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, 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 July 17, 2002 there were 756,952 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, 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 12-18
CONDITION AND RESULTS OF OPERATIONS
PART II -OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 19
ITEM 2 - CHANGES IN SECURITIES 19
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 19
ITEM 5 - OTHER INFORMATION 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
LEXINGTON B & L FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, September 30,
2002 2001
------------ ---------------
ASSETS (Unaudited)
Cash and due from banks $ 1,400 $ 1,738
Interest-bearing deposits 5,261 11,513
Investment securities
Available-for-sale, at fair value 37,484 24,738
Held-to-maturity (fair value of $5,076 and $6,194, respectively,) 4,981 6,073
Federal funds sold 2,607 1,919
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 1,017 618
Loans held for sale 318 198
Loans receivable, less allowance for loan losses of $721 at
June 30, 2002 and $720 at September 30, 2001 72,185 72,504
Accrued interest receivable 1,112 1,132
Premises and equipment 3,531 3,852
Cost in excess of net assets acquired 789 789
Other assets 1,578 1,315
------------ ---------------
TOTAL ASSETS $ 132,263 $ 126,389
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 95,828 $ 100,129
Advances from borrowers for taxes and insurance 111 201
Advances from FHLB 20,199 10,337
Notes payable 83 83
Dividend payable 115 -
Other liabilities 923 1,083
------------ ---------------
TOTAL LIABILITIES 117,259 111,833
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 12,342 12,316
Retained earnings - substantially restricted 10,283 9,865
Accumulated other comprehensive income 42 89
Unearned ESOP shares (383) (460)
Unearned MRDP shares - (21)
Treasury stock at cost (499,548 and 495,758 shares, respectively) (7,293) (7,246)
------------ ---------------
TOTAL STOCKHOLDERS' EQUITY 15,004 14,556
------------ ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 132,263 $ 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 Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Interest Income
Mortgage loans $ 1,028 $ 1,129 $ 3,263 $ 3,352
Other loans 377 369 1,063 1,101
Investment securities and interest-bearing deposits 541 507 1,685 1,529
Federal funds sold 13 61 52 153
----------- ---------- ---------- ----------
TOTAL INTEREST INCOME 1,959 2,066 6,063 6,135
Interest Expense
Deposits 846 1,204 2,864 3,502
Advances from FHLB 224 143 655 281
Notes payable 2 5 6 13
----------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 1,072 1,352 3,525 3,796
----------- ---------- ---------- ----------
NET INTEREST INCOME 887 714 2,538 2,339
Provision for loan losses 43 67 88 103
----------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 844 647 2,450 2,236
Noninterest Income
Service charges and other fees 105 99 298 268
Commission, net 4 9 17 29
Income from foreclosed assets - 5 - 5
Gain on sale of investments - 17 1 26
Other 14 80 42 115
----------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 123 210 358 443
Noninterest Expense
Employee compensation and benefits 357 382 1,072 1,081
Occupancy costs 82 80 234 184
Advertising 7 15 24 35
Data processing 61 55 160 113
Federal insurance premiums 5 4 13 12
Professional and consulting fees 25 34 79 123
Amortization of intangible assets arising from acquisitions - 18 - 56
Other 95 325 291 549
----------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSE 632 913 1,873 2,153
----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 335 (56) 935 526
Income taxes 100 (122) 287 67
----------- ---------- ---------- ----------
NET INCOME $ 235 $ 66 $ 648 $ 459
=========== ========== ========== ==========
Basic Earnings Per Share $ 0.33 $ 0.09 $ 0.91 $ 0.64
=========== ========== ========== ==========
Diluted Earnings Per Share $ 0.32 $ 0.09 $ 0.90 $ 0.63
=========== ========== ========== ==========
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,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited)
Net income $ 648 $ 459
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 147 94
Amortization of premiums and discounts 289 2
Amortization of deferred loan fees 16 8
Provision for salary continuation plan costs 35 53
(Gain) loss on sale of foreclosed real estate - (5)
Amortization of cost in excess of net assets acquired - 55
Provision for loan losses 88 103
Originations of loans held for sale (4,204) (2,673)
Proceeds from sale of loans held for sale 4,084 2,874
Gain (loss) on available-for-sale securities - (26)
ESOP shares released 103 92
Amortization of MRDP 21 49
Contribution of building - 211
Gain on sale of parking lot - (62)
Changes to other assets and liabilities increasing (decreasing) cash flows, net (198) 70
----------- -----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVIES 1,029 1,304
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities/sales of securities available-for-sale 14,721 6,023
Proceeds from maturities/sales of securities held-to-maturity 1,085 15,401
Purchase of securities available-for-sale (27,824) (15,105)
Purchase of securities held-to-maturity - (990)
Purchase of loans (11,433) -
Purchase of FHLB stock (399) (75)
Net (increase) decrease in federal funds sold (688) (3,849)
Loans originated, net of repayments 11,649 (3,086)
Proceeds on sale of premises - 130
Purchase of premises and equipment (39) (1,424)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (12,928) (2,975)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (4,301) 8,544
Net increase (decrease) in advances from borrowers for property taxes/insurance (90) (33)
Proceeds from FHLB advances 10,000 3,500
Repayments of FHLB advances (138) (133)
Payment of dividends (115) (117)
Purchase of treasury stock (47) (7)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,309 11,754
----------- -----------
NET INCREASE (DECREASE) IN CASH (6,590) 10,083
Cash and due from banks, beginning of year 13,251 4,746
----------- -----------
CASH AND DUE FROM BANKS, END OF YEAR $ 6,661 $ 14,829
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for Interest $ 3,630 $ 3,727
=========== ===========
Cash paid for income taxes $ 271 $ 320
=========== ===========
Noncash investing and financing-loans to facilitate sale of real estate $ - $ 37
=========== ===========
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, 2000 $13 $12,293 $9,491 ($160) ($562) ($77) ($7,054) $13,944
Net income - - 609 - - - - 609
Other Comprehensive income
(loss), net of tax $159 - - - 249 - - - 249
Repurchase of common stock - - - - - - (192) (192)
Release of ESOP shares - 23 - - 102 - - 125
Release of MRDP shares - - - - - 56 - 56
Dividends paid ($.30 per share) - - (235) - - - - (235)
------- -------- ---------- --------------- -------- -------- ---------- ---------------
Balance at September 30, 2001 13 12,316 9,865 89 (460) (21) ($7,246) 14,556
(Unaudited)
Net income - - 648 - - - - 648
Other Comprehensive income
(loss), net of tax benefit $29 - - - (47) - - - (47)
Repurchase of common stock - - - - - - (47) (47)
Release of ESOP shares - 26 - - 77 - - 103
Release of MRDP shares - - - - - 21 - 21
Dividends paid ($.30 per share) - - (230) - - - - (230)
------- -------- ---------- --------------- -------- -------- ---------- ---------------
Balance at March 31, 2002 $ 13 $ 12,342 $ 10,283 $ 42 $ (383) $ - $ (7,293) $ 15,004
======= ======== ========== =============== ======== ======== ========== ===============
Comprehensive Income Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
------------ ---------- ----------- ----------
Net income $ 235 $ 67 $ 648 $ 459
Change in unrealized gains (losses) on securities available-for-sale 68 (95) (76) 222
Less reclassification adjustment for gains (losses) included in net income - 21 - (26)
------------ ---------- ----------- ----------
Other comprehensive income (loss) before tax 68 (74) (76) 196
Tax expense related to items of other comprehensive income (25) 26 29 (67)
------------ ---------- ----------- ----------
Comprehensive Income (Loss), net of tax 43 (48) (47) 129
------------ ---------- ----------- ----------
Comprehensive income $ 278 $ 19 $ 601 $ 588
============ ========== =========== ==========
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, 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 June 30, 2002, interim financial statements. The results of operations for
the period ended June 30, 2002, 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, 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 June 30, 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
--------- ------------- ------------- ---------- ------- -------
June 30, 2002
- -------------
Available-for-sale
U.S Government and federal agencies $ 8,069 $ 18,539 $ 8,492 $ 2,315 $37,415 $37,484
--------- ------------- ------------- ---------- ------- -------
Held-to-maturity
U.S Government and federal agencies 400 400 250 - 1,050 1,090
State and municipal obligations 612 462 1,473 1,384 3,931 3,986
--------- ------------- ------------- ---------- ------- -------
Total held-to-maturity 1,012 862 1,723 1,384 4,981 5,076
--------- ------------- ------------- ---------- ------- -------
Total investment securities $ 9,081 $ 19,401 $ 10,215 $ 3,699 $42,396 $42,560
========= ============= ============= ========== ======= =======
September 30, 2001
- ------------------
Available-for-sale
U.S Government and federal agencies $ 4,366 $ 13,241 $ 4,036 $ 2,951 $24,594 $24,738
--------- ------------- ------------- ---------- ------- -------
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 $30,932
========= ============= ============= ========== ======= =======
The following schedule set forth the composition of the Company's
mortgage-backed securities portfolio at carrying value at the dates indicated
(in thousands)
June 30, September 30, June 30, September 30,
2002 2001 2002 2001
--------- -------------- --------- --------------
GNMA $ 6,628 $ 3,442
Fannie Mae 8,255 9,484 Fixed $ 7,991 $ 5,790
Freddie Mac 9,948 4,199 Variable 16,840 11,335
--------- -------------- --------- --------------
Total $ 24,831 $ 17,125 $ 24,831 $ 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
June 30, 2002 and September 30, 2001 (in thousands):
June 30, September 30,
2002 2001
---------- ---------------
Mortgage $ 52,558 $ 53,481
Commercial 6,740 6,340
Agriculture 5,519 4,832
Consumer 7,966 8,454
---------- ---------------
72,783 73,107
Add deferred loan fees 123 117
---------- ---------------
Total loans 72,906 73,224
Less allowance for loan losses (721) (720)
---------- ---------------
Net loans $ 72,185 $ 72,504
========== ===============
Note: Amounts for September 30, 2001 have been reclassified to conform with June
30, 2002 presentation.
The following table sets forth at June 30, 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):
June 30, September 30,
2002 2001
--------- --------------
Within one year $ 11,052 $ 11,979
After one year through 3 years 10,641 11,197
After 3 years though 5 years 10,671 7,092
After 5 years through 10 years 9,081 9,570
After 10 years through 15 years 10,735 10,528
After 15 years 20,603 22,741
--------- --------------
$ 72,783 $ 73,107
========= ==============
The following table sets forth the dollar amount of loans at June 30, 2002 and
September 30, 2001, which have fixed interest rates and having floating or
adjustable interest rates (in thousands):
June 30, September 30,
2002 2001
--------- --------------
Fixed $ 32,101 $ 29,720
Variable 40,682 43,387
--------- --------------
$ 72,783 $ 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 Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- ----------
Balance, beginning of period $ 721 $ 655 $ 720 $ 648
Provision for loan losses 43 67 88 103
Recoveries on loans charged-off 1 12 1 17
Charge-offs (44) (44) (88) (78)
----------- ----------- ----------- ----------
Balance, end of period $ 721 $ 690 $ 721 $ 690
=========== =========== =========== ==========
At June 30, 2002, non-performing assets were $946,000, which was 1.31% of net
loans and .72% 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 June 30,
2002, consisted of $568,000 in loans not accruing interest and $378,000 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 June 30, 2002
and September 30, 2001 (in thousands):
June 30, September 30,
2002 2001
--------- --------------
Noninterest-bearing $ 9,357 $ 9,129
NOW 9,124 8,462
Money Market 8,091 10,973
Savings 10,228 6,141
Certificates of deposit 59,028 65,424
--------- --------------
Total deposits $ 95,828 $ 100,129
========= ==============
Contractual maturities of certificates of deposit at June 30, 2002 and September
30, 2001 are as follows (in thousands):
June 30, September 30,
2002 2001
--------- --------------
Within one year $ 40,101 $ 41,636
After one through two years 12,864 14,579
After two through three years 3,241 5,593
After three through four years 1,302 1,772
After four through five years 984 609
After five years 536 1,235
--------- --------------
$ 59,028 $ 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 (138)
-----------
Balance at June 30, 2002 $ 20,199
===========
Scheduled maturities of FHLB advances are as follows (in thousands):
June 30, September 30,
Year ending September 30, 2002 2001
- ------------------------- --------- --------------
2002 $ 35 $ 173
2003 3,608 2,145
2004 4,651 153
2005 2,159 162
2006 2,168 170
Thereafter 7,578 7,534
--------- --------------
$ 20,199 $ 10,337
========= ==============
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 Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- --------- --------- ----------
Basic earnings per share:
Income available to common stockholders $ 235 $ 66 $ 648 $ 459
=========== ========= ========= ==========
Weighted average shares
Average common shares outstanding 717 715 714 712
Options and MRDP plans 8 10 9 10
----------- --------- --------- ----------
Weighted average diluted common shares $ 725 $ 725 $ 723 $ 722
=========== ========= ========= ==========
Basic earnings per share $ 0.33 $ 0.09 $ 0.91 $ 0.64
=========== ========= ========= ==========
Dilutive earnings per share $ 0.32 $ 0.09 $ 0.90 $ 0.64
=========== ========= ========= ==========
-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 June 30, 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 June 30, 2002, all of the 50,600 shares awarded have been vested. The
Company recognized $5,158 and $20,634 as MRDP compensation expense for the three
and nine months ended June 30, 2002 and $14,186 and $49,007, respectively, for
the three and nine months ended June 30, 2001. The amortization method used
attributed 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 $38,059 and $103,365 for the three and nine months ended June
30, 2002, respectively, compared to $32,129 and $92,392 for the same periods
ended June 30, 2001.
A summary of ESOP shares at June 30, 2002 is as follows:
Shares Allocated 55,196
Shares released for allocation 7,668
Unreleased shares 38,336
--------
Total 101,200
--------
Fair value of unreleased shares $ 594,208
=========
NOTE K-Commitments
- ------------------
Subsequent to June 30, 2002, the Company entered into an agreement to purchase
35,000 shares of its common stock for $530,250 or $15.15 per share.
-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 nine month periods ended June 30,
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 Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
--------------- ----------- ---------- -----------
PER SHARE DATA
Basic earnings per share $ 0.33 $ 0.09 $ 0.91 $ 0.64
Diluted earnings per share $ 0.32 $ 0.09 $ 0.90 $ 0.63
Cash dividends $ 0.15 $ 0.15 $ 0.30 $ 0.30
SELECTED RATIOS
Return on average assets 0.71% 0.22% 0.64% 0.54%
Return on stockholders' equity 6.37% 1.83% 5.91% 4.29%
Efficiency ratio 62.57% 96.75% 64.68% 75.38%
--------------At-------------
June 30, September 30,
2002 2001
--------------- -----------
Book value (tangible) $ 18.57 $ 17.90
Market price (closing price at end of period $ 15.50 $ 12.25
Selected Ratios:
Net loans to deposits 75.33% 72.15%
Allowance for loan losses to loans 0.99% 0.98%
Equity to total assets 11.34% 11.52%
SUMMARY
Consolidated net income for the three and nine month periods ended June 30, 2002
was $235,000 and $648,000, or increases of $169,000 and $189,000, respectively,
over the same periods last year. Diluted earnings per share of 32 cents
increased 23 cents per share for the three months ended June 30, 2002, compared
to the same period a year ago. Diluted earnings per share of 90 cents per share
for the nine months ended June 30, 2002, increased 27 cents from the 63 cents
per share earned for the comparable nine-month period ended June 30, 2001. The
increase in net income for the three and nine months ended June 30, 2002
compared to the same periods a year ago can be attributed to lower non-interest
expenses, and 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 Nine Months Ended
--------------------------- -------------------------
June 30, 2002 vs 2001 June 30,20 02 vs 2001
--------------------------- -------------------------
Change Due To Change Due To
--------------------------- -------------------------
Average Average Average Average
Volume Rate Total Volume Rate Total
-------------- ----------- ------- ------------ ----------- -------
Interest income:
Loans $ 145 $ (238) $ (93) $ 484 $ (611) $ (127)
Investment securities & interest
bearing deposits 126 (92) $ 34 537 (381) $ 156
Federal funds sold (20) (28) (48) (6) (95) (101)
-------------- ----------- ------- ------------ ----------- -------
Total interest income 251 (358) (107) 1,015 (1,087) (72)
Interest expense:
Deposits 2 (360) (358) 201 (839) (638)
Advances from FHLB 115 (34) 81 377 (3) 374
Notes payable (2) (1) (3) (7) - (7)
-------------- ----------- ------- ------------ ----------- -------
Total interest expense 115 (395) (280) 571 (842) (271)
-------------- ----------- ------- ------------ ----------- -------
Net interest income $ 136 $ 37 $ 173 $ 444 $ (245) $ 199
============== =========== ======= ============ =========== =======
-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 none-month periods ended June 30, 2002
increased $173,000 and $199,000, 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
June 30, 2002 June 30, 2001
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- ---------- --------- --------- ---------- ---------
Interest Earning Assets
Loans $ 73,490 $ 1,405 7.67% $ 66,613 $ 1,498 9.02%
Investment securities & interest
bearing deposits 48,379 541 4.49% 37,856 507 5.37%
Federal funds sold 3,181 13 1.64% 5,763 61 4.25%
--------- ---------- --------- ----------
Total Earning Assets/Average Yield 125,050 1,959 6.28% 110,232 2,066 7.52%
Interest Bearing Liabilities
Deposits 87,599 846 3.87% 87,459 1,204 5.52%
Advances from FHLB 20,222 224 4.44% 10,300 143 5.57%
Notes payable 83 2 9.67% 178 5 11.27%
--------- ---------- --------- ----------
Total Interest Bearing Liabilities/
Average Yield 107,904 1,072 3.98% 97,937 1,352 5.54%
---------- ----------
Net Interest Income $ 887 $ 714
========== ==========
Net interest Spread 2.30% 1.98%
Net Interest Margin 2.85% 2.60%
Nine Months Ended Nine Months Ended
June 30, 2002 June 30, 2001
-------------------------------- --------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- ---------- --------- --------- ---------- ---------
Interest Earning Assets
Loans $ 73,500 $ 4,326 7.87% $ 65,877 $ 4,453 9.04%
Investment securities & interest
bearing deposits 49,876 1,685 4.52% 35,387 1,529 5.78%
Federal funds sold 3,917 52 1.77% 4,080 153 5.01%
--------- ---------- --------- ----------
Total Earning Assets/Average Yield 127,293 6,063 6.37% 105,344 6,135 7.79%
Interest Bearing Liabilities
Deposits 89,741 2,864 4.27% 84,641 3,502 5.53%
Advances from FHLB 19,489 655 4.49% 8,282 281 4.54%
Notes payable 83 6 9.67% 178 13 9.76%
--------- ---------- --------- ----------
Total Interest Bearing Liabilities/
Average Yield 109,313 3,525 4.31% 93,101 3,796 5.45%
---------- ----------
Net Interest Income $ 2,538 $ 2,339
========== ==========
Net interest Spread 2.06% 2.34%
Net Interest Margin 2.67% 2.97%
-14-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The $199,000 increase in net interest income for the nine months ended June 30,
2002 over the same period a year ago 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. The volume of average earning assets for the nine
months ended June 30, 2002, increased $21,949,000 over the comparable period
last year. For the nine-month period ended June 30, 2002, the net interest
spread declined 28 basis points, compared to the same period a year ago. During
the same period this year, the interest margin declined 30 basis points from the
comparable period last year. For the three months ended June 30, 2002, net
interest income increased $173,000 over the comparable period last year. The
increase can be attributed to a higher volume of average earning assets and to
an improving net interest spread and margin. The improvement in the net interest
spread and interest margin in the three-month period ended June 30, 2002, can be
attributed to a lower cost of funds on interest bearing liabilities, which
declined 156 basis points from the same period last year. The lower yield on
earning assets resulted from the portfolio of adjustable-rate mortgage loans and
to a lower yield on investments and overnight funds.
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,
2002 2001
--------- --------------
Non-accrual loans
Residential real estate $ 290 $ 319
Commercial real estate - 89
Commercial loans 88 114
Agriculture loans - 52
Consumer loans 190 117
--------- --------------
Total loans on non-accrual status 568 691
Loans past due 90 days or more and still accruing interest
Agriculture loans 345 -
Consumer loans 33 114
--------- --------------
Total loans over 90 days past due and still accruing 378 114
Foreclosed real estate and other repossessed assets - -
--------- --------------
Total non-performing assets $ 946 $ 805
========= ==============
Agriculture loans past due 90 days or more and still accruing interest at June
30, 2002 totaling $345,000, consisted of two loans to one farmer, have
subsequently been renewed and are now current. Non-performing assets at June
30, 2002 were .72% of total assets, compared to .64% of total assets at
September 30, 2001.
Classified assets at June 30, 2002 were 1.23% of net loans and .67% 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):
June 30, September 30,
2002 2001
--------- --------------
Watch / special mention $ 430 $ 373
Substandard 397 805
Doubtful 62 -
--------- --------------
$ 889 $ 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 nine-month periods ended
June 30, 2002, was $43,000 and $88,000, respectively, compared to $67,000 and
$103,000 provision for the comparable periods ended June 30, 2001. Loan
charge-offs totaled $44,000 and $88,000, for three and nine-month periods ended
June 30, 2002 compared to $44,000 and $78,000, respectively, for the same
periods last year. The allowance for loan losses at June 30, 2002 was $721,000
or .99% 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
management uses in determining the adequacy of the allowance for loan losses.
NON-INTEREST INCOME
Non-interest income for the three-month period ended June 30, 2002 of
$123,000 decreased $87,000 from the three-month period ended June 30, 2001. For
the nine-month period ended June 30, 2002, non-interest income decreased
$85,000. The decrease in non-interest income for the three and nine month
periods ended June 30, 2002, can be attributed to a $62,000 gain realized on the
sale of a parking lot in the third quarter a year ago, decline in gains on calls
on investment securities, and to a decline in insurance commission income.
Higher service charge income in the three and nine-month periods ended June 30,
2002, helped offset the effect of these reductions.
NON-INTEREST EXPENSE
Non-interest expense for the three and nine-month periods ended June 30,
2002, decreased $281,000 and $280,000, respectively, from the comparable periods
a year ago. The decline can be attributed to the contribution of a bank building
to the City of Lexington, Missouri with a book value of $211,000 and cost
associated with the merger of the Company's two banking subsidiaries totaling
$76,000, which occurred in the third quarter last year. Also, contributing to
the decline was a decrease in the amortization of intangible assets resulting
from changes in accounting for goodwill as required by FASB 142, which was
adopted at the beginning of the Company's fiscal year, October 1, 2001, the
effect of this change in accounting reduced the current year's non-interest
expense by $56,000. For the nine-month period ended June 30, 2002 occupancy
costs increased $50,000 from expenses associated with the occupancy of a new
banking facility. Data processing expense increased $47,000 from a shift in
processing from in-house to a service center. Offsetting these increases were
lower professional and consulting fees of $44,000, which are mostly related to
merger expenses incurred last year.
The operating expense efficiency ratio, which is non-interest expense less
amortization of goodwill divided by net revenue, was 62.6% and 64.7% for the
three and nine-month periods ended June 30, 2002, compared to 96.8% and 75.4%,
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)
INCOME TAXES
- -------------
The effective income tax rates for the three and nine-month periods ended
June 30, 2002, were 29.8% and 30.6%, respectively. The reduced provision for
income taxes for the three and nine-month periods ended June 30, 2001, can be
attributed tax benefits realized from the building contributed to the City of
Lexington.
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 June 30, 2002, total stockholders' equity of $15,004,000 represented
11.3% 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 June 30, 2002
were $44 million, which includes maturing certificates of deposits and repayment
of FHLB advances. Liquid assets with a fair value of $59 million at June 30,
2002, which include the borrowing capacity of the Company's subsidiary B & L
Bank through secured advances from the FHLB, are available to cover projected
liquidity requirements. At June 30, 2002, the Liquidity Risk Ratio reflects
liquid assets to exceed upcoming liquidity needs over the next twelve months by
$16 million or 26.3% compared to 29.1% at March 31, 2002.
-17-
LEXINGTON B & L FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES CON'T
- -----------------------------------------
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,
2002.
Minimum
B & L Bank Required
Ratios at Capital
June 30, 2002 Ratios
-------------------- ------
Risk-based capital 19.5% 8.0%
Tier 1 capital to risk-weighted assets 18.6% 4.0%
Tangible capital 10.2% 1.5%
-18-
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
Exhibit 99.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-19-
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 6, 2002 By: /s/ E. Steva Vialle
-------------- -------------------
Chief Executive Officer
and Director (Principal Executive
Officer)
Date: August 6, 2002 By: /s/ William J. Huhmann
-------------- -----------------------
President and Chief
Financial Officer,
And Director (Principal
Financial and Accounting Officer)
-20-