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, 2001
------------------
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.
------------------------------------
Missouri 43-1739555
- ---------------------------------------- --------------------
(State or other jurisdiction of I.R.S. (I.R.S. Employer
Employer Incorporation or organization) Identification No.)
205 South 13thStreet, 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 4, 2001 there were 783,624 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.
FORM 10-QSB
March 31, 2001
INDEX PAGE
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11-16
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 17
ITEM 2 - CHANGES IN SECURITIES 17
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 17
ITEM 5 - OTHER INFORMATION 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31, September 30,
2001 2000
------------ ---------------
ASSETS (Unaudited)
Cash and due from banks $ 1,711 $ 1,658
Interest-bearing deposits 11,378 3,088
Investment securities
Available-for-sale, at fair value 12,988 7,790
Held-to-maturity (fair value of $14,536 and $21,592, respectively,) 14,483 22,231
Federal funds sold 5,034 1,374
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 618 543
Loans held for sale 484 328
Loans receivable, less allowance for loan losses of $655 at
March 31, 2001 and $648 at September 30, 2000 66,156 64,680
Accrued interest receivable 1,081 1,132
Premises and equipment 4,004 2,832
Foreclosed real estate 32 -
Cost in excess of net assets acquired 826 863
Other assets 1,099 1,168
------------ ---------------
TOTAL ASSETS $ 119,894 $ 107,687
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 93,779 $ 85,339
Advances from borrowers for taxes and insurance 88 180
Advances from FHLB 10,403 7,003
Notes payable 178 178
Other liabilities 963 1,043
------------ ---------------
TOTAL LIABILITIES 105,411 93,743
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares authorized, none issued -
Common stock, $.01 par value; 8,000,000 shares authorized,
1,265,000 shares issued 13 13
Additional paid-in-capital 12,302 12,293
Retained earnings 9,766 9,491
Accumulated other comprehensive income 17 (160)
Unearned ESOP shares (511) (562)
Unearned MRDP shares (43) (77)
Treasury stock at cost (481,376 and 480,827 shares, respectively) (7,061) (7,054)
------------ ---------------
TOTAL STOCKHOLDERS' EQUITY 14,483 13,944
------------ ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 119,894 $ 107,687
============ ===============
See accompanying notes to consolidated financial statements.
-3-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
------------ ------- ------- ------
(Unaudited) (Unaudited)
Interest Income
Mortgage loans $ 1,116 $ 993 $2,223 $1,974
Other loans 358 329 732 667
Investment securities and interest-bearing deposits 512 502 1,022 1,041
Federal funds sold 58 55 92 65
------------ ------- ------- ------
TOTAL INTEREST INCOME 2,044 1,879 4,069 3,747
Interest Expense
Deposits 1,180 1,028 2,298 2,036
Advances from FHLB 73 66 138 133
Notes payable 4 6 8 13
------------ ------- ------- ------
TOTAL INTEREST EXPENSE 1,257 1,100 2,444 2,182
------------ ------- ------- ------
NET INTEREST INCOME 787 779 1,625 1,565
Provision for loan losses 18 14 36 26
------------ ------- ------- ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 769 765 1,589 1,539
Noninterest Income
Service charges and other fees 81 80 169 175
Commission, net 11 16 20 25
Income (loss) from foreclosed assets - (3) (3)
Gain ( loss) on sale of investments 9 - 9 -
Other 19 13 35 29
------------ ------- ------- ------
TOTAL NONINTEREST INCOME 120 106 233 226
Noninterest Expense
Employee compensation and benefits 351 370 699 729
Occupancy costs 53 52 104 101
Advertising 10 7 20 19
Data processing 32 29 58 54
Federal insurance premiums 4 5 8 13
Professional and consulting fees 55 45 89 79
Amortization of intangible assets arising from acquisitions 19 18 38 37
Other 119 101 224 219
------------ ------- ------- ------
TOTAL NONINTEREST EXPENSE 643 627 1,240 1,251
------------ ------- ------- ------
INCOME BEFORE INCOME TAXES 246 244 582 514
Income taxes 80 83 189 167
------------ ------- ------- ------
NET INCOME $ 166 $ 161 $ 393 $ 347
============ ======= ======= ======
Basic Earnings Per Share $ 0.23 $ 0.22 $ 0.55 $ 0.45
============ ======= ======= ======
Diluted Earnings Per Share $ 0.23 $ 0.21 $ 0.54 $ 0.43
============ ======= ======= ======
See accompanying notes to consolidated financial statements.
-4-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
March 31,
2001 2000
------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited)
Net income $ 393 $ 347
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 44 45
Amortization of premiums and discounts (9) (3)
Amortization of deferred loan fees 6 3
Provision for salary continuation plan costs 41 42
Amortization of cost in excess of net assets acquired 37 37
Provision for loan losses 36 26
Origination's of loans held for sale (2,319) (2,185)
Proceeds from sale of loans held for sale 2,091 2,547
Gain (loss) on available-for-sale securities (7) -
ESOP shares released 60 65
Amortization of MRDP 34 61
Changes to assets and liabilities increasing (decreasing) cash flows (93) (62)
------------ --------
NET CASH FLOW PROVIDED BY OPERATING ACTIVIES 314 923
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities / sales of securities available-for-sale 1,737 1,062
Proceeds from maturities/sales of securities held-to-maturity 8,337 1,756
Purchase of securities available-for-sale (6,646) (100)
Purchase of securities held-to-maturity (593) (199)
Purchase of FHLB stock (75) (8)
Net (increase) decrease in federal funds sold (3,660) (4,118)
Loans originated, net of repayments (1,478) 680
Proceeds from sales of foreclosed real estate - 3
Purchase of premises and equipment (1,216) (285)
------------ --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,594) (1,209)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,440 814
Net increase (decrease) in advances from borrowers for property taxes/insurance (92) (103)
Proceeds from FHLB advances 3,500 -
Repayments of FHLB advances (100) (97)
Payment of dividends (118) (119)
Purchase of treasury stock (7) (1,391)
------------ --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,623 (896)
------------ --------
NET INCREASE (DECREASE) IN CASH 8,343 (1,182)
Cash and due from banks, beginning of year 4,746 6,091
------------ --------
CASH AND DUE FROM BANKS, END OF YEAR $ 13,089 $ 4,909
============ ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest $ 2,412 $ 2,175
============ ========
Cash paid for income taxes $ 250 $ 180
============ ========
Noncash investing and financing-loans to facilitate sale of real estate $ - $ 29
============ ========
See accompanying notes to consolidated financial statements.
-5-
LEXINGTON B& L FINANCIAL CORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Dollars in thousands)
Accumulated
Additional Other Unearned Unearned Total
Common Paid-in Retained Comprehensive ESOP MRDP Treasury Stockholders'
Stock Capital Earnings Income Shares Shares Stock Equity
------- -------- ---------- ------------- -------- -------- ---------- -------------
BALANCE AT SEPTEMBER 30,
1999 $ 13 $ 12,277 $ 8,905 $ (133) $ (665) $ (182) $ (5,105) $ 15,110
Comprehensive income:
Net income - - 835 - - - - 835
Other Comprehensive income
(loss) - unrealized loss on
securities available-for-sale,
net of reclassification
adjustments for amounts
included in net income, net
of tax benefit of $28 - - - (27) - - - (27)
------- -------- ---------- ------------- -------- -------- ---------- -------------
Total comprehensive income - - 835 (27) - - - 808
Repurchase of common stock - - - - - - (1,949) (1,949)
Release of ESOP shares - 16 - - 103 - - 119
Release of MRDP shares - - - - - 105 - 105
Dividends paid ($.15 per share) - - (249) - - - - (249)
------- -------- ---------- ------------- -------- -------- ---------- -------------
BALANCE AT SEPTEMBER 30,
2000 13 12,293 9,491 (160) (562) (77) (7,054) 13,944
(Unaudited)
Comprehensive income:
Net income - - 393 - - - - 393
Other Comprehensive income
(loss) - unrealized loss on
securities available-for-sale,
net of tax benefit of $87 181 181
Reclassification adjustment for
gains (losses) arising during the
period, net of tax benefit of $2 - - - (4) - - - (4)
------- -------- ---------- ------------- -------- -------- ---------- -------------
Total comprehensive income - - 393 177 - - - 570
Repurchase of common stock - - - - - - (7) (7)
Release of ESOP shares - 9 - - 51 - - 60
Release of MRDP shares - - - - - 34 34
Dividends paid ($.15 per share) - - (118) - - - - (118)
------- -------- ---------- ------------- -------- -------- ---------- -------------
BALANCE AT MARCH 31, 2001 $ 13 $ 12,302 $ 9,766 $ 17 $ (511) $ (43) $ (7,061) $ 14,483
======= ======== ========== ============= ======== ======== ========== =============
See accompanying notes to consolidated financial statements.
-6-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--Basis of Presentation
- --------------------------------
The consolidated interim financial statements as of March 31, 2001 and for the
period then ended include the accounts of Lexington B & L Financial Corp., and
its wholly-owned subsidiaries, B &L Bank, Lafayette County Bank, and B & L
Mortgage, Inc. 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, 2001, interim financial statements.
The results of operations for the period ended March 31, 2001, are not
necessarily indicative of the operating results that may be expected for the
full year. The consolidated interim financial statements as of March 31, 2001,
should be read in conjunction with the Registrant's audited consolidated
financial statements as of September 30, 2000 and for the year then ended
included in the Registrant's 2000 Annual Report to Shareholders. The significant
accounting policies followed in the preparation of the quarterly financial
statements are the same as disclosed in the 2000 Annual Report to Shareholders
to which reference is made.
NOTE B--Investment Securities
- -------------------------------
Investment securities consist of the following at March 31, 2001 and September
30, 2000 (in thousands):
March 31, September 30,
2001 2000
---------- --------------
Available-for-Sale, at fair value
U.S. Government and federal agencies obligations $ 12,988 $ 7,790
========== ==============
Amortized cost $ 12,962 $ 8,032
========== ==============
Held-to-Maturity, at amortized cost:
U.S. Government and federal agencies obligations 10,383 18,380
State and municipal obligations 4,100 3,851
---------- --------------
Total held-to-maturity $ 14,483 $ 22,231
========== ==============
Fair market value $ 14,536 $ 21,592
========== ==============
NOTE C-Loans
- -------------
The following table summarizes the composition of the loan portfolio as of the
March 31, 2001 and September 30, 2000
(in thousands):
March 31, September 30,
2001 2000
---------- --------------
Mortgage $ 51,683 $ 49,818
Commercial 2,167 1,941
Agriculture 2,691 3,087
Consumer 10,177 10,403
---------- --------------
66,718 65,249
Add deferred loan fees 93 79
---------- --------------
Total loans 66,811 65,328
Less allowance for loan losses 655 648
---------- --------------
Net loans $ 66,156 $ 64,680
========== ==============
-7-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D-Allowance for Loans Losses
- -------------------------------------
The following table is a summary of the activity in the allowance for loan
losses (in thousands):
Three Months Six Month
Ended Ended
March 31, March 31,
2001 2000 2001 2000
------ ------ ------ ------
Balance, beginning of period $ 662 $ 611 $ 648 $ 599
Provision for loan losses 18 14 36 26
Recoveries on loans charged-off 2 1 4 8
Charge-offs (27) (10) (33) (17)
------ ------ ------ ------
Balance, end of period $ 655 $ 616 $ 655 $ 616
====== ====== ====== ======
At March 31, 2001, non-performing assets were $637,000, which was .95% of total
loans and .53% of total assets. This balance consisted of $580,000 in loans not
accruing interest, $25,000 in loans past due 90 days or more and still accruing
interest and $32,000 of other real estate owned.
NOTE D--Deposits
- -----------------
The following table summarizes the composition of deposits as of March 31, 2001
and September 30, 2000 (in thousands):
March 31. September 30,
2001 2000
---------- --------------
Non-interest-bearing $ 5,427 $ 6,164
NOW 9,742 7,378
Money Market 7,013 6,044
Savings 5,872 7,364
Certificates of deposit 65,725 58,389
---------- --------------
Total deposits $ 93,779 $ 85,339
========== ==============
-8-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E-Statement of Comprehensive Income
- --------------------------------------------
The following sets forth the Statement of Comprehensive Income for the three and
six month periods ending March 31, 2001 and 2000,
(in thousands):
Statement of Comprehensive Income
Three Months Ended Six Months Ended
---------------------- ----------------------
March 31, March 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
(Unaudited)
Net income $ 166 $ 161 $ 393 $ 347
Other comprehensive income:
Unrealized holding gain (loss) on available
for sale securities 83 (90) 270 (173)
Reclassification adjustment for gains
arising during the period (5) - - -
---------- ---------- ---------- ----------
Other comprehensive income before tax 78 (90) 270 (173)
Tax expense related to items
of other comprehensive income (27) 28 (93) 56
---------- ---------- ---------- ----------
Comprehensive Income (loss), net of tax 51 (62) 177 (117)
---------- ---------- ---------- ----------
Comprehensive income $ 217 $ 99 $ 570 $ 230
========== ========== ========== ==========
NOTE E--Earnings Per Share
- -----------------------------
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The following table presents the computation of EPS (in thousands, except for
per share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Basic earnings per share:
Income available to common stockholders $ 166 $ 161 $ 393 $ 347
========= ========= ========= =========
Weighted average shares
Average common shares outstanding 711 746 710 782
Options and MRDP plans 21 23 20 22
--------- --------- --------- ---------
Weighted average diluted common shares 732 769 $ 730 $ 804
========= ========= ========= =========
Basic earnings per share $ 0.23 $ 0.22 $ 0.55 $ 0.45
========= ========= ========= =========
Diluted earnings per share $ 0.23 $ 0.21 $ 0.54 $ 0.43
========= ========= ========= =========
-9-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F--Stock Options
- -----------------------
Under the Company's 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 or B&L Bank. 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. No options
have been exercised as of March 31, 2001.
NOTE G-Management Recognition and Development Plan
- -------------------------------------------------------
The Board of Directors adopted (November 27, 1996) and the shareholders
subsequently approved (January 27, 1997) a management recognition and
development plan ("MRDP"). Under the MRDP, 50,600 shares of common stock were
awarded to certain directors, officers and employees of the Company and B&L
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).
At March 31, 2001, 30,360 shares were vested. The Company recognized $17,410
and $34,821 as MRDP compensation expense for the three and six months ended
March 31, 2001 and $30,307 and $60,613, respectively, for the three and six
months ended March 31, 2000. The amortization method used attributes a higher
percentage of compensation cost to earlier years than to the later years of the
service period.
NOTE H--Employee Stock Ownership Plan
- -----------------------------------------
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 $1,012,000 from the Company to fund the purchase of 101,200 shares of
the Company's common stock. The loan is secured solely by the shares purchased
and will be repaid by the ESOP in equal quarterly installments of principal and
interest payable at 8.25% through March 2006. B & L Bank makes quarterly
contributions to the ESOP which are equal to the debt service less dividends
received on unallocated ESOP shares. B & L Bank contributes approximately
$149,600, including interest, annually to the ESOP. Shares are released from
collateral and allocated to participating employees, based on the proportion of
loan principal and interest repaid and compensation of the participants.
Forfeitures will be reallocated to participants on the same basis as other
contributions in the plan year. Benefits are payable upon a participant's
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 and related interest expense of the ESOP are eliminated in
consolidation and the shares pledged as collateral are reported as unearned ESOP
shares in the consolidated statements of financial condition. As shares are
committed to be released from collateral, the Company reports compensation
expense equal to the average fair value of the shares committed to be released.
Dividends on allocated shares will be charged to stockholders' equity.
Dividends on unallocated shares are recorded as a reduction of the ESOP loan.
ESOP expense was $31,250 and $60,263 for the three and six months ended March
31, 2001, respectively, compared to $32,226 and $64,444 for the same period
ended March 31, 2000.
A summary of ESOP shares at March 31, 2001 is as follows:
Shares Allocated 44,972
Shares released for allocation 5,112
Unreleased shares 51,116
---------
Total 101,200
---------
Fair value of unreleased shares $ 638,950
=========
NOTE I--Contingencies and Subsequent Event
- ----------------------------------------------
On March 28, 2000 the Company entered into a contract for the construction of a
new banking facility to be located in Lexington, Missouri. The new facility is
being built to accommodate the merger of the Company's two banking subsidiaries.
Construction was completed in March 2001 with B & L Bank occupying the facility
on Mach 24, 2001. As of March 31, 2001, a total of $2,770,000 has been paid
with an estimated $130,000 remaining to be disbursed. The merger of the
Company's two banking subsidiaries was consummated on April 7, 2001.
-10-
LEXINGTON B & L FINANCIAL CORP.
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,
2001 and 2000 as well as those material changes in liquidity and capital
resources that have occurred since September 30, 2000.
The following should be read in conjunction with the Company's 2000 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,
2001 2000 2001 2000
----------- ------- ---------- -----------
PER SHARE DATA
Basic earnings per share $ 0.23 $ 0.22 $ 0.55 $ 0.45
Diluted earnings per share $ 0.23 $ 0.21 $ 0.54 $ 0.43
Cash dividends $ - $ - $ 0.15 $ 0.15
SELECTED RATIOS
Return on average assets 0.59% .60% .71% 0.66%
Return on stockholders' equity 4.70% 4.53% 5.56% 4.78%
Efficiency ratio 68.80% 68.81% 64.75% 67.78%
----------At------------
March 31, September 30,
2001 2000
--------- -------------
Book value (tangible) $ 17.44 $ 16.68
Market price (closing price at end of period $ 12.50 $ 11.00
Selected Ratios:
Loans to deposits 71.24% 76.55%
Allowance for loan losses to loans 0.98% 0.99%
Equity to total assets 12.08% 12.95%
Construction has been completed on the new bank building in Lexington, Missouri
which was occupied on March 24, 2001. On April 7, 2001, the merger between B &
L Bank and Lafayette County Bank was completed, with B & L Bank as the survivor
retaining its thrift charter.
SUMMARY
Consolidated net income for the three and six month periods ended March 31, 2001
was $166,000 and $393,000, or increases of 3.1% and 13.3%, respectively, over
the same periods last year. Basic earnings per share of 23 and 55 cents
increased 1 and 10 cents over the same periods ended March 31,2000. For the
three and six month periods ending March 31, 2001, diluted earnings per share
were 23 and 54 cents, compared to 21 and 43 cents per share earned for the
comparable periods ended March 31, 2000. The increase in net income for the
three and six months ended March 31, 2001 compared to the same periods a year
ago was the result of increased net interest income and non-interest income
offset by higher non-interest expenses.
-11-
LEXINGTON B & L FINANCIAL CORP.
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):
Three Months Ended Six Months Ended
----------------------- ------------------------
March 31, 2001 vs 2000 March 31, 2001 vs 2000
---------------------- ----------------------
Change Due To Change Due To
------------- -------------
Average Average Average Average
Volume Rate Total Volume Rate Total
-------- ------ ------- -------- ------ -------
Interest income:
Loans $ 77 $ 75 $ 152 $ 158 $ 156 $ 314
Investment securities & interest
bearing deposits 17 (7) $ 10 (38) 19 (19)
Federal funds sold 8 (5) 3 30 (3) 27
-------- ------ ------- -------- ------ -------
Total interest income 102 63 165 150 172 322
Interest expense:
Deposits 68 84 152 86 176 262
Advances from FHLB 25 (18) 7 45 (40) 5
Notes payable (2) - (2) (4) (1) (5)
-------- ------ ------- -------- ------ -------
Total interest expense 91 66 157 127 135 262
-------- ------ ------- -------- ------ -------
Net interest income $ 11 $ (3) $ 8 $ 23 $ 37 $ 60
======== ====== ======= ======== ====== =======
-12-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Total interest income for the three and six month periods ended March 31, 2001
increased $165,000 and $322,000, respectively, over comparable periods last
year. Interest expense increased $157,000 and $262,000 for the three and six
months ended March 31, 2001 over the same periods a year ago. The following
table provides summaries of average assets and liabilities and the corresponding
average rates earned/paid (in thousands):
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
------------------------------------ ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------- --------- -------- -------- -------- -------
Interest Earning Assets
Loans $ 66,362 $ 1,474 9.01% $ 62,508 $ 1,322 8.48%
Investment securities & interest
bearing deposits 35,223 512 5.90% 33,755 502 5.97%
Federal funds sold 4,349 58 5.41% 3,739 55 5.90%
--------------- --------- -------- --------
Total Earning Assets/Average Yield 105,934 2,044 7.83% 100,002 1,879 7.54%
Interest Bearing Liabilities
Deposits 85,858 1,180 5.57% 80,311 1,028 5.13%
Advances from FHLB 7,555 73 3.92% 5,120 66 5.17%
Notes payable 178 4 9.11% 273 6 8.82%
--------------- --------- -------- --------
Total Interest Bearing Liabilities/
Average Yield. 93,591 1,257 5.45% 85,704 1,100 5.15%
--------- --------
Net Interest Income $ 787 $ 779
========= ========
Net interest Spread 2.38% 2.39%
Net Interest Margin. 3.01% 3.12%
Six Months Ended Six Months Ended
March 31, 2001 March 31, 2000
------------------------------------ ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------- --------- -------- -------- -------- -------
Interest Earning Assets
Loans $ 66,448 $ 2,955 8.92% $ 62,624 $ 2,641 8.41%
Investment securities & interest
bearing deposits 33,999 1,022 6.03% 35,152 1,041 5.91%
Federal funds sold 3,080 92 5.99% 2,066 65 6.28%
--------------- --------- -------- --------
Total Earning Assets/Average Yield 103,527 4,069 7.88% 99,842 3,747 7.49%
Interest Bearing Liabilities
Deposits 82,857 2,298 5.56% 79,447 2,036 5.11%
Advances from FHLB 7,233 138 3.83% 5,138 133 5.16%
Notes payable 178 8 9.01% 273 13 9.50%
--------------- --------- -------- --------
Total Interest Bearing Liabilities/
Average Yield 90,268 2,444 5.43% 84,858 2,182 5.13%
--------- --------
Net Interest Income $ 1,625 $ 1,565
========= ========
Net interest Spread 2.45% 2.36%
Net Interest Margin 3.15% 3.13%
-13-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Net interest income for the three and six month periods ended March 31, 2001 was
$787,000 and $1,625,000, respectively, compared to $779,000 and $1,565,000 for
the comparably periods last year. The increase in net interest income for three
months ended March 31, 2001 can be largely attributed to a higher volume of
earning assets. For the six month period ended March 31, 2001, the increase in
net interest income can be attributed to an improvement in the net interest
spread and a higher volume of earning assets. During the three month period
ended March 31, 2001, average earning assets increased $5,932,000 over the
comparably period last year. The net interest spread for the six month period
ended March 31, 2001 increased 9 basis points over the same period last year.
Contributing to the increase in net interest income and a wider net interest
spread was the capitalization of interest expense on the construction cost of a
new bank building amounting to $38,000 and $76,000, respectively, during the
three and six month periods ended March 31, 2001. The capitalization of interest
expense increased the net interest spread from 2.28% to 2.45%, or 17 basis
points for the six month period ended March 31, 2001. A total of $111,000 of
interest has been capitalized since construction started in March 2000.
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,
2001 2000
---------- --------------
Non-accrual loans $ 579 $ 394
Loans past due 90 days or more and still accruing interest 25 47
Foreclosed real estate and other repossessed assets 32 -
---------- --------------
Total non-performing assets $ 636 $ 441
========== ==============
Non-performing assets at March 31, 2000 were .53% of total assets, compared to
.41% of total assets at September 30, 2000. Non--accrual loans at March 31,
2001 consisted primarily of residential real estate loans, and commercial real
estate loans. Classified assets at March 31, 2001 totaled $817,000 or 1.22% of
total loans and .68% of total assets, compared to $725,000 or 1.11% of total
loans and .67% of total assets at September 30, 2000. Classified assets
consisted entirely of loans classified substandard and special mention.
PROVISION FOR LOAN LOSSES/ALLOWANCE FOR LOAN LOSSES
The Company performs periodic and systematic detailed reviews of its loan
portfolio to identify inherent risks and collectibility of the loan portfolio,
and to assess the overall adequacy of the allowance for loan losses. The
allowance for loan losses on certain homogeneous loan portfolios, which
generally consist of residential mortgages and consumer loans, is based on
segment evaluations generally by loan type. Anticipated losses for these
segments which consider a variety of factors including, but not limited to,
projected defaults or foreclosures/repossessions based on portfolio trends, and
delinquencies. The remaining loan portfolios are reviewed on an individual
loan basis. Loans subject to individual reviews are analyzed and segregated by
risk according the Company's internal risk rating scale. These risk
classifications, in conjunction with an analysis of historical experience,
current economic conditions and performance trends within specific portfolio
segments, and other pertinent information (including individual valuations on
nonperforming loans in accordance with Statement of Financial Accounting
Standards No. 114), result in the estimation of specific allowances for loan
losses. Portions of the allowance for loan losses are assigned to cover the
estimated probable credit losses in each loan category based on the results of
the detail review process described above. The remaining or unassigned portion
of the allowance for loan losses, determined separately from the procedures
outlined above, addresses certain industry and economic conditions. Due to the
subjectivity involved in the determination of the unassigned portion of the
allowance for loan losses, the relationship of the unassigned component to the
total allowance for loan losses may fluctuate from period to period. Management
evaluates the adequacy of the allowance for loan losses based on the combined
total of the assigned and unassigned components and believes that the allowance
for credit losses reflects management's best estimated of incurred loans losses.
-14-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
PROVISION FOR LOAN LOSSES/ALLOWANCE FOR LOAN LOSSES CON'T
The provision for loans losses for the three and six months ended March 31, 2001
of $18,000 and $ 36,000, increased $4,000 and $10,000, respectively, over the
same periods last year. The higher provision for loan losses can be attributed
to the methodologies in determining the adequacy of the allowance for loan
losses and to an increase in outstanding loans.
NON-INTEREST INCOME
Non-interest income for the three and six month periods ended March 31, 2001
of $120,000 and $233,000 increased $14,000, and $7,000, respectively, over the
three and six month periods ended March 31, 2000. The increase in non-interest
income for the three and six month ended March 31, 2001 resulted primarily from
gains realized on securities called prior to maturity.
NON-INTEREST EXPENSE
Non-interest expense of $643,000 for the three months periods ended March
31, 2001, increased $16,000 over the comparable period a year ago. For the six
month period ended March 31, 2001, non-interest expenses decreased $11,000 from
the same period a year ago. Accounting for the majority of the decrease was a
reduction in salaries and benefit cost, which decreased $19,000 and $30,000,
respectively, during the three and six month periods ended March 31, 2001 from
the same periods last year. The decrease in salaries and benefits is primarily
from a reduction in the cost of Management Recognition and Development Plan.
The Management Recognition Development Plan expense of $17,000 and $35,000 for
the three and six months ended March 31, 2001, decreased $13,000 and $26,000 ,
respectively, from amounts reported for the same period last year. Contributing
to the higher non-interest expense for the three months ended March 31, 2001,
were cost associated with preparation for the merger of the Company's two
banking subsidiaries. The merger was consummated on April 7, 2001.
The operating expense efficiency ratio, which is non-interest expense less
amortization of goodwill divided by net revenue, was 64.7% for the six month
period ended March 31, 2001, an improvement from 67.8% for the same period a
year ago. The improvement in the expense efficiency ratio can be attributed to
lower operating expenses and to an increase in net revenues.
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 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, 2001, total stockholders' equity of $14,483,000 represented
12.1% of total assets compared to $13,944,000 or 12.9% of total assets at
September 30, 2000. These levels of primary capital exceed regulatory
requirements and the Company's peer group average.
-15-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES CON'T
- -----------------------------------------
B & L BANK
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,
2001.
Minimum
B & L Bank Required
Ratios at Capital
March 31, 2001 Ratios
--------------- ---------
Risk-based capital 22.0% 8.0%
Tier 1 to risk-weighted assets 21.5% 4.0%
Tangible capital 12.7% 1.5%
LAFAYETTE COUNTY BANK
Under Federal Deposit Insurance Corporation 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 summarizes Lafayette County
Bank's capital ratios and ratios required by regulation at March 31, 2001:
Lafayette Minimum
County Bank Required
Ratios at Capital
March 31, 2001 Ratios
--------------- ---------
Risk-based capital 18.0% 8.0%
Tier 1 capital to risk-weighted assets 16.8% 4.0%
Tangible equity ratio 7.8% 4.0%
-16-
LEXINGTON B & L FINANCIAL CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor its banking subsidiaries, B & L Bank or Lafayette
County Bank, are a party to any material legal proceedings at this time. From
time to time the Company's banking subsidiaries 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 9, 2001. The results of the vote on the matters
Presented at the Meeting is as follows:
1. The following individual was elected as director for a three-year term:
Vote For Vote Withheld
-------- -------------
E. Steva Vialle 600,344 113,304
The terms of Directors Erwin Oetting, Jr., Steve Oliaro, Charles R. Wilcoxon,
and Norman Vialle continued on after the meeting.
2. The firm of Moore, Horton & Carlson P.C. was ratified as auditors for the
fiscal year ended September 30, 2001.
Vote For Vote Withheld
-------- -------------
Ratification of Auditors 686,348 27,300
ITEM 5. OTHER INFORMATION
The Board elected William J. Huhmann, Senior Vice President and Chief Financial
Officer, to serve as a Director of the Company. Mr. Huhmann will serve until
the next annual meeting of the Stockholders' at which time he will stand for
election by the stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
-17-
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 11, 2001 By: Erwin Oetting, Jr.
----------------- --------------------
President, Chief Executive Officer
And Director (Principal Executive
Officer)
Date May 11, 2001 By: William J. Huhmann
---------------- -------------------
Senior Vice President and Chief
Financial Officer, (Principal
Financial and Accounting Officer)
-18-