 March 31, 1997 and for the
period then ended included in this report have been prepared by the 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 March 31,
1997, interim financial statements. The results of operations for the period
ended March 31, 1997, are not necessarily indicative of the operating results
for the full year. The consolidated interim financial statements as of March
31, 1997, 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, the 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 March 31, 1997
based on the average shares issued and outstanding during the period. During
March, 1997 the Company repurchased 177,100 shares of stock (14% of
outstanding shares). The total number of shares outstanding after the buy back
is 1,087,900.
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
("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 $36,270 and $67,687 for the three and six months ended March 31,
1997, respectively.
A summary of ESOP shares at March 31, 1997 is as follows:
Shares Allocated 4,076
Shares released for allocation 5,112
Unreleased shares 92,012
------
TOTAL 101,200
=======
Fair value of unreleased shares $1,403,183
==========
NOTE E--Accounting Changes
Effective June 5, 1996, the Company adopted 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 Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities", as amended by SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125". SFAS No. 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.
-5-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E--Accounting Changes (Continued)
SFAS No. 125 extends the "available for sale" or "trading" approach in SFAS
No. 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 No. 125 also amends
SFAS No. 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 No. 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)
extinguishment of liabilities.
SFAS No. 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 No. 125 approach to certain nonsecurity
financial assets and the amendment of SFAS No. 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 No. 125 will have a
material effect on B & L Bank's financial position or results of operations.
NOTE F--Merger Agreement
The Company on March 12, 1997, announced the execution of a definitive
agreement between Lafayette Bancshares, Inc., the holding company for
Lafayette County Bank that will result in Lafayette County Bank becoming a
subsidiary of Lexington B & L Financial Corp. Lafayette County Bank,
headquartered in Lexington, Missouri, had total assets of $32.5 million at
December 31, 1996. It has three full service offices, one in Lexington, one in
Wellington and one in Callao, Missouri.
In the transaction, Lafayette shareholders will receive a combination of cash
plus shares of Lexington common stock for each share of Lafayette common
stock. Under the terms of the agreement, Lafayette's shareholders would
receive $0.92 in cash plus 0.0977 shares of Lexington common stock for each
share of Lafayette common stock if Lexington's common stock price is between
$12.00 and $14.00 per share. If Lexington's common stock price is $12.00 or
less, Lafayette shareholders would receive $0.92 in cash plus $1.17 in value
of Lexington common stock for each share of Lafayette common stock. If
Lexington's common stock price is $14.00 or more, Lafayette shareholders would
receive $0.92 in cash plus $1.37 in value of Lexington common stock for each
share of Lafayette common stock. The calculation of Lexington's common stock
price will be based upon the average closing price of Lexington common stock
for the 20 trading days prior to the effective date of the acquisition.
Based on Lexington's stock price of $14.75 on March 11, 1997, the transaction
would be valued at approximately $2,587,000, representing an exchange value of
$2.29 for each Lafayette share. In connection with the acquisition, Lexington
expects to use approximately 105,000 of its treasury stock purchased in March,
1997 at an average price of $15.24.
The Merger, which is expected to be completed in late third or early fourth
calendar quarter of 1997, is subject to the approval of federal banking
regulators and the shareholders of Lafayette, among other conditions.
-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 and six month periods ended March 31, 1997 and
1996 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.
The Company on March 12, 1997, announced the execution of a definitive
agreement between Lafayette Bancshares, Inc., the holding company for
Lafayette County Bank that will result in Lafayette County Bank becoming a
subsidiary of Lexington B & L Financial Corp. The transaction is fully
explained in NOTE F--Merger Agreement in Notes to Consolidated Financial
Statements included in this filing.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND SEPTEMBER 30, 1996
FINANCIAL CONDITION. Assets of the Company decreased from $61.7 million at
September 30, 1996, to $59.8 million at March 31, 1997, primarily resulting
from the purchase of treasury stock of the Company. Cash and interest-bearing
deposits decreased $0.8 million and certificates of deposit decreased $1.0
million. Investments securities and mortgage-backed securities increased $0.5
million and loans decreased $0.7 million. Total liabilities increased $0.3
million and stockholders' equity decreased $2.3 million.
Nonperforming assets were $368,000 or 0.62% of total assets at March 31, 1997,
compared to $778,000 or 1.3% of total assets at September 30, 1996.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
NET INCOME. Net income was $151,000 for the quarter ended March 31, 1997,
compared to $107,000 for the quarter ended March 31, 1996. Net interest income
after provision for loan losses increased $183,000, non-interest income
increased $14,000 and non-interest expense increased $134,000. Income tax
expense increased $19,000 due to the increase in income before income tax.
NET INTEREST INCOME. Net interest income of $575,000 for the quarter ended
March 31, 1997, increased by $193,000 or 51% from $382,000 for the quarter
ended March 31, 1996. Interest income increased $183,000 while interest
expense decreased $10,000.
INTEREST INCOME. Interest income increased by $183,000 or 19% from $960,000
for the quarter ended March 31, 1996, to $1,143,000 for the quarter ended
March 31, 1997. Interest income from mortgage loans increased $87,000 from
$782,000 for the quarter ended March 31, 1996, to $869,000 for the quarter
ended March 31, 1997. 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 $20,000
from $49,000 for the quarter ended March 31, 1996, to $69,000 for the quarter
ended March 31, 1997. 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
$83,000 from $91,000 for the quarter ended March 31, 1996, to $174,000 for the
quarter ended March 31, 1997. 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 $7,000 from $38,000 for the quarter ended March 31, 1996, to $31,000
for the quarter ended March 31, 1997. The decrease resulted from the monthly
proceeds from principal payments on mortgage-backed securities creating a
decrease in the average balances in the investment.
-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 MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996 - CONTINUED
INTEREST EXPENSE. Interest expense on deposits decreased $10,000 from
$578,000 for the three months ended March 31, 1996, to $568,000 for the three
months ended March 31, 1997. The decrease results from a change in mix of
deposit accounts. The certificates amount decreased in total dollars while
savings deposits amount increased. The certificate deposits result in higher
interest expense for the Company.
PROVISION FOR LOAN LOSSES. Provision for loan losses increased $10,000 from
$10,000 for the three months ended March 31, 1996, to $20,000 for the three
months ended March 31, 1997. The Company recorded a $20,000 provision to
increase its' allowance for loan losses from $201,000 to $221,000 during the
quarter. The increase resulted from management's continuing review of the loan
portfolio.
NON-INTEREST INCOME. Non-interest income increased $14,000 for the quarter
ended March 31, 1997, as compared to the quarter ended March 31, 1996. The
increase was primarily the result of earnings on life insurance polices
purchased to fund deferred compensation agreements with present employees.
NON-INTEREST EXPENSE. Non-interest expense increased $134,000 or 65% from
$207,000 for the quarter ended March 31, 1996, to $341,000 for the quarter
ended March 31, 1997. This increase was primarily due to a $56,000 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 $104,000 increase in other non-interest expenses related
to operating as a public company.
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1997, TO THE SIX MONTHS ENDED
MARCH 31, 1996
NET INCOME. Net income for the six months ended March 31, 1997, increased
$98,000 from $258,000 for the six months ended March 31, 1996, to $356,000 for
the six months ended March 31, 1997. The increase was primarily the result of
investing the proceeds from the public offering.
NET INTEREST INCOME. Net interest income was $1,155,000 for the six months
ended March 31, 1997, an increase of $378,000 from the net interest income of
$777,000 for the six months ended March 31, 1996. Total interest income
increased $373,000 and interest expense decreased $5,000 for the six months
ended March 31, 1997.
INTEREST INCOME. Total interest income increased $373,000 from $1,930,000
for the six months ended March 31, 1996, to $2,303,000 for the six months
ended March 31, 1997. The increase was primarily due to increases in interest
income on mortgage loans and other loans and investment of a portion of the
conversion proceeds in interest-bering deposits and other investments. The
interest income from mortgage loans increased by $182,000 from $1,572,000 for
the six months ended March 31, 1996, to $1,754,000 for the six months ended
March 31, 1997. This increase was primarily due to an increases in average
loan balances, loan rates and adjustments on adjustable-rate mortgages. The
interest income on other loans increased $37,000 from $97,000 for the six
months ended March 31, 1996, to $134,000 for the six months ended March
31,1997. This increase was due to an increase in loans and rates on loans.
Interest income on investment securities and interest-earning deposits
increased $167,000 from $184,000 for the six months ended March 31, 1996, to
$351,000 for the six months ended March 31, 1997, primarily due to the
investment of proceeds from the public offering.
-8-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1997, TO THE SIX MONTHS ENDED
MARCH 31, 1996 - CONTINUED
INTEREST EXPENSE. Interest expense on deposits decreased $5,000 from
$1,153,000 for the six months ended March 31, 1996, to $1,148,000 for the six
months ended March 31, 1997. The decrease was due primarily to lower average
customer deposits for the six months ended March 31, 1997, as compared to the
six months ended March 31, 1996, during which time the public interest in the
conversion and stock offering resulted in higher deposits.
PROVISION FOR LOAN LOSSES. Provision for loan losses increased $11,000 from
$10,000 for the six months ended March 31, 1996 to $21,000 for the six months
ended March 31, 1997. The Company recorded a $20,000 provision to increase its
allowance for loan losses from $201,000 to $221,000 during the six months
ended March 31, 1997. The increase resulted from management's continuing
review of the loan portfolio.
NON-INTEREST EXPENSE. Non-interest expense increased by $209,000 from
$410,000 for the six months ended March 31, 1996, to $619,000 for the six
months ended March 31, 1997. The increase was primarily due to a $101,000
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 $121,000 increase in other non-interest
expenses primarily related to operating as a public company,
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
March 31, 1997, B & L Bank had approved loan commitments totaling $1,011,000
and had undisbursed loans in process of $393,000.
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 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 March 31, 1997 certificates of deposit amount to $35 million or 82.6% of
B & L Bank's total deposits, including $19.0 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.
-9-
PAGE
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 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 21.00%
at March 31, 1997, and its short-term liquidity ratio at March 31, 1997 was
15.91%. 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.
During the quarter ended March 31, 1997, the company repurchased 177,100
shares at an average price of $15.24 per share. Approximately 50,600 shares
will be used to fund the Company's 1997 Management Recognition and Development
Plan. The Company has completed the repurchase program authorized by the Board
of Directors in March 1997.
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 March 31, 1997.
Percent of Adjusted
Amount Total Assets
------ ------------
(Unaudited)
(Dollars in thousands)
Tangible capital $13,027 22.6%
Tangible capital requirement 864 1.5
------- -----
EXCESS $12,163 21.1%
======= ======
Core capital $13,027 22.6%
Core capital requirement 1,729 3.0
-------- -----
EXCESS $11,298 19.6%
======== =====
Risk-based capital $13,189 45.0%
Risk-based capital requirement 2,343 8.0
-------- -----
EXCESS $10,846 37.0%
======== =====
-10-
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
The Annual Meeting of Stockholders of the company ("Meeting") was held on
January 27, 1997. The results of the vote on the matters presented at the
Meeting is as follows:
1. The following individuals were elected as directors, each for a
three-year term:
Vote For Vote Withheld
Norman Vialle 1,046,246 16,480
Charles R, Wilcoxen 1,046,976 10,750
The terms of Directors Erwin Oetting Jr., E. Steva Vialle, Steve Oliaro
and Glenn H. Twente continued after the meeting.
2. The Lexington B & L Financial Corp. 1996 Stock Option Plan was
approved by stockholders by the following vote:
For: 818,345 ; Against: 79,488 ; Abstain: 3,442
----------- ----------- --------
Broker non-votes totalled: 161,451
3. The Lexington B & L Financial Corp. 1996 Management Recognition and
Development Plan was approved by stockholders by the following
vote:
For: 798,376 ; Against: 89,628 ; Abstain: 13,442
----------- ----------- ---------
Broker non-votes totalled: 161,451
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on March 17, 1997, reporting under Item
5 the execution of an Agreement Plan of Merger with Lafayette Bancshares, Inc.
and Lafayette County Bank of Lexington/Wellington.
-11-
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: May 14, 1997 By:/s/ERWIN OETTING, JR.
---------------------
Erwin Oetting, Jr.
President
Date: May 14, 1997 By:/s/E. STEVA VIALLE
-------------------
E. Steva Vialle
Chief Financial Officer