UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending June 30, 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
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Lexington B & L Financial Corp.
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Missouri 43-1739555
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(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
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(Address of principal executive offices) (Zip Code)
816-259-2247
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(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of August 11, 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 [ ] No [ X ]
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
FORM 10-QSB
JUNE 30, 1997
INDEX PAGE
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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 4-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-11
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,
1997 1996
----------------------
(Unaudited)
ASSETS
Cash $ 383 $ 649
Interest-bearing deposits 5,731 5,619
Certificates of deposit 25 2,525
Investment securities available-for-sale, at fair
value 3,506 2,906
Investment securities held-to-maturity (estimated
market value of $1,044 at June 30, 1997 and $1,005
at September 30, 1996) 877 848
Mortgage-backed securities available-for-sale, at
fair value 1,759 2,063
Stock in Federal Home Loan Bank of Des Moines 464 464
Loans receivable (allowance for loan losses of $221
at June 30, 1997 and $201 at September 30, 1996) 45,205 45,348
Accrued interest receivable 271 302
Premises and equipment 366 381
Other assets 649 565
------ ------
TOTAL ASSETS $59,236 $61,670
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $42,085 $42,237
Advances from borrowers for taxes and insurance 130 163
Other liabilities 246 508
------ ------
TOTAL LIABILITIES 42,461 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 June 30, 1997 and September 30, 1996 13 13
Paid-in capital 12,100 12,071
Retained earnings-substantially restricted 8,231 7,649
Unrealized gain on securities available-for-sale,
net of taxes 25 ---
Treasury stock, 126,500 shares at cost (1,925) ---
Unearned ESOP shares (895) (971)
Unearned MRP shares (774) ---
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TOTAL STOCKHOLDERS' EQUITY 16,775 18,762
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $59,236 $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 Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
-----------------------------------
(Unaudited)
INTEREST INCOME
Mortgage loans $ 872 $ 795 $2,626 $2,394
Other loans 69 60 203 123
Investment securities and
interest-bearing deposits 185 161 536 379
Mortgage-backed securities 29 36 93 113
------ ------ ------ ------
TOTAL INTEREST INCOME 1,155 1,052 3,458 3,009
INTEREST EXPENSE ON DEPOSITS 573 602 1,721 1,755
------ ------ ------ ------
NET INTEREST INCOME 582 450 1,737 1,254
PROVISION FOR LOAN LOSSES --- 2 21 12
NET INTEREST INCOME AFTER ------ ------ ------ ------
PROVISION FOR LOAN LOSSES 582 448 1,716 1,242
NON-INTEREST INCOME
Service charges and other fees 8 7 21 18
Commissions, net 6 8 16 20
Income from foreclosed assets --- 1 --- 9
Other 6 22 25 25
------ ------ ------ ------
TOTAL NON-INTEREST INCOME 20 38 62 72
NON-INTEREST EXPENSE
Employee salaries and benefits 157 150 470 404
Occupancy costs 12 15 45 45
Advertising 3 2 10 8
Data processing 8 15 42 46
Federal insurance premiums 7 24 35 73
Other 65 28 269 94
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 252 234 871 670
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 350 252 907 644
INCOME TAXES 124 94 325 222
------ ------ ------ ------
NET INCOME $ 226 $ 158 $ 582 $ 422
====== ====== ====== ======
NET INCOME PER SHARE $ 0.22 $ 0.14 $ 0.53 $ 0.36
====== ====== ====== ======
See accompanying notes to Consolidated Financial Statements
-2-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
June 30,
1997 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 582 $ 422
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20 22
Amortization of premiums and discounts (20) (43)
Gain on sales of foreclosed real estate --- (9)
Provisions for loan losses 21 12
Stock and patronage dividends --- 16
ESOP shares released 105 ---
Changes to assets and liabilities increasing (decreasing)
cash flows:
Accrued interest receivable 31 (71)
Other assets (137) (454)
Other liabilities (222) 27
------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 380 (78)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of mortgage-backed
securities available-for-sale 332 339
Proceeds from maturities of certificates of deposit 2,500 ---
Proceeds from maturities of investment securities
available-for-sale 400 ---
Purchase of certificated of deposit --- (2,500)
Purchase of investment securities available-for-sale (999) (2,001)
Purchase of securities held-to-maturity --- (105)
Loans originated, net of repayments 111 306
Purchase of premises and equipment (6) ---
Proceeds from sales of foreclosed real estate 11 37
------ ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,349 (3,924)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (152) (212) Net decrease in
advances from borrowers for property taxes and insurance (32) (44)
Proceeds from sale of common stock --- 11,109
Funds provided to MRP Trust for purchase of common stock (774) ---
Purchase of treasury stock (1,925) ---
------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,883) 10,853
------ ------
NET INCREASE (DECREASE) IN CASH (154) 6,851
Cash and cash equivalents, beginning of period 6,268 3,583
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,114 $10,434
======= =======
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, 1997 and for the
period then ended included in this report have been prepared by Lexington B & L
Financial Corp. ("Registrant" or "Company") without audit. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation are reflected in the June 30, 1997, interim
financial statements. The results of operations for the period ended June 30,
1997, are not necessarily indicative of the operating results for the full year.
The consolidated interim financial statements as of June 30, 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 is presented for June 30, 1997 and 1996 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). Four percent or
50,600 shares are for the 1996 Management Recognition Plan ("MRP"). The total
number of shares outstanding after the completion of the repurchase program 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 $37,460 and $105,147
for the three and nine months ended June 30, 1997, respectively.
A summary of ESOP shares at June 30, 1997 is as follows:
Shares Allocated 4,076
Shares released for allocation 7,668
Unreleased shares 89,456
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TOTAL 101,200
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Fair value of unreleased shares $1,487,206
=========
NOTE E--Management Recognition Plan
- -----------------------------------
In November 1996, the Board of Directors approved a MRP plan for the benefit of
officers and non-employee directors which authorizes the grant of 50,600 shares
of common stock. The MRP was approved by the Company's shareholders on January
27, 1997. Those eligible to receive benefits under the MRP plan are determined
by members of a committee appointed by the Board of Directors of the Company.
Shares of common stock granted pursuant to the MRP will be in the form of
restricted stock vested ratably over a five-year period following the date of
grant. During the period of restriction, all shares will be held in escrow by
the Company or by the MRP Trust. If a recipient terminates employment for
reasons other than death or disability, the recipient will forfeit all rights to
allocated shares which are then subject to restriction. In the event of the
recipient's death or disability, all restrictions will expire and all allocated
shares will become fully vested. The Company will recognize compensation expense
in the amount of the fair value of the common stock in accordance with the
vesting schedule during the years in which the shares are payable. There were no
shares vested under the plan at June 30, 1997. Accordingly, the company
recognized on compensation expense for the MRP for the nine months ended June
30, 1997.
A summary of MRP shares at June 30, 1997 is as follows:
Shares Allocated ---
Shares released for allocation ---
Unreleased shares 50,600
------
TOTAL 50,600
======
Fair value of unreleased shares $841,225
=======
-5-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F--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.
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. The adoption of SFAS
No. 125 has not had a material effect on the Company's financial position or
results of operations.
NOTE G--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 the
Company. 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.
-6-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE G--Merger Agreement - Continued
- ------------------------------------
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.
The Merger, which is expected to be completed following the completion of the
Company's current fiscal year, is subject to the approval of federal banking
regulators and the shareholders of Lafayette, among other conditions.
-7-
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 nine month periods ended June 30,
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
G--Merger Agreement in Notes to Consolidated Financial Statements included in
this filing.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND SEPTEMBER 30, 1996
- -------------------------------------------------------------------------
FINANCIAL CONDITION. Assets of the Company decreased from $61.7 million at
September 30, 1996, to $59.2 million at June 30, 1997, primarily resulting from
the purchase of treasury stock of the Company and funds provided to the MRP
Trust for purchase of common stock of the Company. Cash and interest-bearing
deposits decreased $0.2 million and certificates of deposit decreased $2.5
million because of the repurchase program and investment of funds. Investment
securities available-for-sale and held-to-maturity increased $0.6 million from
the investment of a portion of the conversion proceeds. Mortgage-backed
securities decreased $0.3 million resulting from monthly principal payments on
existing investments. Total liabilities increased $0.4 million and stockholders'
equity decreased $2.0 million.
Nonperforming assets were $282,000 or 0.48% of total assets at June 30,
1997, compared to $778,000 or 1.3% of total assets at September 30, 1996.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996
- ----------------------------------------------------------------------------
NET INCOME. Net income was $226,000 for the quarter ended June 30, 1997,
compared to $158,000 for the quarter ended June 30, 1996. Net interest income
after provision for loan losses increased $134,000, non-interest income
decreased $18,000 and non-interest expense increased $18,000. Income tax expense
increased $30,000 due to the increase in income before income tax.
NET INTEREST INCOME. Net interest income of $582,000 for the quarter ended
June 30, 1997, increased by $132,000 or 29% from $450,000 for the quarter ended
June 30, 1996. Interest income increased $103,000 while interest expense
decreased $29,000.
INTEREST INCOME. Interest income increased by $103,000, or 10%, from
$1,052,000 for the quarter ended June 30, 1996, to $1,155,000 for the quarter
ended June 30, 1997. Interest income from mortgage loans increased $77,000 from
$795,000 for the quarter ended June 30, 1996, to $872,000 for the quarter ended
June 30, 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 $9,000 from $60,000 for
the quarter ended June 30, 1996, to $69,000 for the quarter ended June 30, 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 $24,000 from
$161,000 for the quarter ended June 30, 1996, to $185,000 for the quarter ended
June 30, 1997. Interest income from mortgage-backed securities decreased $7,000
from $36,000 for the quarter ended June 30, 1996, to $29,000 for the quarter
ended June 30, 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.
-8-
PAGE
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, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996 - CONTINUED
- ----------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense on deposits decreased $29,000 from
$602,000 for the three months ended June 30, 1996, to $573,000 for the three
months ended June 30, 1997. The decrease results from a change in mix of deposit
accounts. The certificates amount decreased in total dollars while savings
deposits increased. The certificate deposits result in higher interest expense
for the Company.
PROVISION FOR LOAN LOSSES. Provision for loan losses decreased $2,000 from
$2,000 for the three months ended June 30, 1996, to no provision for the three
months ended June 30, 1997.
NON-INTEREST INCOME. Non-interest income decreased $18,000 for the quarter
ended June 30, 1997, as compared to the quarter ended June 30, 1996. The
decrease relates primarily to a gain on sale of investment of $17,000 during the
quarter ended June 30, 1996.
NON-INTEREST EXPENSE. Non-interest expense increased $18,000 or 8% from
$234,000 for the quarter ended June 30, 1996, to $252,000 for the quarter ended
June 30, 1997. This increase was primarily due to a $7,000 increase in employee
salaries and benefits which was due to the implementation of the ESOP plan, a
$17,000 decrease in federal insurance premiums resulting from lower assessments
after the one time assessment in September 1996, a decrease of $7,000 in data
processing and a $37,000 increase in other non-interest expenses related to
operating as a public company.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1997, TO THE NINE MONTHS ENDED JUNE
30, 1996
- --------------------------------------------------------------------------------
NET INCOME. Net income for the nine months ended June 30, 1997, increased
$160,000 from $422,000 for the nine months ended June 30, 1996, to $582,000 for
the nine months ended June 30, 1997. The increase was primarily the result of
investing the proceeds from the public offering.
NET INTEREST INCOME. Net interest income was $1,737,000 for the nine months
ended June 30, 1997, an increase of $483,000 from the net interest income of
$1,254,000 for the nine months ended June 30, 1996. Total interest income
increased $449,000 and interest expense decreased $34,000 for the nine months
ended June 30, 1997.
INTEREST INCOME. Total interest income increased $449,000 from $3,009,000
for the nine months ended June 30, 1996, to $3,458,000 for the nine months ended
June 30, 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. The interest income from mortgage loans increased by $232,000 from
$2,394,000 for the nine months ended June 30, 1996, to $2,626,000 for the nine
months ended June 30, 1997. This increase was primarily due to an increases in
average loan balances, loan rates and adjustments on adjustable-rate mortgages.
Interest income on other loans increased $80,000 from $123,000 for the nine
months ended June 30, 1996, to $203,000 for the nine months ended June 30,1997.
This increase was due to an increase in loans and rates on loans.
Interest income on investment securities and interest-earning deposits
increased $157,000 from $379,000 for the nine months ended June 30, 1996, to
$536,000 for the nine months ended June 30, 1997, primarily due to the
investment of proceeds from the public offering.
-9-
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, 1997, TO THE NINE MONTHS ENDED JUNE
30, 1996 - CONTINUED
- --------------------------------------------------------------------------------
INTEREST EXPENSE. Interest expense on deposits decreased $34,000 from
$1,755,000 for the nine months ended June 30, 1996, to $1,721,000 for the nine
months ended June 30, 1997. The decrease was due primarily to lower average
customer deposits for the nine months ended June 30, 1997, as compared to the
nine months ended June 30, 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 $9,000 from
$12,000 for the nine months ended June 30, 1996, to $21,000 for the nine months
ended June 30, 1997. The Company recorded a $20,000 provision to increase its
allowance for loan losses from $201,000 to $221,000 during the nine months ended
June 30, 1997. The increase resulted from management's continuing review of the
loan portfolio.
NON-INTEREST EXPENSE. Non-interest expense increased by $201,000 from
$670,000 for the nine months ended June 30, 1996, to $871,000 for the nine
months ended June 30, 1997. The increase was primarily due to a $66,000 increase
in employee salaries and benefits which was due to the implementation of a
salary continuation plan and implementation of the ESOP plan and a $175,000
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 June
30, 1997, B & L Bank had approved loan commitments totaling $1,091,000 and had
undisbursed loans in process of $539,000.
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 June 30, 1997 certificates of deposit amounted to $34.7 million or 82.5% of B
& L Bank's total deposits, including $19.2 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.
-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
- -------------------------------------------
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 19.8600%
at June 30, 1997, and its short-term liquidity ratio at June 30, 1997 was
14.72%. 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 nine months ended June 30, 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 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 June 30,
1997.
Percent of Adjusted
Amount Total Assets
(Unaudited)
(Dollars in thousands)
Tangible capital $13,271 23.3%
Tangible capital requirement 856 1.5
------ ------
EXCESS $12,415 21.8%
====== ======
Core capital $13,271 23.3%
Core capital requirement 1,712 3.0
------ ------
EXCESS $11,559 20.3%
====== ======
Risk-based capital $13,068 44.1%
Risk-based capital requirement 2,368 8.0%
------ ------
EXCESS $10,700 36.1%
====== ======
-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
Exhibit 27 -- Financial Data Schedule
-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 13, 1997 By:/s/ERWIN OETTING, JR.
---------------------
Erwin Oetting, Jr.
President
Date: August 13, 1997 By:/s/E. STEVA VIALLE
------------------
E. Steva Vialle
Vice President