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 June 30, 2001
-----------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
Commission File Number 0-28120
----------
Lexington B & L Financial Corp.
------------------------------------
Missouri 43-1739555
- ---------------------- -------------------
(State or other jurisdiction of I.R.S. (I.R.S. Employer
Employer Incorporation or organization) Identification No.)
205 South 13th Street, Lexington, Mo. 64067
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
660-259-2247
------------------
(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 August 3, 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
June 30, 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)
June 30, September 30,
2001 2000
-------------- ---------------
ASSETS (Unaudited)
Cash and due from banks $ 2,387 $ 1,658
Interest-bearing deposits 12,442 3,088
Investment securities
Available-for-sale, at fair value 17,093 7,790
Held-to-maturity (fair value of $7,859 and $21,592, respectively,) 7,818 22,231
Federal funds sold 5,223 1,374
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 618 543
Loans held for sale 55 328
Loans receivable, less allowance for loan losses of $690 at
June 30, 2001 and $648 at September 30, 2000 67,732 64,680
Accrued interest receivable 1,064 1,132
Premises and equipment 3,883 2,832
Cost in excess of net assets acquired 807 863
Other assets 1,082 1,168
-------------- ---------------
TOTAL ASSETS $ 120,204 $ 107,687
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 93,883 $ 85,339
Advances from borrowers for taxes and insurance 147 180
Advances from FHLB 10,370 7,003
Notes payable 178 178
Dividend payable 118 -
Other liabilities 1,076 1,043
-------------- ---------------
TOTAL LIABILITIES 105,772 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 and outstanding 13 13
Additional paid-in-capital 12,309 12,293
Retained earnings - substantially restricted 9,716 9,491
Accumulated other comprehensive income (31) (160)
Unearned ESOP shares (486) (562)
Unearned MRDP shares (28) (77)
Treasury stock at cost (481,376 and 480,827 shares, respectively) (7,061) (7,054)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 14,432 13,944
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,204 $ 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 Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- -------- -------- ---------
(Unaudited) (Unaudited)
Interest Income
Mortgage loans $ 1,129 $ 1,027 $ 3,352 $ 3,002
Other loans 369 350 1,101 1,017
Investment securities and interest-bearing deposits 507 498 1,529 1,539
Federal funds sold 61 55 153 120
--------- -------- -------- ---------
TOTAL INTEREST INCOME 2,066 1,930 6,135 5,678
Interest Expense
Deposits 1,204 1,018 3,502 3,053
Advances from FHLB 143 63 281 197
Notes payable 5 7 13 21
--------- -------- -------- ---------
TOTAL INTEREST EXPENSE 1,352 1,088 3,796 3,271
--------- -------- -------- ---------
NET INTEREST INCOME 714 842 2,339 2,407
Provision for loan losses 67 16 103 42
--------- -------- -------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 647 826 2,236 2,365
Noninterest Income
Service charges and other fees 99 97 268 272
Commission, net 9 19 29 44
Income (loss) from foreclosed assets 5 - 5 (3)
Gain ( loss) on sale of investments 17 7 26 7
Other 80 14 115 43
--------- -------- -------- ---------
TOTAL NONINTEREST INCOME 210 137 443 363
Noninterest Expense
Employee compensation and benefits 382 359 1,081 1,088
Occupancy costs 80 51 184 151
Advertising 15 7 35 26
Data processing 55 28 113 83
Federal insurance premiums 4 5 12 17
Professional and consulting fees 34 34 123 113
Amortization of intangible assets arising from acquisitions 18 18 56 56
Other 325 98 549 317
--------- -------- -------- ---------
TOTAL NONINTEREST EXPENSE 913 600 2,153 1,851
--------- -------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (56) 363 526 877
Income taxes (122) 123 67 290
--------- -------- -------- ---------
NET INCOME $ 66 $ 240 $ 459 $ 587
========= ======== ======== =========
Basic Earnings Per Share $ 0.09 $ 0.34 $ 0.64 $ 0.78
========= ======== ======== =========
Diluted Earnings Per Share $ 0.09 $ 0.33 $ 0.63 $ 0.76
========= ======== ======== =========
See accompanying notes to consolidated financial statements.
-4-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
June 30,
2001 2000
------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 459 $ 587
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 94 66
Amortization of premiums and discounts 2 (6)
Amortization of deferred loan fees 8 6
Provision for salary continuation plan costs 53 64
(Gain) loss on sale of foreclosed real estate (5) 3
Amortization of cost in excess of net assets acquired 55 55
Provision for loan losses 103 42
Origination's of loans held for sale (2,673) (4,120)
Proceeds from sale of loans held for sale 2,874 4,110
(Gain) loss on securities (26) (7)
ESOP shares released 92 92
Amortization of MRDP 49 87
Contribution of building 211 -
Gain on sale of parking lot (62) -
Changes to assets and liabilities increasing (decreasing) cash flows 70 (28)
------------ ------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVIES 1,304 951
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities / sales of securities available-for-sale 6,023 1,092
Proceeds from maturities / sales of securities held-to-maturity 15,401 2,112
Purchase of securities available-for-sale (15,105) (578)
Purchase of securities held-to-maturity (990) (199)
Proceeds from redemption (purchase) of FHLB stock (75) (8)
Net (increase) decrease in federal funds sold (3,849) 54
Loans originated, net of repayments (3,086) (1,306)
Proceeds from sale of premises 130 -
Purchase of premises and equipment (1,424) (417)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,975) 750
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,544 (2,146)
Net increase (decrease) in advances from borrowers for property taxes/insurance (33) (55)
Proceeds from FHLB advances 3,500 -
Repayments of FHLB advances (133) (128)
Payment of dividends (117) (130)
Purchase of treasury stock (7) (1,829)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,754 (4,288)
------------ ------------
NET INCREASE (DECREASE) IN CASH 10,083 (2,587)
Cash and due from banks, beginning of year 4,746 6,091
------------ ------------
CASH AND DUE FROM BANKS, END OF YEAR $ 14,829 $ 3,504
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest $ 3,727 $ 3,245
============ ============
Cash paid for income taxes $ 320 $ 304
============ ============
Noncash investing and financing-loans to facilitate sale of real estate $ 37 $ 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
Common Paid-in Retained Comprehensive ESOP MRDP Treasury
Stock Capital Earnings Income Shares Shares Stock
------- ----------- ---------- --------------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30,
1999 $ 13 $ 12,277 $ 8,905 $ (133) $ (665) $ (182) $ (5,105)
Comprehensive income:
Net income - - 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 $15
- - - (27) - - -
------- ----------- ---------- --------------- ---------- ---------- ----------
Total comprehensive income - - 835 (27) - - -
Repurchase of common stock - - - - - - (1,949)
Release of ESOP shares - 16 - - 103 - -
Release of MRDP shares - - - - - 105 -
Dividends ($.30 per share) - - (249) - - - -
------- ----------- ---------- --------------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30,
2000 13 12,293 9,491 (160) (562) (77) (7,054)
(Unaudited)
Comprehensive income:
Net income - - 459 - - - -
Other Comprehensive income
(loss) - unrealized loss on
Securities available-for-sale,
net of tax benefit of $67 155
Reclassification adjustment for
gains (losses) arising during the
period, net of tax benefit of $10 - - - (26) - - -
------- ----------- ---------- --------------- ---------- ---------- ----------
Total comprehensive income - - 459 129 - - -
Repurchase of common stock - - - - - - (7)
Release of ESOP shares - 16 - - 76 - -
Release of MRDP shares - - - - - 49
Dividends ($.30 per share) - - (234) - - - -
------- ----------- ---------- --------------- ---------- ---------- ----------
BALANCE AT JUNE 30, 2001 $ 13 $ 12,309 $ 9,716 $ (31) $ (486) $ (28) $ (7,061)
======= =========== ========== =============== ========== ========== ==========
Total
Stockholders
Equity
--------------
BALANCE AT SEPTEMBER 30,
1999 $ 15,110
Comprehensive income:
Net income 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 $15
(27)
--------------
Total comprehensive income 808
Repurchase of common stock (1,949)
Release of ESOP shares 119
Release of MRDP shares 105
Dividends ($.30 per share) (249)
--------------
BALANCE AT SEPTEMBER 30,
2000 13,944
(Unaudited)
Comprehensive income:
Net income 459
Other Comprehensive income
(loss) - unrealized loss on
Securities available-for-sale,
net of tax benefit of $67 155
Reclassification adjustment for
gains (losses) arising during the
period, net of tax benefit of $10 (26)
--------------
Total comprehensive income 588
Repurchase of common stock (7)
Release of ESOP shares 92
Release of MRDP shares 49
Dividends ($.30 per share) (234)
--------------
BALANCE AT JUNE 30, 2001 $ 14,432
==============
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 June 30, 2001 and for the
period then ended include the accounts of Lexington B & L Financial Corp., and
its wholly owned subsidiaries, B &L 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 June 30, 2001, interim financial statements. The results of operations for
the period ended June 30, 2001, are not necessarily indicative of the operating
results that may be expected for the full year. The consolidated interim
financial statements as of June 30, 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 June 30, 2001 and September
30, 2000 (in thousands):
June 30, September 30,
2001 2000
-------------- --------------
Available-for-Sale, at fair value:
U.S. Government and federal agencies obligations $ 17,093 $ 7,790
============== ==============
Amortized cost $ 17,142 $ 8,032
============== ==============
Held-to-Maturity, at amortized cost:
U.S. Government and federal agencies obligations 3,323 18,380
State and municipal obligations 4,495 3,851
-------------- --------------
Total held-to-maturity $ 7,818 $ 22,231
============== ==============
Fair market value $ 7,859 $ 21,592
============== ==============
-7-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE C-Allowance for Loans Losses
- -------------------------------------
The following table is a summary of the activity in the allowance for loan
losses (in thousands):
Three Months Ended Nine Month Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Balance, beginning of period $ 655 $ 616 $ 648 $ 599
Provision for loan losses 67 16 103 42
Recoveries on loans charged-off 12 1 17 9
Charge-offs (44) (8) (78) (25)
--------- --------- --------- ---------
Balance, end of period $ 690 $ 625 $ 690 $ 625
========= ========= ========= =========
At June 30, 2001, non-performing assets were $461,000, which was .67% of total
loans and .38% of total assets. This balance
consisted entirely of loans not accruing interest.
NOTE D--Deposits
- -----------------
The following table summarizes the composition of deposits as of June 30, 2001
and September 30, 2000 (in thousands):
June 30, September 30,
2001 2000
-------------- --------------
Noninterest-bearing $ 6,115 $ 6,164
NOW 8,665 7,378
Money Market 7,115 6,044
Savings 5,668 7,364
Certificates of deposit 66,320 58,389
-------------- --------------
Total deposits $ 93,883 $ 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 Nine Months Ended
-------------------- --------------------
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited)
Net income $ 66 $ 240 $ 459 $ 587
Other comprehensive income:
Unrealized holding gain (loss) on available
for sale securities (95) 46 222 (127)
Reclassification adjustment for gains
Arising during the period (21) - (26) -
--------- --------- --------- ---------
Other comprehensive income (loss) before tax (74) 46 196 (127)
Tax expense related to items
of other comprehensive income 26 (13) (67) 43
--------- --------- --------- ---------
Comprehensive Income (loss), net of tax (48) 33 129 (84)
--------- --------- --------- ---------
Comprehensive income $ 18 $ 273 $ 588 $ 503
========= ========= ========= =========
NOTE F--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 Nine Months Ended
------------------ ------------------
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Basic earnings per share:
Income available to common stockholders $ 66 $ 240 $ 459 $ 587
======== ======== ======== ========
Weighted average shares
Average common shares outstanding 715 708 712 758
Options and MRDP plans 10 20 10 18
-------- -------- -------- --------
Weighted average diluted common shares 725 728 $ 722 $ 776
======== ======== ======== ========
Basic earnings per share $ 0.09 $ 0.34 $ 0.64 $ 0.78
======== ======== ======== ========
Dilutive earnings per share $ 0.09 $ 0.33 $ 0.63 $ 0.76
======== ======== ======== ========
-9-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE G--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 June 30, 2001.
NOTE H-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 June 30, 2001, 40,483 shares were vested. The Company recognized $14,186
and $49,007 as MRDP compensation expense for the three and nine months ended
June 30, 2001 and $26,008 and $86,621, respectively, for the three and nine
months ended June 30, 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 I--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 $32,129 and $92,392 for the three and nine months ended June
30, 2001, respectively, compared to $26,812 and $91,256 for the same period
ended June 30, 2000.
A summary of ESOP shares at June 30, 2001 is as follows:
Shares Allocated 44,972
Shares released for allocation 7,668
Unreleased shares 48,560
----------
Total 101,200
----------
Fair value of unreleased shares $ 602,144
==========
-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 nine month periods ended June 30,
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 Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
PER SHARE DATA
Basic earnings per share $ 0.09 $ 0.34 $ 0.64 $ 0.78
Diluted earnings per share $ 0.09 $ 0.33 $ 0.63 $ 0.76
Cash dividends $ 0.15 $ 0.15 $ 0.30 $ 0.30
SELECTED RATIOS
Return on average assets 0.22% 0.92% 0.54% 0.75%
Return on stockholders' equity 1.83% 7.05% 4.29% 5.54%
Efficiency ratio 96.75% 59.39% 75.38% 64.75%
---------------At---------------
June 30, September 30,
2001 2000
--------------- ---------------
Book value (tangible) $ 17.39 $ 16.68
Market price (closing price at end of period) $ 12.40 $ 11.00
Selected Ratios:
Loans to deposits 72.88% 76.55%
Allowance for loan losses to loans 1.01% 0.99%
Equity to total assets 12.01% 12.95%
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 and the
operations of Lafayette County Bank were moved to the new B & L Bank facility.
SUMMARY
Consolidated net income for the three and nine month periods ended June 30, 2001
was $66,000 and $459,000, or decreases of 72.5% and 21.8%, respectively, from
the same periods last year. For the three and nine month periods ending June 30,
2001, diluted earnings per share were 9 and 63 cents, compared to 33 and 76
cents per share earned for the comparable periods ended June 30, 2000. The
decrease in net income for the three and nine months ended June 30, 2001
compared to the same periods a year ago was the result of lower net interest
income, higher provision for loan losses, and higher non-interest expenses,
which included merger and moving 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 Nine Months Ended
------------------ -----------------
June 30, 2001 vs 2000 June 30, 2001 vs 2000
--------------------- ---------------------
Change Due To Change Due To
------------- -------------
Average Average Average Average
Volume Rate Total Volume Rate Total
--------- --------- ------- --------- --------- -------
Interest income:
Loans. . . . . . . . . . . . . . $ 69 $ 52 $ 121 $ 189 $ 245 $ 434
Investment securities & interest
bearing deposits. . . . . . . . 71 (62) $ 9 47 (57) (10)
Federal funds sold . . . . . . . 29 (23) 6 55 (22) 33
--------- --------- ------- --------- --------- -------
Total interest income. . . 169 (33) 136 291 166 457
Interest expense:
Deposits . . . . . . . . . . . . 100 86 186 191 258 449
Advances from FHLB . . . . . . . 71 9 80 109 (25) 84
Notes payable. . . . . . . . . . (3) 1 (2) (7) (1) (8)
--------- --------- ------- --------- --------- -------
Total interest expense . . 168 96 264 293 232 525
--------- --------- ------- --------- --------- -------
Net interest income . . . . . . . $ 1 $ (129) $ (128) $ (2) $ (66) $ (68)
========= ========= ======= ========= ========= =======
-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 nine-month periods ended June 30, 2001
increased $136,000 and $457,000, respectively, over comparable periods last
year. Interest expense increased $264,000 and $525,000 for the three and nine
months ended June 30, 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
June 30, 2001 June 30, 2000
---------------------------- ----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- --------- ------- -------- --------- -------
Interest Earning Assets
Loans. . . . . . . . . . . . . . . . $ 66,613 $ 1,498 9.02% $ 63,479 $ 1,377 8.72%
Investment securities & interest
bearing deposits. . . . . . . . . . 37,856 507 5.37% 32,846 498 6.10%
Federal funds sold . . . . . . . . . 5,763 61 4.25% 3,481 55 6.35%
-------- --------- -------- ---------
Total Earning Assets/Average Yield. 110,232 2,066 7.52% 99,806 1,930 7.78%
Interest Bearing Liabilities
Deposits . . . . . . . . . 87,459 1,204 5.52% 79,957 1,018 5.12%
Advances from FHLB . . . . . . . . . 10,300 143 5.57% 5,055 63 5.01%
Notes payable. . . . . . . . . . . . 178 5 11.27% 273 7 10.31%
-------- --------- -------- ---------
Total Interest Bearing Liabilities/
Average Yield . . . . . . . . . . 97,937 1,352 5.54% 85,285 1,088 5.13%
--------- ---------
Net Interest Income . . . . . . . . . $ 714 $ 842
========= =========
Net interest Spread . . . . . . . . . 1.98% 2.65%
Net Interest Margin . . . . . . . . . 2.60% 3.39%
Nine Months Ended Nine Months Ended
June 30, 2001 June 30, 2000
---------------------------- ----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- --------- ------- -------- --------- -------
Interest Earning Assets
Loans. . . . . . . . . . . . . . . . $ 65,877 $ 4,453 9.04% $ 62,900 $ 4,019 8.53%
Investment securities & interest
bearing deposits. . . . . . . . . . 35,387 1,529 5.78% 34,267 1,539 6.00%
Federal funds sold . . . . . . . . . 4,080 153 5.01% 2,677 120 5.99%
-------- --------- -------- ---------
Total Earning Assets/Average Yield. 105,344 6,135 7.79% 99,844 5,678 7.60%
Interest Bearing Liabilities
Deposits . . . . . . . . . 84,641 3,502 5.53% 79,689 3,053 5.12%
Advances from FHLB . . . . . . . . . 8,282 281 4.54% 5,109 197 5.15%
Notes payable. . . . . . . . . . . . 178 13 9.76% 273 21 10.28%
-------- --------- -------- ---------
Total Interest Bearing Liabilities/
Average Yield . . . . . . . . . . 93,101 3,796 5.45% 85,071 3,271 5.14%
--------- ---------
Net Interest Income . . . . . . . . . $ 2,339 $ 2,407
========= =========
Net interest Spread . . . . . . . . . 2.34% 2.46%
Net Interest Margin . . . . . . . . . 2.97% 3.22%
-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 nine-month periods ended June 30, 2001 was
$714,000 and $2,339,000, respectively, compared to $842,000 and $2,407,000 for
the comparably periods last year. The decrease in net interest income for three
and nine-month periods ended June 30, 2001 can be largely attributed to a
narrowing of the net interest marginDuring the three and nine-month periods
ended June 30, 2001, average-earning assets increased $10,426,000 and $5,500,000
over the comparably period last year. The net interest spread for the three and
nine-month period ended June 30, 2001 decreased 167 and 12 basis points,
respectively, from the same periods last year. Contributing to the decrease in
net interest income and a narrower net interest spread was the result of an
unusually large portion of earning assets allocated to short-term investment
i.e. interest-bearing deposits and federal funds sold.
This situation is the result of the increased amount of securities called prior
to maturity during the quarter ended June 30, 2001.
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):
June 30, September 30,
2001 2000
------------- --------------
Non-accrual loans $ 461 $ 394
Loans past due 90 days or more and still accruing interest - 47
Foreclosed real estate and other repossessed assets - -
------------- --------------
Total non-performing assets $ 461 $ 441
============= ==============
Non-performing assets at June 30, 2000 were .38% of total assets, compared to
.41% of total assets at September 30, 2000. Non-accrual loans at June 30, 2001
consisted primarily of residential real estate loans, commercial real estate
loans and consumer installment loans. Classified assets at June 30, 2001
totaled $515,000 or .75% of total loans and .43% 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 nine months ended June 30, 2001
of $67,000 and $ 103,000, increased $51,000 and $61,000, 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 and net loan charge-offs.
NON-INTEREST INCOME
Non-interest income for the three and nine-month periods ended June 30, 2001
of $210,000 and $443,000 increased $73,000, and $80,000, respectively, over the
three and nine-month periods ended June 30, 2000. The increase in non-interest
income for the three and nine-month periods ended June 30, 2001 resulted
primarily from a $62,000 gain on the sale of a parking lot and to gains realized
on securities called prior to maturity.
NON-INTEREST EXPENSE
Non-interest expense of $913,000 and $2,153,000 for the three and
nine-month periods ended June 30, 2001, increased $313,000 and $302,000,
respectively, over the comparable period a year ago. The majority of the
increase can be attributed to the contribution of a bank building previously
occupied by B & L Bank, with a value of $211,0000, to the City of Lexington,
Missouri. Salary and benefit expense increased $23,000 for the three months and
decreased $7,000 for the nine months compared to the same periods last year.
The increase for the three months ended June 30, 2001 can be attributed to
overtime resulting from the merger between Lafayette County Bank and B & L Bank.
Offsetting higher salary expenses were lower cost associated with the Management
Recognition and Development Plan. The Management Recognition Development Plan
expense of $14,000 and $49,000 for the three and nine-months ended June 30,
2001, decreased $12,000 and $38,000 , respectively, from amounts reported for
the same period last year. Also contributing to higher non-interest expense for
the three months ended June 30, 2001, were cost associated with the merger of
the Company's two banking subsidiaries. Some of the additional expenses
attributed to the merger were increases in occupancy of $29,000, data processing
$27,000, professional and consulting fees of $13,000, and other miscellaneous
expenses totaling $7,000.
The operating expense efficiency ratio, which is non-interest expense less
amortization of goodwill divided by net revenue, was 75.4% for the nine month
period ended June 30, 2001, an increase from 64.8% for the same period a year
ago. The higher expense efficiency ratio can be attributed to moving and
merger expense and the disposal of B & L Bank's former banking facilities.
INCOME TAXES
- -------------
The reduced provision for income taxes for the three and nine-month periods
ended June 30, 2001, can be attributed to the building contributed to the City
of Lexington, which for tax purposes will be deducted at its appraised value of
$465,000 for a deferred tax credit of $172,000. After netting the book
contribution cost of $211,000 against the $62,000 gain on the sale of the
parking lot less the applicable income taxes, the cost of disposal cost of B & L
Bank's former banking premises amounted to $1,000.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
The Company's bank subsidiary, 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.
The primary source of liquidity 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. 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.
-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
- -----------------------------------------
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 June 30, 2001, total stockholders' equity of $14,432,000 represented
12.0% 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.
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,
2001.
Minimum
B & L Bank Required
Ratios at Capital
June 30, 2001 Ratios
-------------- ---------
Risk-based capital 19.5% 8.0%
Tier 1 to risk-weighted assets 18.6% 4.0%
Tangible capital 10.4% 1.5%
-16-
LEXINGTON B & L FINANCIAL CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor its subsidiaries, B & L Bank and B & L Mortgage,
Inc., are a party to any material legal proceedings at this time. From time to
time the Company's and its' 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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On April 9, 2001, the Company filed a Form 8-K on which it reported under Item 5
the merger of its banking subsidiaries.
-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: August 10, 2001 By: s/ Erwin Oetting, Jr.
----------------- ----------------------
President, Chief Executive Officer
And Director (Principal Executive
Officer)
Date August 10, 2001 By: s/ William J. Huhmann
----------------- ----------------------
Senior Vice President and Chief
Financial Officer, (Principal
Financial and Accounting Officer)
-18-