UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 March 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-28120
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Lexington B & L Financial Corp.
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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
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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
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As of May 13, 1998, there were 1,120,761 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes No X
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
FORM 10-QSB
March 31, 1998
INDEX PAGE
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PART I - FINANCIAL INFORMATION
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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 8-12
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 13
ITEM 2 - CHANGES IN SECURITIES 13
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 13
ITEM 5 - OTHER INFORMATION 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31, September 30,
1998 1997
------------------------
(Unaudited)
ASSETS
Cash 2,595 $ 635
Interest-bearing deposits 6,449 6,183
Certificates of deposit 25 25
Investment securities
Available-for-sale, at fair value 735 1,709
Held-to-maturity (estimated market value of $15,079
at March 31, 1998 and $1,048 at September 30, 1997) 14,885 878
Mortgage-backed securities available-for-sale, at
fair value 1,356 1,669
Federal Funds sold 2,225 ---
Stock in Federal Home Loan Bank of Des Moines 578 464
Loans receivable (allowance for loan losses of $598
at March 31, 1998 and $221 at September 30, 1997) 62,261 45,873
Accrued interest receivable 663 282
Premises and equipment 959 360
Cost in excess of net assets acquired 1,049 ---
Other assets 737 705
------- -------
TOTAL ASSETS $94,517 $58,783
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $76,090 $42,694
Advances from borrowers for taxes and insurance 77 169
Advances from Federal Home Loan Bank of Des Moines 340 ---
Notes Payable 463 ---
Other liabilities 520 268
------- -------
TOTAL LIABILITIES 77,490 43,131
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 at March 31, 1998
and September 30, 1997 13 13
Paid-in capital 12,232 12,115
Retained earnings-substantially restricted 8,364 8,225
Unearned ESOP shares (818) (869)
Unearned MRDP shares (479) (656)
Unrealized gain on securities available-for-sale,
net of taxes 9 29
Treasury stock, 144,239 at March 31, 1998 and
206,500 at September 30, 1997, at cost (2,294) (3,205)
------- -------
TOTAL STOCKHOLDERS' EQUITY 17,027 15,652
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $94,517 $58,783
======= =======
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,
1998 1997 1998 1997
------------------ -----------------
(Unaudited) (Unaudited)
Interest Income
Mortgage loans $ 995 $ 869 $2,060 $1,754
Other loans 378 69 691 134
Investment securities and
interest-bearing deposits 317 174 636 351
Federal funds sold 30 --- 55 ---
Mortgage-backed securities 26 31 56 64
----- ----- ----- -----
TOTAL INTEREST INCOME 1,746 1,143 3,498 2,303
Interest Expense
Deposits 908 568 1,824 1,148
FHLB advances 5 --- 11 ---
Notes payable 11 --- 23 ---
----- ----- ----- -----
TOTAL INTEREST EXPENSE 924 568 1,858 1,148
----- ----- ----- -----
NET INTEREST INCOME 822 575 1,640 1,155
Provision for Loan Losses 4 20 9 21
----- ----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 818 555 1,631 1,134
Non-interest Income
Service charges and other fees 50 6 121 13
Commissions, net 7 5 21 10
Income from foreclosed assets --- --- 1 ---
Gain (loss) on sale of investments 1 --- --- ---
Other 25 11 40 19
----- ----- ----- -----
TOTAL NON-INTEREST INCOME 83 22 183 42
Non-interest Expense
Employee salaries and benefits 421 164 832 313
Occupancy costs 48 18 90 33
Advertising 10 1 20 7
Data processing 30 20 56 34
Federal insurance premiums 11 2 21 28
Other 179 136 306 204
----- ----- ----- -----
TOTAL NON-INTEREST EXPENSE 699 341 1,325 619
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 202 236 489 557
Income Taxes 81 85 182 201
----- ----- ----- -----
NET INCOME $ 121 $ 151 $ 307 $ 356
===== ===== ===== =====
Basic Earnings Per Share $ 0.12 $ 0.13 $ 0.31 $ 0.31
===== ===== ===== =====
Diluted Earnings Per Share $ 0.12 $0.13 $0.30 $0.31
===== ===== ===== =====
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,
1998 1997
-----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 307 $ 356
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 48 13
Amortization of premiums and discounts (1) (17)
Provisions for loan losses 9 21
Amortization of acquisition premium 37 ---
ESOP shares released 86 68
Amortization of deferred recognition and retention plan 177 ---
Amortization of salary continuation plan costs 29 ---
Changes to assets and liabilities increasing (decreasing)
cash flows
Accrued interest receivable 5 (68)
Other assets (57) (66)
Other liabilities 16 (191)
------ -----
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 656 116
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of mortgage-backed securities
available-for-sale 399 136
Proceeds from maturities of certificates of deposit --- 1,000
Proceeds from maturities of investment securities
available-for-sale 6,564 400
Purchase of investment securities available-for-sale --- (999)
Purchase of mortgage-backed securities available-for-sale (93) ---
Purchase of securities held-to-maturity (6,067) ---
Loans originated, net of repayments (244) 688
Purchase of premises and equipment (246) ---
Cash paid in the acquisition of Lafayette Bancshares, Inc. (1,245) ---
Cash acquired in acquisition of Lafayette Bancshares, Inc. 1,551 ---
------- -----
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 619 1,225
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,041 122
Net increase in Federal funds sold (150) ---
Net decrease in advances from borrowers for property
taxes and insurance (92) (74)
Repayment of note payable (125) ---
Dividends (168) ---
Purchase of treasury stock (555) (2,177)
------- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 951 (2,129)
------- -------
NET INCREASE (DECREASE) IN CASH 2,226 (788)
Cash and cash equivalents, beginning of period 6,818 6,268
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,044 $5,480
======= ======
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 accompanying consolidated interim financial statements as of March 31,
1998 and for the six and three month periods then ended include the accounts
of Lexington B & L Financial Corp. and it majority-owned subsidiaries , B & L
Bank, Lafayette County Bank and B & L Financial Services Corp. This report
has been prepared by Lexington B & L Financial Corp. ("Registrant" or
"Company") without audit. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation are reflected in the March 31, 1998, interim financial
statements. The results of operations for the period ended March 31, 1998,
are not necessarily indicative of the operating results for the full year.
The consolidated interim financial statements as of March 31, 1998, should be
read in conjunction with the Registrant's audited consolidated financial
statements as of September 30, 1997 and for the year then ended included in
the Registrant's 1997 Annual Report to Shareholders. The significant
accounting policies followed in the preparation of the quarterly financial
statements are the same as disclosed in the 1997 Annual Report to stockholders
to which reference is made.
NOTE B--Allowance for Loan Losses
- ---------------------------------
The following is a summary of the allowance for loan losses (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Balance, beginning of period.... $ 592 $201 $221 $200
Allowance for loan losses of
acquired bank.................. --- --- 391 ---
Provision for loan losses....... 4 20 9 21
Recoveries on loans............. 9 --- 13 ---
Charge-offs..................... (7) --- (36) ---
----- ----- ----- -----
Balance, end of period.......... $ 598 $221 $598 $221
===== ===== ===== =====
At March 31, 1998, non-performing assets were $442,000, which was .70% of
total loans and .47% of total assets. This balance consisted of $334,000 in
loans not accruing interest, $26,000 in loans past due 90 days and still
accruing interest, and $82,000 in foreclosed real estate and other repossessed
assets.
NOTE C--Investment Securities
- -----------------------------
Investment securities, consist of the following at March 31, 1998 and
September 30, 1997 (in thousands)
March 31, September 30,
1998 1997
---- ----
Available for Sale, at fair value:
U.S. government and federal agency obligations.. $ 735 $1,709
------ ------
Held to Maturity, at amortized cost:
U.S. government and federal agency obligations.. 13,262 ---
State and municipal obligations................. 1,623 878
------- ------
Total held to maturity.......................... $14,885 $ 878
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-4-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE D--Earnings Per Share
- --------------------------
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128).
The Statement requires restatement of all prior-period earnings per share
("EPS") data presented. It replaces the presentation of primary EPS with
basic EPS and requires dual presentation of basic and diluted EPS on the face
of the statement of income. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period(s). Diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue common
stock were excise red or converted into common stock.
During October 1997, the Company repurchased 33,850 shares of stock (3% of
outstanding shares). The total number of shares outstanding at March 31,
1998, after this purchase and the issuance of 96,111 shares in connection with
the acquisition of Lafayette Bancshares, Inc. is 1,120,761. The following
presents the computation of EPS (in thousands, except per share data):
Three Months Ended Six Months Ended
1998 1997 1998 1997
------------------ ----------------
Basic Earnings Per Share:
Income available to common
stockholders $ 121 $ 151 $ 307 $ 356
===== ===== ===== =====
Average common shares outstanding 987 1,127 982 1,144
===== ===== ===== =====
Basic earnings per share $0.12 $0.13 $0.31 $0.31
===== ===== ===== =====
Diluted Earnings Per Share:
Income available to common
stockholders $ 121 $ 151 $ 307 $ 356
===== ===== ===== =====
Average common shares outstanding 987 1,127 982 1,144
Dilutive potential common shares
outstanding due to common stock
options and awards 39 ---- 38 ---
----- ----- ----- -----
Average number of common shares
and dilutive potential shares
outstanding 1,026 1,127 1,020 1.144
===== ===== ===== =====
Diluted earnings per share $0.12 $0.13 $0.30 $0.31
===== ===== ===== =====
-5-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE E--Employee Stock Ownership Plan
- -------------------------------------
In connection with the conversion to stock, 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 f all active participants.
Benefits generally become 25% vested after each year of credited service
beyond one year. Vesting is accelerated upon retirement, death or disability
of the participant. Forfeitures are returned to B & L Bank or reallocated to
other participants to reduce future funding costs. Benefits may be payable
upon retirement, death, disability or separation from service. Since B & L
Bank's annual contributions are discretionary, benefits payable under the ESOP
cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position
("SOP") 93-6, Employers' Accounting for Employee Stock Ownership Plans.
Accordingly, the debt of the ESOP is eliminated in consolidation and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated statements of financial condition. Contributions to the ESOP
shall be sufficient to pay principal and interest currently due under the loan
agreement. As shares are committed to be released from collateral, the
Company reports compensation expense equal to the average market price of the
shares for the respective period, and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt and accrued interest. ESOP
compensation expense was $42,815 and $86,191 for the three and six months
ended March 31, 1998, respectively, compared to $36,270 and $67,687 for the
three months and six months ended March 31, 1997, respectively.
A summary of ESOP shares at March 31, 1998 is as follows:
Shares Allocated.............................................. 14,300
Shares released for allocation................................ 5,112
Unreleased shares............................................. 81,788
----------
TOTAL 101,200
==========
Fair value of unreleased shares............................... $1,347,375
==========
-6-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F--Management Recognition Plan
- ------------------------------------
The Board of Directors adopted (November 27, 1996) and shareholders
subsequently approved (January 27, 1997) a management recognition and
development plan ("MRDP"). Under the MRDP, common stock of 50,600 shares was
awarded to certain directors, officers and employees of the Company and Bank.
The award will not require any payment by the recipients and will vest over
five years beginning one year after the date of the award (June 11, 1997).
There were no shares vested under the plan March 31, 1998. The Company
recognized $88,341 and $176,682 for the three and six months ended March 31,
1998, respectively, and no expense for the same periods ended March 31, 1997.
NOTE G -- Stock Options
- -----------------------
The Company has authorized the adoption of a stock option plan. Under the
stock option plan, options to acquire 126,500 shares of the Company's common
stock may be granted to certain officers, directors and employees of the
Company and subsidiaries. The options will enable the recipient to purchase
stock at an exercise price equal to the fair market value of the stock at the
date of the grant. On June 11, 1997, the Company granted options for 101,200
shares for $15.125 per share. The options will vest over the five years
following the date of grant and are exercisable for up to ten years.
NOTE H--Acquisition
- -------------------
On October 1, 1997, the Company acquired Lafayette Bancshares, Inc., the
holding company for Lafayette County Bank, for $2,587,000 comprised of
$1,039,000 in cash and 96,111 shares of stock valued at $1,548,000. In
addition, the Company acquired the remaining minority interest of Lafayette
County Bank for cash amounting to $196,000. Also, approximately $195,000 of
expenses were incurred in connection with the acquisition. The transaction
was accounted for under the purchase method of accounting, with $1,073,000
recorded as cost in excess of net assets acquired.
NOTE I--Year 2000
- -----------------
The Federal Financial Institutions Examination Council requires all insured
financial institutions to complete an inventory of core computer functions and
set priorities for meeting Year 2000 conversion goals. As of March 31, 1998,
hardware and software application have been assessed and all mission critical
application have been identified. All Year 2000 non compliant hardware is
under contract for replacement by October 1998. Also, the Company has been
informed by software vendors that all mission critical applications are, or
will be, fully tested and Year 2000 compliant by December 31, 1998. Other
non-critical hardware and software applications are currently being tested for
Year 2000 compliance and if not compliant will be upgraded or replaced by
March 31, 1999. The Company will perform independent testing on all mission
critical application on or before March 31, 1999. Estimated cost to the
Company is not expected to be material. A budget of $50,000 has been set up
for new hardware, software and testing.
-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 six month periods ended March 31, 1998 and
1997 as well as those material changes in liquidity and capital resources that
have occurred since September 30, 1997.
On October 1, 1997, the Company completed its acquisition of Lafayette
Bancshares, Inc., the holding company of Lafayette County Bank ("Lafayette").
See Note H--Acquisition in Notes to Consolidated Financial Statements included
in this report.
The following should be read in conjunction with the Company's 1997 Annual
Report to Shareholders, which contains the latest audited financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained therein. Therefore,
only material changes in financial condition and results of operation are
discussed herein.
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
Per Share Data
Basic earnings per share......... $ .12 $ .13 $ .31 $ .31
Diluted earnings per share....... .12 .13 .30 .31
Cash dividends................... .15 -- .15 --
Book value....................... 15.19 14.79
Market price (closing price at
end of period).................. 16.47 14.94
Selected Ratios
Loans to deposits................ 81.83% 107.45%
Allowance for loan losses
to loans........................ .95% .48%
Equity to total assets........... 18.01% 26.63%
Return on equity................. 2.86% 3.28% 3.65% 3.83%
Return on assets................. .52% .99% .66% 1.16%
Efficiency ratio................. 75.25% 57.12% 70.76% 51.71%
Summary
Consolidated net income for the six month period ended March 31, 1998 was
$307,000; a $49,000 decline or 13.8% from the same period last year. Basic
earnings per share of 31 cents were unchanged from a year ago. Diluted
earnings per share decreased 1 cent from the 31 cents per share earned for the
six month period ended March 31, 1997. The increase in net interest income of
$485,000 and in non-interest income of $141,000, was offset by a $706,000
increase in non-interest expense. The provision for loan losses decreased
$12,000 from the amount provided last year.
Second quarter net income was $121,000, a decrease of $30,000 or 19.9% from
the second quarter of 1997. Basic and diluted earnings per share of 12 cents
decreased one cent from the levels reported for the quarter ended March 31,
1997. In the second quarter, an increase in net interest income of $247,000
and non-interest income of $61,000, was offset by an increase in non-interest
expenses of $358,000. The provision for loan losses was $16,000 lower in the
second quarter of 1998 compared to second quarter of 1997.
Primarily the increases recorded for the three and six months ended March 31,
1998 can be attributed to the inclusion of the operating results of Lafayette
County Bank on October 1, 1998, which was accounted for by the purchase method
of accounting.
-8-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income
The following table summarizes the changes in net interest income, by major
categories of earning assets and interest bearing liabilities, identifying
changes related to volume and rate. Changes not solely due to volume or rate
changes are allocated pro rata to volume and rate. Management believes this
allocation method, applied on a consistent basis, provides meaningful
comparisons between periods (in thousands):
Analysis of change in net interest income
Three Months Ended Six Months Ended
March 31, 1998 vs 1997 March 31, 1998 vs 1997
---------------------- ----------------------
Change Due To Change Due To
------------- -------------
Average Average Average Average
Volume Rate Total Volume Rate Total
------- ------- ----- ------- ------- -----
Interest income:
Loans............ $ 403 $ 32 $ 435 $ 789 $ 74 $ 863
Investment
securities...... 240 ( 102) 138 472 (181) 291
Federal funds
sold............ 15 15 30 28 27 55
Time deposits.... (30) 30 0 (41) 27 (14)
Total interest ---- ---- ----- ----- ---- ----
income.......... 628 (25) 603 1,248 (53) 1195
Interest expense
Deposits......... 378 (38) 340 751 (75) 676
Advances from Federal
Home Loan Bank of
Des Moines...... 3 2 5 6 5 11
Notes payable..... 5 6 11 11 12 23
Total interest ---- ---- ----- ----- ---- ----
expense.......... 386 (30) 356 768 (58) 710
---- ---- ---- ---- ---- ----
Net interest
income........... 242 $ 5 $ 247 $ 480 $ 5 $ 485
==== ===== ===== ===== ===== =====
Total interest income for the six month period ended March 31, 1998 increased
$1,195,000 or 51.9%, over the comparable period a year ago, and increased
$603,000 or 52.8% for the latest three month period over the same period last
year. Interest expense for the six and three month periods ended March 31,
1998, increased $710,000 or 61.8% and $356,000 or 62.7%, respectively, over
the same periods a year ago. The following table provides summaries of
average assets and liabilities and the corresponding average rates earned/paid
on a fully tax equivalent basis (in thousands).
-- Six Months Ended -- -- Six Months Ended --
-- March 31, 1998 -- -- March 31, 1997 --
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ------ ------- ------- ------
Interest Earning
Assets
Loans........... $ 63,579 $ 2,751 8.68% $ 45,046 $ 1,888 8.41%
Investment
securities..... 18,344 622 6.82% 6,332 304 9.63%
Interest-bearing
deposits. ..... 4,395 105 4.79% 8,055 120 2.49%
Federal funds
sold........... 2,007 55 5.50% ---- --- .---
Total Earning
Assets/ -------- ------- ---- -------- ------- ----
Average Yield.. 88,325 3,533 8.02% 59,433 2,312 7.80%
Interest Bearing
Liabilities
Deposits........ 70,237 1,824 5.21% 42,048 1,148 5.48%
Advances from
FHLB........... 340 11 6.49% --- --- ---
Notes payable... 473 23 9.75% .--- .--- .---
Total Interest -------- ------- ---- -------- ------- ----
Bearing
Liabilities/
Average Rate... $ 71,050 $ 1,858 5.24% $ 42,048 $ 1,148 5.48%
Net Interest ------- -------
Income......... $ 1,675 $ 1,164
Net Interest ======= =======
Spread......... 2.78% 2.32%
Net Interest
Margin......... 3.80% 3.93%
-9-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net Interest Income - continued
--Three Months Ended -- --Three Months Ended --
-- March 31, 1998 -- -- March 31, 1997 --
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ----- ------- ------- -----
Interest Earning
Assets
Loans.......... $ 63,927 $ 1,373 8.71% $ 44,891 $ 938 8.47%
Investment
securities.... 18,148 312 6.97% 6,363 163 10.39%
Interest-bearing
deposits...... 4,528 51 4.57% 8,039 49 2.48%
Federal funds
sold.......... 2,210 30 5.50% --- ---- ----
------ ----- ----- ------ ----- ------
Total Earning
Assets/Average
Yield......... 88,813 1,766 8.06% 59,293 1,150 7.87%
Interest Bearing
Liabilities
Deposits....... 70,920 908 5.19% 42,155 568 5.47%
Advances from
FHLB.......... 340 5 5.96% ---- --- ---
Notes payable.. 463 11 10.00% ---- --- ---
------ ----- ----- ------ ----- ------
Total Interest
Bearing Liabilities/
Average Rate... $71,723 924 5.22% $ 42,155 568 5.47%
------ ------
Net Interest
Income......... $ 842 $ 582
====== ======
Net Interest
Spread........ 2.84% 2.40%
Net Interest
Margin........ 3.84% 3.98%
Net interest income for the six month period ended March 31, 1998 was
$1,640,000, a 42.0% increase over the same period last year, and for the
quarter was $822, 000, a 43.0% increase over the same quarter a year ago. As
indicated in the above schedule higher volumes of earning assets accounted for
the majority of the increase in net interest income. A majority of the
increased volume can be attributed to the inclusion of the operations of
Lafayette in the amounts reported for the six and three month periods ended
March 31, 1998. Also, contributing to the increase in net interest earnings
was an improvement in the net interest spread. For the six and three months
periods ended March 31, 1998, the net interest spread increased 22 basis
points to 2.78% and 44 basis points to 2.84%,respectively.
Risk Elements of Loan Portfolio
Non-performing assets include non-accrual loans, loans 90 days or more
delinquent and still accruing interest, foreclosed real estate and other
repossessed assets. The following table presents non-performing assets for
the periods indicated, (in thousands):
March 31, September 30,
1998 1997
---- ----
Non-accrual loans........................... $ 334 $ 394
Loans past due 90 days or more and
still accruing interest.................... 26 ---
Foreclosed real estate and other
repossessed assets......................... 82 ---
----- -----
Total non-performing assets......... $ 442 $ 394
===== =====
Non performing assets at March 31, 1998 were .47% of total assets, compared
to .67% of total assets at September 30, 1997. Non- accrual loans at March
31, 1998 consisted primarily of residence real estate loans, commercial and
commercial real estate loans.
-10-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Provision for Loan Losses/Allowance for Loan Losses
The provision for loan losses declined $12,000 or 57.1% and $16,000 or 80.0%,
respectively, for the six months and three months ended March 31, 1998
compared to the six and three month periods ended March 31, 1997. Loan charge
offs totaled $36,000 and $8,000 for the six and three month period ended March
31, 1998. There were no loans charged off during the same periods last year.
Loan recoveries were $13,000 and $9,000, respectively, for the six and three
month periods ended March 31, 1998. No loan recoveries were received last
year. The allowance for loan losses at March 31, 1998 was $598,000 or .95% of
outstanding loans compared to $221,000 or .48% at September 30, 1997. The
increase in the allowance for loan losses at March 31, 1998 is the result of
loan reserves acquired in the acquisition of Lafayette.
Non-Interest Income
Non-interest income for the six month period ended March 31, 1998 of $183,000
increased $141,000 over the six month period ended March 31, 1997. During the
quarter ended March 31, 1998, non-interest income totaled $83,000 an increased
$61,000 over the 1997. The increase can be attributed to service charge income
and insurance commissions earned during the quarter and six month periods
ended March 31, 1998 from the operations of Lafayette.
Non-Interest Expense
Non-interest expense of $1,325,000 and $699,000, respectively, for the six and
three months ended March 31, 1998, increased $706,000 and $358,000 over the
comparable periods a year ago. Salaries and benefit cost increased $519,000
during the six month period ended March 31, 1998 and $257,000 in the latest
three month period over the same periods last year. This increase was
primarily due to salary and benefit cost of Lafayette of $295,000 and
$154,000, respectively, for the six and three month periods ended March 31,
1998 which have been included since the beginning of the Company's fiscal
year on October 1, 1997. Also, contributing to the increase in salary and
benefits expense was cost associated with the Management Recognition
Development Plan awards totaling $176,000 and $88,000, respectively, for the
six and three months ended March 31, 1998. Other expense increased $102,000
and $43,000, respectively, for the six and three month periods ended March 31,
1998 over the same periods last year. Included in the increase in other
expenses is the amortization of goodwill on acquisition of Lafayette amounting
to $35,000 and $18,000, respectively, for the six and three month periods
ended March 31, 1998. Also, contributing to the increase in other expenses
and all other categories non-interest expenses in fiscal year 1998 over 1997,
were the expenses incurred by Lafayette since the date of acquisition.
Liquidity and Capital Resources
The Company's subsidiaries, B & L Bank and Lafayette County Bank, must
maintain an adequate level of liquidity to ensure availability of sufficient
funds to support loan growth and deposit withdrawals, satisfy financial
commitments and to take advantage of investment opportunities.
The primary source of liquidity for the Company's subsidiaries is liability
liquidity, which is the ability to raise new funds and renew maturing
liabilities. Principal sources of liability liquidity are customer deposits
and advances from Federal Home Loan Bank, of which both bank subsidiaries are
members. Asset liquidity is typically provided through proceeds from
principal and interest payments on loans, mortgage-backed securities,
investment securities and net operating income. While maturities and
scheduled maturities and amortization of loans, investment securities and
mortgage-backed securities are somewhat predictable source of funds; deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
Liquid funds necessary for normal daily operations are maintained with the
Federal Home Loan Bank of Des Moines ("FLHB") and correspondent banks. Excess
funds over balances required to cover bank charges for services, are sold in
overnight Federal funds or transferred to time deposit accounts at the FHLB.
At March 31, 1998, total stockholders' equity of $17,027,000 represented 18.0%
of total assets compared to $15,652,000 or 26.6% of total assets at September
30, 1997. These levels of primary equity exceed regulatory requirements and
the Company's peer group average.
-11-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources-continued
B & L Bank
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. B & L Bank's liquidity ratio
was 15.1% at March 31, 1998. B & L Bank consistently maintains liquidity
levels in excess of regulatory requirements, and believes this is an
appropriate strategy for proper asset and liability management.
The Office of Thrift Supervision requires institutions such as B & L Bank to
meet certain tangible, core, and risk-based capital requirements. Tangible
capital generally consists of stockholders' equity minus certain intangible
assets. Core capital general consists of stockholders' equity. The
risk-based capital requirements presently address risk related to both
recorded assets and off-balance sheet commitments and obligations. The
following table summarizes B & L Bank's capital ratios and the ratios required
by regulation at March 31, 1998.
Minimum
B & L Bank Required
Ratios at Capital
March 31, 1998 Ratios
-------------- ---------
Risk-based capital.............. 41.8% 8.0%
Core capital.................... 21.9% 3.0%
Tangible capital................ 21.9% 1.5%
Lafayette County Bank
The Federal Deposit Insurance Corporation adopted capital-related regulations
under FDICA. Under those regulations, a bank will be adequately capitalized
if it: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio
of Tier I capital to risk-adjusted assets of 4% or greater, (iii) had a ratio
of Tier I capital to adjusted total assets of 4% or greater, (iv) was not
subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital level for
any capital measure. The following table summaries Lafayette County Bank's
capital ratios and ratios required by regulation at March 31, 1998.
Lafayette Minimum
County Bank Required
Ratios at Capital
March 31, 1998 Ratios
-------------- --------
Risk-based capital................ 15.3% 8.0%
Tier 1 capital to net
risk-weighted assets............. 14.1% 4.0%
Tangible equity ratio............. 7.3% 4.0%
-12-
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor its subsidiaries, B & L Bank and Lafayette County
Bank, are parties to any material legal proceedings at this time. From time
to time B & L Bank and Lafayette County Bank are involved in various claims
and legal actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Annual Meeting of Stockholders of the Company ("Meeting") was held on
January 13, 1998. 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
-------- -------------
E. Steva Vialle 981,408 1,200
Glenn H. Twente 977,908 4,700
The terms of Directors Erwin Oetting, Jr., Steve Olario, Norman Vialle and
Charles Wilcox continued on after the meeting.
Broker non-votes totalled - 0- .
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 -- Financial Data Schedule
-13-
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 13, 1998 By: /s/ E. Steva Vialle
------------ -------------------------
Date May 13, 1998 By: /s/ William J. Huhmann
------------ -------------------------
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