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, 2002
--------------
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
-----------
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 S. 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 April 16, 2002 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
----- -----
LEXINGTON B & L FINANCIAL CORP.
FORM 10-QSB
March 31, 2002
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 7-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 12-17
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 18
ITEM 2 - CHANGES IN SECURITIES 18
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 18
ITEM 5 - OTHER INFORMATION 18
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
March 31, September 30,
2002 2001
------------ ---------------
ASSETS (Unaudited)
Cash and due from banks $ 1,905 $ 1,738
Interest-bearing deposits 3,057 11,513
Investment securities
Available-for-sale, at fair value 39,950 24,738
Held-to-maturity (fair value of $5,019 and $6,194, respectively,) 4,989 6,073
Federal funds sold 3,812 1,919
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 1,017 618
Loans held for sale 220 198
Loans receivable, less allowance for loan losses of $721 at
March 31, 2002 and $720 at September 30, 2001 73,167 72,504
Accrued interest receivable 1,051 1,132
Premises and equipment 3,792 3,852
Cost in excess of net assets acquired 789 789
Other assets 1,477 1,315
------------ ---------------
TOTAL ASSETS $ 135,226 $ 126,389
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 99,279 $ 100,129
Advances from borrowers for taxes and insurance 70 201
Advances from FHLB 20,234 10,337
Notes payable 83 83
Other liabilities 901 1,083
------------ ---------------
TOTAL LIABILITIES 120,567 111,833
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 13 13
Additional paid-in-capital 12,330 12,316
Retained earnings - substantially restricted 10,163 9,865
Accumulated other comprehensive income (140) 89
Unearned ESOP shares (409) (460)
Unearned MRDP shares (5) (21)
Treasury stock at cost (499,548 and 495,758 shares, respectively) (7,293) (7,246)
------------ ---------------
TOTAL STOCKHOLDERS' EQUITY 14,659 14,556
------------ ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 135,226 $ 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 Six Months Ended
March 31, March 31,
2002 2001 2002 2001
--------- ------------ -------- -----------
(Unaudited) (Unaudited)
Interest Income
Mortgage loans $ 1,101 $ 1,116 $ 2,236 $ 2,223
Other loans 344 358 685 732
Investment securities and interest-bearing deposits 569 512 1,144 1,022
Federal funds sold 16 58 39 92
--------- ------------ -------- -----------
TOTAL INTEREST INCOME 2,030 2,044 4,104 4,069
Interest Expense
Deposits 952 1,180 2,018 2,298
Advances from FHLB 223 73 431 138
Notes payable 2 4 4 8
--------- ------------ -------- -----------
TOTAL INTEREST EXPENSE 1,177 1,257 2,453 2,444
--------- ------------ -------- -----------
NET INTEREST INCOME 853 787 1,651 1,625
Provision for loan losses 35 18 45 36
--------- ------------ -------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 818 769 1,606 1,589
Noninterest Income
Service charges and other fees 97 81 193 169
Commission, net 5 11 13 20
Gain ( loss) on sale of investments - 9 1 9
Other 13 19 29 35
--------- ------------ -------- -----------
TOTAL NONINTEREST INCOME 115 120 236 233
Noninterest Expense
Employee compensation and benefits 344 351 715 699
Occupancy costs 74 53 153 104
Advertising 7 10 18 20
Data processing 54 32 99 58
Federal insurance premiums 4 4 9 8
Professional and consulting fees 36 55 53 89
Amortization of intangible assets arising from acquisitions - 19 - 38
Other 104 119 195 224
--------- ------------ -------- -----------
TOTAL NONINTEREST EXPENSE 623 643 1,242 1,240
--------- ------------ -------- -----------
INCOME BEFORE INCOME TAXES 310 246 600 582
Income taxes 112 80 187 189
--------- ------------ -------- -----------
NET INCOME $ 198 $ 166 $ 413 $ 393
========= ============ ======== ===========
Basic Earnings Per Share $ 0.28 $ 0.23 $ 0.58 $ 0.55
========= ============ ======== ===========
Diluted Earnings Per Share $ 0.28 $ 0.23 $ 0.58 $ 0.54
========= ============ ======== ===========
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,
2002 2001
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited)
Net income $ 413 $ 393
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 95 44
Amortization of premiums and discounts 190 (9)
Amortization of deferred loan fees 11 6
Provision for salary continuation plan costs 23 41
Amortization of cost in excess of net assets acquired - 37
Provision for loan losses 45 36
Originations of loans held for sale (2,805) (2,319)
Proceeds from sale of loans held for sale 2,783 2,091
Gain (loss) on available-for-sale securites (1) (7)
ESOP shares released 65 60
Amortization of MRDP 16 34
Changes to other assets and liabilities increasing (decreasing) cash flows, net (149) (93)
--------- -----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVIES 686 314
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities/sales of securities available-for-sale 9,736 1,737
Proceeds from maturities/sales of securities held-to-maturity 1,079 8,337
Purchase of securities available-for-sale (25,499) (6,646)
Purchase of securities held-to-maturity - (593)
Purchase of loans (7,925) -
Proceeds from redemption (purchase) of FHLB stock (399) (75)
Net (increase) decrease in federal funds sold (1,893) (3,660)
Loans originated, net of repayments 7,207 (1,478)
Purchase of premises and equipment (35) (1,216)
--------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (17,729) (3,594)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (850) 8,440
Net increase (decrease) in advances from borrowers for property taxes/insurance (131) (92)
Proceeds from FHLB advances 10,000 3,500
Repayments of FHLB advances (103) (100)
Payment of dividends (115) (118)
Purchase of treasury stock (47) (7)
--------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,754 11,623
--------- -----------
NET INCREASE (DECREASE) IN CASH (8,289) 8,343
Cash and due from banks, beginning of year 13,251 4,746
--------- -----------
CASH AND DUE FROM BANKS, END OF YEAR $ 4,962 $ 13,089
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest $ 2,554 $ 2,412
========= ===========
Cash paid for income taxes $ 180 $ 250
========= ===========
Noncash investing and financing-loans to facilitate sale of real estate $ - $ -
========= ===========
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, $ 13 $ 12,293 $ 9,491 ($160) ($562) ($77) ($7,054) $ 13,944
2000
Net income - - 609 - - - - 609
Other Comprehensive income
(loss), net of tax $159 - - - 249 - - - 249
Repurchase of common stock - - - - - - (192) (192)
Release of ESOP shares - 23 - - 102 - - 125
Release of MRDP shares - - - - - 56 - 56
Dividends paid ($.30 per
share) - - (235) - - - - (235)
------------ -------- ---------- --------------- -------- -------- ---------- --------------
Balance at September 30, 13 12,316 9,865 89 (460) (21) ($7,246) 14,556
2001
(Unaudited)
Net income - - 413 - - - - 413
Other Comprehensive income
(loss), net of tax benefit - - - (229) - - - (229)
$138
Repurchase of common stock - - - - - - (47) (47)
Release of ESOP shares - 14 - - 51 - - 65
Release of MRDP shares - - - - - 16 - 16
Dividends paid ($.15 per
share) - - (115) - - - - (115)
------------ -------- ---------- --------------- -------- -------- ---------- --------------
Balance at March 31, 2002 $ 13 $ 12,330 $ 10,163 $ (140) $ (409) $ (5) $ (7,293) $ 14,659
============ ======== ========== =============== ======== ======== ========== ==============
Comprehensive Income Three Months Ended Six Months Ended
March 31, March 31,
2002 2001 2002 2001
---------- ------------ --------- -----------
Net income $ 198 $ 166 $ 413 $ 393
Change in unrealized gains (losses) on securities available-for-sale (146) 83 (367) 270
Less reclassification adjustment for gains included in net income - (5) - -
---------- ------------ --------- -----------
Other comprehensive income before tax (146) 78 (367) 270
Tax expense related to items of other comprehensive income 55 (27) 138 (93)
---------- ------------ --------- -----------
Comprehensive Income (Loss), net of tax (91) 51 (229) 177
---------- ------------ --------- -----------
Comprehensive income Loss) $ 107 $ 217 $ 184 $ 570
========== ============ ========= ===========
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, 2002 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 March 31, 2002, interim financial statements. The results of operations for
the period ended March 31, 2002, 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, 2002, 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 March 31, 2002 and September
30, 2001 (in thousands):
--------- --------Book Value---------------------- Total Investment
Securities
One Year After One To Over Five To After Book Market
or Less Five Years Ten Years Ten Years Value Value
--------- ------------- ------------- ---------- ------- -------
March 31, 2002
- --------------
Available-for-sale
U.S Government and federal agencies $ 8,989 $ 21,227 $ 7,360 $ 2,597 $40,173 $39,950
--------- ------------- ------------- ---------- ------- -------
Held-to-maturity
U.S Government and federal agencies 300 500 251 - 1,051 1,083
State and municipal obligations 617 462 1,474 1,385 3,938 3,936
--------- ------------- ------------- ---------- ------- -------
Total held-to-maturity 917 962 1,725 1,385 4,989 5,019
--------- ------------- ------------- ---------- ------- -------
Total investment securities $ 9,906 $ 22,189 $ 9,085 $ 3,982 $45,162 $44,969
========= ============= ============= ========== ======= =======
September 30, 2001
- ------------------
Available-for-sale
U.S Government and federal agencies $ 4,366 $ 13,241 $ 4,036 $ 2,951 $24,594 $24,737
--------- ------------- ------------- ---------- ------- -------
Held-to-maturity
U.S Government and federal agencies - 1,499 252 109 1,860 1,913
State and municipal obligations 5 1,094 1,476 1,638 4,213 4,281
--------- ------------- ------------- ---------- ------- -------
Total held-to-maturity 5 2,593 1,728 1,747 6,073 6,194
--------- ------------- ------------- ---------- ------- -------
Total investment securities $ 4,371 $ 15,834 $ 5,764 $ 4,698 $30,667 $30,931
========= ============= ============= ========== ======= =======
The following schedule set forth the composition of the Company's
mortgage-backed securities portfolio at carrying value at the
dates indicated (in thousands)
March 31, September 30, March 31, September 30,
2002 2001 2002 2001
---------- -------------- ---------- --------------
GNMA $ 7,007 $ 3,442
Fannie Mae 9,219 9,484 Fixed $ 8,478 $ 5,790
Freddie Mac 10,710 4,199 Variable 18,458 11,335
---------- -------------- ---------- --------------
Total $ 26,936 $ 17,125 $ 26,936 $ 17,125
========== ============== ========== ==============
-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
March 31, 2002 and September 30, 2001
(in thousands):
March 31, September 30,
2002 2001
----------- ---------------
Mortgage $ 54,620 $ 53,481
Commercial 6,723 6,340
Agriculture 4,909 4,832
Consumer 7,512 8,454
----------- ---------------
73,764 73,107
Add deferred loan fees 124 117
----------- ---------------
Total loans 73,888 73,224
Less allowance for loan losses (721) (720)
----------- ---------------
Net loans $ 73,167 $ 72,504
=========== ===============
Note: Amounts for September 30, 2001 have been reclassified to conform with
March 31, 2002 presentation.
The following table sets forth at March 31, 2002 and September 30, 2001 certain
information regarding the dollar amount of loans maturing in the Company's
portfolio based on contractual terms to maturity, but does not include scheduled
payments or potential prepayments (in thousands):
March 31, September 30,
2002 2001
---------- --------------
Within one year $ 11,311 $ 11,979
After one year through 3 years 10,641 11,197
After 3 years though 5 years 9,951 7,092
After 5 years through 10 years 8,884 9,570
After 10 years through 15 years 10,650 10,528
After 15 years 22,327 22,741
---------- --------------
$ 73,764 $ 73,107
========== ==============
March 31, September 30,
2002 2001
---------- --------------
Fixed $ 31,740 $ 29,720
Variable 42,024 43,387
---------- --------------
$ 73,764 $ 73,107
========== ==============
-8-
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 Ended Six Month Ended
March 31, March 31,
2002 2001 2002 2001
----------- ----------- --------- ----------
Balance, beginning of period $ 723 $ 662 $ 720 $ 648
Provision for loan losses 35 18 45 36
Recoveries on loans charged-off - 2 - 4
Charge-offs (37) (27) (44) (33)
----------- ----------- --------- ----------
Balance, end of period $ 721 $ 655 $ 721 $ 655
=========== =========== ========= ==========
At March 31, 2002, non-performing assets were $1,207,000, which was 1.65% of net
loans and .89% 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 March 31,
2002, consisted of $996,000 in loans not accruing interest and $211,000 in loans
past due 90 days or more and still accruing interest.
NOTE E--Deposits
The following table summarizes the composition of deposits as of March 31, 2002
and September 30, 2001 (in thousands):
March 31. September 30,
2002 2001
---- ----
Noninterest-bearing $ 9,194 $ 9,129
NOW 10,954 8,462
Money Market 8,995 10,973
Savings 8,876 6,141
Certificates of deposit 61,260 65,424
---------- --------------
Total deposits $ 99,279 $ 100,129
========== ==============
Contractual maturities of certificates of deposit at March 31, 2002 and
September 30, 2001 are as follows (in thousands):
March 31, September 30,
2002 2001
---------- --------------
Within one year $ 39,827 $ 41,636
After one through two years 14,797 14,579
After two through three years 3,622 5,593
After three through four years 1,321 1,772
After four through five years 935 609
After five years 758 1,235
---------- --------------
$ 61,260 $ 65,424
========== ==============
-9-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F - Advances from FHLB of Des Moines
- -------------------------------------------------
The following advance activity with the FHLB of Des Moines has occurred since
September 30, 2001 (in thousands):
Amount
--------
Balance at September 30, 2001 $10,337
New Advances
2.61% fixed rate, due October 17, 2002 3,500
3.18% fixed rate, due October 22, 2003 2,500
3.80% fixed rate, due October 22, 2004 2,000
4.20% fixed rate, due October 24, 2005 2,000
--------
Total new advances 10,000
Repayments (103)
--------
Balance at March 31, 2002 $20,234
========
Scheduled maturities of FHLB advances are as follows (in thousands):
March 31,
2002
----------
Within one year $ 3,642
After one year through two years 4,649
After two years through three years 2,157
After three years through four years 4,666
After four years through five years 175
After Five years 4,945
----------
$ 20,234
==========
NOTE G--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,
2002 2001 2002 2001
---------- ---------- ------- -----------
Basic earnings per share:
Income available to common stockholders $ 198 $ 166 $ 413 $ 393
========== ========== ======= ===========
Weighted average shares
Average common shares outstanding 712 711 712 710
Options and MRDP plans 8 21 8 20
---------- ---------- ------- -----------
Weighted average diluted common shares $ 720 $ 732 $ 720 $ 730
========== ========== ======= ===========
Basic earnings per share $ 0.28 $ 0.23 $ 0.58 $ 0.55
========== ========== ======= ===========
Dilutive earnings per share $ 0.28 $ 0.23 $ 0.58 $ 0.54
========== ========== ======= ===========
-10-
LEXINGTON B & L FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE H--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, 2002.
NOTE I--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, 2002, 40,483 shares were vested. The Company recognized $7,738 and
$15,476 as MRDP compensation expense for the three and six months ended March
31, 2002 and $17,410 and $34,821, respectively, for the three and six months
ended March 31, 2001. The amortization method used attributes a higher
percentage of compensation cost to earlier years than to the later years of the
service period.
NOTE J--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 $33,381 and $65,306 for the three and six months ended March
31, 2002, respectively, compared to $31,250 and $60,263 for the same periods
ended March 31, 2001.
A summary of ESOP shares at March 31, 2002 is as follows:
Shares Allocated 55,196
Shares released for allocation 5,112
Unreleased shares 40,892
---------
Total 101,200
---------
Fair value of unreleased shares $ 532,005
=========
-11-
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,
2002 and 2001 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 Six Months Ended
March 31, March 31,
2002 2001 2002 2001
------------ ----------- -------- -----------
PER SHARE DATA
Basic earnings per share $ 0.28 $ 0.23 $ 0.58 $ 0.55
Diluted earnings per share $ 0.28 $ 0.23 $ 0.58 $ 0.54
Cash dividends $ - $ - $ 0.15 $ 0.15
SELECTED RATIOS
Return on average assets 0.58% 0.59% 0.60% 0.71%
Return on stockholders' equity 5.50% 4.70% 5.67% 5.56%
Efficiency ratio 64.36% 68.80% 65.82% 64.75%
----------At----------------
March 31, September 30,
2002 2001
----------- ---------------
Book value (tangible) $ 18.12 $ 17.90
Market price (closing price at end of period $ 13.01 $ 12.25
Selected Ratios:
Loans to deposits 73.70% 72.41%
Allowance for loan losses to loans 0.98% 0.98%
Equity to total assets 10.84% 11.52%
SUMMARY
Consolidated net income for the three and six month periods ended March 31, 2002
was $198,000 and $413,000, or increases of $32,000 or 19.3% and $20,000 or 5.1%,
respectively, over the same periods last year. Diluted earnings per share of 28
cents increased 5 cents per share for the three months ended March 31, 2002,
compared to the same period a year ago. Diluted earnings per share of 58 cents
per share for the six months ended March 31, 2002, increased 4 cents from the 54
cents per share earned for the comparable six-month period ended March 31, 2001.
The increase in net income for the three and six months ended March 31, 2002
compared to the same periods a year ago can be attributed to an increase in net
interest income.
-12-
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, 2002 vs 2001 March 31, 2002 vs 2001
---------------------- ----------------------
Change Due To Change Due To
------------- -------------
Average Average Average Average
Volume Rate Total Volume Rate Total
------------ ---------- ----------- ----------- ------- ------
Interest income:
Loans $ 166 $ (195) $ (29) $ 325 $ (359) $ (34)
Investment securities & interest
bearing deposits 203 (146) $ 57 417 (295) 122
Federal funds sold (3) (39) (42) 27 (80) (53)
------------ ---------- ----------- ----------- ------- ------
Total interest income 366 (380) (14) 769 (734) 35
Interest expense:
Deposits 106 (334) (228) 206 (486) (280)
Advances from FHLB 139 11 150 264 29 293
Notes payable (1) (1) (2) (3) (1) (4)
------------ ---------- ----------- ----------- ------- ------
Total interest expense 244 (324) (80) 467 (458) 9
------------ ---------- ----------- ----------- ------- ------
Net interest income $ 122 $ (56) $ 66 $ 302 $ (276) $ 26
============ ========== =========== =========== ======= ======
-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, 2002
increased $66,000 and $26,000, respectively, over the comparable periods last
year. 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, 2002 March 31, 2001
------------------ ------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- --------- ---------- -------- --------- ---------
Interest Earning Assets
Loans $ 74,325 $ 1,445 7.88% $ 66,362 $ 1,474 9.01%
Investment securities & interest
Bearing deposits 51,920 569 4.44% 35,223 512 5.90%
Federal funds sold 4,150 16 1.56% 4,349 58 5.41%
-------- --------- -------- ---------
Total Earning Assets/Average Yield 130,395 2,030 6.31% 105,934 2,044 7.83%
Interest Bearing Liabilities
Deposits 90,859 952 4.25% 85,858 1,180 5.57%
Advances from FHLB 20,286 223 4.46% 7,555 73 3.92%
Notes payable 83 2 9.77% 178 4 9.11%
-------- --------- -------- ---------
Total Interest Bearing Liabilities/
Average Yield 111,228 1,177 4.29% 93,591 1,257 5.45%
--------- ---------
Net Interest Income $ 853 $ 787
========= =========
Net interest Spread 2.02% 2.38%
Net Interest Margin 2.65% 3.01%
Six Months Ended Six Months Ended
March 31, 2002 March 31, 2001
------------------- -------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- ---------- ------- -------- ----------- -------
Interest Earning Assets
Loans $ 73,520 $ 2,921 7.97% $ 66,448 $ 2,955 8.92%
Investment securities & interest
bearing deposits 50,624 1,144 4.53% 33,999 1,022 6.03%
Federal funds sold 4,285 39 1.83% 3,080 92 5.99%
-------- ---------- -------- -----------
Total Earning Assets/Average Yield 128,429 4,104 6.41% 103,527 4,069 7.88%
Interest Bearing Liabilities
Deposits 90,813 2,018 4.46% 82,857 2,298 5.56%
Advances from FHLB 19,123 431 4.52% 7,233 138 3.83%
Notes payable 83 4 9.67% 178 8 9.01%
-------- ---------- -------- -----------
Total Interest Bearing Liabilities/
Average Yield 110,019 2,453 4.47% 90,268 2,444 5.43%
---------- -----------
Net Interest Income $ 1,651 $ 1,625
========== ===========
Net interest Spread 1.94% 2.45%
Net Interest Margin 2.58% 3.15%
-14-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The increase in net interest income can primarily be attributed to an increase
in the volume of earning assets, which offset a narrowing of the net interest
spread and interest margin. For the three and six-month periods ended March 31,
2002, the volume of average earning assets increased $24,461,000 and
$24,902,000, respectively, over the comparable periods last year. For the three
and six-month periods ended March 31, 2002, the net interest spread declined 36
and 51 basis points, respectively, compared to the same periods a year ago.
During the same periods this year, the interest margin declined 36 and 57 basis
points from the comparable periods last year. The decrease in the net interest
spread and margin can 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 three and
six-month periods ended March 31, 2002, which decreased 116 and 96 basis points,
respectively, from the comparable period a year ago, is the result of the lower
rates of interest paid on interest-bearing deposits.
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,
2002 2001
---------- --------------
Non-accrual loans
Residential real estate $ 388 $ 319
Commercial real estate 80 89
Commercial loans 90 114
Agriculture loans 174 52
Consumer loans 264 117
---------- --------------
Total loans on non-accrual status 996 691
Loans past due 90 days or more and still accruing interest
Residential real estate 101 -
Agriculture loans 110 -
Consumer loans - 114
---------- --------------
Total loans over 90 days past due and still accruing 211 114
Foreclosed real estate and other repossessed assets - -
---------- --------------
Total non-performing assets $ 1,207 $ 805
========== ==============
Non-performing assets at March 31, 2002 were .89% of total assets, compared to
...64% of total assets at September 30, 2001.
Classified assets at March 31, 2002 were 1.36% of net loans and .73% of total
assets, compared to 1.62% of net loans and .93% of total assets at September 30,
2001. The following table sets forth the Company's classified assets for the
periods indicated, (in thousands):
March 31, September 30,
2002 2001
---------- --------------
Watch / special mention $ 487 $ 373
Substandard 441 805
Doubtful 65 -
---------- --------------
$ 993 $ 1,178
========== ==============
-15-
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
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
non-performing 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.
The provision for loan losses for the three and six-month periods ended
March 31, 2002, was $35,000 and $45,000, respectively, compared to $18,000 and
$36,000 provision for the comparable periods ended March 31, 2001. Loan
charge-offs totaled $37,000 and $44,000, for three and six-month periods ended
March 31, 2002 compared to $27,000 and $33,000, respectively, for the same
periods last year. The allowance for loan losses at March 31, 2002 was $721,000
or .98% of outstanding loans compared to $720,000 or .98% at September 30, 2001.
The higher provision for loan losses can be attributed to the increase in loan
charge-offs and the methodologies in determining the adequacy of the allowance
for loan losses.
NON-INTEREST INCOME
Non-interest income for the three-month period ended March 31, 2002 of
$115,000 decreased $5,000 from the three-month period ended March 31, 2001. For
the six-month period ended March 31, 2002, non-interest income increased
$3,000.The decrease in non-interest income for the three months can be
attributed to $9,000 decline in gains on calls on investment securities. The
increase for the six-month period ended March 31, 2002 resulted primarily from
increases in service charges and other fee income.
NON-INTEREST EXPENSE
Non-interest expense of $623,000 for the three months ended March 31, 2002,
decreased $20,000 from the comparable period a year ago. Accounting for the
majority of the decrease can be attributed to a 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. For the six-month
period ended March 31, 2002 non-interest expense increased $2,000 from higher
salary and benefit expenses, occupancy cost and data processing expenses.
Salary and benefit expense increased $16,000 primarily to an increase in
retirement plan expense. Occupancy costs increase $49,000 from expenses
associated with the occupancy of a new banking facility. Data processing
expense increased $41,000 from a shift in processing from in-house to a service
center. Offsetting these increases were lower professional and consulting fees
of $36,000 and a $38,000 decrease in the amortization of intangible assets.
The operating expense efficiency ratio, which is non-interest expense less
amortization of goodwill divided by net revenue, was 64.4% and 65.8% for the
three and six-month period ended March 31, 2002, compared to 68.8% and 64.8%,
respectively, for the same periods a year ago.
-16-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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 March 31, 2002, total stockholders' equity of $14,659,000 represented
10.8% 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. Projected liquidity needs over the next twelve months at March 31, 2002
were $43 million, which includes maturing certificates of deposits and
repayment of FHLB advances. Liquid assets had a fair value of $61 million at
March 31, 2002, which included the Company's subsidiary B & L Bank additional
borrowing capacity through secured advances from the FHLB. At March 31, 2002,
the Liquidity Risk Ratio reflects liquid assets to exceed upcoming liquidity
needs over the next twelve months by $18 million or 29.1% compared to 34.1% at
December 31, 2001.
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,
2002.
Minimum
B & L Bank Required
Ratios at Capital
March 31, 2002 Ratios
--------------- ---------
Risk-based capital 18.7% 8.0%
Tier 1 capital to risk-weighted assets 17.9% 4.0%
Tangible capital 9.8% 1.5%
-17-
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
The Annual Meeting of Stockholder's of the Company ("Meeting") was held on
January 22, 2002. The results of the vote on the matters presented at the
Meeting is as follows:
1. The following individual were elected as directors:
Vote For Vote Withheld
--------- --------------
For a two-year term
William J. Huhmann 598,244 65,040
For a three-year term
Erwin Oetting, Jr. 600,344 62,940
Steve Oliaro 600,344 62,940
Terms of Directors Norman Vialle, Charles R. Wilsoxon, and E. Steva Vialle
continued on after the meeting.
2. The firm of Moore, Horton & Carlson P.C. was ratified as auditors for the
fiscal year ending September 30, 2002.
Vote For Vote Withheld Against
--------- -------------- -------
Ratification of Auditors 661,744 100 1,440
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
-18-
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 6, 2002 By: /s/ E.Steva Vialle
------------- -------------------
Chief Executive Officer
and Director (Principal Executive
Officer)
Date May 6, 2002 By: /s/ William J.Huhmann
----------- -----------------------
President and Chief
Financial Officer,
And Director (Principal
Financial and Accounting Officer)
-19-