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 December 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 .
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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.)
205 S. 13th Street, 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
----
As of January 25, 2001 there were 765,452 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.
FORM 10-QSB
December 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 11-15
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS 16
ITEM 2 - CHANGES IN SECURITIES 16
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 16
ITEM 5 - OTHER INFORMATION 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, September 30,
2001 2001
-------------- ---------------
ASSETS (Unaudited)
Cash and due from banks $ 3,235 $ 1,738
Interest-bearing deposits 4,239 11,513
Investment securities
Available-for-sale, at fair value 39,707 24,738
Held-to-maturity (fair value of $5,492 and $6,194, respectively,) 5,462 6,073
Federal funds sold 8,399 1,919
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 1,017 618
Loans held for sale - 198
Loans receivable, less allowance for loan losses of $723 at
December 31, 2001 and $720 at September 30, 2001 72,881 72,504
Accrued interest receivable 1,182 1,132
Premises and equipment 3,827 3,852
Cost in excess of net assets acquired 789 789
Other assets 1,398 1,315
-------------- ---------------
TOTAL ASSETS $ 142,136 $ 126,389
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 106,035 $ 100,129
Advances from borrowers for taxes and insurance 10 201
Advances from FHLB 20,303 10,337
Notes payable 83 83
Dividend payable 115 -
Other liabilities 1,079 1,083
-------------- ---------------
TOTAL LIABILITIES 127,625 111,833
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 12,322 12,316
Retained earnings - substantially restricted 9,965 9,865
Accumulated other comprehensive income (49) 89
Unearned ESOP shares (434) (460)
Unearned MRDP shares (13) (21)
Treasury stock at cost (499,548 and 495,758 shares, respectively) (7,293) (7,246)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 14,511 14,556
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 142,136 $ 126,389
============== ===============
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
December 31,
2001 2000
------------ ----------
(Unaudited)
Interest Income
Mortgage loans $ 1,135 $ 1,107
Other loans 341 374
Investment securities and interest-bearing deposits 575 510
Federal funds sold 23 34
------------ ----------
TOTAL INTEREST INCOME 2,074 2,025
Interest Expense
Deposits 1,065 1,118
Advances from FHLB 208 65
Notes payable 2 4
------------ ----------
TOTAL INTEREST EXPENSE 1,275 1,187
------------ ----------
NET INTEREST INCOME 799 838
Provision for loan losses 10 18
------------ ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 789 820
Noninterest Income
Service charges and other fees 95 88
Commission, net 8 9
Gain on sale of investments 1 -
Other 16 16
------------ ----------
TOTAL NONINTEREST INCOME 120 113
Noninterest Expense
Employee compensation and benefits 372 348
Occupany costs 79 51
Advertising 10 10
Data processing 45 26
Federal insurance premiums 4 4
Professional and consulting fees 18 34
Amortization of intangible assets arising from acquisitions - 19
Other 91 105
------------ ----------
TOTAL NONINTEREST EXPENSE 619 597
------------ ----------
INCOME BEFORE INCOME TAXES 290 336
Income taxes 75 109
------------ ----------
NET INCOME $ 215 $ 227
============ ==========
Basic Earnings Per Share $ 0.30 $ 0.32
============ ==========
Diluted Earnings Per Share $ 0.30 $ 0.31
============ ==========
See accompanying notes to consolidated financial statements.
-4-
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
December 31,
2001 2000
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited)
Net income $ 215 $ 227
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 47 22
Amortization of premiums and discounts 83 (3)
Amortization of deferred loan fees 5 3
Provision for salary continuation plan costs 11 22
Amortization of cost in excess of net assets acquired - 19
Provision for loan losses 10 18
Originations of loans held for sale (1,294) (1,454)
Proceeds from sale of loans held for sale 1,492 1,486
ESOP shares released 32 29
Amortization of MRDP 8 17
Changes to assets and liabilities increasing (decreasing) cash flows (65) (29)
------------ -----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVIES 544 357
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities/sales of securities available-for-sale 2,940 28
Proceeds from maturities/sales of securities held-to-maturity 609 100
Purchase available-for-sale securities (18,210) -
Net (increase) decrease in federal funds sold (6,480) (938)
Loans originated, net of repayments 3,529 (747)
Purchase of loans (3,921) -
Purchase FHLB stock (399) -
Purchase of premises and equipment (23) (919)
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (21,955) (2,476)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 5,906 1,399
Net increase (decrease) in advances from borrowers for property taxes/insurance (191) (161)
Advance from FHLB 10,000 -
Repayments of FHLB advances (34) (32)
Purchase of treasury stock (47) -
------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,634 1,206
------------ -----------
NET INCREASE (DECREASE) IN CASH (5,777) (913)
Cash and due from banks, beginning of year 13,251 4,746
------------ -----------
CASH AND DUE FROM BANKS, END OF PERIOD $ 7,474 $ 3,833
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest $ 1,333 $ 1,168
============ ===========
Cash paid for income taxes $ 10 $ 65
============ ===========
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 Comprehension ESOP MRDP Treasury Stockholders'
Stock Capital Earnings Income Shares Shares Stock Equity
------- ----------- ---------- ------------- ---------- ---------- ---------- ------------
BALANCE AT SEPTEMBER 30, 2000 $ 13 $ 12,293 $ 9,491 $ (160) $ (562) $ (77) $ (7,054) $ 13,944
Net income - - 609 - - - - 609
Other Comprehensive income
(loss), net of tax $159 - - - 249 - - - 249
Repurchase of common stock - - - - - - (192) (192)
Release of ESOP shares - 23 - - 102 - - 125
Release of MRDP shares - - - - - 56 - 56
Dividends paid ($.15 per share) - - (235) - - - - (235)
------- ----------- ---------- ------------- ---------- ---------- ---------- ------------
BALANCE AT SEPTEMBER 30, 2001 13 12,316 9,865 89 (460) (21) (7,246) 14,556
(Unaudited)
Net income - - 215 - - - - 215
Other Comprehensive income
(loss), net of tax - - - (138) - - - (138)
benefit $83
Repurchase of common stock - - - - - - (47) (47)
Release of ESOP shares - 6 - - 26 - - 32
Release of MRDP shares - - - - - 8 - 8
Dividends paid ($.15 per share) - - (115) - - - - (115)
------- ----------- ---------- ------------- ---------- ---------- ---------- ------------
BALANCE AT DECEMBER 31, 2001 $ 13 $ 12,322 $ 9,965 $ (49) $ (434) $ (13) $ (7,293) $ 14,511
======= =========== ========== ============= ========== ========== ========== ============
COMPREHENSIVE INCOME
Three Months Ended
December 31,
2001 2000
----------- ----------
Net income $ 215 $ 227
Change in unrealized gains (losses) on securities available-for-sale, net of
taxes(benefit) of $(83) and $65, respectively (138) 126
Less reclassification adjustment for gains included in net income, net of taxes - -
----------- ----------
Comprehensive Income $ 77 $ 353
=========== ==========
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 December 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 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 December 31, 2001, interim financial statements. The
results of operations for the period ended December 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 December 31,
2001, should be read in conjunction with the Registrant's audited consolidated
financial statements as of September 30, 2001 and for the year then ended
included in the Registrant's 2001 Annual Report to Shareholders. The significant
accounting policies followed in the preparation of the quarterly financial
statements are the same as disclosed in the 2001 Annual Report to Shareholders
to which reference is made.
NOTE B--Investment Securities
- -------------------------------
Investment securities consist of the following at December 31, 2001 and
September 30, 2001 (in thousands):
December 31, September 30,
2001 2001
------------- --------------
Available-for-sale
U.S. Government and federal agency obligations
At amortized cost $ 39,554 $ 24,594
============= ==============
Fair market value $ 39,707 $ 24,738
============= ==============
Held-to-Maturity
U.S. Government and federal agency obligations 1,251 1,860
State and municipal obligations 4,211 4,213
------------- --------------
Total held-to-maturity, at amortized cost $ 5,462 $ 6,073
============= ==============
Total available-for-sale, at fair market value $ 5,492 $ 6,194
============= ==============
-7-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE C-Loans
The following table summarizes the composition of the loan portfolio as of the
December 31, 2001 and September 30, 2001 (in thousands):
December 31, September 30,
2001 2001
------------- --------------
Mortgage $ 55,141 $ 54,783
Commercial 7,096 6,233
Agriculture 3,344 3,564
Consumer 7,900 8,527
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73,481 73,107
Add deferred loan fees 123 117
------------- --------------
Total loans 73,604 73,224
Less allowance for loan losses 723 720
------------- --------------
Net loans $ 72,881 $ 72,504
============= ==============
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 Ended
December 31,
2001 2000
----------- -----------
Balance, beginning of period $ 720 $ 648
Provision for loan losses 10 18
Recoveries on loans charged-off - 3
Charge-offs (7) (7)
----------- -----------
Balance, end of period $ 723 $ 662
=========== ===========
At December 31, 2001, non-performing assets were $953,000, which was 1.31% of
net loans and .67% of total assets, compared to $805,000 or 1.11% of net loans
and .64% of total assets at September 30, 2001. Non-performing assets at
December 31, 2001, consisted of $896,000 in loans not accruing interest and
$57,000 in loans past due 90 days or more and still accruing interest.
-8-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D--Deposits
The following table summarizes the composition of deposits as of December 31,
2001 and September 30, 2001 (in thousands):
December 31, September 30,
2001 2001
------------- --------------
Noninterest-bearing $ 15,268 $ 9,129
NOW 8,932 8,462
Money Market 11,036 10,973
Savings 6,590 6,141
Certificates of deposit 64,209 65,424
------------- --------------
Total deposits $ 106,035 $ 100,129
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Three Months Ended
December 31,
2001 2000
---------- ----------
Basic earnings per share:
Income available to common stockholders $ 215 $ 227
========== ==========
Weighted average shares
Average common shares outstanding 708 709
Options and MRDP plans 10 22
---------- ----------
Weighted average diluted common shares 718 731
========== ==========
Basic earnings per share $ 0.30 $ 0.32
========== ==========
Dilutive earnings per share $ 0.30 $ 0.31
========== ==========
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 December 31, 2001.
-9-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 December 31, 2001, 40,483 shares were vested. The Company recognized $7,738
and $17,410 as MRDP compensation expense for the three months ended December 31,
2001 and 2000, respectively. 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 has 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 $31,924 for the three months ended December 31, 2001 compared
to $29,013 for the same period ended December 31, 2000.
A summary of ESOP shares at December 31, 2001 is as follows:
Shares Allocated 55,196
Shares released for allocation 2,556
Unreleased shares 43,448
--------
Total 101,200
--------
Fair value of unreleased shares $ 532,238
==========
-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 month periods ended December 31, 2001 and
2000 as well as those material changes in liquidity and capital resources that
have occurred since September 30, 2001.
The following should be read in conjunction with the Company's 2001 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
December 31,
2001 2000
----------- -----------
Per share Data
Basic earnings per share $ 0.30 $ 0.32
Diluted earnings per share $ 0.30 $ 0.31
Cash dividends $ 0.15 $ 0.15
Selected Ratios
Return on average assets 0.63% 0.86%
Return on stockholders' equity 5.84% 6.53%
Efficiency ratio 67.36% 60.78%
---------------At--------------
December 31, September 30,
2001 2001
-------------- ---------------
Book value (tangible) $ 17.93 $ 17.90
Market price (closing price at end of period) $ 12.25 $ 12.25
Selected Ratios
Loans to deposits 68.73% 72.41%
Allowance for loan losses to loans 0.98% 0.98%
Equity to total assets 10.21% 11.52%
SUMMARY
Consolidated net income for the three months ended December 31, 2001 was
$215,000, or a $12,000 or 5.3% decrease from the same period last year. Basic
earnings per share of 30 cents decreased 2 cents compared to the same period
ended December 31,2000. Diluted earnings per share of 30 cents, decreased 1
cent from the 31 cents per share earned for the three-month period ended
December 31, 2000. The decrease in net income for the quarter ended December 31,
2001 compared to the same period a year ago can be attributed to a decrease in
net interest income and to higher non-interest expense.
-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 Three Months Ended
------------------------- -------------------------
December 31, 2001 vs 2000 December 31, 2000 vs 1999
------------------------- -------------------------
Change Due To Change Due To
------------- -------------
Average Average Average Average
Volume Rate Total Volume Rate Total
-------- ------ ------- -------- ------ -------
Interest income:
Loans. . . . . . . . . . . . . . $ 129 $(134) $ (5) $ 71 $ 91 $ 162
Investment securities & interest
bearing deposits. . . . . . . . 210 (145) $ 65 (90) 61 $ (29)
Federal funds sold 21 (32) (11) 20 4 24
-------- ------ ------- -------- ------ -------
Total interest income. . . 360 (311) 49 1 156 157
Interest expense:
Deposits . . . . . . . . . . . . 131 (184) (53) 24 86 110
Advances from FHLB . . . . . . . 124 19 143 20 (22) (2)
Notes payable. . . . . . . . . . (2) - (2) (2) (1) (3)
-------- ------ ------- -------- ------ -------
Total interest expense . . 253 (165) 88 42 63 105
-------- ------ ------- -------- ------ -------
Net interest income . . . . . . . $ 107 $(146) $ (39) $ (41) $ 93 $ 52
======== ====== ======= ======== ====== =======
-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 months ended December 31, 2001 increased
$49,000 over the comparable period last year. Interest expense for the quarter
increased $88,000 for the three months ended December 31, 2001 over the same
period 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
December 31, 2001 December 31, 2000
--------------------------- ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- -------- -------
Interest Earning Assets
Loans $ 71,997 $ 1,476 8.13% $ 65,988 $ 1,481 8.90%
Investment securities & interest
bearing deposits 49,328 575 4.62% 33,081 510 6.12%
Federal funds sold 4,420 23 2.06% 2,129 34 6.34%
-------- -------- -------- --------
Total Earning Assets/Average Yield 125,745 2,074 6.54% 101,198 2,025 7.94%
Interest Bearing Liabilities
Deposits 90,767 1,065 4.66% 80,606 1,118 5.50%
Advances from FHLB 17,960 208 4.59% 6,992 65 3.69%
Notes payable 83 2 9.56% 178 4 8.92%
-------- -------- -------- --------
Total Interest Bearing Liabilities/
Average Yield 108,810 1,275 4.65% 87,776 1,187 5.37%
-------- --------
Net Interest Income $ 799 $ 838
======== ========
Net interest Spread 1.89% 2.57%
Net Interest Margin 2.52% 3.29%
Net interest income for the three-period ended December 31, 2001 of $799,000,
declined $39,000 compared to $838,000 for the three-month period ended December
31, 2000. Contributing to the decrease in net interest income was the
capitalization of $38,000 of interest expense during the quarter ended December
31, 2000 on the construction cost of a new bank building. Capitalization of
interest last year increased the net interest spread from 2.40% to 2.57% and the
net interest margin from 3.14% to 3.29%. Also contributing to the decrease in
net interest income for the quarter ended December 31, 2001 was a narrowing of
the net interest spread and margin. The decrease in the net interest spread and
margin can also be attributed to a lower yield on earning assets resulting from
the portfolio of adjustable-rate mortgage loans and to a lower yield on
investments and overnight funds. The lower cost of funds for the quarter, which
decreased 72 basis points from the compared period a year ago, is the result of
the a general decline in interest rates over the past twelve months.
-13-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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):
December 31, September 30,
2001 2001
------------- --------------
Non-accrual loans $ 896 $ 691
Loans past due 90 days or more and still accruing interest 57 114
Foreclosed real estate and other repossessed assets - -
------------- --------------
Total non-performing assets $ 953 $ 805
============= ==============
Non-performing assets at December 31, 2001 were .67% of total assets, compared
to .64% of total assets at September 30, 2001. Non-accrual loans at December
31, 2001 consisted primarily of residential real estate, commercial and
commercial real estate loans. Classified assets at December 31, 2001 totaled
$1,340,000 or 1.82% of total loans and .94% of total assets, compared to
$1,178,000 or 1.61% of total loans and .93% of total assets at September 30,
2001. Classified assets consisted of loans classified doubtful $40,000,
substandard $856,000, and special mention $444,000.
PROVISION FOR LOAN LOSSES/ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the three months ended December 31, 2001,
was $10,000 compared to an $18,000 provision for the three-month period ended
December 31, 2000. Loan charge-offs totaled $7,000 for three-month periods
ended December 31, 2001 and December 31, 2000. There were no loan recoveries
for the three-period ended December 31, 2000 compared to $3,000 for the
comparable period last year. The allowance for loan losses at December 31,
2001 was $723,000 or .98% of outstanding loans compared to $720,000 or .98% at
September 30, 2001. The lower provision for loan losses can be attributed to
the methodologies in determining the adequacy of the allowance for loan losses.
Loans increased $380,000 since September 30, 2001.
NON-INTEREST INCOME
Non-interest income for the three-month period ended December 31, 2001 of
$120,000 increased $7,000 over the three-month period ended December 31, 2000.
The increase in non-interest income for the three months ended December 31, 2000
resulted primarily from increases in service charges and other fee income.
NON-INTEREST EXPENSE
Non-interest expense of $619,000 for the three months ended December 31,
2001, increased $22,000 from the comparable period a year ago. Accounting for
the majority of the increase were higher salaries and benefit expenses, which
increased $24,000 during the three-month ended December 31, 2001 over the same
period last year. The increase in salaries and benefits can primarily be
attributed to an increase in retirement plan expense and to an increase in the
number of employees, offset by a reduction in the cost of Management Recognition
and Development Plan. The Management Recognition Development Plan expense of
$8,000 for the quarter ended December 31, 2001, decreased $9,000 from amount
reported for the same period last year. Higher occupancy cost, which increased
$28,000, can be attributed to expenses associated with the occupancy of a new
banking facility. Data processing expense increased $19,000 from a shift in
processing from in-house to a service center. Offsetting these increases were
lower professional and consulting fees of $16,000 and a $19,000 decrease in the
amortization of intangible assets as a result of changes in accounting for
goodwill as required by FASB 142, which was adopted effective October 1, 2001.
-14-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NON-INTEREST EXPENSE (CON'T)
The operating expense efficiency ratio, which is non-interest expense less
amortization of goodwill divided by net revenue, was 67.4% for the three months
ended December 31, 2001, compared to 60.8% for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's 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 for B & L Bank 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.
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 December 31, 2001, total stockholders' equity of $14,511,000 represented
10.2% of total assets compared to $14,556,000 or 11.5% of total assets at
September 30, 2001. These levels of primary capital exceed regulatory
requirements and the Company's peer group average.
The Office of Thrift Supervision currently requires a thrift institution to
maintain liquid assets (cash and eligible investments) sufficient to meet
expected and projected deposit fluctuations, loan demand and debt service
requirements. B & L Bank consistently maintains excess liquidity level as
determined by the "Liquidity Risk Ratio". This ratio considers upcoming
liquidity needs and the sources of available liquid assets over the next twelve
months. At December 31, 2001 the Liquidity Risk Ratio indicated that liquid
assets exceeded upcoming liquidity needs by 34.1%.
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 December 31,
2001.
Minimum
B & L Bank Required
Ratios at Capital
December 31, 2001 Ratios
------------------ ---------
Risk-based capital 18.1% 8.0%
Tier 1 capital to risk-weighted assets 17.5% 4.0%
Tangible capital 9.1% 1.5%
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LEXINGTON B & L FINANCIAL CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor its bank subsidiary, B & L Bank, are a party to any
material legal proceedings at this time. From time to time the Company's bank
subsidiary is involved in various claims and legal actions arising in the
ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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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: January 25, 2002 By: E. Steva Vialle
------------------ -----------------------
Chief Executive Officer
and Director (Principal Executive Officer)
Date: January 25, 2002 By: William J. Huhmann
------------------ ---------------------------------
President and Chief
Financial Officer,
And Director (Principal
Financial and Accounting Officer)
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