SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26556
LEXINGTON B & L FINANCIAL CORP.
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
MISSOURI 43-173955
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
919 Franklin Avenue, Lexington, Missouri 64067
- --------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 259-2247
----------------
Securities registered pursuant to Section 12(b) of the Act: None
----------------
Securities registered pursuant Common Stock, par value $.01 per share
to Section 12(g) of the Act: --------------------------------------
(Title of Class)
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 12 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
---- -----
Indicate by check mark whether disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein, and will not
be contained, to the best of the Registrant's knowledge, in definitive proxy
or other information statements incorporated by reference in Part III of this
Form 10-KSB or any amendments to this Form 10-K. YES X NO
---- -----
The Registrant's revenues for the fiscal year under report were $4.2
million.
As of November 29, 1996, there were issued and outstanding 1,265,000
shares of the Registrant's Common Stock. The Common Stock is listed for
trading on the Nasdaq SmallCap Market under the symbol "LXMO." Based on the
bid and ask prices, the aggregate value of the Common Stock outstanding held
by on the nonaffiliates of the Registrant on November 29, 1996 was
$15,733,437 (1,265,000 shares at $12.4375 per share). For purposes of this
calculation, officers and directors of the Registrant are considered
nonaffiliates of the Bank.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year
Ended September 30, 1996 ("Annual Report") (Parts I and II).
2. Portions of Definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders (Part III).
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PART I
Item 1. Business
- -----------------
General
Lexington B & L Financial Corp. ("Company"), a Missouri corporation,
was organized on November 29, 1995 for the purpose of becoming the holding
company for B & L Bank ("Bank") (formerly The Lexington Building and Loan
Association, F.A.) upon its conversion from a federal mutual savings and loan
association to a federal stock savings bank ("Conversion"). The Conversion
was completed on June 5, 1996 through the issuance of 1,265,000 shares of
common stock by the Company at a price of $10.00 per share to certain former
mutual members of the Bank and the general public. At September 30, 1996, the
Company had total assets of $61.7 million, total deposits of $42.2 million and
total equity of $18.8 million, or 30.4% of adjusted total assets, on a
consolidated basis.
The Bank was originally chartered in 1887 as a Missouri-chartered
mutual savings and loan association under the name "The Lexington Building and
Loan Association," and converted to a federal charter and adopted the name
"The Lexington Building and Loan Association, F.A." in June 1995. The Bank is
regulated by the Office of Thrift Supervision ("OTS"), its primary federal
regulator, and the Federal Deposit Insurance Corporation ("FDIC"), the insurer
of its deposits. The Bank's deposits are federally insured by the FDIC under
the Savings Association Insurance Fund ("SAIF"). The Bank is a member of the
Federal Home Loan Bank ("FHLB") System.
The Bank is a community oriented financial institution that engages
primarily in the business of attracting deposits from the general public and
using these funds to originate one- to four-family residential mortgage loans
within the Bank's market area. The Bank is a portfolio lender and generally
does not sell the mortgage loans that it originates. At September 30, 1996,
one- to four-family residential mortgage loans totalled $40.5 million, which
represented 89.0% of the Bank's total gross loans at that date. To a lesser
extent, lending activities also have included the origination of multi-family,
commercial real estate, construction, and consumer loans.
Market Area
Lexington, Missouri is located on the southern bank of the Missouri
River approximately 45 miles east of Kansas City, Missouri. Lexington,
estimated population of 4,900, is the county seat and the largest town in
Lafayette County. Lafayette County is predominately rural and contains
several small towns, although the western portions are becoming bedroom
communities for commuters to jobs in the Kansas City metropolitan area. The
Bank considers its market area for loans and savings deposits to encompass
Lafayette County and the bordering areas of three surrounding counties
(southern Ray County, northern Johnson County and western Jackson County).
The Lafayette County economy has its roots in agriculture, although
agriculture has declined as a source of revenue over the decades. Most of the
employment today is primarily based in services, light manufacturing, state
and local government and retail trade. The largest employer in Lafayette
County is S&K Industries, a wood products manufacturer that employees
approximately 300 people, according to the Lexington Chamber of Commerce.
Tourism is also part of the local economy as Lexington has historic ties to
the Civil War.
Yields Earned and Rates Paid
Reference is made to the section entitled "Yields Earned and Rates
Paid" beginning on page 8 of the 1996 Annual Report to Stockholders ("Annual
Report"), which section is incorporated herein by reference.
Average Balances, Interest and Average Yields/Cost
Reference is made to the section entitled "Yields Earned and Rates
Paid" beginning on page 8 of the Annual Report, which section is incorporated
herein by reference.
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Interest Rate Sensitivity of Net Portfolio Value
Reference is made to the section entitled "Interest Rate Sensitivity
of Net Portfolio Value" on pages 5 and 6 of the Annual Report, which section
is incorporated herein by reference.
Rate/Volume Analysis
Reference is made to the section "Rate/Volume Analysis" on page 11 of
the Annual Report, which section is incorporated herein by reference.
Lending Activities
General. The principal lending activity of the Bank is the
origination of conventional mortgage loans for the purpose of purchasing,
constructing or refinancing owner-occupied, one- to four-family residential
property. To a significantly lesser extent, the Bank also originates
multi-family, commercial real estate, land and consumer loans. The Bank's net
loans receivable totalled $45.3 million at September 30, 1996, representing
73.5% of consolidated total assets.
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Loan Portfolio Analysis. The following table sets forth the
composition of the Bank's loan portfolio by type of loan and type of security
as of the dates indicated. The Bank had no concentration of loans exceeding
10% of total gross loans other than as set forth below.
At September 30,
-----------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Type of Loan:
- ------------
One- to
four-
family $40,537 88.51% $37,486 90.07% $35,435 88.38%
Commercial
real estate
and multi-
family 1,120 2.45 978 2.35 1,223 3.05
Land 489 1.07 483 1.16 549 1.37
Construction 613 1.34 427 1.02 1,340 3.34
------ ----- ------ ----- ------ -----
Total
mortgage
loans 42,759 93.37 39,374 94.60 38,547 96.14
Other Loans:
Home equity 486 1.06 301 0.72 184 0.46
Loans on
savings
accounts 1,210 2.64 844 2.03 643 1.61
Automobile
loans 1,090 2.38 839 2.02 534 1.33
Other 253 0.55 262 0.63 185 0.46
----- ------ ------- ------ ------ -------
Total
other
loans 3,039 6.63 2,246 5.40 1,546 3.86
------ ------ ------ ------ ------ ------
Total
loans 45,798 100.00% 41,620 100.00% 40,093 100.00%
====== ====== ======
Less:
Loans in
process 249 308 536
Allowance
for
possible
loan losses 201 201 178
---- --- ----
Loans
receivable,
net $45,348 $41,111 $39,379
======= ======= =======
Type of Security:
- ----------------
One- to
four-
family $41,636 90.91% $38,214 91.81% $36,959 92.18%
Commercial
real estate
and multi-
family 1,120 2.45 978 2.35 1,223 3.05
Land 489 1.07 483 1.16 549 1.37
Savings
accounts 1,210 2.64 844 2.03 643 1.61
Automobile 1,090 2.38 839 2.02 534 1.33
Other 253 0.55 262 0.63 185 0.46
------ ------ ------ ------ ------ ------
Total 45,798 100.00% 41,620 100.00% 40,093 100.00%
====== ====== ======
Less:
Loans in
process 249 308 536
Allowance
for
possible
loan losses 201 201 178
------ ------- ------
Loans
receivable,
net $45,348 $41,111 $39,379
======= ======= =======
Residential Real Estate Lending. The primary lending activity of the
Bank is the origination of mortgage loans to enable borrowers to purchase
existing one- to four-family homes. Management believes that this policy of
focusing on one- to four-family residential mortgage loans located in its
market area has been successful in contributing to interest income while
keeping credit losses to a minimum. At September 30, 1996, $40.5 million, or
88.5% of the Bank's gross loan portfolio, consisted of loans secured by one-
to four-family residential real estate. The average principal balance of the
loans in the Bank's one- to four-family portfolio was approximately $34,000
at September 30, 1996. The Bank presently originates for retention in its
portfolio both adjustable rate mortgage ("ARM") loans with terms of up to 25
years and fixed-rate mortgage loans with terms of up to 10 years. Borrower
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demand for ARM loans versus fixed-rate mortgage loans is a function of the
level of interest rates, the expectations of changes in the level of interest
rates and the difference between the initial interest rates and fees charged
for each type of loan. The relative amount of fixed-rate mortgage loans and
ARM loans that can be originated at any time is largely determined by the
demand for each in a competitive environment. At September 30, 1996, $39.5
million, or 86.2% of the Bank's gross loans, were subject to periodic interest
rate adjustments.
The loan fees charged, interest rates and other provisions of the
Bank's ARM loans are determined by the Bank on the basis of its own pricing
criteria and competitive market conditions. The Bank originates one-year ARM
loans secured by owner-occupied residences whose interest rates and payments
generally are adjusted annually to a rate typically equal to 2.875% above the
one-year constant maturity U.S. Treasury ("CMT") index. The Bank occasionally
offers ARM loans with initial rates below those that would prevail under the
foregoing computations, determined by the Bank based on market factors and
competitive rates for loans having similar features offered by other lenders
for such initial periods. At September 30, 1996, the initial interest rate on
ARM loans offered by the Bank ranged from 7.5% to 8.5% per annum. The
periodic interest rate cap (the maximum amount by which the interest rate may
be increased or decreased in a given period) on the Bank's ARM loans is
generally 1% to 2% per adjustment period and the lifetime interest rate cap is
generally 5% to 6% over the initial interest rate of the loan. Substantially
all of the Bank's ARM loans have caps over the initial interest rate of 1% per
adjustment period and 5% over the life of the loan.
The Bank does not originate negative amortization loans. The terms
and conditions of the ARM loans offered by the Bank, including the index for
interest rates, may vary from time to time. The Bank believes that the
adjustment features of its ARM loans provide flexibility to meet competitive
conditions as to initial rate concessions while preserving the Bank's
objectives by limiting the duration of the initial rate concession.
A significant portion of the Bank's residential mortgage loans are
not readily saleable in the secondary market because they are not originated
in accordance with the purchase requirements of the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association ("FNMA").
Although such loans satisfy the Bank's underwriting requirements, they are
non-agency-conforming because they do not satisfy collateral requirements,
income and debt ratios, acreage limits, or various other requirements imposed
by the FHLMC and FNMA. In addition, substantially all of the Bank's ARM loans
have periodic interest rate caps of 1% per adjustment period and 5% lifetime
over the initial loan interest rate, while FHLMC and FNMA secondary market
guidelines require higher adjustment periods and lifetime caps of 2% and 6%,
respectively. Accordingly, the Bank's non-agency-conforming loans could be
sold only after incurring certain costs and/or discounting the purchase price.
The Bank, however, currently does not intend to sell its loans. The Bank has
historically found that its origination of non-agency-conforming loans has not
resulted in high amounts of non-performing loans. In addition, the Bank
believes that these loans satisfy a need in the Bank's local community. As a
result, the Bank intends to continue to originate such non-agency-conforming
loans.
The retention of ARM loans in the Bank's loan portfolio helps reduce
the Bank's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs
due to changed rates to be paid by the customer. It is possible that during
periods of rising interest rates the risk of default on ARM loans may increase
as a result of repricing and the increased costs to the borrower.
Furthermore, because the ARM loans originated by the Bank generally provide,
as a marketing incentive, for initial rates of interest below the rates that
would apply were the adjustment index used for pricing initially
(discounting), these loans are subject to increased risks of default or
delinquency. Another consideration is that although ARM loans allow the Bank
to increase the sensitivity of its asset base to changes in interest rates,
the extent of this interest sensitivity is limited by the periodic and
lifetime interest rate adjustment limits. Because of these considerations,
the Bank has no assurance that yields on ARM loans will be sufficient to
offset increases in the Bank's cost of funds.
While fixed-rate single-family residential real estate loans are
normally originated with 10 year terms, such loans typically remain
outstanding for substantially shorter periods. This is because borrowers
often prepay their loans in full upon sale of the property pledged as security
or upon refinancing the original loan. In addition,
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substantially all mortgage loans in the Bank's loan portfolio contain
due-on-sale clauses providing that the Bank may declare the unpaid amount due
and payable upon the sale of the property securing the loan. Typically, the
Bank enforces these due-on-sale clauses to the extent permitted by law and as
business judgment dictates. Thus, average loan maturity is a function of,
among other factors, the level of purchase and sale activity in the real
estate market, prevailing interest rates and the interest rates payable on
outstanding loans.
The Bank generally requires title insurance insuring the status of
its lien on all of the real estate secured loans. The Bank also requires that
fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount at least equal to the outstanding loan
balance.
Appraisals are obtained on all properties and are conducted by
independent fee appraisers approved by the Board of Directors. The Bank's
lending policies generally limit the maximum loan-to-value ratio on mortgage
loans secured by owner-occupied properties to 80% of the lesser of the
appraised value or the purchase price, with the condition that the
loan-to-value ratio may be increased to 90% provided that private mortgage
insurance coverage is obtained for the amount in excess of 80%.
Income Property Lending. Historically, the Bank has engaged in
limited amounts of commercial real estate and multi-family lending
(collectively, "income property lending"). The Bank does not actively solicit
income property loans but generally extends them as an accommodation to
existing customers and intends to continue to do so in the future. At
September 30, 1996, income property loans aggregated $1.1 million, or 2.5% of
the gross loan portfolio.
The average principal balance of the loans in the Bank's income
property loan portfolio was approximately $43,000 at September 30, 1996.
Substantially all of the income property loans are secured by properties
located in the Bank's market area. Such properties include residential
properties of five or more units, strip shopping malls generally containing
between two and six store fronts, churches, and professional offices. Income
property loans are generally made for terms of 20 years with five- to 10-year
balloon payments and at variable interest rates that adjust annually to a rate
typically equal to 3.0% to 3.5% above the one-year CMT index.
Income property loans generally involve greater risks than one- to
four-family residential mortgage loans. Payments on loans secured by such
properties often depend on successful operation and management of the
properties. Repayment of such loans may be subject to a greater extent to
adverse conditions in the real estate market or the economy. The Bank seeks
to minimize these risks in a variety of ways, including limiting the size
of such loans, limiting the maximum loan-to-value ratio to 70% and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan. All of the
properties securing the Bank's income property loans are inspected by the
Bank's lending personnel before the loan is made. The Bank also obtains
appraisals on each property in accordance with applicable regulations.
Construction Lending. The Bank occasionally originates residential
construction loans to individuals or local builders to construct one- to
four-family homes. At September 30, 1996, construction loans totalled
$613,000, or 1.3% of the gross loan portfolio.
Substantially all construction loans made to individuals provide for
the Bank to originate a permanent loan upon the completion of construction,
which is generally an ARM loan as described under "-- Lending Activities --
Residential Real Estate Lending." The origination fee for construction loans
is generally 1.5% of the principal amount. Construction loans are generally
made for terms of up to six months. Loans to builders are made less
frequently and may be for the construction of a pre-sold home or may be a loan
to construct a speculative home (i.e., a home for which no purchaser has been
identified). Loans to builders are generally limited to local builders well
known to the Bank.
Construction lending is generally considered to involve a higher
level of risk as compared to one- to four-family residential permanent lending
because of the inherent difficulty in estimating both a property's value at
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completion of the project and the estimated cost of the project. The nature
of these loans is such that they are generally more difficult to evaluate and
monitor. If the estimate of value proves to be inaccurate, the Bank may be
confronted at, or prior to, the maturity of the loan, with a project whose
value is insufficient to assure full repayment. Loans for the construction of
speculative homes carry more risk because the payoff for the loan is dependent
on the builder's ability to sell the property prior to the time that the
construction loan is due.
Land Lending. The Bank originates loans secured by farm residences
and combinations of farm residences and farm real estate. The Bank also
originates loans for the acquisition of land upon which the purchaser can then
build or upon which the purchaser makes improvements necessary to build upon
or to sell as improved lots. At September 30, 1996, the land loan portfolio
totalled $489,000, or 1.1% of total gross loans, substantially all of which
were secured by properties located in the Bank's market area. Land loans are
generally made for the same terms and at the same interest rates as those
offered on income property loans, except that the loan-to-value ratio is
generally limited to 60%.
Loans secured by farm real estate generally involve greater risks
than one- to four-family residential mortgage loans. Payments on loans
secured by such properties may, in some instances, be dependent on farm income
from the properties. To address this risk, the Bank does not consider farm
income when qualifying borrowers. In addition, such loans are more difficult
to evaluate. If the estimate of value proves to be inaccurate, the Bank may
be confronted with a property the value of which is insufficient to assure
full repayment in the event of default and foreclosure.
Consumer Lending. Consumer lending has traditionally been a small
part of the Bank's business. Consumer loans generally have shorter terms to
maturity and higher interest rates than mortgage loans. The Bank's consumer
loans consist primarily of home equity loans, deposit account loans,
automobile loans and, to a substantially lesser extent, unsecured loans. At
September 30, 1996, the Bank's consumer loans totalled approximately $3.0
million, or 6.6% of the Bank's gross loans. The Bank intends to emphasize
consumer lending to a greater degree by primarily cross-selling to its
existing customer base.
Consumer loans are made at fixed interest rates and for varying
terms. Automobile and other loans are generally made for terms up to 60
months, while home equity loans are made for terms up to 10 years. With
respect to substantially all home equity loans, the Bank holds the first
mortgage on the borrower's residence.
Consumer loans entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or
secured by rapidly depreciating assets such as automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower beyond obtaining a deficiency judgment. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount that can be recovered on such loans.
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Maturity of Loan Portfolio. The following table sets forth at September 30, 1996 certain
information regarding the dollar amount of loans maturing in the Bank's portfolio based on contractual terms
to maturity, but does not include scheduled payments or potential prepayments. Demand loans (loans having
no stated repayment schedule and no stated maturity) and overdrafts are reported as due in one year or less.
Mortgage loans which have adjustable interest rates are reported as maturing at their next repricing date.
Loan balances do not include undisbursed loan proceeds, unearned discounts, and allowance for loan losses.
After After After
3 Years 5 Years 10 Years
Through Through Through Beyond
Due at September 30, 5 Years 10 Years 15 Years 15 Years Total
----------------------- -------- -------- -------- -------- ------
1997 1998 1999
---- ---- ----
(In Thousands)
Mortgage loans:
One- to four-
<S> <C> <C> <C> <C> <C> <C> <C> <C>
family $2,419 $2,398 $2,329 $4,832 $12,124 $8,777 $7,658 $40,537
Commercial real
estate and
multi-family 110 88 97 158 422 202 43 1,120
Land 37 38 37 78 156 104 39 489
Construction 364 -- -- -- -- -- -- 364
------ ------ ------ ------ ------- ------ ------ -------
Total mortgage
loans 2,930 2,524 2,463 5,068 12,702 9,083 7,740 42,510
Consumer and other
loans 1,778 502 325 310 115 9 -- 3,039
------ ------ ------ ------ ------- ------ ------ -------
Total loans $4,708 $3,026 $2,788 $5,378 $12,817 $9,092 $7,740 $45,549
====== ====== ====== ====== ======= ====== ====== =======
</TABLE>
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The following table sets forth the dollar amount of all loans due after September 30, 1997, which
have fixed interest rates and have floating or adjustable interest rates.
Fixed- Floating- or
Rates Adjustable-Rates Total
------- ----------------- ------
(In Thousands)
Mortgage loans:
<S> <C> <C> <C>
One- to four-family . . . . . . . . . . . . . . . . . $2,493 $35,624 $38,117
Commercial real estate and multi-family . . . . . . . 188 822 1,010
Land. . . . . . . . . . . . . . . . . . . . . . . . . -- 452 452
Construction. . . . . . . . . . . . . . . . . . . . . -- -- --
------ ------- -------
Total mortgage loans. . . . . . . . . . . . . . . 2,681 36,898 39,579
Consumer and other loans . . . . . . . . . . . . . . . 1,262 -- 1,262
------ ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . $3,943 $36,898 $40,841
====== ======= =======
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Scheduled contractual principal repayments of loans do not reflect
the actual life of such assets. The average life of loans ordinarily is
substantially less than their contractual terms because of prepayments. In
addition, due-on-sale clauses on loans generally give the Bank the right to
declare loans immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase, however,
when current mortgage loan market rates are higher than rates on existing
mortgage loans and, conversely, decrease when rates on existing mortgage loans
are higher than current mortgage loan market rates.
Loan Solicitation and Processing. Loan applicants come primarily
from walk-in customers and referrals by realtors and previous and present
customers of the Bank. Upon receipt of a loan application from a prospective
borrower, a credit report and other data are obtained to verify specific
information relating to the loan applicant's employment, income and credit
standing. An appraisal of the real estate offered as collateral generally is
undertaken by a Board-approved independent fee appraiser who is certified by
the State of Missouri.
All mortgage loans must be approved by the Bank's Board of Directors.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment. Consumer loans up to any amounts may be
approved by President Erwin Oetting, Jr., Executive Vice President E. Steva
Vialle or Chief Loan Officer Mark D. Summerlin. Management of the Bank
believes its local decision-making capabilities and the accessibility of its
senior officers is an attractive quality to customers within its market area.
The Bank's loan approval process allows consumer loans to be approved in one
to two days and mortgage loans to be approved and closed in approximately
two weeks.
Loan Originations, Sales and Purchases. During the year ended
September 30, 1996, the Bank's total gross mortgage loan originations were
$8.0 million. While the Bank originates both adjustable-rate and fixed-rate
loans, its ability to generate each type of loan depends upon relative
customer demand for loans in its market.
Consistent with its asset/liability management strategy, the Bank's
policy has been to retain in its portfolio nearly all of the loans that it
originates.
The Bank has occasionally purchased whole loans and loan
participation interests, primarily during periods of reduced loan demand in
its market area. At September 30, 1996, $4.7 million of the Bank's gross loan
portfolio consisted of purchased whole loans and purchased participation
interests. Any such purchases are made in conformance with the Bank's
underwriting standards. The Bank may decide to purchase additional loans in
the future depending upon the demand for mortgage credit in its market area.
During the fiscal year ended September 30, 1996, the Bank purchased
$3.8 million of one- to four-family mortgage loans secured by properties
located in Jefferson City, Missouri. These loans were purchased to supplement
local loan demand. Subject to market conditions, the Bank intends to purchase
additional such loans.
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The following table shows total mortgage loans originated, purchased,
sold and repaid during the periods indicated. Predominately all mortgage loan
originations during the periods indicated were ARM loans.
Years Ended September 30,
-------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Total mortgage loans
at beginning of
period $39,374 $38,547 $36,655
Loans originated:
One- to four-family 6,589 6,372 6,750
Commercial real estate
and multi-family 376 110 180
Land 124 170 20
Construction 900 1,205 1,780
------ ------- -------
Total mortgage loans
originated 7,989 7,857 8,730
Loans purchased:
One- to four-family 3,815 -- 619
Loans sold:
One - to four-family
participations -- -- 125
Mortgage loan principal
repayments 8,419 7,030 7,332
------- ------- -------
Net mortgage loan
activity 3,385 827 1,892
------- ------- -------
Total gross mortgage
loans at end of
period $42,759 $39,374 $38,547
======= ======= =======
Loan Commitments. The Bank issues, without fee, commitments for one-
to four-family residential mortgage loans conditioned upon the occurrence of
certain events. Such commitments are made in writing on specified terms and
conditions and at a specified interest rate and are honored for up to three
months from the date of loan approval. The Bank had outstanding net loan
commitments of approximately $880,000 at September 30, 1996, $862,000 of which
were for variable rate loans. See Note L of Notes to the Consolidated
Financial Statements.
Loan Origination and Other Fees. The Bank, in some instances,
receives loan origination fees. Loan fees are a percentage of the principal
amount of the mortgage loan which are charged to the borrower for funding the
loan. The amount of fees charged by the Bank is generally up to 1% for
mortgage loans and 1.5% for construction loans. Current accounting standards
require that origination fees received (net of certain loan origination costs)
for originating loans to be deferred and amortized into interest income over
the contractual life of the loan. Net deferred fees or costs associated with
loans that are prepaid are recognized as income at the time of prepayment. The
Bank had immaterial net deferred loan fees at September 30, 1996.
Non-Performing Assets and Delinquencies. When a mortgage loan
borrower fails to make a required loan payment when due, the Bank institutes
collection procedures. All loan payments are contractually due on the first
day of each month but a loan is not considered delinquent and collection
procedures are not instituted until after the 30th day of the month ("actual
due date"). Borrowers are charged a late penalty on all payments made after
the
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actual due date. The first written notice is mailed to a delinquent borrower
on the first day after the actual due date, followed by a second written
notice mailed approximately 20 days thereafter. On or about 30 days after the
actual due date, a computer-generated Notice of Delinquency is mailed and will
continue to be mailed on the first and 20th day of every month until the
account is brought current. On or about 60 days after the actual due date, a
telephone call is placed to the delinquent borrower. A pre-foreclosure letter
setting forth a date certain (generally 35 days after the date of the letter)
for instituting foreclosure procedures is mailed on or about 90 days after the
actual due date. Foreclosure procedures are instituted on the date specified
in the pre-foreclosure letter if the delinquency continues to that date.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes collection
procedures. The first notice is mailed to the borrower approximately 30 days
following the actual due date. If payment is not promptly received, a second
notice is mailed to the borrower approximately 60 days following the actual
due date and the customer is contacted by telephone to ascertain the cause of
the delinquency. If the delinquency remains uncured, the Bank mails an
additional notice to the borrower approximately 90 days following the actual
due date. In most cases, delinquencies are cured promptly; however,
if by the 120th day of delinquency the delinquency has not been cured, the
Bank begins legal action to repossess the collateral. At the 120th day of
delinquency, the Bank establishes a specific reserve for the full principal
amount of the loan.
The Bank's Board of Directors is informed monthly as to the status of
all mortgage and consumer loans that are delinquent more than 30 days, the
status on all loans currently in foreclosure, and the status of all foreclosed
and repossessed property owned by the Bank.
The Bank has experienced fluctuating and, periodically, relatively
high levels of loan delinquencies. Management attributes this experience
primarily to its practice, consistent with its mission as a community-oriented
financial institution, of offering non-agency-conforming loan products that
enable borrowers with lesser financial resources to otherwise qualify for a
loan. The Bank's loss experience, however, as measured by charge offs, has
not been significant. See "-- Lending Activities -- Allowance for Loan
Losses." No assurances can be given as to future delinquency and loss levels.
The following table sets forth information regarding the Bank's
delinquent loans, excluding loans 90 days or more delinquent and accounted for
on a non-accrual basis.
At September 30,
------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ----------------------
Per- Per- Per-
centage centage centage
Principal of Gross Principal of Gross Principal of Gross
Balance Loans Balance Loans Balance Loans
--------- -------- --------- -------- --------- ---------
(Dollars in Thousands)
Loans
delinquent
for:
30-59 days $1,088 2.38% $ 653 1.58% $835 2.11%
60-89 days 331 0.72 728 1.76 48 0.12
------ ----- ------ ----- ----- -----
$1,419 3.10% $1,381 3.34% $883 2.23%
====== ==== ====== ==== ==== =====
10
<PAGE>
<PAGE>
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated. The Bank had no restructured
loans within the meaning of Statement of Financial Accounting Standards
("SFAS") No. 15, and no accruing loans contractually past due 90 days or more
as to principal or interest payments, at any of the dates indicated.
At September 30,
--------------------------------------
1996 1995 1994
----- ---- ----
(Dollars in Thousands)
Loans 90 days or more
delinquent and
accounted for on
a non-accrual basis:
Residential real estate $495 $489 $287
Commercial 106 -- --
Consumer 177 57 21
--- --- ---
Total non-accrual
loans 778 546 308
Real estate owned -- 28 54
---- ---- ----
Total non-performing
assets $778 $574 $362
==== ==== ====
Total loans delinquent
90 days or more to
net loans 1.33% 1.33% 0.78%
==== ==== ====
Total loans delinquent
90 days or more to
total assets 0.97% 1.09% 0.64%
==== ==== ====
Total non-performing
assets to total assets 0.97% 1.15% 0.76%
==== ==== ====
At September 30, 1996, management of the Bank was unaware of any
material loans not disclosed in the above table but where known information
about possible credit problems of the borrowers caused management to
have serious doubts as to the ability of such borrowers to comply with their
loan repayment terms at that date and which may result in future inclusion in
the non-performing assets category.
The amount of interest collected in cash and included in the results
of operations on non-accruing loans for the year ended September 30, 1996
amounted to approximately $2,300, before such loans were placed on non-
accrual status. Had such non-accruing loans been current in accordance with
their original terms, additional interest income of approximately $5,600 would
have been recorded for the year ended September 30, 1996.
Foreclosed Real Estate. See Note A of Notes to the Consolidated
Financial Statements for a discussion of the Bank's procedures for accounting
for foreclosed real estate. The Bank had no foreclosed real estate at
September 30, 1996.
Asset Classification. The OTS has adopted various regulations
regarding problem assets of savings institutions. The regulations require
that each insured institution review and classify its assets on a regular
basis. In addition, in connection with examinations of insured institutions,
OTS examiners have authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that
11
<PAGE>
<PAGE>
continuance as an asset of the institution is not warranted. If an asset or
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard
or doubtful may be included in determining an institution's regulatory
capital, while specific valuation allowances for loan losses generally do not
qualify as regulatory capital. Assets that do not currently expose the
insured institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are designated "special
mention" and are monitored by the Bank.
The aggregate amounts of the Bank's classified assets and general and
specific loss allowances at the dates indicated, were as follows:
At September 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Loss $ 59 $ 50 $ 20
Doubtful -- -- --
Substandard assets 602 489 287
Special mention 67 126 177
---- ----- -----
Total classified
assets $728 $665 $484
==== ==== ====
General loss
allowances $142 $151 $158
Specific loss
allowances 59 50 20
---- ---- ----
Total allowances $201 $201 $178
==== ==== ====
Allowance for Loan Losses. The Bank has established a systematic
methodology for determining provisions for loan losses. The methodology is
set forth in a formal policy and considers the need for an overall general
valuation allowance as well as specific allowances for individual loans.
In originating loans, the Bank recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Bank increases its allowance for
loan losses by charging provisions for loan losses against the Bank's income.
The general valuation allowance is maintained to cover losses
inherent in the portfolio of performing loans. Management reviews the
adequacy of the allowance at least quarterly based on management's assessment
of current economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. The amount of the allowance is based
on management's evaluation of the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans
and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flow. Specific valuation allowances are established to absorb losses on loans
for which full collectibility may not be reasonably assured. The amount of
the allowance is based on the estimated value of the collateral securing the
loan and other analyses pertinent to each situation.
At September 30, 1996, the Bank had an allowance for loan losses of
$201,000, which management believed to be adequate to absorb losses inherent
in the portfolio at that date. Although management believes that it uses the
best information available to make such determinations, future adjustments to
the allowance for loan losses may be necessary and results of operations could
be significantly and adversely affected if circumstances differ substantially
from the assumptions used in making the determinations.
12
<PAGE>
<PAGE>
While the Bank believes it has established its existing allowance for
loan losses in accordance with generally accepted accounting principles, there
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to increase significantly its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the
existing allowance for loan losses is adequate or that substantial increases
will not be necessary should the quality of any loans deteriorate as a result
of the factors discussed above. Any material increase in the allowance for
loan losses may adversely affect the Bank's financial condition and results of
operations.
The following table sets forth an analysis of the Bank's allowance
for loan losses for the periods indicated. Where specific loan loss reserves
have been established, any differences between the loss allowances and the
amount of loss realized has been charged or credited to current income. As
indicated by the table, there has not been any material fluctuations in the
allowance for loan losses. Periodically, however, the allowance for loan
losses has been replenished in response to low level charge offs. No
assurances can be given as to the level of future charge offs.
Year Ended September 30,
--------------------------------
1996 1995 1994
---- ----- ----
(Dollars in Thousands)
Allowance at beginning
of period $201 $178 $173
---- ---- ----
Provision for loan losses 10 33 5
Recoveries -- -- --
Charge-offs:
Residential real estate -- -- --
Commercial real estate
and multi-family -- -- --
Construction -- -- --
Consumer 10 10 --
---- ---- ----
Total charge-offs 10 10 --
---- ---- ----
Net charge-offs 10 10 --
---- ---- ----
Balance at end of period $201 $201 $178
==== ==== ====
Ratio of allowance to
total loans outstanding
at the end of the
period 0.44% 0.49% 0.45%
==== ==== ====
Ratio of net charge-offs
to average loans out-
standing during the
period 0.02% 0.02% --%
==== ==== ===
Ratio of allowance to
non-accrual loans 25.83% 36.79% 57.87%
===== ===== =====
13
<PAGE>
<PAGE>
The following table sets forth the breakdown of the allowance for
loan losses by loan category for the periods indicated. The portion of the
allowance to each loan category does not necessarily represent the total
available for losses within that category since the total allowance applies to
the entire loan portfolio. The allocation of the allowance to each category
is not necessarily indicative of future losses and does not restrict the use
of the allowance to absorb losses in any other category.
At September 30,
-------------------------------------------------
1996 1995 1994
-------------- ------------- --------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------- ------- ------ ------ ------ -------
(Dollars in Thousands)
Real estate mortgage:
One- to four-family $ 65 88.51% $ 67 90.07% $ 47 88.38%
Commercial and
multi-family 59 2.45 44 2.35 53 3.05
Land -- 1.07 -- 1.16 -- 1.37
Construction -- 1.34 -- 1.02 -- 3.34
Consumer 77 6.63 64 5.40 29 3.86
Unallocated -- -- 26 -- 49 --
Total allowance ---- ------ ---- ------ ---- ------
for loan losses $201 100.00% $201 100.00% $178 100.00%
==== ====== ==== ====== ==== ======
Investment Activities
The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various
restrictions, the Bank may also invest a portion of its assets in commercial
paper and corporate debt securities. Savings institutions like the Bank are
also required to maintain an investment in FHLB stock.
The Bank is required under federal regulations to maintain a minimum
amount of liquid assets. At September 30, 1996, the Bank's regulatory
liquidity of 22.55% was significantly in excess of the 5% required by OTS
regulations. Management intends to hold all securities in the Bank's
investment portfolio in order to enable the Bank to provide liquidity for loan
funding upon maturity of such investment securities and to match more closely
the interest-rate sensitivities of its assets and liabilities.
A committee consisting of the President and the Executive Vice
President determines appropriate investments in accordance with the Board of
Directors' approved investment policies and procedures. The Bank's investment
policies generally limit investments to U.S. Government and agency securities,
municipal bonds, certificates of deposits, marketable investment grade
corporate debt obligations and mortgage-backed securities. Investments are
made based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Bank's liquidity position,
and anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would
have on the Bank's credit and interest rate risk, and risk-based capital is
also given consideration during the evaluation.
The Bank adopted SFAS No. 115 on October 1, 1993. At September 30,
1996, the Bank's portfolio of state and local debt securities and
mortgage-backed securities are classified as "held to maturity" and the
portfolio of federal agency obligations are classified as "available for
sale." Consistent with the Bank's asset/liability
14
<PAGE>
<PAGE>
management strategy, at September 30, 1996, the majority of the investment
portfolio matures within five years of that date.
The following table sets forth the composition of the Company's
mortgage-backed securities portfolio at the dates indicated.
At September 30,
---------------------------------------------
1996 1995 1994
-------- -------- --------
Carrying Carrying Carrying
Value Value Value
-------- -------- --------
(In Thousands)
Government National
Mortgage Association
("GNMA") $ 319 $ 415 $ 566
FNMA 524 658 747
FHLMC 1,220 1,462 1,822
------ ------ ------
Total $2,063 $2,535 $3,135
====== ====== ======
15
<PAGE>
<PAGE>
<TABLE>
The following table sets forth the composition of the Company's investment securities, FHLB stock,
certificates of deposit and mortgage-backed securities portfolios at the dates indicated.
At September 30,
-------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------- -------------------
Book Percent of Book Percent of Book Percent of
Value Portfolio Value Portfolio Value Portfolio
----- ---------- ----- ---------- ----- ----------
(Dollars in Thousands)
Investment securities:
U.S. Government and federal
<S> <C> <C> <C> <C> <C> <C>
agency obligations(1) $ 2,906 20.14% $ 893 11.85% $1,371 19.00%
State and local obligations(1) 848 5.88 718 9.53 655 9.08
Interest-bearing deposits 5,620 38.96 2,933 38.93 1,602 22.19
Mortgage-backed securities(1) 2,063 14.30 2,535 33.65 3,135 43.43
Certificates of deposit 2,525 17.50 -- -- -- --
Capital stock - FHLB-Des Moines(2) 464 3.22 455 6.04 455 6.30
------- ------- ------ ------ ------- ------
Total investment securities, FHLB
stock and mortgage-backed
securities $14,426 100.00% $7,534 100.00% $7,218 100.00%
======= ====== ====== ====== ====== ======
- -------------------
(1) The Company adopted SFAS No. 115 on October 1, 1993. U.S. Government and federal agency obligations
are classified as "available-for-sale" and are valued at fair value at September 30, 1996, 1995 and
1994. State and local obligations are classified as "held-to-maturity" and are reflected at amortized
cost.
(2) The dividend yield on the capital stock of the FHLB-Des Moines was 7.25% for the fiscal year ended
September 30, 1996.
16
</TABLE>
PAGE
<PAGE>
<TABLE>
The following table sets forth the composition and maturities of the investment securities
portfolio, interest-bearing deposits, certificates of deposit and mortgage-backed securities (excluding FHLB
stock) at September 30, 1996.
One Year After One To Over Five to After
or Less Five Years Ten Years Ten Years Total Investment Securities
---------- ------------ ------------ --------- -----------------------------
Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- ---------- ------------
(Dollars in Thousands)
U.S Government and
federal agency
<S> <C> <C> <C> <C> <C> <C>
obligations $399 $2,507 $ -- $ -- $2,906 $2,906
State and local
obligations -- -- 348 500 848 1,005
Interest-bearing
deposits 5,620 -- -- -- 5,620 5,620
Certificates of
deposit 2,525 -- -- -- 2,525 2,525
------ ------ ---- ------ ------- --------
Total investment
securities and
interest-bearing
deposits $8,544 $2,507 $348 $500 $11,899 $12,056
====== ====== ==== ====== ======= =======
Weighted average
yield 5.27% 6.12% 8.13% 10.59% 5.76%
====== ====== ==== ====== ======
Mortgage-backed
securities $ -- $840 $ -- $1,223 $2,063 $2,063
====== ====== ==== ====== ====== ======
Weighted average
yield --% 6.11% --% 7.65% 7.02%
====== ====== ==== ====== ======
</TABLE>
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. At September 30, 1996, the Bank had no other
borrowing arrangements.
Deposit Accounts. Substantially all of the Bank's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Bank's market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary, according to the
minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors. In determining the terms of its
deposit accounts, the Bank considers current market interest rates,
profitability to the Bank, matching deposit and loan products and its customer
preferences and concerns. The Bank reviews its deposit mix and pricing
weekly.
In the unlikely event the Bank is liquidated, depositors will be
entitled to full payment of their deposit accounts prior to any payment being
made to the Company, as the sole stockholder of the Bank.
17
<PAGE>
<PAGE>
The following table sets forth certain information concerning the
Bank's time deposits and other interest-bearing deposits at September 30,
1996.
Weighted
Average Percentage
Interest Original Minimum of Total
Rate Term Checking and Savings Deposits Amount Balance Deposits
- -------- -------- ----------------------------- ------- ------- --------
(In Thousands)
2.52% None Demand and NOW accounts $ 250 $1,477(1) 3.50%
3.28 None Money market accounts 2,500 2,082 4.93
3.05 None Passbook savings accounts 10 3,852 9.12
Certificates of Deposit
-----------------------
3.75 91-day Fixed-term, fixed-rate 500 8 .02
5.11 6 months Fixed-term, fixed-rate 500 3,816 9.03
5.11 9 months Fixed-term, fixed-rate 500 50 .12
5.50 12 months Fixed-term, fixed-rate 500 7,530 17.83
5.84 18 months Fixed-term, fixed-rate 500 4,819 11.41
6.08 24 months Fixed-term, fixed-rate 500 3,154 7.47
6.07 30 months Fixed-term, fixed-rate 500 2,588 6.13
6.08 36 months Fixed-term, fixed-rate 500 3,389 8.02
5.66 48 months Fixed-term, fixed-rate 500 2,515 5.95
6.35 60 months Fixed-term, fixed-rate 500 841 1.99
7.52 72 months Fixed-term, fixed-rate 500 6,116 14.48
------- ------
$42,237 100.00%
======= ======
- --------------------
(1) Includes non-interest-bearing accounts with an aggregate balance of
$505,000.
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of September
30, 1996.
Maturity Period Amount
--------------- ------
(In Thousands)
Three months or less $ 228
Over three through six months 711
Over six through 12 months 709
Over 12 months 1,593
------
Total $3,241
======
18
PAGE
<PAGE>
<TABLE>
Deposit Flow
The following table sets forth the balances and changes in dollar amounts of deposits in the
various types of accounts offered by the Bank at the dates indicated.
At September 30,
---------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------- -------------------------------------- --------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------ ------- ---------- ------ ------- ---------- ------ -------
(Dollars in Thousands)
Non-interest-
<S> <C> <C> <C> <C> <C> <C> <C> <C>
bearing $ 505 1.20% $ 200 $ 305 0.72% $ 123 $ 182 0.45%
NOW checking 972 2.30 (180) 1,152 2.72 211 941 2.31
Regular savings
accounts (1) 3,852 9.12 262 3,590 8.47 (2,258) 5,848 14.36
Money market
deposits 2,082 4.92 112 1,970 4.64 (1,160) 3,130 7.69
------ ------ ------- ------ ------ ------- ------- ------
7,411 17.55 394 7,017 16.55 (3,084) 10,101 24.81
Fixed-rate
certificates
which mature
(1)(2):
Within 1
year 18,866 44.67 (417) 19,283 45.48 (1,365) 20,648 50.72
After 1
year, but
within 2
years 6,316 14.95 28 6,288 14.83 (63) 6,351 15.60
After 2
years, but
within 5
years 9,098 21.54 4,597 4,501 10.61 1,079 3,422 8.41
Certificates
maturing
thereafter 546 1.29 (4,766) 5,312 12.53 5,123 189 .46
------- ------ ------- ------- ------ ------- ------- ------
34,826 82.45 (558) 35,384 83.45 4,774 30,610 75.19
------- ------ ------- ------- ------ ------- ------- ------
Total $42,237 100.00% $ (164) $42,401 100.00% $ 1,690 $40,711 100.00%
======= ====== ======= ======= ====== ======= ======= ======
- ----------------
(1) Included in savings accounts and certificate balances were individual retirement account ("IRA")
balances of (in thousands) $3,567, $3,672 and $2,640 at September 30, 1996, 1995 and 1994,
respectively.
(2) At September 30, 1996, 1995 and 1994, certificates amounting to $100,000 or more were (in thousands)
$3,241, $2,885 and $1,419, respectively.
19
</TABLE>
<PAGE>
<PAGE>
Time Deposits by Rates
The following table sets forth the time deposits in the Bank
classified by rates at the dates indicated.
At September 30,
------------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
3.00 - 3.99% $ 8 $ 998 $14,524
4.00 - 4.99% 913 2,709 7,008
5.00 - 5.99% 20,863 18,120 6,288
6.00 - 6.99% 7,222 7,383 1,355
7.00 - 7.99% 2,230 2,219 441
8.00 - 8.99% 3,590 3,955 477
9.00% and over -- -- 517
------- ------- -------
Total $34,826 $35,384 $30,610
======= ======= =======
The following table sets forth the amount and maturities of time
deposits at September 30, 1996.
Amount Due Percent
---------------------------------------------- of Total
Less Than 1-2 2-3 3-4 After Certificate
One Year Years Years Years 4 Years Total Accounts
--------- ----- ----- ----- ------- ----- -----------
(In Thousands)
3.00 - 3.99% $ 8 $ -- $ -- $ -- $ -- $ 8 0.02%
4.00 - 4.99% 689 224 -- -- -- 913 2.62
5.00 - 5.99% 15,018 4,114 1,581 150 -- 20,863 59.91
6.00 - 6.99% 3,134 1,218 666 838 1,366 7,222 20.74
7.00 - 7.99% 17 760 231 170 1,052 2,230 6.40
8.00 - 8.99% -- -- -- -- 3,590 3,590 10.31
------- ------ ------ ------ ------ ------- ------
Total $18,866 $6,316 $2,478 $1,158 $6,008 $34,826 100.00%
======= ====== ====== ====== ====== ======= ======
Savings Activities
The following table sets forth the deposit activities of the Bank for
the periods indicated.
Year Ended September 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Beginning balance $42,401 $40,711 $41,004
Net deposits (withdrawals)
before interest credited (1,765) 347 (1,371)
Interest credited 1,601 1,343 1,078
Net increase (decrease) in
deposits (164) 1,690 (293)
------- ------- -------
Ending balance $42,237 $42,401 $40,711
======= ======= =======
20
<PAGE>
<PAGE>
Borrowings
The Bank has the ability to use advances from the FHLB-Des Moines to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank
providing credit for savings and loan associations and certain other member
financial institutions. As a member of the FHLB-Des Moines, the Bank is
required to own capital stock in the FHLB-Des Moines and is authorized to
apply for advances on the security of such stock and certain of its mortgage
loans and other assets (principally securities that are obligations of, or
guaranteed by, the U.S. Government) provided certain creditworthiness
standards have been met. Advances are made pursuant to several different
credit programs. Each credit program has its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances
are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. During the years ended
September 30, 1996, 1995 and 1994, the Bank had no borrowings from the
FHLB-Des Moines.
REGULATION
The Bank is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer
of its deposits. The activities of federal savings institutions are governed
by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDIA") and the regulations
issued by the OTS and the FDIC to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in which federal
savings associations may engage. Lending activities and other investments
must comply with various statutory and regulatory capital requirements. In
addition, the Bank's relationship with its depositors and borrowers is also
regulated to a great extent, especially in such matters as the ownership of
deposit accounts and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and
the FDIC to review the Bank's compliance with various regulatory requirements.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the OTS, the FDIC or
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, will
also be required to file certain reports with, and otherwise comply with the
rules and regulations of, the OTS.
Federal Regulation of Savings Banks
Office of Thrift Supervision. The OTS is an office in the Department
of the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations affecting
federally insured savings associations and regularly examines these
institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12
FHLBs, is under the jurisdiction of the Federal Housing Finance Board
("FHFB"). The designated duties of the FHFB are to supervise the FHLBs, to
ensure that the FHLBs carry out their housing finance mission, to ensure that
the FHLBs remain adequately capitalized and able to raise funds in the capital
markets, and to ensure that the FHLBs operate in a safe and sound manner.
The Bank, as a member of the FHLB-Des Moines, is required to acquire
and hold shares of capital stock in the FHLB-Des Moines in an amount equal to
the greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii)
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1/20 of its advances (borrowings) from the FHLB-Des Moines. The Bank is in
compliance with this requirement with an investment in FHLB-Des Moines stock
of $464,000 at September 30, 1996.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Des Moines.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency established originally to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to preserve the safety and
soundness of the banking industry. In 1989 the FDIC also became the insurer,
up to the prescribed limits, of the deposit accounts held at federally insured
savings associations and established two separate insurance funds: the Bank
Insurance Fund ("BIF") and the SAIF. As insurer of deposits, the FDIC has
examination, supervisory and enforcement authority over all savings
associations.
The Bank's accounts are insured by the SAIF. The FDIC insures
deposits at the Bank to the maximum extent permitted by law. The Bank
currently pays deposit insurance premiums to the FDIC based on a risk-based
assessment system established by the FDIC for all SAIF-member institutions.
Under applicable regulations, institutions are assigned to one of three
capital groups that are based solely on the level of an institution's capital
- -- "well capitalized," "adequately capitalized," and "undercapitalized" --
which are defined in the same manner as the regulations establishing the
prompt corrective action system, as discussed below. These three groups are
then divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates currently ranging
from .23% for well capitalized, financially sound institutions with only a few
minor weaknesses to .31% for undercapitalized institutions that pose a
substantial risk of loss to the SAIF unless effective corrective action is
taken. Until the second half of 1995, the same matrix applied to BIF-member
institutions. The FDIC is authorized to raise assessment rates in certain
circumstances. The Bank's assessments expensed for the year ended September
30, 1996 totalled $378,000.
Until the second half of 1995, the same matrix applied to BIF-member
institutions. As a result of the BIF having reached its designated reserve
ratio, effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed, financial institutions
that are members of the BIF. Under the new assessment schedule, rates were
reduced to a range of 0 to 27 basis points, with approximately 92% of BIF
members paying the statutory minimum annual assessment rate of $2,000.
Pursuant to the Deposit Insurance Fund ("DIF"), which was enacted on September
30, 1996, the FDIC imposed a special one-time assessment on each depository
institution with SAIF-assessable deposits so that the SAIF may achieve its
designated reserve ratio. The Bank's assessment amounted to $281,000 and was
assessed during the quarter ended September 30, 1996. Beginning January 1,
1997, the assessment schedule for SAIF members will be the same as that for
BIF members. In addition, beginning January 1, 1997, SAIF members will be
charged an assessment of 0.064% of SAIF-assessable deposits for the purpose of
paying interest on the obligations issued by the Financing Corporation
("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately 0.013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter
might take and what effect, if any, the adoption of a new charter would have
on the operation of the Bank.
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The FDIC may terminate the deposit insurance of any insured
depository institution if it determines after a hearing that the institution
has engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Bank.
Liquidity Requirements. Under OTS regulations, each savings
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 5.0%) of its net withdrawable accounts plus short-term
borrowings. OTS regulations also require each savings institution to maintain
an average daily balance of short-term liquid assets at a specified percentage
(currently 1.0%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements.
Prompt Corrective Action. Under the FDIA, each federal banking
agency is required to implement a system of prompt corrective action for
institutions that it regulates. The federal banking agencies have promulgated
substantially similar regulations to implement this system of prompt
corrective action. Under the regulations, an institution shall be deemed to
be (i) "well capitalized" if it has a total risk-based capital ratio of 10.0%
or more, has a Tier I risk-based capital ratio of 6.0% or more, has a leverage
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a
Tier I risk-based capital ratio of 4.0% or more and a leverage ratio of 4.0%
or more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized;" (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that
is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a leverage ratio that is less than
3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity.
(The OTS may not, however, reclassify a significantly undercapitalized
institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At September 30, 1996, the Bank was categorized as "well capitalized"
under the prompt corrective action
regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the federal
banking regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions relating to: (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and
(vi) compensation, fees and benefits. The federal banking agencies adopted
regulations and
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Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement safety and soundness standards required by the
FDIA. The Guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The agencies also
proposed asset quality and earnings standards which, if adopted in final,
would be added to the Guidelines. If the OTS determines that the Bank fails
to meet any standard prescribed by the Guidelines, the agency may require the
Bank to submit to the agency an acceptable plan to achieve compliance with the
standard, as required by the FDIA. OTS regulations establish deadlines for
the submission and review of such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required
to meet a qualified thrift lender ("QTL") test to avoid certain restrictions
on their operations. A savings institution that fails to become or remain a
QTL shall either become a national bank or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be
able to establish a branch office; (iii) the association shall be ineligible
to obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and
regulatory dividend restrictions applicable to national banks. Also,
beginning three years after the date on which the savings institution ceases
to be a QTL, the savings institution would be prohibited from retaining any
investment or engaging in any activity not permissible for a national bank and
would be required to repay any outstanding advances to any FHLB. In addition,
within one year of the date on which a savings association controlled by a
company ceases to be a QTL, the company must register as a bank holding
company and become subject to the rules applicable to such companies. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test.
Currently, the QTL test requires that either an institution qualify
as a domestic building and loan association under the Code or that 65% of an
institution's "portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in nine out of every 12
months. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an
overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by the FHLMC or the FNMA. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct
its business, and (iii) liquid assets up to 20% of the institution's total
assets. At September 30, 1996, the Bank's qualified thrift investments
exceeded 65% of its portfolio assets as required by regulation.
Capital Requirements. Under OTS regulations a savings association
must satisfy three minimum capital requirements: core capital, tangible
capital and risk-based capital. Savings associations must meet all of the
standards in order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion
of certain assets from capital and to account appropriately for the
investments in and assets of both includable and nonincludable subsidiaries.
Institutions that fail to meet the core capital requirement would be required
to file with the OTS a capital plan that details the
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steps they will take to reach compliance. In addition, the OTS's prompt
corrective action regulation provides that a savings institution that has a
leverage ratio of less than 4% (3% for institutions receiving the highest
CAMEL examination rating) will be deemed to be "undercapitalized" and may be
subject to certain restrictions. See "-- Federal Regulation of Savings Banks
- -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations
rated a composite one (the highest rating) under the CAMEL rating system for
savings associations will be permitted to operate at or near the regulatory
minimum leverage ratio of 3%. All other savings associations will be required
to maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a
case-by-case basis to determine the applicable requirement. No assurance can
be given as to the final form of any such regulation, the date of its
effectiveness or the requirement applicable to the Bank.
Savings associations also must maintain "tangible capital" not less
than 1.5% of the Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal
to at least 8% of risk-weighted assets. Total risk-based capital consists of
the sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, subject to an amortization schedule, and (iii) general valuation loan
and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset
held by a savings institution to one of four risk categories based on the
amount of credit risk associated with that particular class of assets. Assets
not included for purposes of calculating capital are not included in
calculating risk-weighted assets. The categories range from 0% for cash and
securities that are backed by the full faith and credit of the U.S. Government
to 100% for repossessed assets or assets more than 90 days past due.
Qualifying residential mortgage loans (including multi-family mortgage loans)
are assigned a 50% risk weight. Consumer, commercial, home equity and
residential construction loans are assigned a 100% risk weight, as are
nonqualifying residential mortgage loans and that portion of land loans and
nonresidential construction loans that do not exceed an 80% loan-to-value
ratio. The book value of assets in each category is multiplied by the
weighing factor (from 0% to 100%) assigned to that category. These products
are then totalled to arrive at total risk-weighted assets. Off-balance sheet
items are included in risk-weighted assets by converting them to an
approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk
categories in the same manner as balance sheet assets and included
risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its
risk-based capital requirement. Under the rule, there is a two quarter lag
between the reporting date of an institution's financial data and the
effective date for the new capital requirement based on that data. A
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savings association with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that
the Director of the OTS may waive or defer an association's interest rate risk
component on a case-by-case basis. Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if
it believes that the OTS-calculated interest rate risk component overstates
its interest rate risk exposure. In addition, certain "well-capitalized"
institutions may obtain authorization to use their own interest rate risk
model to calculate their interest rate risk component in lieu of the
OTS-calculated amount. The OTS has postponed the date that the component will
first be deducted from an institution's total capital until savings
associations become familiar with the process for requesting an adjustment to
its interest rate risk component.
The following table presents the Bank's capital levels at September
30, 1996.
At September 30, 1996
-----------------------------
Percent of
Amount Assets
------ ----------
(Dollars in thousands)
Core capital $12,648 18.2%
Minimum required core
capital 1,788 3.0
------- ----
Excess $10,860 15.2%
======= ====
Tangible capital $12,648 19.7%
Minimum required tangible
capital 894 1.5
------- ----
Excess $11,754 18.2%
======= ====
Risk-based capital $12,790 35.1%
Minimum risk-based capital
requirement 2,376 8.0
------- ----
Excess $10,414 27.1%
======= ====
Limitations on Capital Distributions. OTS regulations impose
uniform limitations on the ability of all savings associations to engage in
various distributions of capital such as dividends, stock repurchases and
cash-out mergers. In addition, OTS regulations require the Bank to give the
OTS 30 days' advance notice of any proposed declaration of dividends, and the
OTS has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). Tier 1 savings association may make (without application but
upon prior notice to, and no objection made by, the OTS) capital distributions
during a calendar year up to 100% of its net income to date during the
calendar year plus one-half its surplus capital ratio (i.e., the amount of
capital in excess of its fully phased-in requirement) at the beginning of the
calendar year or the amount authorized for a Tier 2 association. Capital
distributions in excess of such amount require advance notice to the OTS. A
Tier 2 savings association has capital equal to or in excess of its minimum
capital requirement but below its fully phased-in capital requirement (both
before and after the proposed capital distribution). Such an association may
make (without application) capital distributions up to an amount equal to 75%
of its net income during the previous four quarters depending on how close the
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval. Tier 3
associations are savings associations with capital below the minimum capital
requirement (either before or after the proposed capital distribution). Tier
3 associations may not make any capital distributions without prior approval
from the OTS.
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The Bank is currently meeting the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of
the calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Bank's unimpaired capital and surplus,
plus an additional 10% of unimpaired capital and surplus, if such loan is
secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the
loans to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower
in additional amounts under circumstances limited essentially to loans to
develop or complete residential housing units. At September 30, 1996, the
Bank's limit on loans to one borrower was $1.9 million. At September 30,
1996, the Bank's largest aggregate amount of loans to one borrower was $1.0
million.
Activities of Banks and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association
of its ownership control of, or its relationship to, the subsidiary
constitutes a serious risk to the safety, soundness or stability of the
association or is inconsistent with sound banking practices or with the
purposes of the FDIA. Based upon that determination, the FDIC or the OTS has
the authority to order the savings association to divest itself of control of
the subsidiary. The FDIC also may determine by regulation or order that any
specific activity poses a serious threat to the SAIF. If so, it may require
that no SAIF member engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured association or its subsidiaries may engage in certain
covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus and place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and (ii) require that all such transactions be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, the purchase of assets, the issuance of a guarantee and
similar types of transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. The Bank has not been significantly
affected by the rules regarding transactions with affiliates.
The Bank's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the Federal
Reserve Act, and Regulation O thereunder. Among other things, these
regulations require that such loans be made on terms and conditions
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal
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risk of repayment. Regulation O also places individual and aggregate limits
on the amount of loans the Bank may make to such persons based, in part, on
the Bank's capital position, and requires certain board approval procedures to
be followed. The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without
prior OTS approval, from acquiring more than 5% of the voting stock of any
other savings association or savings and loan holding company or controlling
the assets thereof. They also prohibit, among other things, any director or
officer of a savings and loan holding company, or any individual who owns or
controls more than 25% of the voting shares of such holding company, from
acquiring control of any savings association not a subsidiary of such savings
and loan holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions. If
the Company acquires control of another savings association as a separate
subsidiary other than in a supervisory acquisition, it would become a multiple
savings and loan holding company. There generally are more restrictions on
the activities of a multiple savings and loan holding company than on those of
a unitary savings and loan holding company. The HOLA provides that, among
other things, no multiple savings and loan holding company or subsidiary
thereof which is not an insured association shall commence or continue for
more than two years after becoming a multiple savings and loan association
holding company or subsidiary thereof, any business activity other than: (i)
furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a
subsidiary insured institution, (iv) holding or managing properties used or
occupied by a subsidiary insured institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by
regulation as of March 5, 1987 to be engaged in by multiple holding companies
or (vii) those activities authorized by the Federal Reserve Board as
permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above also must be approved by the OTS
prior to being engaged in by a multiple holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- Federal Regulation of Savings Banks -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding
company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Company and the Bank report their income on a fiscal
year basis using the accrual method of accounting is subject to federal income
taxation in the same manner as other corporations with some exceptions. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Company and the Bank.
Tax Bad Debt Reserves. For taxable years beginning prior to January
1, 1996, savings institutions such as the Bank which met certain definitional
tests primarily relating to their assets and the nature of their business
("qualifying thrifts") were permitted to establish a reserve for bad debts and
to make annual additions thereto, which additions may, within specified
formula limits, have been deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, may have been computed using an
amount based on the Bank's actual loss experience, or a percentage equal to 8%
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of the Bank's taxable income, computed with certain modifications and reduced
by the amount of any permitted additions to the nonqualifying reserve. Each
year the Bank selected the most favorable way to calculate the deduction
attributable to an addition to the tax bad debt reserve. The Bank used the
experience method bad debt deduction for the taxable years ended September 30,
1996, 1995 and 1994.
Recently enacted legislation repealed the reserve method of
accounting for bad debt reserves for tax years beginning after December 31,
1995. As result, savings associations will no longer be able to calculate
their deduction for bad debts using the percentage-of-taxable-income method.
Instead, savings associations will be required to compute their deduction
based on specific charge-offs during the taxable year or, if the savings
association or its controlled group had assets of less than $500 million,
based on actual loss experience over a period of years. This legislation also
requires savings associations to recapture into income over a six-year period
their post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. At September 30, 1996, the Bank's post-1987
reserves totalled approximately $122,000. The recapture may be suspended for
up to two years if, during those years, the institution satisfies a
residential loan requirement. The Bank anticipates meeting the residential
loan requirement for the taxable year ending September 30, 1997.
Under prior law, if the Bank failed to satisfy the qualifying thrift
definitional tests in any taxable year, it would be unable to make additions
to its bad debt reserve. Instead, the Bank would be required to deduct bad
debts as they occur and would additionally be required to recapture its bad
debt reserve deductions ratably over a multi-year period. At September 30,
1996, the Bank's total bad debt reserve for tax purposes was approximately
$1.2 million. Among other things, the qualifying thrift definitional tests
required the Bank to hold at least 60% of its assets as "qualifying assets."
Qualifying assets generally include cash, obligations of the United States or
any agency or instrumentality thereof, certain obligations of a state or
political subdivision thereof, loans secured by interests in improved
residential real property or by savings accounts, student loans and property
used by the Bank in the conduct of its banking business. Under current law, a
savings association will not be required to recapture its pre-1988 bad debt
reserves if it ceases to meet the qualifying thrift definitional tests.
Distributions. To the extent that the Bank makes "nondividend
distributions" to the Company that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; or (ii) from the supplemental reserve for losses on
loans ("Excess Distributions"), then an amount based on the amount distributed
will be included in the Bank's taxable income. Nondividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions in
partial or complete liquidation. However, dividends paid out of the Bank's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Bank's bad debt reserve. Thus, any dividends to the Company that would reduce
amounts appropriated to the Bank's bad debt reserve and deducted for federal
income tax purposes would create a tax liability for the Bank. The amount of
additional taxable income attributable to an Excess Distribution is an amount
that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Bank makes a "nondividend
distribution," then approximately one and one-half times the amount so used
would be includable in gross income for federal income tax purposes, assuming
a 35% corporate income tax rate (exclusive of state and local taxes). See
"REGULATION" for limits on the payment of dividends by the Bank. The Bank
does not intend to pay dividends that would result in a recapture of any
portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code of
1986, as amended, imposes a tax on alternative minimum taxable income ("AMTI")
at a rate of 20%. The excess of the tax bad debt reserve deduction using the
percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. In addition, only 90% of AMTI can be offset
by net operating loss carryovers. AMTI is increased by an amount equal to 75%
of the amount by which the Bank's adjusted current earnings exceeds its AMTI
(determined without regard to this preference and prior to reduction for net
operating losses). For taxable years beginning after December 31, 1986, and
before January 1, 1996, an environmental tax of .12% of the excess of AMTI
(with certain modification) over
29
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<PAGE>
$2.0 million is imposed on corporations, including the Bank, whether or not an
Alternative Minimum Tax ("AMT") is paid.
Other Matters. There have not been any Internal Revenue Service
audits of the Bank's federal income tax returns during the past five years.
Missouri Taxation
Missouri-based thrift institutions, such as the Bank, are subject to
a special financial institutions tax, based on net income without regard to
net operating loss carryforwards, at the rate of 7% of net income. This tax
is in lieu of certain other state taxes on thrift institutions, on their
property, capital or income, except taxes on tangible personal property owned
by the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes. In addition, the Bank is
entitled to credit against this tax all taxes paid to the State of Missouri or
any political subdivision, except taxes on tangible personal property owned by
the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales and use taxes, and taxes imposed by the Missouri
Financial Institutions Tax Law. Missouri-based thrift institutions are not
subject to the regular corporate income tax.
There have not been any audits of the Bank's Missouri tax returns by
Missouri tax authorities during the past five years.
As a Missouri-chartered corporation, the Company is subject to
annual franchise and income taxes imposed by the State of Missouri. Franchise
taxes are assessed at a rate of 1/20 of 1% of the par value of outstanding
shares and surplus. Income taxes are assessed at a rate of 6.25% of federal
taxable income derived from Missouri sources.
Competition
Due to the proximity of Lexington to the Kansas City metropolitan
area, the Bank operates in an extremely competitive market for the attraction
of savings deposits (its primary source of lendable funds) and in the
origination of loans. Historically, its most direct competition for savings
deposits has come from commercial banks and thrift institutions operating in
its market area. Some of these commercial banks are subsidiaries of large
regional holding companies having vastly greater resources at their disposal.
At September 30, 1996, there were 13 commercial banks and, in addition to the
Bank, one thrift institutions in Lafayette County. Particularly in times of
high market interest rates, the Bank has faced competition for investors'
funds from short-term money market securities and corporate and U.S.
Government securities. The Bank competes for loan originations with mortgage
bankers, thrift institutions, credit unions and commercial banks. Such
competition for deposits and loans may limit the Bank's future growth and
earnings prospects.
Personnel
As of September 30, 1996, the Bank had 10 full-time and no part-time
employees. The employees are not represented by a collective bargaining unit.
The Bank believes its relationship with its employees is good.
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Executive Officers
The following table sets forth certain information regarding the
executive officers of the Company.
Name Age(1) Position
- ---- ------ --------
Erwin Oetting, Jr. 56 President and Chief Executive Officer
E. Steva Vialle 45 Treasurer, Chief Financial Officer and
Secretary
The following table sets forth certain information regarding the
executive officers of the Bank.
Name Age(1) Position
- ---- ------ --------
Erwin Oetting, Jr. 56 President and Chief Executive Officer
E. Steva Vialle 45 Executive Vice President, Chief Operating
Officer and Secretary
Kathryn M. Swafford 34 Treasurer
Mark D. Summerlin 36 Chief Loan Officer
- ---------------
(1) As of September 30, 1996.
Erwin Oetting, Jr. has been employed as an officer of the Bank since
1960 and has been President and Chief Executive Officer since 1985. He is a
member of the LIDC Authority, the Lexington Housing Authority, the Lexington
River Boat Task Force, and the Lexington Police Board and a trustee of
Wentworth Military Academy.
E. Steva Vialle has been employed by the Bank since 1984 and has
been Executive Vice President, Chief Operating Officer and Secretary since
1994. He is a member of the Lexington Industrial Development Corporation, the
Lexington Zoning Board and the Lexington Board of Adjustments.
Kathryn M. Swafford joined the Bank as Controller in 1984 and has
been employed as Treasurer since 1988.
Mark D. Summerlin has been employed by the Bank since 1985. He is a
member of the Rotary Club, the Lexington Park Board, the Chamber of Commerce,
the Knights of Columbus and the Wentworth Country Club Board.
Item 2. Description of Property
- --------------------------------
The Bank has no branch offices. The Bank owns its main office
located at 919 Franklin Avenue, Lexington, Missouri. The office was opened in
1960 and its size is approximately 3,500 square feet. At September 30, 1996,
the net book value of the Bank's premises and equipment (land, building and
improvements, furniture and equipment) was $381,000.
Item 3. Legal Proceedings
- --------------------------
Periodically, there have been various claims and lawsuits involving
the Bank, such as claims to enforce liens, condemnation proceedings on
properties on which the Bank holds security interests, claims involving the
making and servicing of real property loans and other issues incident to the
Bank's business. The Bank is not a party
31
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<PAGE>
to any pending legal proceedings that it believes would have a material
adverse effect on the financial condition or operations of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 1996.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Common Stock
Information" on page 2 of the Annual Report is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations or Plan of Operations
-------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 5 of the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
(a) Financial Statements
Independent Auditor's Report*
Consolidated Statements of Financial Condition as of
September 30, 1996 and 1995*
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1996, 1995 and 1994*
Consolidated Statements of Income for the Years Ended
September 30, 1996, 1995 and 1994*
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994*
Notes to the Consolidated Financial Statements*
* Included in the Annual Report attached as Exhibit 13 hereto and
incorporated herein by reference. All schedules have been omitted
as the required information is either inapplicable or included in
the Consolidated Financial Statements or related Notes contained in
the Annual Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
32
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<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The information contained under the section captioned "Proposal I -
Election of Directors" contained in the Bank's Proxy Statement, and "Part I --
Business -- Personnel -- Executive Officers" of this report, is incorporated
herein by reference. Reference is made to the cover page of this report for
information regarding compliance with Section 16(a) of the Exchange Act.
Item 10. Executive Compensation
- ----------------------------------
The information contained under the sections captioned "Executive
Compensation," "Directors' Compensation" and "Benefits" under "Proposal I -
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Security Ownership of
Certain Beneficial Owners and Management" of the Proxy
Statement.
(b) Security Ownership of Management
The information required by this item is incorporated
herein by reference to the sections captioned "Proposal I -
Election of Directors" and "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any
pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a
change in control of the Company.
The information required by this item is incorporated herein by
reference to the sections captioned "Proposal I - Election of Directors" and
"Security Ownership of Certain Beneficial Owners and Management" of the Proxy
Statement.
Item 12. Certain Relationships and Related Transactions
- ----------------------------------------------------------
The information set forth under the section captioned "Proposal I -
Election of Directors - Certain Transactions with the Bank" in the Proxy
Statement is incorporated herein by reference.
33
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PART IV
Item 13. Exhibits List and Reports on Form 8-K
- -------------------------------------------------
(a) Exhibits
3(a) Articles of Incorporation of the Registrant*
3(b) Bylaws of the Registrant*
10(a) Employment Agreement with Erwin Oetting, Jr.
10(b) Employment Agreement with E. Steva Vialle
10(c) Salary Continuation Agreement with Erwin Oetting, Jr.
10(d) Salary Continuation Agreement with E. Steva Vialle
10(e) Severance Agreement with Mark D. Summerlin
10(f) Severance Agreement with Kathryn M. Swafford
10(g) 1996 Stock Option Plan**
10(h) Management Recognition and Development Plan**
(13) Annual Report to Stockholders
(22) Subsidiaries of the Registrant
___________________
* Incorporated by reference to the Registrant's Registration Statement
on Form S-1, filed on February 16, 1996.
** Incorporated by reference to the Registrant's Definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
September 30, 1996.
34
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<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LEXINGTON B & L FINANCIAL CORP.
Date: December 30, 1996 By: /s/ Erwin Oetting, Jr.
--------------------------------------
Erwin Oetting, Jr.
President and Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Erwin Oetting, Jr. President, Chief December 30, 1996
- ----------------------- Executive Officer and
Erwin Oetting, Jr. Director (Principal
Executive Officer)
/s/ E. Steva Vialle Treasurer, Chief December 30, 1996
- ----------------------- Financial Officer,
E. Steva Vialle Secretary and Director
(Principal Financial
and Accounting Officer)
/s/ Steve Oliaro Director December 30, 1996
- -----------------------
Steve Oliaro
/s/ Norman Vialle Director December 30, 1996
- -----------------------
Norman Vialle
/s/ Charles R. Wilcoxon Director December 30, 1996
- -----------------------
Charles R. Wilcoxon
/s/ Glenn H. Twente Director December 30, 1996
- -----------------------
Glenn H. Twente
<PAGE>
<PAGE>
EXHIBIT 10(a)
Employment Agreement with Erwin Oetting, Jr.
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of June 6, 1996, by and between B
& L BANK (the "Bank"), Lexington, Missouri; LEXINGTON B & L FINANCIAL CORP.
(the "Company"), a Missouri corporation; and ERWIN OETTING, JR. (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Bank. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Company or any subsidiary or affiliate of the Company or the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as
of the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary
date, and continuing at each anniversary date thereafter, the Board of
Directors of the Bank (the "Board") may extend the Agreement for an additional
year. Prior to the extension of the Agreement as provided herein, the Board
of Directors of the Bank will conduct a formal performance evaluation of the
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of
his duties hereunder including activities and services related to the
organization, operation and management of the Bank; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board,
from time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict
of interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Sections 1 and 2.
The Bank shall pay Executive as compensation a salary of $71,899 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the Bank. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase Executive's Base Salary. In addition to the Base Salary
provided in this Section 3(a), the Bank shall provide Executive at no cost to
Executive with all such other benefits as are provided uniformly to permanent
full-time employees of the Bank.
<PAGE>
<PAGE>
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate
in or receive benefits under any employee benefit plans including, but not
limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plan, medical coverage or any other
employee benefit plan or arrangement made available by the Bank in the future
to its senior executives and key management employees, subject to, and on a
basis consistent with, the terms, conditions and overall administration of
such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan, or pursuant to any
arrangement of the Bank, in which Executive is eligible to participate.
Nothing paid to the Executive under any such plan or arrangement will be
deemed to be in lieu of other compensation to which the Executive is entitled
under this Agreement, except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from
time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event
of Termination" shall mean and include any one or more of the following: (i)
the termination by the Bank of Executive's full-time employment hereunder for
any reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined
in Section 7 hereof; or Termination for Cause, as defined in Section 8 hereof;
(ii) Executive's resignation from the Bank's employ, upon (A) unless consented
to by the Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one
of lesser responsibility, importance, or scope from the position and
attributes thereof described in Sections 1 and 2, above, (any such material
change shall be deemed a continuing breach of this Agreement), (B) a
relocation of Executive's principal place of employment by more than 35 miles
from its location at the effective date of this Agreement, or a material
reduction in the benefits and perquisites to Executive from those being
provided as of the effective date of this Agreement, (C) the liquidation or
dissolution of the Bank, or (D) any breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (A), (B), (C) or (D),
above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except
in case of a continuing breach, four (4) calendar months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the payments due to the Executive
for the remaining term of the Agreement, including Base Salary, bonuses, and
any other cash or deferred compensation paid or to be paid (including the
value of employer contributions that would have been made on the Executive's
behalf over the remaining term of the agreement to any tax-qualified
retirement plan sponsored by the Bank as of the Date of Termination), to the
Executive for the term of the Agreement provided, however, that if the Bank is
not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the Bank is
in capital compliance. All payments made pursuant to this Section 4(b) shall
be paid in substantially equal monthly installments over the remaining term of
this Agreement following the Executive's termination; provided, however, that
if the remaining term of the Agreement is less than one (1) year (determined
as of
-2-
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<PAGE>
the Executive's Date of Termination), such payments and benefits shall be paid
to the Executive in a lump sum within thirty (30) days of the Date of
Termination.
(c) Upon the occurrence of an Event of Termination, the Bank will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination. Such coverage shall cease upon the expiration of
the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the Company or the Bank. For purposes of
this Agreement, a "Change in Control" of the Company or the Bank shall be
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Bank pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Bank representing 25% or more of the combined voting power of
the Company's then outstanding securities, (c) the membership of the board of
directors of the Company or the Bank changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four (24) month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at the end of
such period, or (d) shareholders of the Company or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the
Company's or the Bank's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred or the Board of the Bank or the
Company has reasonably determined that a Change in Control has occurred,
Executive shall be entitled to the benefits provided in paragraphs (c), (d)
and (e) of this Section 5 upon his subsequent involuntary termination
following the effective date of a Change in Control (or voluntary termination
following the effective date of a Change in Control following any demotion,
loss of title, office or significant authority, reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or relocation of his principal place of employment by
more than thirty-five (35) miles from its location immediately prior to the
Change in Control), unless such termination is because of his death,
retirement as provided in Section 7, termination for Cause, or termination for
Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to 2.99 times the Executive's "base amount," within the meaning of
Section 280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended.
Such payment shall be made in a lump sum paid within ten (10) days of the
Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Bank for Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36)
months.
(e) Upon the occurrence of a Change in Control, the Executive shall
be entitled to receive benefits due him under, or contributed by the Company
or the Bank on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Bank or the Company on the Executive's behalf to the extent
that such benefits are not otherwise paid to the Executive upon a Change in
Control.
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(f) Notwithstanding the preceding paragraphs of this Section 5,
in the event that the aggregate payments or benefits to be made or afforded to
the Executive under this Section would be deemed to include an "excess
parachute payment" under Section 280G of the Code, such payments or benefits
shall be payable or provided to Executive over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is
one dollar ($1.00) less than three (3) times the Executive's "base amount"
under Section 280G(b)(3) of the Code.
6. TERMINATION FOR DISABILITY.
(a) If the Executive shall become disabled as defined in the Bank's
then current disability plan (or, if no such plan is then in effect, if the
Executive is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board),
the Bank may terminate Executive's employment for "Disability."
(b) Upon the Executive's termination of employment for Disability,
the Bank will pay Executive, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence
on the effective date of Executive's termination and will end on the earlier
of (i) the date Executive returns to the full-time employment of the Bank in
the same capacity as he was employed prior to his termination for Disability
and pursuant to an employment agreement between Executive and the Bank; (ii)
Executive's full-time employment by another employer; (iii) Executive
attaining the age of 65; or (iv) Executive's death; or (v) the expiration of
the term of this Agreement. The disability pay shall be reduced by the
amount, if any, paid to the Executive under any plan of the Bank providing
disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an employment
agreement between Executive and the Bank; (ii) Executive's full-time
employment by another employer; (iii) Executive's attaining the age of
sixty-five (65); (iv) the Executive's death; or (v) the expiration of the term
of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of
temporary disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Bank of Executive based on "Retirement" shall mean
retirement at age sixty-five (65) or in accordance with any retirement
arrangement established with Executive's consent with respect to him. Upon
termination of Executive upon Retirement, Executive shall be entitled to all
benefits under any retirement plan of the Bank or the Company and other plans
to which Executive is a party. Upon the death of the Executive during the
term of this Agreement, the Bank shall pay to Executive's estate the
compensation due to the Executive through the last day of the calendar month
in which his death occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall
include termination because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses)
or final cease-and-desist order, or material breach of any provision of this
Agreement. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful"
-4-
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<PAGE>
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interest of the Bank or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive was
guilty of conduct justifying termination for Cause and specifying the reasons
thereof. The Executive shall not have the right to receive compensation or
other benefits for any period after termination for Cause. Any stock options
granted to Executive under any stock option plan or any unvested awards
granted under any other stock benefit plan of the Bank, the Company, or any
subsidiary or affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to
such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 8 herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement shall be terminated
(except to the extent determined that continuation of the Agreement is
necessary for the continued operation of the Bank): (i) by the Director of
the Office of Thrift Supervision (the "Director") or his or her designee at
the time the Federal Deposit Insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the FDIA or (ii) by
the Director, or his or her designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
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10. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of Termination
is given (provided that he shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period), and (B) if
his employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty (30) days from the date such Notice of Termination is
given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence
of a Change in Control and voluntary termination by the Executive in which
case the Date of Termination shall be the date specified in the Notice, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal there from having expired and no
appeal having been perfected) and provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any
such dispute, the Bank will continue to pay Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but
not limited to, Base Salary) and continue him as a participant in all
compensation, benefit and insurance plans in which he was participating when
the notice of dispute was given, until the dispute is finally resolved in
accordance with this Agreement. Amounts paid under this Section are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder
pursuant to an Event of Termination as provided in Section 4 hereof, Executive
agrees not to compete with the Bank and/or the Company for a period of one (1)
year following such termination in any city, town or county in which the Bank
and/or the Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities
of the Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Bank and/or the Company, its business
and property in the event of Executive's breach of this Subsection 11(a) agree
that in the event of any such breach by Executive, the Bank and/or the Company
will be entitled, in addition to any other remedies and damages available, to
an injunction to restrain the violation hereof by Executive, Executive's
partners, agents, servants, employers, employees and all persons acting for or
with Executive. Executive represents and admits that in the event of the
termination of his employment pursuant to Section 8 hereof, Executive's
experience and capabilities are such that Executive can obtain employment in a
business engaged in other lines and/or of a different nature than the Bank
and/or the Company, and that the enforcement of a remedy by way of injunction
will not prevent Executive from earning a livelihood. Nothing herein will be
construed as prohibiting the Bank and/or the Company from pursuing any other
remedies available to the Bank and/or the Company for such breach or
threatened breach, including the recovery of damages from Executive.
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(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Bank. Executive will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Bank. In the event of a breach or threatened breach by the
Executive of the provisions of this Section, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of
the Bank or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part,
has been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available
to the Bank for such breach or threatened breach, including the recovery of
damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Company, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall
be interpreted to mean that Executive is subject to receiving fewer benefits
than those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any such action
shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive, the Bank, the Company and their respective successors and
assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Missouri, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within one hundred (100) miles from the location of the Bank, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been a director or officer of
the Bank (whether or not he continues to be a directors or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's or the
Company's obligations under this Agreement, in the same manner and to the same
extent that the Bank or the Company would be required to perform if no such
succession or assignment had taken place.
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IN WITNESS WHEREOF, the Bank and the Company hereto have caused this
Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer or director, and Executive has signed this Agreement, all
on the 6th day of June, 1996.
ATTEST: B & L BANK
/s/Steve Oliaro BY:/s/E. Steva Vialle
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[SEAL]
ATTEST: LEXINGTON B & L FINANCIAL CORP.
/s/Steve Oliaro BY:/s/E. Steva Vialle
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[SEAL]
WITNESS:
/s/Mark D. Summerlin /s/Erwin Oetting, Jr.
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Erwin Oetting, Jr.
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EXHIBIT 10(b)
Employment Agreement with E. Steva Vialle
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of June 6, 1996, by and between B
& L BANK (the "Bank"), Lexington, Missouri; LEXINGTON B & L FINANCIAL CORP.
(the "Company"), a Missouri corporation; and E. STEVA VIALLE (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as Executive Vice President and Chief Operating Officer of the Bank.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Company or any subsidiary or affiliate of the Company or
the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as
of the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary
date, and continuing at each anniversary date thereafter, the Board of
Directors of the Bank (the "Board") may extend the Agreement for an additional
year. Prior to the extension of the Agreement as provided herein, the Board
of Directors of the Bank will conduct a formal performance evaluation of the
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of
his duties hereunder including activities and services related to the
organization, operation and management of the Bank; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board,
from time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict
of interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Sections 1 and 2.
The Bank shall pay Executive as compensation a salary of $51,576 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the Bank. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase Executive's Base Salary. In addition to the Base Salary
provided in this Section 3(a), the Bank shall provide Executive at no cost to
Executive with all such other benefits as are provided uniformly to permanent
full-time employees of the Bank.
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(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate
in or receive benefits under any employee benefit plans including, but not
limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plan, medical coverage or any other
employee benefit plan or arrangement made available by the Bank in the future
to its senior executives and key management employees, subject to, and on a
basis consistent with, the terms, conditions and overall administration of
such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan, or pursuant to any
arrangement of the Bank, in which Executive is eligible to participate.
Nothing paid to the Executive under any such plan or arrangement will be
deemed to be in lieu of other compensation to which the Executive is entitled
under this Agreement, except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from
time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event
of Termination" shall mean and include any one or more of the following: (i)
the termination by the Bank of Executive's full-time employment hereunder for
any reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined
in Section 7 hereof; or Termination for Cause, as defined in Section 8 hereof;
(ii) Executive's resignation from the Bank's employ, upon (A) unless consented
to by the Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one
of lesser responsibility, importance, or scope from the position and
attributes thereof described in Sections 1 and 2, above, (any such material
change shall be deemed a continuing breach of this Agreement), (B) a
relocation of Executive's principal place of employment by more than 35 miles
from its location at the effective date of this Agreement, or a material
reduction in the benefits and perquisites to Executive from those being
provided as of the effective date of this Agreement, (C) the liquidation or
dissolution of the Bank, or (D) any breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (A), (B), (C) or (D),
above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except
in case of a continuing breach, four (4) calendar months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the payments due to the Executive
for the remaining term of the Agreement, including Base Salary, bonuses, and
any other cash or deferred compensation paid or to be paid (including the
value of employer contributions that would have been made on the Executive's
behalf over the remaining term of the agreement to any tax-qualified
retirement plan sponsored by the Bank as of the Date of Termination), to the
Executive for the term of the Agreement provided, however, that if the Bank is
not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the Bank is
in capital compliance. All payments made pursuant to this Section 4(b) shall
be paid in substantially equal monthly installments over the remaining term of
this Agreement following the Executive's termination; provided, however, that
if the remaining term of the Agreement is less than one (1) year (determined
as of
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the Executive's Date of Termination), such payments and benefits shall be paid
to the Executive in a lump sum within thirty (30) days of the Date of
Termination.
(c) Upon the occurrence of an Event of Termination, the Bank will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination. Such coverage shall cease upon the expiration of
the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the Company or the Bank. For purposes of
this Agreement, a "Change in Control" of the Company or the Bank shall be
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Bank pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Bank representing 25% or more of the combined voting power of
the Company's then outstanding securities, (c) the membership of the board of
directors of the Company or the Bank changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four (24) month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at the end of
such period, or (d) shareholders of the Company or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the
Company's or the Bank's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred or the Board of the Bank or the
Company has reasonably determined that a Change in Control has occurred,
Executive shall be entitled to the benefits provided in paragraphs (c), (d)
and (e) of this Section 5 upon his subsequent involuntary termination
following the effective date of a Change in Control (or voluntary termination
following the effective date of a Change in Control following any demotion,
loss of title, office or significant authority, reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or relocation of his principal place of employment by
more than thirty-five (35) miles from its location immediately prior to the
Change in Control), unless such termination is because of his death,
retirement as provided in Section 7, termination for Cause, or termination for
Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to 2.99 times the Executive's "base amount," within the meaning of
Section 280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended.
Such payment shall be made in a lump sum paid within ten (10) days of the
Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Bank for Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36)
months.
(e) Upon the occurrence of a Change in Control, the Executive shall
be entitled to receive benefits due him under, or contributed by the Company
or the Bank on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Bank or the Company on the Executive's behalf to the extent
that such benefits are not otherwise paid to the Executive upon a Change in
Control.
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(f) Notwithstanding the preceding paragraphs of this Section 5,
in the event that the aggregate payments or benefits to be made or afforded to
the Executive under this Section would be deemed to include an "excess
parachute payment" under Section 280G of the Code, such payments or benefits
shall be payable or provided to Executive over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is
one dollar ($1.00) less than three (3) times the Executive's "base amount"
under Section 280G(b)(3) of the Code.
6. TERMINATION FOR DISABILITY.
(a) If the Executive shall become disabled as defined in the Bank's
then current disability plan (or, if no such plan is then in effect, if the
Executive is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board),
the Bank may terminate Executive's employment for "Disability."
(b) Upon the Executive's termination of employment for Disability,
the Bank will pay Executive, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence
on the effective date of Executive's termination and will end on the earlier
of (i) the date Executive returns to the full-time employment of the Bank in
the same capacity as he was employed prior to his termination for Disability
and pursuant to an employment agreement between Executive and the Bank; (ii)
Executive's full-time employment by another employer; (iii) Executive
attaining the age of 65; or (iv) Executive's death; or (v) the expiration of
the term of this Agreement. The disability pay shall be reduced by the
amount, if any, paid to the Executive under any plan of the Bank providing
disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an employment
agreement between Executive and the Bank; (ii) Executive's full-time
employment by another employer; (iii) Executive's attaining the age of
sixty-five (65); (iv) the Executive's death; or (v) the expiration of the term
of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of
temporary disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Bank of Executive based on "Retirement" shall mean
retirement at age sixty-five (65) or in accordance with any retirement
arrangement established with Executive's consent with respect to him. Upon
termination of Executive upon Retirement, Executive shall be entitled to all
benefits under any retirement plan of the Bank or the Company and other plans
to which Executive is a party. Upon the death of the Executive during the
term of this Agreement, the Bank shall pay to Executive's estate the
compensation due to the Executive through the last day of the calendar month
in which his death occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall
include termination because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses)
or final cease-and-desist order, or material breach of any provision of this
Agreement. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful"
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unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interest of the Bank or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive was
guilty of conduct justifying termination for Cause and specifying the reasons
thereof. The Executive shall not have the right to receive compensation or
other benefits for any period after termination for Cause. Any stock options
granted to Executive under any stock option plan or any unvested awards
granted under any other stock benefit plan of the Bank, the Company, or any
subsidiary or affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to
such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate Executive's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 8 herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement shall be terminated
(except to the extent determined that continuation of the Agreement is
necessary for the continued operation of the Bank): (i) by the Director of
the Office of Thrift Supervision (the "Director") or his or her designee at
the time the Federal Deposit Insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the FDIA or (ii) by
the Director, or his or her designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
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10. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of Termination
is given (provided that he shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period), and (B) if
his employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty (30) days from the date such Notice of Termination is
given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence
of a Change in Control and voluntary termination by the Executive in which
case the Date of Termination shall be the date specified in the Notice, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal there from having expired and no
appeal having been perfected) and provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any
such dispute, the Bank will continue to pay Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but
not limited to, Base Salary) and continue him as a participant in all
compensation, benefit and insurance plans in which he was participating when
the notice of dispute was given, until the dispute is finally resolved in
accordance with this Agreement. Amounts paid under this Section are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder
pursuant to an Event of Termination as provided in Section 4 hereof, Executive
agrees not to compete with the Bank and/or the Company for a period of one (1)
year following such termination in any city, town or county in which the Bank
and/or the Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities
of the Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Bank and/or the Company, its business
and property in the event of Executive's breach of this Subsection 11(a) agree
that in the event of any such breach by Executive, the Bank and/or the Company
will be entitled, in addition to any other remedies and damages available, to
an injunction to restrain the violation hereof by Executive, Executive's
partners, agents, servants, employers, employees and all persons acting for or
with Executive. Executive represents and admits that in the event of the
termination of his employment pursuant to Section 8 hereof, Executive's
experience and capabilities are such that Executive can obtain employment in a
business engaged in other lines and/or of a different nature than the Bank
and/or the Company, and that the enforcement of a remedy by way of injunction
will not prevent Executive from earning a livelihood. Nothing herein will be
construed as prohibiting the Bank and/or the Company from pursuing any other
remedies available to the Bank and/or the Company for such breach or
threatened breach, including the recovery of damages from Executive.
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(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Bank. Executive will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Bank. In the event of a breach or threatened breach by the
Executive of the provisions of this Section, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of
the Bank or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part,
has been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available
to the Bank for such breach or threatened breach, including the recovery of
damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Company, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall
be interpreted to mean that Executive is subject to receiving fewer benefits
than those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any such action
shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive, the Bank, the Company and their respective successors and
assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Missouri, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within one hundred (100) miles from the location of the Bank, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been a director or officer of
the Bank (whether or not he continues to be a directors or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's or the
Company's obligations under this Agreement, in the same manner and to the same
extent that the Bank or the Company would be required to perform if no such
succession or assignment had taken place.
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IN WITNESS WHEREOF, the Bank and the Company hereto have caused this
Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer or director, and Executive has signed this Agreement, all
on the 6th day of June, 1996.
ATTEST: B & L BANK
/s/Steve Oliaro BY:/s/Erwin Oetting, Jr.
- ------------------------- --------------------------
[SEAL]
ATTEST: LEXINGTON B & L FINANCIAL CORP.
/s/Steve Oliaro BY:/s/Erwin Oetting, Jr.
- ------------------------- --------------------------
[SEAL]
WITNESS:
/s/Mark D. Summerlin /s/E. Steva Vialle
- -------------------------- --------------------------
E. Steva Vialle
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EXHIBIT 10(c)
Salary Continuation Agreement with Erwin Oetting
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<PAGE>
THE LEXINGTON BUILDING & LOAN ASSOCIATION, F.A.
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 16th day of February, 1996 by and between
The Lexington Building & Loan Association, F.A. (the "Association"), and Erwin
Oetting, Jr. (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Association,
the Association is willing to provide salary continuation benefits to the
Executive. The Association will pay such benefits from its general assets.
The Executive and the Association agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following
words and phrases shall have the meanings specified:
1.1.1 "Change in Control" shall mean an event deemed to occur
if and when (a) an offeror other than the Company purchases shares of the
common stock of the Company or the Association pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Association representing 25% or more of the combined voting
power of the Company's or the Association's then outstanding securities, (c)
the membership of the board of directors of the Company or the Association
changes as the result of a contested election, such that individuals who were
directors at the beginning of any twenty-four month period (whether commencing
before or after the date of adoption of this Plan) do not
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constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Association approve a merger,
consolidation, sale or disposition of all or substantially all of the
Company's or the Association's assets, or a plan of partial or complete
liquidation.
1.1.2 "Code" means the Internal Revenue Code of 1986, as
amended. References to a Code section shall be deemed to be that section as it
now exists and to any successor provision.
1.1.3 "Company" means Lexington B&L Financial Corp., a
Missouri corporation.
1.1.4 "Deferred Retirement Date" means the Executive's actual
retirement date if retirement occurs after age 60.
1.1.5 "Disability" means the Executive's inability to perform
substantially all normal duties of the Executive's positions, as determined by
the Association's Board of Directors in its sole discretion. As a condition
to any benefits, the Association may require the Executive to submit to such
physical or mental evaluations and tests as the Board of Directors deems
appropriate.
1.1.6 "Normal Retirement Date" means the Executive attaining
age 61.
1.1.7 "Termination of Employment" means the Executive's
ceasing to be employed by the Association for any reason whatsoever, voluntary
or involuntary, other than by reason of an approved leave of absence.
1.1.8 "Plan Year" means the twelve-month period ending
December 31.
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Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. If the Executive terminates
employment on or after the Normal Retirement Date for reasons other than
death, the Association shall pay to the Executive the benefit described in
this Section 2.1.
2.1.1 Amount of Benefit. The benefit under this Section 2.1
is $2,917 per month. In the event that the Executive remains in the active
service of the Association until a Deferred Retirement Date, the benefit under
this Section 2.1 shall be increased by 8.5% for each full year the Executive
was employed by the Association between the ages of 61 and 66.
2.1.2 Payment of Benefit. The Association shall pay the
benefit to the Executive on the first day of each month commencing with the
month following the Retirement Date and continuing for 179 additional months.
2.2 Early Retirement Benefit. If the Executive terminates
employment before the Normal Retirement Date, and for reasons other than death
or Disability, the Association shall pay to the Executive the benefit
described in Section 2.2.
2.2.1 Amount of Benefit. The benefit under this Section 2.2
is the benefit determined under Schedule A, Column B based on the date of the
Executive's Termination of Employment. Schedule A is calculated using
interest method of accounting, a 8.5% discount rate, and assuming monthly
compounding and monthly benefit payments.
2.2.2 Payment of Benefits. The Association shall pay the
benefit to the Executive on the first date of each month commencing with the
month following the Executive's Normal Retirement Date and continuing for 179
additional months.
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2.3 Disability Benefit. If the Executive terminates employment for
Disability prior to the Normal Retirement Date, the Association shall pay the
Executive the benefit described in this Section 2.3.
2.3.1 Amount of Benefit. The benefit under this Section 2.3
is the benefit determined under Schedule A, Column A based on the date of the
Executive's Termination of Employment.
2.3.2 Payment of Benefit. The Association shall pay the
benefit to the Executive on the first day of each month commencing with the
month following the Executive's Termination of Employment and continuing for
179 additional months.
2.4 Change of Control Benefit. Upon the occurrence of a Change of
Control while the Executive is in the active service of the Association, the
Association shall pay the Executive the benefit described in this Section 2.4
in lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The benefit under this Section 2.4
is $296,186. In the event that the Executive remains in the active service of
the Association following his Normal Retirement Date, the benefit payable
under this Section 2.4 shall be increased by 8.5% for each full year prior to
the effective date of the Change in Control that the Executive remained
employed by the Association between the ages of 61 and 66.
2.4.2 Payment of Benefit. The Association (or any successor
thereto) shall pay the benefit to the Executive in a lump sum within 30 days
of the later to occur of (i) the Executive's Normal Retirement Date or (ii)
the effective date of the Change in Control.
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Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the
active service of the Association, the Association shall pay to the
Executive's beneficiary the benefit described in this Section 3.1
3.1.1 Amount of Benefits. The benefit under Section 3.1 is
the lifetime benefits that would have been paid to the Executive under Section
2.1 calculated as if the date of the Executive's death were the Normal
Retirement Date.
3.1.2 Payment of Benefit. The Association shall pay the
benefit to the Beneficiary on the first day of each month following the
Executive's death and continuing for 179 months.
3.2 Death During Benefit Period. If the Executive dies after
benefit payment have commenced under this Agreement but before receiving all
such payments, the Association shall pay the remaining benefits to the
Executive's beneficiary at the same time and in the same amounts they would
have been paid to the Executive had the Executive survived.
3.3 Death After Early Retirement. If the Executive dies after
terminating employment for Early Retirement under Section 2.2 but prior to
commencement of benefits payments under this Agreement, the Association shall
pay to the Executive's beneficiary the benefit described in this Section 3.3.
3.3.1 Amount of Benefit. The benefit under Section 3.3 is the
lifetime benefits that would have been paid to the Executive under Section
2.2.
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3.3.2 Payment of Benefit. The Association shall pay the
benefit to the Beneficiary of the first day of each month commencing with the
month following the Executive's death and continuing for 179 months.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a
beneficiary by filing a written designation with the Association. The
Executive may revoke or modify the designation at any time by filing a new
designation. However, designations will only be effective if signed by the
Executive and accepted by the Association during the Executive's lifetime.
The Executive's beneficiary designation shall be deemed automatically revoked
if the beneficiary predeceases the Executive, or if the Executive names a
spouse as beneficiary and the marriage is subsequently dissolved. If the
Executive dies without a valid beneficiary designation, all payments shall be
made to the Executive's surviving spouse, if any, and if none, to the
Executive's surviving children and the descendants of any deceased child by
right of representation, and if no children or descendants survive, to the
Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor. to a
person declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Association may pay such benefit to
the guardian, legal representative or person having the care or custody of
such minor, incompetent or person or incapable person. The Association may
require proof of incompetency, minority, or guardianship as it may deem
appropriate prior to distribution of the benefit. Such distribution shall
completely discharge the Association from all liability with respect to such
benefit.
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Article 5
General Limitations
Notwithstanding any provisions of this Agreement to the contrary, the
Association shall not pay any benefit under this Agreement:
5.1 Excess Parachute Payment. To the extent the benefit would be
an excess parachute payments under Section 280G of the Code.
5.2 Termination of Cause. If the Association terminates the
Executive's employment for:
5.2.1 Gross negligence or gross neglect of duties;
5.2.2 Commission of a felony or of a gross misdemeanor
involving moral turpitude; or
5.2.3 Fraud, disloyalty, dishonestly or willful violation of
any law or significant Association policy committed in connection with the
Executive's employment and resulting in an adverse effect on the Association.
5.3 Suicide. No benefits shall be payable if the Executive commits
suicide within two years after the date of this Agreement, or if the Executive
has made any material misstatement of fact on any application for life
insurance purchased by the Association.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Association shall notify the Executive's
beneficiary in writing, within ninety (90) days of his or her written
application for benefits, of his or her
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eligibility or noneligibility for benefits under the Agreement. If the
Association determines that the beneficiary is not eligible for benefits or
full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Agreement on which
the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed, and (4) an explanation of the Agreement's
claims review procedure and other appropriate information as to the steps to
be taken if the beneficiary wishes to have the claim reviewed. If the
Association determines that there are special circumstances requiring
additional time to make a decision, the Association shall notify the
beneficiary of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional
ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the
Association not to be eligible for benefits, or if the beneficiary believes
that he or she is entitled to greater or different benefits, the beneficiary
shall have the opportunity to have such claim reviewed by the Association by
filing a petition for review with the Association within sixty (60) days after
the receipt of the notice issued by the Association. Said petition shall
state the specific reasons which the beneficiary believe entitle him or her to
benefits or to greater or different benefits. Within sixty (60) days after
receipt by the Association of the petition, the Association shall afford the
beneficiary (and counsel, if any) an opportunity to present his or her
positions to the Association orally or in writing, and the beneficiary (or
counsel) shall have the right to review the pertinent documents. The
Association shall notify the beneficiary of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Agreement on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient , the decision may be deferred
for up to another sixty-day period at the election of the Association, but
notice of this deferral shall be given to the beneficiary.
8
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Article 7
Amendment and Termination
The Association may amend or terminate this Agreement at any time
prior to the Executive's Termination of Employment by written notice to the
Executive; provided, however, that any amendment or termination of this
Agreement shall not affect the vested benefit of the Executive as of the date
of such amendment or termination.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and the
Association, and their beneficiaries, survivors, executors, administrators and
transferees. The Association, or the Company acting on behalf of the
Association, shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform if no such succession or assignment
had taken place.
8.2 No Guaranty of Employment. This Agreement is not an employment
policy or contract. It does not give the Executive the right to remain an
employee of the Association, nor does it interfere with the Association's
right to discharge the Executive. It also does not require the Executive to
remain an employee nor interfere with the Executive's right to terminate
employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be
sold, transferred, assigned, pledged, attached or encumbered in any manner.
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8.4 Tax Withholding. The Association shall withhold any taxes that
are required to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall
be governed by the laws of Missouri, except to the extent preempted by the
laws of the United State of America.
8.6 Unfunded Arrangement. The Executive and beneficiary are
general unsecured creditors of the Association for the payment of benefits
under this Agreement. The benefits represent the mere promise by the
Association to pay such benefits. The rights to benefits are not subject in
any manner or anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors. Any insurance on the
Executive's life is a general asset of the Association to which the Executive
and beneficiary have no preferred or secured claim.
IN WITNESS WHEREOF, the Executive and a duly authorized officer of the
Association have signed this Agreement, all of the date first written above.
The Lexington Building
& Loan Association, F.A.
/s/Erwin Oetting, Jr. /s/E. Steva Vialle
- ---------------------------- -------------------------------
Executive
10
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<PAGE>
EXHIBIT 10(d)
Salary Continuation Agreement with E. Steva Vialle
<PAGE>
<PAGE>
THE LEXINGTON BUILDING & LOAN ASSOCIATION, F.A.
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is made this 16th day of February, 1996 by and between
The Lexington Building & Loan Association, F.A. (the "Association"), and E.
Steva Vialle (the "Executive").
INTRODUCTION
To encourage the Executive to remain an employee of the Association,
the Association is willing to provide salary continuation benefits to the
Executive. The Association will pay such benefits from its general assets.
The Executive and the Association agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following
words and phrases shall have the meanings specified:
1.1.1 "Change in Control" shall mean an event deemed to occur
if and when (a) an offeror other than the Company purchases shares of the
common stock of the Company or the Association pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Association representing 25% or more of the combined voting
power of the Company's or the Association's then outstanding securities, (c)
the membership of the board of directors of the Company or the Association
changes as the result of a contested election, such that individuals who were
directors at the beginning of any twenty-four month period (whether commencing
before or after the date of adoption of this Plan) do not
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<PAGE>
constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Association approve a merger,
consolidation, sale or disposition of all or substantially all of the
Company's or the Association's assets, or a plan of partial or complete
liquidation.
1.1.2 "Code" means the Internal Revenue Code of 1986, as
amended. References to a Code section shall be deemed to be that section as
it now exists and to any successor provision.
1.1.3 "Company" means Lexington B&L Financial Corp., a
Missouri corporation.
1.1.4 "Disability" means the Executive's inability to perform
substantially all normal duties of the Executive's positions, as determined by
the Association's Board of Directors in its sole discretion. As a condition
to any benefits, the Association may require the Executive to submit to such
physical or mental evaluations and tests as the Board of Directors deems
appropriate.
1.1.5 "Normal Retirement Date" means the Executive attaining
age 65.
1.1.6 "Termination of Employment" means the Executive's
ceasing to be employed by the Association for any reason whatsoever, voluntary
or involuntary, other than by reason of an approved leave of absence.
1.1.7 "Plan Year" means the twelve-month period ending
December 31.
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Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. If the Executive terminates
employment on or after the Normal Retirement Date for reasons other than
death, the Association shall pay to the Executive the benefit described in
this Section 2.1.
2.1.1 Amount of Benefit. The benefit under this Section 2.1
is $1,250 per month.
2.1.2 Payment of Benefit. The Association shall pay the
benefit to the Executive on the first day of each month commencing with the
month following the Retirement Date and continuing for 179 additional months.
2.2 Early Retirement Benefit. If the Executive terminates
employment before the Normal Retirement Date, and for reasons other than death
or Disability, the Association shall pay to the Executive the benefit
described in Section 2.2.
2.2.1 Amount of Benefit. The benefit under this Section 2.2
is the benefit determined under Schedule A, Column B based on the date of the
Executive's Termination of Employment. Schedule A is calculated using
interest method of accounting, a 8.5% discount rate, and assuming monthly
compounding and monthly benefit payments.
2.2.2 Payment of Benefits. The Association shall pay the
benefit to the Executive on the first date of each month commencing with the
month following the Executive's Normal Retirement Date and continuing for 179
additional months.
2.3 Disability Benefit. If the Executive terminates employment for
Disability prior to the Normal Retirement Date, the Association shall pay the
Executive the benefit described in this Section 2.3.
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2.3.1 Amount of Benefit. The benefit under this Section 2.3
is the benefit determined under Schedule A, Column A based on the date of the
Executive's Termination of Employment.
2.3.2 Payment of Benefit. The Association shall pay the
benefit to the Executive on the first day of each month commencing with the
month following the Executive's Termination of Employment and continuing for
179 additional months.
2.4 Change of Control Benefit. Upon the occurrence of a Change of
Control while the Executive is in the active service of the Association, the
Association shall pay the Executive the benefit described in this Section 2.4
in lieu of any other benefit under this Agreement.
2.4.1 Amount of Benefit. The benefit under this Section 2.4
is $126,935.
2.4.2 Payment of Benefit. The Association (or any successor
thereto) shall pay the benefit to the Executive in a lump sum within 30 days
after the Executive's Normal Retirement Date.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while in the
active service of the Association, the Association shall pay to the
Executive's beneficiary the benefit described in this Section 3.1
3.1.1 Amount of Benefits. The benefit under Section 3.1 is
the lifetime benefits that would have been paid to the Executive under Section
2.1 calculated as if the date of the Executive's death were the Normal
Retirement Date.
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3.1.2 Payment of Benefit. The Association shall pay the
benefit to the Beneficiary on the first day of each month following the
Executive's death and continuing for 179 months.
3.2 Death During Benefit Period. If the Executive dies after
benefit payment have commenced under this Agreement but before receiving all
such payments, the Association shall pay the remaining benefits to the
Executive's beneficiary at the same time and in the same amounts they would
have been paid to the Executive had the Executive survived.
3.3 Death After Early Retirement. If the Executive dies after
terminating employment for Early Retirement under Section 2.2 but prior to
commencement of benefits payments under this Agreement, the Association shall
pay to the Executive's beneficiary the benefit described in this Section 3.3.
3.3.1 Amount of Benefit. The benefit under Section 3.3 is the
lifetime benefits that would have been paid to the Executive under Section
2.2.
3.3.2 Payment of Benefit. The Association shall pay the
benefit to the Beneficiary of the first day of each month commencing with the
month following the Executive's death and continuing for 179 months.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a
beneficiary by filing a written designation with the Association. The
Executive may revoke or modify the designation at any time by filing a new
designation. However, designations will only be effective if signed by the
Executive and accepted by the Association during the Executive's lifetime.
The Executive's beneficiary designation shall be deemed automatically revoked
if the beneficiary predeceases the Executive, or if the Executive names a
spouse as beneficiary
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and the marriage is subsequently dissolved. If the Executive dies without a
valid beneficiary designation, all payments shall be made to the Executive's
surviving spouse, if any, and if none, to the Executive's surviving children
and the descendants of any deceased child by right of representation, and if
no children or descendants survive, to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor. to a
person declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Association may pay such benefit to
the guardian, legal representative or person having the care or custody of
such minor, incompetent or person or incapable person. The Association may
require proof of incompetency, minority, or guardianship as it may deem
appropriate prior to distribution of the benefit. Such distribution shall
completely discharge the Association from all liability with respect to such
benefit.
Article 5
General Limitations
Notwithstanding any provisions of this Agreement to the contrary, the
Association shall not pay any benefit under this Agreement:
5.1 Excess Parachute Payment. To the extent the benefit would be
an excess parachute payments under Section 280G of the Code.
5.2 Termination of Cause. If the Association terminates the
Executive's employment for:
5.2.1 Gross negligence or gross neglect of duties;
5.2.2 Commission of a felony or of a gross misdemeanor
involving moral turpitude; or
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5.2.3 Fraud, disloyalty, dishonestly or willful violation of
any law or significant Association policy committed in connection with the
Executive's employment and resulting in an adverse effect on the Association.
5.3 Suicide. No benefits shall be payable if the Executive commits
suicide within two years after the date of this Agreement, or if the Executive
has made any material misstatement of fact on any application for life
insurance purchased by the Association.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. The Association shall notify the Executive's
beneficiary in writing, within ninety (90) days of his or her written
application for benefits, of his or her eligibility or noneligibility for
benefits under the Agreement. If the Association determines that the
beneficiary is not eligible for benefits or full benefits, the notice shall
set forth (1) the specific reasons for such denial, (2) a specific reference
to the provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the
claimant to perfect his or her claim, and a description of why it is needed,
and (4) an explanation of the Agreement's claims review procedure and other
appropriate information as to the steps to be taken if the beneficiary wishes
to have the claim reviewed. If the Association determines that there are
special circumstances requiring additional time to make a decision, the
Association shall notify the beneficiary of the special circumstances and the
date by which a decision is expected to be made, and may extend the time for
up to an additional ninety-day period.
6.2 Review Procedure. If the beneficiary is determined by the
Association not to be eligible for benefits, or if the beneficiary believes
that he or she is entitled to greater or different benefits, the beneficiary
shall have the opportunity to have such claim reviewed by the Association by
filing a petition for review with the Association within sixty (60) days after
the receipt of the notice issued by the Association. Said petition shall
state the specific
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reasons which the beneficiary believe entitle him or her to benefits or to
greater or different benefits. Within sixty (60) days after receipt by the
Association of the petition, the Association shall afford the beneficiary (and
counsel, if any) an opportunity to present his or her positions to the
Association orally or in writing, and the beneficiary (or counsel) shall have
the right to review the pertinent documents. The Association shall notify the
beneficiary of its decision, written in a manner calculated to be understood
by the beneficiary and the specific provisions of the Agreement on which the
decision is based. If, because of the need for a hearing, the sixty-day
period is not sufficient , the decision may be deferred for up to another
sixty-day period at the election of the Association, but notice of this
deferral shall be given to the beneficiary.
Article 7
Amendment and Termination
The Association may amend or terminate this Agreement at any time
prior to the Executive's Termination of Employment by written notice to the
Executive; provided, however, that any amendment or termination of this
Agreement shall not affect the vested benefit of the Executive as of the date
of such amendment or termination.
Article 8
Miscellaneous
8.1 Binding Effect. This Agreement shall bind the Executive and
the Association, and their beneficiaries, survivors, executors, administrators
and transferees. The Association, or the Company acting on behalf of the
Association, shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform if no such succession or assignment
had taken place.
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8.2 No Guaranty of Employment. This Agreement is not an employment
policy or contract. It does not give the Executive the right to remain an
employee of the Association, nor does it interfere with the Association's
right to discharge the Executive. It also does not require the Executive to
remain an employee nor interfere with the Executive's right to terminate
employment at any time.
8.3 Non-Transferability. Benefits under this Agreement cannot be
sold, transferred, assigned, pledged, attached or encumbered in any manner.
8.4 Tax Withholding. The Association shall withhold any taxes that
are required to be withheld from the benefits provided under this Agreement.
8.5 Applicable Law. The Agreement and all rights hereunder shall
be governed by the laws of Missouri, except to the extent preempted by the
laws of the United State of America.
8.6 Unfunded Arrangement. The Executive and beneficiary are
general unsecured creditors of the Association for the payment of benefits
under this Agreement. The benefits represent the mere promise by the
Association to pay such benefits. The rights to benefits are not subject in
any manner or anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors. Any insurance on the
Executive's life is a general asset of the Association to which the Executive
and beneficiary have no preferred or secured claim.
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IN WITNESS WHEREOF, the Executive and a duly authorized officer of the
Association have signed this Agreement, all of the date first written above.
The Lexington Building
& Loan Association, F.A.
/s/E. Steva Vialle /s/Erwin Oetting, Jr.
- ------------------------- -------------------------------
Executive
10
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EXHIBIT 10(e)
Severance Agreement with Mark D. Summerlin
<PAGE>
<PAGE>
Agreement
This AGREEMENT is made effective as of June 6, 1996 by and between B
& L BANK (the "Bank"); LEXINGTON B & L FINANCIAL CORP. ("Company"); and MARK
D. SUMMERLIN (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive
has made to the Bank and wishes to protect his position therewith for the
period provided in this Agreement; and
WHEREAS, Executive serves in a position of responsibility with the
Bank;
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term of Agreement
The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary
date of this Agreement and continuing at each anniversary date thereafter, the
Board of Directors of the Bank ("Board") may extend the Agreement for an
additional year. The Board will conduct a performance evaluation of the
Executive for purposes of determining whether to extend the Agreement, and
the results thereof shall be included in the minutes of the Board's meeting.
2. Payments to Executive Upon Change in Control
(a) Upon the occurrence of a Change in Control (as herein
defined) followed within twelve (12) months of the effective date of a Change
in Control by the voluntary or involuntary termination of Executive's
employment, other than for Cause, as defined in Section 2(c) hereof, the
provisions of Section 3 shall apply. For purposes of this Agreement,
"voluntary termination" shall be limited to the circumstances in which the
Executive elects to voluntarily terminate his employment within twelve (12)
months of the effective date of a Change in Control following any demotion,
loss of title, office or significant authority, reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or relocation of his principal place of employment by
more than thirty-five (35) miles from its location immediately prior to the
Change in Control.
(b) A "Change in Control" of the Company or the Bank shall be
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Bank pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Bank representing 25% or more of the combined voting power of
the Company's then outstanding securities, (c) the membership of the board of
directors of the Company or the Bank changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four (24) month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at the end of
such period, or (d) shareholders of the Company or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the
Company's or the Bank's assets, or a plan of partial or complete liquidation.
(c) Executive shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of the Executive's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
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standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control during the term
of this Agreement, followed within twelve (12) months of the effective date of
a Change in Control by the voluntary or involuntary termination of the
Executive's employment, other than for Termination for Cause, the Bank shall
be obligated to pay the Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay, a sum equal to 2.99 times the Executive's "base amount" within
the meaning of Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended. Such amount shall be paid to the Executive in a lump sum no later
than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control during the term
of this Agreement, followed within twelve (12) months of the effective date of
a Change in Control by the Executive's voluntary or involuntary termination of
employment, other than for Termination for Cause, the Bank shall cause to be
continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for the Executive prior to
his severance. Such coverage and payments shall cease upon expiration of
thirty-six (36) months from the date of the Executive's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3,
in the event that the aggregate payments or benefits to be made or afforded to
the Executive under this Section would be deemed to include an "excess
parachute payment" under Section 280G of the Code, such payments or benefits
shall be payable or provided to Executive over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is
one dollar ($1.00) less than three (3) times the Executive's "base amount"
under Section 280G(b)(3) of the Code.
(d) Any payments made to the Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect on Prior Agreements and Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation,
or to execution, attachment, levy, or similar process or assignment by
operation of law, and any attempt, voluntary or involuntary, to affect any
such action shall be null, void, and of no effect.
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(b) This Agreement shall be binding upon, and inure to the
benefit of, Executive, the Company, the Bank and their respective successors
and assigns.
6. Modification and Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there by an estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The Bank may terminate the Executive's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay the Executive all or part of the compensation withheld
while its contract obligations were suspended and (ii) reinstate (in whole or
in part) any of its obligations that were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement may be terminated: (i)
by the Director of the Office of Thrift Supervision (the "Director") or his or
her designee at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA and (ii) by the Director, or his or her designee at the time the Director
or such designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
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invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
9. Headings for Reference Only
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Missouri, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the Bank, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Company, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
12. Payment of Legal Fees
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
13. Successor to the Bank or the Company
The Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's or the
Company's obligations under this Agreement, in the same manner and to the same
extent that the Bank or the Company would be required to perform if no such
succession or assignment had taken place.
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IN WITNESS WHEREOF, the Bank and the Company have caused this
Agreement to be executed by a duly authorized officer, and Executive has
signed this Agreement, all on the 6th day of June, 1996.
ATTEST: B & L BANK
/s/E. Steva Vialle By: /s/Erwin Oetting, Jr.
- -------------------------- -----------------------------
ATTEST: LEXINGTON B & L FINANCIAL CORP.
/s/E. Steva Vialle By: /s/Erwin Oetting, Jr.
- -------------------------- -----------------------------
WITNESS:
/s/Kathryn M. Swafford By: /s/Mark D. Summerlin
- -------------------------- -----------------------------
Mark D. Summerlin
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<PAGE>
EXHIBIT 10(f)
Severance Agreement with Kathryn M. Swafford
<PAGE>
<PAGE>
Agreement
This AGREEMENT is made effective as of June 6, 1996 by and between B
& L BANK (the "Bank"); LEXINGTON B & L FINANCIAL CORP. ("Company"); and
KATHRYN M. SWAFFORD (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive
has made to the Bank and wishes to protect her position therewith for the
period provided in this Agreement; and
WHEREAS, Executive serves in a position of responsibility with the
Bank;
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term of Agreement
The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary
date of this Agreement and continuing at each anniversary date thereafter, the
Board of Directors of the Bank ("Board") may extend the Agreement for an
additional year. The Board will conduct a performance evaluation of the
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
2. Payments to Executive Upon Change in Control
(a) Upon the occurrence of a Change in Control (as herein
defined) followed within twelve (12) months of the effective date of a Change
in Control by the voluntary or involuntary termination of Executive's
employment, other than for Cause, as defined in Section 2(c) hereof, the
provisions of Section 3 shall apply. For purposes of this Agreement,
"voluntary termination" shall be limited to the circumstances in which the
Executive elects to voluntarily terminate her employment within twelve (12)
months of the effective date of a Change in Control following any demotion,
loss of title, office or significant authority, reduction in her annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or relocation of her principal place of employment by
more than thirty-five (35) miles from its location immediately prior to the
Change in Control.
(b) A "Change in Control" of the Company or the Bank shall be
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Bank pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Bank representing 25% or more of the combined voting power of
the Company's then outstanding securities, (c) the membership of the board of
directors of the Company or the Bank changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four (24) month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at the end of
such period, or (d) shareholders of the Company or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the
Company's or the Bank's assets, or a plan of partial or complete liquidation.
(c) Executive shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of the Executive's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
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<PAGE>
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control during the term
of this Agreement, followed within twelve (12) months of the effective date of
a Change in Control by the voluntary or involuntary termination of the
Executive's employment, other than for Termination for Cause, the Bank shall
be obligated to pay the Executive, or in the event of her subsequent death,
her beneficiary or beneficiaries, or her estate, as the case may be, as
severance pay, a sum equal to 2.99 times the Executive's "base amount" within
the meaning of Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended. Such amount shall be paid to the Executive in a lump sum no later
than thirty (30) days after the date of her termination.
(b) Upon the occurrence of a Change in Control during the term
of this Agreement, followed within twelve (12) months of the effective date of
a Change in Control by the Executive's voluntary or involuntary termination of
employment, other than for Termination for Cause, the Bank shall cause to be
continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for the Executive prior to
her severance. Such coverage and payments shall cease upon expiration of
thirty-six (36) months from the date of the Executive's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3,
in the event that the aggregate payments or benefits to be made or afforded to
the Executive under this Section would be deemed to include an "excess
parachute payment" under Section 280G of the Code, such payments or benefits
shall be payable or provided to Executive over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is
one dollar ($1.00) less than three (3) times the Executive's "base amount"
under Section 280G(b)(3) of the Code.
(d) Any payments made to the Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect on Prior Agreements and Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation,
or to execution, attachment, levy, or similar process or assignment by
operation of law, and any attempt, voluntary or involuntary, to affect any
such action shall be null, void, and of no effect.
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(b) This Agreement shall be binding upon, and inure to the
benefit of, Executive, the Company, the Bank and their respective successors
and assigns.
6. Modification and Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there by an estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The Bank may terminate the Executive's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay the Executive all or part of the compensation withheld
while its contract obligations were suspended and (ii) reinstate (in whole or
in part) any of its obligations that were suspended.
(c) If the Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the Bank under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement may be terminated: (i)
by the Director of the Office of Thrift Supervision (the "Director") or his or
her designee at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA and (ii) by the Director, or his or her designee at the time the Director
or such designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
-3-
<PAGE>
<PAGE>
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
9. Headings for Reference Only
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Missouri, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the Bank, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Company, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
12. Payment of Legal Fees
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
13. Successor to the Bank or the Company
The Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's or the
Company's obligations under this Agreement, in the same manner and to the same
extent that the Bank or the Company would be required to perform if no such
succession or assignment had taken place.
-4-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Bank and the Company have caused this
Agreement to be executed by a duly authorized officer, and Executive has
signed this Agreement, all on the 6th day of June, 1996.
ATTEST: B & L BANK
/s/E. Steva Vialle By: /s/Erwin Oetting, Jr.
- --------------------------- ---------------------------------
ATTEST: LEXINGTON B & L FINANCIAL CORP.
/s/E. Steva Vialle By: /s/Erwin Oetting, Jr.
- --------------------------- ---------------------------------
WITNESS:
/s/Mark D. Summerlin By: /s/Kathryn M. Swafford
- --------------------------- ---------------------------------
Kathryn M. Swafford
-5-
<PAGE>
<PAGE>
EXHIBIT 13
1996 Annual Report to Stockholders
<PAGE>
<PAGE>
1996 Annual Report
Lexington B & L Financial Corp.
<PAGE>
<PAGE>
Lexington B & L Financial Corp.
1996 ANNUAL REPORT
TABLE OF CONTENTS
Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . 1
Business of the Corporation. . . . . . . . . . . . . . . . . . . 2
Common Stock Information . . . . . . . . . . . . . . . . . . . . 2
Selected Consolidated Financial Information. . . . . . . . . . . 3
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 5
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 14
Consolidated Financial Statements. . . . . . . . . . . . . . . . 15
Notes to Consolidated Financial Statements . . . . . . . . . . . 20
Directors and Officers . . . . . . . . . . . . . . . . . . . . . 37
Corporate Information. . . . . . . . . . . . . . . . . . . . . . 37
<PAGE>
<PAGE>
President's Message
To Our Stockholders:
On behalf of the Board of Directors, Officers and Employees of Lexington B & L
Financial Corp. and its wholly-owned subsidiary, B & L Bank, we are pleased to
present our first Annual Report as a public company.
Lexington B & L Financial Corp. successfully completed its initial stock
offering on June 5, 1996, and started trading on the Nasdaq (Small Cap) Stock
Market on June 6, 1996 under the symbol "LXMO". Our stock was initially
offered at $10.00 per share and closed at $12.50 per share on December 2,
1996. Earnings for the year ended September 30, 1996 were $460,873 or $.40
per share. Our return on average assets for the year ended September 30, 1996
was .84% with a return on average equity of 4.24%. Since completing the stock
offering we are continually working to develop goals and long term strategies
to increase profitability while minimizing risk, and to enhance long-term
shareholder value. With our capital base, we believe we are well positioned
to take advantage of appropriate growth opportunities that are consistent with
our traditional operating principles.
Our primary focus continues to be directed towards being a community-oriented
financial institution that provides affordable financial services and
products to the citizens of Lexington and surrounding communities. With the
commitment of our dedicated Board of Directors and loyal staff, we look to the
future with confidence.
All of us at Lexington B & L Financial Corp. appreciate your support and look
forward to a long lasting and profitable relationship.
Sincerely,
/s/ Erwin Oetting, Jr.
Erwin Oetting, Jr.
President
-1-
<PAGE>
<PAGE>
BUSINESS OF THE CORPORATION
Lexington B & L Financial Corp. (the "Company"), a Missouri corporation, was
organized in November 1995 for the purpose of becoming the holding company for
B & L Bank (formerly known as The Lexington Building and Loan Association,
F.A.) (the "Bank"), upon the conversion of the Bank from a federally-chartered
mutual savings and loan association to a federally-chartered stock savings
bank. The conversion was completed on June 5, 1996. At September 30, 1996,
the Company had total consolidated assets of $61.7 million and consolidated
stockholders' equity of $18.8 million.
The Company is not engaged in any significant business activity other than
holding the stock of the Bank. Accordingly, the information set forth in the
report, including financial statements and related data, applies primarily to
the Bank.
The Bank is a federally-chartered stock savings bank, originally organized in
1887. The Bank is regulated by the Office of Thrift Supervision ("OTS"). Its
deposits are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank also is a member of the Federal Home Loan Bank ("FHLB") System.
The Bank operates as a community-oriented financial institution devoted to
serving the needs of its customers in its market area. The Bank's business
consists primarily of attracting deposits from the general public and using
those funds to originate residential real estate loans.
COMMON STOCK INFORMATION
The Company's common stock is traded on the Nasdaq (Small Cap) Stock Market
under the symbol "LXMO". As of September 30, 1996, there were 348
stockholders and 1,265,000 shares of common stock outstanding (including
unreleased Employee Stock Ownership Plan ("ESOP") shares of 97,124), excluding
persons or entities who hold stock in nominee or "street name". Dividend
payments by the Company are dependent primarily on dividends received by the
Company from the Bank. Under federal regulations, the dollar amount of
dividends the Bank may pay is dependent upon its capital position and recent
net income. Generally, if the Bank satisfies its regulatory capital
requirements, it may make dividend payments up to the limits prescribed in the
OTS regulations. However, institutions that have converted to stock form of
ownership may not declare or pay a dividend on, or repurchase any of, its
common stock if the effect thereof would cause the regulatory capital of the
institution to be reduced below the amount required for the liquidation
account which was established in accordance with the OTS regulations. There
are also certain dividend limitations applicable to the Company under Missouri
law. Under Missouri law, the Company is prohibited from declaring or paying
dividends when its net assets are less than its stated capital or when the
payment of any dividends would reduce its net assets below its stated capital.
The following table sets forth market price information for the Company's
common stock. The Company has not declared any dividends on the common stock
since its initial issuance on June 5, 1996.
Fiscal 1996 High Low
----------- ------ -------
Third Quarter $11.00 $9.375
Fourth Quarter $11.00 $9.50
-2-
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the consolidated
financial position and results of operations of the Company at and for the
dates indicated. The Company is primarily in the business of directing,
planning and coordinating the business activities of the Bank. Since the
Company had not commenced operations prior to the mutual-to-stock conversion
of the Bank in June 1996, the financial information presented for the periods
prior to 1996 is that of the Bank only. The consolidated data is derived in
part from, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and its subsidiary presented herein.
At September 30,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . $ 61,670 $49,981 $47,727 $47,479 $48,186
Loans receivable, net. . . . . . . . 45,348 41,111 39,379 37,605 36,387
Mortgage-backed securities . . . . . 2,063 2,535 3,135 3,710 3,974
Cash, interest-bearing deposits
and investment securities(1) . . . 12,547 5,218 4,115 5,073 6,299
FHLB stock . . . . . . . . . . . . . 464 455 455 455 428
Deposits . . . . . . . . . . . . . . 42,237 42,401 40,711 41,004 42,306
Stockholders' equity, substantially
restricted . . . . . . . . . . . . 18,762 7,195 6,598 6,030 5,381
Year Ended September 30,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in Thousands,
Except Per Share Amounts)
SELECTED OPERATING DATA:
Interest income. . . . . . . . . . . $ 4,073 $ 3,611 $ 3,331 $ 3,631 $ 4,212
Interest expense on deposits . . . . 2,333 2,003 1,617 1,891 2,590
------ ------ ------ ------ ------
Net interest income . . . . . . . 1,740 1,608 1,714 1,740 1,622
Provision for loan losses. . . . . . 10 33 5 21 1
Net interest income after ------ ------ ------ ------ ------
provision for loan
losses. . . . . . . . . . . . . 1,730 1,575 1,709 1,719 1,621
Non-interest income. . . . . . . . . 99 --- 47 10 11
Non-interest expense . . . . . . . . 1,144 704 877 767 748
------ ------ ------ ------ ------
Income before income taxes. . . . 685 871 879 962 884
Income taxes . . . . . . . . . . . . 224 300 292 312 214
------ ------ ------ ------ ------
Net income. . . . . . . . . . . . $ 461 $ 571 $ 587 $ 650 $ 670
====== ====== ====== ====== ======
Net income per share . . . . . . . . $ .40 * * * *
======
* Operating as a mutual institution
-3-
<PAGE>
<PAGE>
At or For the Year Ended September 30,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
KEY OPERATING RATIOS:
Performance Ratios:
Return on average assets (net
income divided by average
assets) . . . . . . . . . . . . . . .84% 1.17% 1.24% 1.67% 1.36%
Return on average equity (net
income divided by average
equity) . . . . . . . . . . . . . . 4.24 8.36 9.32 14.11 13.40
Interest rate spread (difference
between average yield on
interest-earning assets and
average cost of interest-
bearing liabilities). . . . . . . . 2.22 2.75 3.20 3.28 2.95
Net interest margin (net
interest income as a
percentage of average
interest-earning assets). . . . . . 3.25 3.38 3.69 3.76 3.42
Non-interest expense to assets . . . 1.86 1.40 1.83 1.62 1.55
Average interest-earning assets
to interest-bearing
liabilities . . . . . . . . . . . . 124 115 114 112 109
Quality Ratios:
Allowance for loan losses to
total loans receivable at end
of period . . . . . . . . . . . . . .44 .49 .45 .46 .42
Net charge offs to average
outstanding loans receivable
during the period . . . . . . . . . .02 .02 --- --- .06
Non-performing assets to total
assets (2). . . . . . . . . . . . . 1.26 1.15 .76 .57 1.36
Capital Ratios:
Equity to total assets at end
of period (3) . . . . . . . . . . . 30.42 14.39 13.83 12.70 11.17
Average equity to average
assets. . . . . . . . . . . . . . . 19.73 14.00 13.26 11.80 10.18
At September 30,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
OTHER DATA:
Number of:
Real estate loans outstanding . . 1,609 1,267 1,296 1,312 1,325
Deposit accounts. . . . . . . . . 4,573 4,660 4,475 4,415 4,610
Full-service offices. . . . . . . 1 1 1 1 1
_______________
(1) Includes interest-bearing deposits in other depository institutions.
(2) Non-performing assets include non-accrual loans and other repossessed
assets.
(3) Includes the effect of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," at September 30, 1996, 1995 and 1994.
-4-
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
Management's discussion and analysis of the financial condition and results of
operations is intended to assist in understanding the consolidated financial
condition and results of operations of the Company. The information contained
in this section should be read in conjunction with the Consolidated Financial
Statements and accompanying notes thereto.
Operating Strategy
- ------------------
The business of the Bank consists principally of attracting deposits from the
general public and using such deposits to originate mortgage loans secured
primarily by one- to four-family residences. The Bank also invests in
certificates of deposit, investment grade federal agency and state and local
obligations and, occasionally, mortgage-backed securities. The Bank plans to
continue to fund its assets primarily with deposits, although FHLB advances
may be used as a supplemental source of funds.
Operating results are dependent primarily on net interest income, which is the
difference between the income earned on its interest-earning assets, such as
loans and investments, and the cost of its interest-bearing liabilities,
consisting of deposits. Operating results are also significantly affected by
general economic and competitive conditions, primarily changes in market
interest rates, governmental legislation and policies concerning monetary and
fiscal affairs and housing, as well as financial institutions and the
attendant actions of the regulatory authorities.
The Bank's strategy is to operate as a conservative, well-capitalized,
profitable community-oriented financial institution dedicated to financing
home ownership and other consumer needs and to provide quality service to all
customers. The Bank believes that it has successfully implemented its
strategy by (i) maintaining strong capital levels, (ii) maintaining effective
control over operating expenses to attempt to achieve profitability under
differing interest rate scenarios, (iii) limiting interest rate risk, (iv)
emphasizing local loan originations, and (v) emphasizing high-quality customer
service with a competitive fee structure.
Interest Rate Risk Management
- -----------------------------
In order to reduce the impact on the Bank s net interest income due to changes
in interest rates, the Bank's management has adopted a strategy that has been
designed to maintain the interest rate sensitivity of its assets and
liabilities. The primary elements of this strategy involve emphasizing the
origination of adjustable-rate mortgage loans and maintaining a short- and
medium-term investment portfolio. At September 30, 1996, 88.82% of the Bank's
mortgage loan and mortgage-backed securities portfolio was composed of
adjustable-rate loans and securities, respectively, and the average maturity
of the mortgage-backed securities portfolio was less than thirteen years.
Interest Rate Sensitivity of Net Portfolio Value
- ------------------------------------------------
The following table is provided to the Bank by the OTS and illustrates the
percent change in NPV, and the applicable limits approved by the Bank's Board
of Directors, as of September 30, 1996, based on OTS assumptions. No effect
has been given to any steps that management of the Bank may take to counter
the effect of the interest rate movements presented in the table.
-5-
<PAGE>
<PAGE>
Basis
Point ("bp")
Change
in Rates Board Limit Change in NPV
-------- ----------- -------------
+400 bp (45)% (13)%
+300 bp (25) (8)
+200 bp (20) (4)
+100 bp (10) (1)
0 bp --- ---
-100 bp 8 (1)
-200 bp 10 (3)
-300 bp 11 (3)
-400 bp 20 (4)
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as substantially all of the Bank's ARM
loans, have features that restrict changes in interest rates on a short-term
basis (1% per adjustment period) and over the life of the asset (5% over the
life). Furthermore, in the event of a change in interest rates, expected
rates of prepayments on loans and early withdrawals from certificates could
likely deviate significantly from those assumed in calculating the table.
Therefore, the data presented in the table should not be relied upon as
indicative of actual results.
Results of Operations
- ---------------------
The earnings of the Bank depend primarily on its level of net interest income,
which is the difference between interest earned on interest-earning assets and
the interest paid on interest-bearing liabilities. Net interest income is a
function of the Bank's interest rate spread, which is the difference between
the yield earned on interest-earning assets and the rate paid on interest-
bearing liabilities, as well as a function of the average balance of interest-
earning assets as compared to the average balance of interest-bearing
liabilities.
Comparison of Operating Results for the Years Ended September 30, 1996 and
- --------------------------------------------------------------------------
1995
- ----
Net Income. Net income decreased by $110,000 to $461,000 for the year ended
September 30, 1996 from $571,000 for the year ended September 30, 1995. This
decrease was primarily due to a one-time SAIF assessment of approximately
$281,000 imposed on the Bank's deposits as a result of the enactment of the
Deposit Insurance Fund Act.
Net Interest Income. Net interest income increased to $1.7 million for the
year ended September 30, 1996 from $1.6 million for the year ended September
30, 1995. Total interest income increased $462,000 to $4.1 million in 1996
from $3.6 million in 1995, primarily as a result of the availability of
conversion funds for investment for approximately three and one-half months
and, to a lesser extent, an increase in the average yield of the loan
portfolio to 8.13% from 7.73%, offset by a decrease in the average yield of
the investment securities and interest-bearing deposits to 5.83% from 7.06%.
Partially offsetting the increase in total interest income, interest expense
on deposits increased $330,000 to $2.3 million for 1996 from $2.0 million for
1995, primarily as a result of higher interest rates paid on new and renewing
certificates of deposit and, to a lesser extent, an increase in deposit
average balances to $43.3 million from $41.4 million.
-6-
<PAGE>
<PAGE>
Because the average yield on interest- earning assets rose less than the
average rate paid on interest-bearing liabilities, the Bank's net interest
spread declined to 2.22% for the fiscal year ended September 30, 1996 from
2.75% for the fiscal year ended September 30, 1995, continuing the trend from
the previous fiscal year.
Provision for Loan Losses. The provision for loan losses was $10,000 for the
year ended September 30, 1996, as compared to $33,000 for the year ended
September 30, 1995. The reduction in the provision for loan losses was
primarily attributable to a reduction in the increase of non-accruing loans as
compared to the prior year.
Non-interest Income. Non-interest income increased $99,000 to $99,000 for the
year ended September 30, 1996 primarily due to an $8,000 gain in the year
ended September 30, 1996, as compared to a $6,000 loss in the year ended
September 30, 1995, on income from foreclosed assets, and a $17,000 gain on
sale of equity interest in Financial Information Trust (the Bank's cooperative
data processor) during the year ended September 30, 1996, as compared to a
$47,000 loss during the year ended September 30, 1995, on the sale of
investments.
Non-interest Expense. Non-interest expense increased $441,000 to $1,145,000
for the year ended September 30, 1996 from $704,000 for the year ended
September 30, 1995, primarily due to an increase in Federal deposit insurance
premiums of approximately $281,000 for the one-time SAIF assessment. The
change also included an increase of $133,000 resulting from a $30,000 increase
in deferred compensation expense associated with the funding of executive
officer salary continuation agreements, $10,000 increase in life insurance
cost, $70,000 associated with ESOP debt retirement, and the addition of one
employee during the year.
Income Taxes. The provision for income taxes decreased to $224,000 for the
year ended September 30, 1996 from $300,000 for the year ended September 30,
1995, primarily as a result of the approximately $281,000 one time SAIF
assessment.
Comparison of Operating Results for the Years Ended September 30, 1995 and
- ---------------------------------------------------------------------------
1994.
- ----
Net Income. Net income decreased $16,000 to $571,000 for the year ended
September 30, 1995 from $587,000 for the year ended September 30, 1994. This
decrease was primarily due to a decrease in net interest income of $106,000,
an increase in the provision for loan losses of $27,000 and a decrease in
non-interest income of $47,000, offset by a decrease in non-interest expense
of $173,000.
Net Interest Income. Net interest income decreased to $1.6 million for the
year ended September 30, 1995 from $1.7 million for the year ended September
30, 1994. Total interest income increased $280,000 to $3.6 million for 1995
from $3.3 million for 1994, primarily as a result of increased loan volume
attributable to mortgage loan refinancings during the relatively low interest
rate environment and, to a lesser extent, an increase in the average yield of
the loan portfolio to 7.73% from 7.55%. Total interest income also increased
due to an increase in the average yield of the investment securities and
interest-bearing deposits to 7.06% from 4.70%. Partially offsetting the
increase in total interest income, interest expense on deposits increased
$386,000 to $2.0 million for 1995 from $1.6 million for 1994, primarily as a
result of higher interest rates paid on new and renewing certificates of
deposit and, to a lesser extent, an increase in deposit average balances from
$40.7 million to $41.4 million. Because the average yield on interest-
earning assets rose less than the average rate paid on interest-bearing
liabilities, the Bank's net interest spread declined to 2.75% for the fiscal
year ended September 30, 1995 from 3.20% for the fiscal year ended September
30, 1994, continuing the trend from the previous fiscal year.
Provision for Loan Losses. The provision for loan losses was $32,000 for the
year ended September 30, 1995, as compared to $5,000 for the year ended
September 30, 1994. Management deemed that an increase in the allowance for
loan losses was prudent in light of an increase in non-accruing loans.
-7-
<PAGE>
<PAGE>
Non-interest Income. Non-interest income decreased $47,000 to $-0- for the
year ended September 30, 1995 from $47,000 for the year ended September 30,
1994, primarily due to a $47,000 loss on the sale of investments, offset by
increases in insurance commissions earned by the Bank's service corporation
subsidiary. The loss on the sale of investments was attributable to the sale
of a FHLB bond in order to fund loan demand.
Non-interest Expense. Non-interest expense decreased $173,000 to $704,000 for
the year ended September 30, 1995 from $877,000 for the year ended September
30, 1994, primarily due to a decrease in employee salaries and benefits to
$359,000 from $539,000, as a result of the death of an employee and the
retirement of another employee during 1995 and the absence of the one-time
cost of $74,000 incurred in 1994 to fund the Bank's defined benefit retirement
plan. Other operating expense was $135,000 and $131,000 for the years ended
September 30, 1995 and 1994, respectively. Such expense consisted of various
miscellaneous expenses, the largest three of which were office supplies and
postage, auditing and tax accounting expense, and the state assessment fees,
which amounted to $27,000, $26,000 and $17,000, respectively, for the year
ended September 30, 1995 and $25,000, $30,000 and $16,000, respectively, for
the year ended September 30, 1994.
Income Taxes. The provision for income taxes increased to $300,000 for the
year ended September 30, 1995 from $291,000 for 1994 primarily as a result of
accruals for expected future income tax liability.
Yields Earned and Rates Paid
- ----------------------------
The earnings of the Company depend largely on the spread between the yield on
interest-earning assets and the cost of interest-bearing liabilities, as well
as the relative size of the Company's interest-earning assets and interest-
bearing liability portfolios.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities, resultant yields,
interest rate spreads, net interest margin, and ratio of average interest-
earning assets to average interest-bearing liabilities.
-8-
PAGE
<PAGE>
<TABLE>
Year Ended September 30,
-------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance(1) Dividends Cost Balance(1) Dividends Cost Balance(1) Dividends Cost
------- --------- ------ ------- --------- ------ ------- --------- ------
(Dollars in Thousands)
Interest-earning assets(2):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable. . . . . $41,201 $ 3,350 8.13% $40,249 $ 3,112 7.73% $38,098 $ 2,876 7.55%
Mortgage-backed
securities . . . . . . . 2,283 147 6.44 2,820 183 6.49 3,481 225 6.45
Investment securities
and other interest-
bearing deposits . . . . 9,252 539 5.83 4,476 316 7.06 4,903 230 4.70
Certificates of deposit . 794 37 4.66 --- --- --- --- --- ---
------- --------- ------ ------- --------- ------ ------- --------- ------
Total interest-bearing
assets. . . . . . . . . . 53,530 4,073 7.61 47,545 3,611 7.59 46,482 3,331 7.17
Non-interest-earning assets:
Office properties and
equipment, net . . . . . 396 418 415
Real estate, net. . . . . 2 24 12
Other non-interest-
earning assets . . . . . 1,134 791 600
------- ------- -------
Total assets . . . . . . . $55,062 $48,778 $47,509
======= ======= =======
Interest-earning liabilities:
Passbook, NOW and money
market accounts. . . . . $ 7,893 223 2.83 $ 8,101 242 2.99 $ 9,681 279 2.88
Certificates of deposit . 35,427 2,110 5.96 33,272 1,761 5.29 31,023 1,338 4.31
------- --------- ------ ------- --------- ------ ------- --------- ------
Total deposits . . . . . . 43,320 2,333 5.39 41,373 2,003 4.84 40,704 1,617 3.97
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits . . . . . . . . 393 181 138
Other liabilities . . . . 485 397 367
------- ------- -------
Total liabilities. . . . . 44,198 41,951 41,209
Stockholders' equity. . . 10,864 6,827 6,300
Total liabilities and ------- ------- -------
stockholders' equity. . . $55,062 $48,778 $47,509
======= --------- ======= ------- ======= --------
Net interest income. . . . $ 1,740 $ 1,608 $ 1,714
======= ======= =======
Interest rate spread . . . 2.22% 2.75% 3.20%
==== ==== ====
Net interest margin. . . . 3,25% 3.38% 3.69%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 124% 115% 114%
=== === ===
- ---------------
(1) Average balances for a period are calculated using the average month-end balance during each period.
(2) Interest-earning assets include non-accrual loans and loans 90 days or more past due.
-9-
</TABLE>
<PAGE>
<PAGE>
The following table sets forth (on a consolidated basis) the weighted average
yields earned on the Company's assets and the weighted average interest rates
paid on the Company's liabilities, together with the net yield on interest-
earning assets.
At September 30,
------------------------
1996 1995 1994
------ ------ ------
Weighted average yield on:
Loan portfolio. . . . . . . . . . . . . . . . . . 8.06% 8.00% 7.28%
Mortgage-backed securities. . . . . . . . . . . . 7.02 7.02 7.15
Investment securities and interest-bearing
deposits . . . . . . . . . . . . . . . . . . . . 5.85 6.38 6.18
Certificates of deposit . . . . . . . . . . . . . 5.67 --- ---
All interest-earning assets . . . . . . . . . . . 7.56 7.80 7.18
Weighted average rate paid on:
Deposits. . . . . . . . . . . . . . . . . . . . . 5.47 5.42 4.06
All interest-bearing liabilities. . . . . . . . . 5.47 5.42 4.06
Interest rate spread (spread between weighted
average yield on interest-earning assets and
weighted average rate paid on all interest-
bearing liabilities). . . . . . . . . . . . . . . 2.09 2.38 3.12
-10-
<PAGE>
<PAGE>
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to
(i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on interest income attributable
to changes in rate (changes in rate multiplied by prior volume); and (iii) to
the net change. The changes attributed to the combined impact of rate and
volume have been allocated proportionately to the changes due to volume and
the changes due to rate.
Years Ended September 30,
-----------------------------------------------------
1996 Compared to 1995 1995 Compared to 1994
Increase(Decrease) Due to Increase(Decrease) Due to
------------------------- -------------------------
Rate Volume Net Rate Volume Net
------ ------ ------ ------ ------ ------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1). . $ 163 $ 75 $ 238 $ 70 $ 166 $ 236
Mortgage-backed
securities . . . . . . (1) (35) (36) 1 (43) (42)
Investment securities
and other interest-
bearing deposits . . . (63) 286 223 104 (18) 86
Certificates of
deposit. . . . . . . . 19 18 37 --- --- ---
Total net change in ------ ------ ------ ------ ------ ------
income on interest-
earning assets. . . . . 118 344 462 175 105 280
Interest-bearing liabilities:
Passbook, NOW and
money market
accounts . . . . . . . (13) (6) (19) 11 (48) (37)
Certificates of
deposit. . . . . . . . 231 118 349 320 103 423
Total interest-bearing ------ ------ ------ ------ ------ ------
liabilities . . . . . . 218 112 330 331 55 386
Net change in net ------ ------ ------ ------ ------ ------
interest income . . . . $(100) $ 232 $ 132 $(156) $ 50 $(106)
====== ===== ===== ====== ===== ======
- -----------------
(1) For purposes of calculating volume, rate and rate/volume variances,
non-accrual loans are included in the weighted-average balance
outstanding.
-11-
<PAGE>
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are cash receipts from deposits, loan
repayments by borrowers, proceeds from maturing securities, and net earnings.
The Bank has an agreement with the FHLB of Des Moines to provide cash advances
should the Company need additional funds. For regulatory purposes, liquidity
is measured as a ratio of cash and certain investments to withdrawable
deposits. The minimum level of liquidity required by regulation is presently
5%. The Company's liquidity ratio at September 30, 1996 was approximately
22.5%. The Company maintains a higher level of liquidity than required by
regulation in order to more closely match interest-sensitive assets with
interest-sensitive liabilities.
Liquidity management is both an ongoing and long-term component of the
Company's asset/liability management strategy. Excess funds generally are
invested in overnight deposits and short-term certificates of deposit at the
FHLB of Des Moines. Should the Company require funds beyond its ability to
generate them internally, additional sources of funds are available through
advances from the FHLB. The Company would pledge its FHLB stock or certain
other assets as collateral for such advances.
The primary investing activity of the Company is the origination of one- to
four-family mortgage loans. During the year ended September 30, 1996, the
Company originated mortgage loans in the amount of $8.0 million. During the
year ended September 30, 1996, the Company also purchased $3.8 million of one-
to four-family mortgage loans secured by properties located in Jefferson City,
Missouri. The Company purchased these loans with excess conversion funds to
supplement local loan demand and, subject to market condition, intends to
purchase additional such loans. Other investing activities include the
purchase of certificates of deposit, investment grade federal agency and state
and local obligations, and mortgage-backed securities.
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. During fiscal years 1996, 1995 and 1994, the
Company (or the Bank) used its sources of funds primarily to fund loan
commitments and to pay deposit withdrawals. At September 30, 1996, the
Company had loan commitments for ARM only, which amounted to $879,900.
Like most thrift institutions, deposits, particularly certificates of deposit,
have been the primary source of external funds for the Company. By offering
interest rates that are competitive with or at a slight premium to the average
rate paid by local competitors, the Company has had some success in
lengthening the maturity of its certificate of deposit portfolio, a component
of its asset/liability management strategy. At September 30, 1996,
certificates of deposit amounted to $34.8 million, or 82.5% of total deposits,
including $15.9 million which were scheduled to mature in more than one year
at September 30, 1996. At September 30, 1996, $18.9 million of certificates
of deposit were schedule to mature within one year. Historically, the Company
has been able to retain a significant amount of its deposits as they mature.
Management of the Company believes it has adequate resources to fund all loan
commitments by deposits and, if necessary, FHLB-Des Moines advances and that
it can adjust the offering rates of savings certificates to retain deposits in
changing interest rate environments.
The Company is not subject to any regulatory capital requirements. The Bank
is subject to certain capital requirements imposed by the OTS. The Bank
satisfied each of these requirements at September 30, 1996. See Note I of the
Consolidated Financial Statements.
Effect of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars, without considering the change in the
relative purchasing power of money over time due to inflation. The primary
impact of inflation on operations of the Company is reflected in increased
operating costs. Unlike most
-12-
<PAGE>
<PAGE>
industrial companies, virtually all the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
do general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
Impact of New Accounting Standards
- ----------------------------------
See Note A of the Notes to the Consolidated Financial Statements.
-13-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Lexington B & L Financial Corp. and Subsidiary
Lexington, Missouri
We have audited the accompanying consolidated statements of financial
condition of Lexington B & L Financial Corp. ("Company") and Subsidiary as of
September 30, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lexington
B & L Financial Corp. and Subsidiary at September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
As described in note A to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", effective October
1, 1993.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
November 19, 1996
-14-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30
1996 1995
--------------------------
ASSETS
Cash (includes interest-bearing deposits of
$5,619,441 and $2,907,589, respectively) $ 6,268,048 $ 3,582,607
Certificates of deposit 2,524,854 24,854
Investment securities--Note B
Available-for-sale, at fair value 2,906,125 893,062
Held-to-maturity (fair value of $1,004,791
and $841,375, respectively) 847,702 717,778
Mortgage-backed securities available-for-sale,
at fair value--Note C 2,063,402 2,535,419
Stock in Federal Home Loan Bank of Des Moines 464,300 455,200
Loans receivable--Note D 45,347,771 41,110,703
Accrued interest receivable--Note E 301,697 152,530
Premises and equipment--Note F 381,186 408,219
Foreclosed real estate --- 27,882
Other assets 564,938 73,129
----------- -----------
TOTAL ASSETS $61,670,023 $49,981,383
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits--Note G $42,236,793 $42,401,283
Advances from borrowers for property taxes
and insurance 162,659 174,193
Other liabilities 508,602 211,264
---------- ----------
TOTAL LIABILITIES 42,908,054 42,786,740
Commitments and contingencies--Note L
Stockholders' Equity--Notes I, J and M
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 & outstanding 12,650 ---
Additional paid-in capital 12,071,392 ---
Retained earnings-substantially restricted-
-Notes I and M 7,649,330 7,188,457
Unearned ESOP shares--Note J (971,240) ---
Unrealized gain (loss) on securities available-
for-sale, net of tax (163) 6,186
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 18,761,969 7,194,643
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,670,023 $49,981,383
=========== ===========
See accompanying notes to consolidated financial statements.
-15-
PAGE
<PAGE>
<TABLE>
Lexington B & L Financial Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
Unrealized
Gain (Loss)
on
Securities
Available- Total
Common Stock Additional Unearned For-Sale, Stock-
---------------- Paid-In Retained ESOP Net of holders'
Shares Amount Capital Earnings Shares Tax Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 --- $ --- $ --- $6,030,389 $ --- $ --- $6,030,389
Adoption of accounting change
to record net unrealized gain
on securities available-for-sale
at October 1, 1993 --- --- --- --- --- 51,758 51,758
Net income --- --- --- 587,376 --- --- 587,376
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax --- --- --- --- --- (71,183) (71,183)
--------- ------ --------- --------- --------- ------- ---------
BALANCE AT SEPTEMBER 30, 1994 --- --- --- 6,617,765 --- (19,475) 6,598,340
Net income --- --- --- 570,692 --- --- 570,692
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax --- --- --- --- --- 25,611 25,611
--------- ------ ---------- ---------- --------- ------- ----------
BALANCE AT SEPTEMBER 30, 1995 --- --- --- 7,188,457 --- 6,186 7,194,643
Net income --- --- --- 460,873 --- --- 460,873
Net proceeds from issuance of
common stock--Note M 1,265,000 12,650 12,071,304 --- --- --- 12,083,954
Common stock issued to
Employee Stock Ownership
Plan (ESOP)--Note J --- --- --- --- (1,012,000) --- (1,012,000)
Release of ESOP shares --- --- 88 --- 40,760 --- 40,848
Change in unrealized gain (loss)
on securities available-for-sale,
net of tax --- --- --- --- --- (6,349) (6,349)
--------- ------- ----------- ---------- ---------- ------- ------------
BALANCE AT SEPTEMBER 30, 1996 1,265,000 $12,650 $12,071,392 $7,649,330 $(971,240) $ (163) $18,761,969
========= ======= =========== ========== ========== ======== ===========
See accompanying notes to consolidated financial statements.
-16-
</TABLE>
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30
1996 1995 1994
--------------------------------
Interest Income
Mortgage loans $3,140,193 $2,962,378 $2,760,348
Other loans 210,256 149,183 115,195
Investment securities and interest-
bearing deposits 575,708 316,121 230,376
Mortgage-backed securities 147,119 183,102 224,606
--------- --------- ---------
Total Interest Income 4,073,276 3,610,784 3,330,525
Interest Expense on Deposits--Note G 2,332,708 2,002,990 1,616,909
--------- --------- ---------
Net Interest Income 1,740,568 1,607,794 1,713,616
Provision for Loan Losses--Note D 10,013 32,460 5,000
Net Interest Income After Provision --------- --------- ---------
for Loan Losses 1,730,555 1,575,334 1,708,616
Non-interest Income (Loss)
Service charges and other fees 24,342 26,320 30,812
Commissions, net 25,960 20,856 12,929
Income (loss) from foreclosed real estate 8,490 (5,600) 5,545
Loss on sale of investments--Note B (175) (46,606) (3,866)
Loss on equipment disposals --- --- (2,111)
Other 40,203 4,864 3,569
--------- --------- ---------
Total Non-Interest Income (Loss) 98,820 (166) 46,878
Non-interest Expense
Employee salaries and benefits 470,209 327,870 490,221
Occupancy costs 58,453 58,868 52,437
Advertising 10,545 7,665 11,103
Data processing 58,142 49,298 49,991
Federal insurance premium 378,003 94,006 93,508
Other 169,150 166,769 179,558
--------- --------- ---------
Total Non-interest Expense 1,144,502 704,476 876,818
--------- --------- ---------
INCOME BEFORE INCOME TAXES 684,873 870,692 878,676
Income Taxes--Note H 224,000 300,000 291,300
--------- --------- ---------
NET INCOME $ 460,873 $ 570,692 $ 587,376
========= ========= =========
Net income per share $ .40 N/A N/A
========= ========= =========
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30
1996 1995 1994
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $460,873 $ 570,692 $ 587,376
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 27,589 28,135 25,202
Amortization of premiums and discounts (57,278) (53,092) (53,694)
Gain on sales of foreclosed real estate (8,490) (811) ---
Loss on sales of securities available-
for-sale --- 46,606 ---
Loss on securities held-to-maturity
called 175 --- 3,866
Carrying value of equipment disposal --- --- 2,111
Provisions for loan losses 10,013 32,460 5,000
Stock and patronage dividends (9,100) (18,636) ---
Proceeds for past patronage dividends 25,368 --- ---
ESOP shares released 40,848 --- ---
Changes to assets and liabilities
increasing (decreasing) cash flows
Accrued interest receivable (149,167) (30,063) 1,788
Other assets (57,177) 537 (755)
Other liabilities 300,511 (42,506) (35,867)
-------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 584,165 533,322 535,027
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of
mortgage-backed securities available-
for-sale 438,777 629,255 1,039,659
Proceeds from sales of securities
available-for-sale --- 429,375 ---
Proceeds from maturity of securities
held-to-maturity 43,459 --- 107,165
Proceeds from maturity of certificates
of deposit --- 769,000 600,000
Loans originated, net of repayments (436,345) (1,806,852) (1,833,221)
Proceeds from sales of foreclosed real
estate 40,570 69,600 47,222
Purchase of certificates of deposits (2,500,000) --- (1,170,000)
Purchase of mortgage-backed securities
available-for-sale --- --- (501,484)
Purchase of securities available-for-
sale (2,000,625) --- (870,500)
Purchase of securities held-to-maturity (105,000) --- ---
Purchase of loans (3,814,934) --- ---
Purchase of life insurance policies to
fund salary continuation plan (460,000) --- ---
Purchase of premises and equipment (556) (24,333) (29,433)
NET CASH PROVIDED BY (USED IN) ---------- ---------- ----------
INVESTING ACTIVITIES (8,794,654) 66,045 (2,610,592)
-18-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cont'd
Year ended September 30
1996 1995 1994
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (164,490) $1,689,796 $(292,945)
Net increase (decrease) in advances
from borrowers for property taxes
and insurance (11,534) (1,911) 18,415
Proceeds from sale of common stock 12,083,954 --- ---
Loan to ESOP (1,012,000) --- ---
----------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 10,895,930 1,687,885 (274,530)
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 2,685,441 2,287,252 (2,350,095)
Cash, beginning of year 3,582,607 1,295,355 3,645,450
----------- ---------- ----------
CASH, END OF YEAR $ 6,268,048 $3,582,607 $1,295,355
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest on deposits $ 2,368,816 $1,993,279 $1,619,498
=========== ========== ==========
Income tax $ 275,302 $ 307,393 $ 341,682
=========== ========== ==========
Noncash investing and financing
activities are as follows:
Loans to facilitate sales of real
estate $ 26,587 $ 14,900 $ ---
=========== ========== ==========
Foreclosed real estate acquired by
foreclosure or deed in lieu of
foreclosure $ 30,785 $ 42,803 $ 53,868
=========== ========== ==========
Stock and patronage dividends $ 9,100 $ 18,636 $ ---
=========== ========== ==========
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On June 5, 1996, B & L Bank (formerly known as The Lexington Building and Loan
Association, F.A.) (the "Bank") converted from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings bank and
became a wholly-owned subsidiary of a newly formed Missouri holding company,
Lexington B & L Financial Corp. (the "Company"). See Note M for additional
information.
The following summarizes the significant accounting policies of the Company
and the Bank.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Lexington B & L Financial Corp. and its wholly-owned
subsidiary, the Bank, and B & L Financial Services, Inc., a wholly-owned
subsidiary of the Bank. B & L Financial Services, Inc., principally provides
insurance products for the Bank's customers. Significant intercompany
balances and transactions have been eliminated in consolidation.
Investment Securities: Effective October 1, 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for
Certain Investments in Debt and Equity Securities", which established three
classifications of investment securities: trading, held-to-maturity and
available-for-sale. Trading securities are acquired principally for the
purpose of near term sales. Such securities are reported at fair value and
unrealized gains and losses are included in income. Securities which are
designated as held-to-maturity are designated as such because the investor has
the ability and the intent to hold these securities to maturity. Such
securities are reported at amortized cost.
All other securities are designated as available-for-sale, a designation which
provides the investor with certain flexibility in managing its investment
portfolio. Such securities are reported at fair value; net unrealized gains
and losses are excluded from income and reported net of applicable income tax
as a separate component of equity.
Gains or losses on sales of securities are recognized in operations at the
time of sale and are determined by the difference between the net sales
proceeds and the cost of the securities using the specific identification
method, adjusted for any unamortized premiums or discounts. Premiums or
discounts are amortized or accreted to income using the interest method over
the period to maturity.
In adopting SFAS No. 115, the Company modified its accounting policies and
designated its securities in accordance with the three classifications. The
Company's adoption of SFAS No. 115 resulted in the classification of all
securities as either held-to-maturity or available-for-sale. At September 30,
1996 and 1995, the Company had no securities designated as trading.
Mortgage-backed Securities: Mortgage-backed securities represent
participating interests in pools of long-term first mortgage loans originated
and serviced by issuers of the securities. Mortgage-backed securities are
reported at fair value; net unrealized gains and losses are excluded from
income and reported net of applicable income taxes as a separate component of
equity. Gains or losses on sales of mortgage-backed securities are recognized
in operations at the time of sale and are determined by the difference between
the net sales proceeds and the cost of the securities using the specific
identification method, adjusted for any unamortized premiums or discounts.
Premiums or discounts are amortized or accreted to income using the interest
method over the period to maturity.
-20-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Stock in Federal Home Loan Bank of Des Moines: Stock in the Federal Home Loan
Bank of Des Moines is stated at cost and the amount of stock held is
determined by regulation. No ready market exists for such stock and it has no
quoted market value.
Loans Receivable: Loans receivable are carried at unpaid principal balances,
less allowance for loan losses. Loan origination and commitment fees and
certain direct loan origination costs are deferred and amortized to interest
income over the contractual life of the loan using the interest method.
The company's real estate loan portfolio consists primarily of long-term loans
secured by first trust deeds on single-family residences, other residential
property, commercial property and land. The adjustable-rate mortgage is the
Company's primary loan investment.
Loans are placed on nonaccrual status when principal or interest is delinquent
for 90 days or more. Uncollectible interest on loans is charged off or an
allowance established by a charge to income equal to all interest previously
accrued and interest is subsequently recognized only to the extent cash
payments are received until delinquent interest is paid in full and in
management's judgement, the borrower's ability to make periodic interest and
principal payments is back to normal in which case the loan is returned to
accrual status.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
Impaired Loans: The Association adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures, an amendment of
SFAS No. 114", effective October 1, 1995. These statements address the
accounting by creditors for impairment of certain loans. They apply to all
creditors and to all loans, uncollateralized as well as collateralized, except
for large groups of small-balance homogeneous loans that are collectively
evaluated for impairment, loans measured at fair value or at lower of cost or
fair value, leases, and debt securities. The Company considers all one- to
four-family residential mortgage loans, construction loans, and all consumer
and other loans to be smaller homogeneous loans.
The Company assesses loans individually and identifies impairment when the
accrual of interest has been discontinued, loans have been restructured or
management has serious doubts about the future collectibility of principal and
interest, even though the loans are currently performing. Factors considered
in determining impairment include, but are not limited to, expected future
cash flow, the financial condition of the borrower and current economic
conditions. The Company measures each impaired loan based on the fair value
of its collateral and charges off those loans or portions of loans deemed
uncollectible.
-21-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Premises and Equipment: Premises and equipment have been stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the
respective assets, which range from five to forty years.
Foreclosed Real Estate: Real estate acquired in settlement of loans is
carried at the lower of the balance of the related loan at the time of
foreclosure or fair value less the estimated costs to sell the asset. Costs
of holding foreclosed property are charged to expense in the current period,
except for significant property improvements which are capitalized to the
extent that carrying value does not exceed estimated fair market value.
Income Taxes: The Company files a consolidated federal income tax return with
its wholly-owned subsidiary. The income tax effect of timing differences in
reporting transactions for financial reporting and income tax purposes is
reflected in the financial statements as deferred income taxes.
The Company adopted SFAS No. 109, "Accounting for Income Taxes", effective
October 1, 1993. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences, attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
income tax bases. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period that
includes the enactment date. The effect of this accounting change at the date
of adoption was not material.
Statements of Cash Flows: For purposes of the cash flows, cash and amounts
due from depository institutions and interest-bearing deposits in other banks
with a maturity of three months or less at date of purchase are considered
cash equivalents.
Risks and Uncertainties: The Company is a community-oriented financial
institution which provides traditional financial services within the areas it
serves. The Company is engaged primarily in the business of attracting
deposits from the general public and using these funds to originate one- to
four-family residential mortgage loans located primarily in Lafayette County,
Missouri. Accordingly, the ultimate collectibility of the Company's loan
portfolio is dependent upon market conditions in that area. This geographic
concentration is considered in management's establishment of the allowance for
loan losses.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
which affect the reported amounts of assets and liabilities as of the balance
sheet dates and income and expenses for the periods covered. Actual results
could differ significantly from these estimates and assumptions.
In the normal course of its business, the Company encounters two significant
types of risk: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company
is subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice more or less rapidly, or on a different basis,
than its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results from the borrower's inability or
unwillingness to make contractually required payments. Market risk results
from changes in the value of assets and liabilities which may impact,
favorably or unfavorably, the realizability of those assets and liabilities
held by the Company.
-22-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
The Company is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies, which
may subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions resulting from the
regulators' judgements based on information available to them at the time of
their examination.
Net Income Per Share: Net income per share of common stock has been computed
on the basis of the weighted-average number of shares of common stock and
common stock equivalents assumed to be outstanding. The calculation assumes
the common stock issued in 1996 has been outstanding for all periods and
considers ESOP shares which have been committed to be released as outstanding.
New Accounting Standards:
- ------------------------
Accounting for Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" and is effective for years beginning after December
15, 1995. The statement generally addresses required disclosures for long-
lived impaired assets and long-lived impaired asset to be disposed of. The
impact of the adoption of the new accounting standard on the consolidated
financial statements is not expected to be material.
Accounting for Loan Servicing Rights
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights" and is effective for years beginning after December 15, 1995. The
statement generally requires entities that sell or securitize loans and retain
the mortgage servicing rights to allocate the total cost of the mortgage loans
to the mortgage servicing right and the loan based on their relative fair
value. Costs allocated to mortgage servicing rights should be recognized as a
separate asset and amortized over the period of estimated net servicing income
and evaluated for impairment based on fair value. The impact of the adoption
of the new accounting standard on the consolidated financial statements is not
expected to be material.
Accounting for Stock-Based Compensation
In October, 1995, the FASB issued SFAS No. 123," Accounting for Stock-Based
Compensation". SFAS No. 123 requires that compensation cost for stock-based
employee compensation plans be measured at the grant date based on the fair
value of the award and recognized over the service period, which is usually
the vesting period. Stock-based employee compensation plans include stock
purchase plans, stock options, restricted stock and stock appreciation rights.
Employee stock ownership plans are not covered by this Statement. SFAS No.
123 is effective for transactions entered into in fiscal years that begin
after December 15, 1995, with earlier application permitted. The Company is
awaiting stockholder approval of its management recognition plan and stock
option plan. Management of the Company cannot determine the effect of the
compensation plans on the financial position or results of operations.
-23-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Reclassification: Certain amounts in the 1995 and 1994 consolidated financial
statements have been reclassified to conform with the 1996 presentation.
NOTE B--INVESTMENT SECURITIES
Gross Unrealized
Amortized ------------------ Fair
Cost Gains Losses Value
------------------------------------------
U.S. government and Federal agency
obligations available-for-sale:
September 30, 1996 $2,900,600 $ 5,997 $ (472) $2,906,125
========== ======= ======= ==========
September 30, 1995 $ 899,575 $ 300 $(6,813) $ 893,062
========== ======= ======= ==========
State and local obligations held-
to-maturity:
September 30, 1996 $ 847,702 $157,548 $ (459) $1,004,791
========== ======== ======= ==========
September 30, 1995 $ 717,778 $127,314 $(3,717) $ 841,375
========== ======== ======= ==========
The scheduled contractual maturities of debt securities at September 30, 1996,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations without
call or prepayment penalties.
Held-to-Maturity Available-for-Sale
-------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------- ----------------------
Amounts maturing:
One year or less $ --- $ --- $ 399,722 $ 399,250
After one year through
five years --- --- 2,500,878 2,506,875
After five years through
ten years 347,473 405,791 --- ---
After ten years 500,229 599,000 --- ---
---------- ---------- ---------- ----------
$ 847,702 $1,004,791 $2,900,600 $2,906,125
========== ========== ========== ==========
During 1996 and 1994, state and local obligations held-to-maturity with an
amortized cost of $43,634 and $118,067 were called for redemption resulting in
gross realized losses of $175 and $3,866, respectively.
During 1995, securities available-for-sale sold for total proceeds of $429,375
resulting in a gross realized loss of $46,606.
-24-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE C--MORTGAGE-BACKED SECURITIES
Mortgage-backed securities available-for-sale consist of the following:
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
--------------------------------------------
September 30, 1996
GNMA $ 295,666 $ 23,019 $ --- $ 318,685
FNMA 528,822 578 (5,061) 524,339
FHLMC 1,244,683 1,740 (26,045) 1,220,378
---------- -------- -------- ----------
$2,069,171 $ 25,337 $(31,106) $2,063,402
========== ======== ======== ==========
September 30, 1995
GNMA $ 386,405 $ 28,422 $ --- $ 414,827
FNMA 657,259 1,307 --- 658,566
FHLMC 1,475,963 2,822 (16,759) 1,462,026
---------- -------- -------- ----------
$2,519,627 $ 32,551 $(16,759) $2,535,419
========== ======== ======== ==========
The amortized cost and fair value of mortgage-backed securities at September
30, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call or prepayment penalties.
Amortized Fair
Cost Value
-------------------------
Amounts maturing:
After one year through five years $ 863,661 $ 840,169
After ten years 1,205,510 1,223,233
--------- -------
$2,069,171 $2,063,402
========== ==========
Mortgage-backed securities were pledged to secure deposits as required or
permitted by law, with an amortized cost of $836,894 and fair value of
$820,995 at September 30, 1996.
NOTE D--LOANS RECEIVABLE
Loans receivable consist of the following at September 30:
1996 1995
--------------------------
Mortgage loans
One- to four-family residences $40,537,065 $37,485,866
Multi-family residential 103,352 132,668
Commercial 1,016,901 845,540
Construction 613,000 426,819
Land 488,610 483,041
---------- ----------
42,758,928 39,373,934
Less undisbursed portion of mortgage loans 249,502 307,768
---------- ----------
42,509,426 39,066,166
-25-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE D--LOANS RECEIVABLE - Cont'd
1996 1995
Consumer and other loans --------------------------
Home equity $ 486,389 $ 300,601
Loans on savings 1,210,549 844,212
Automobile loans 1,089,563 838,554
Other 252,844 262,170
3,039,345 2,245,537
----------- -----------
45,548,771 41,311,703
Less allowance for loan losses 201,000 201,000
----------- -----------
$45,347,771 $41,110,703
=========== ===========
At September 30, 1996 and 1995, the Company serviced loans amounting to
$21,106 and $40,462, respectively, for the benefit of others. Also, the
Company had loans serviced by others amounting to $4,670,821 and $1,211,799 at
September 30, 1996 and 1995, respectively.
In the ordinary course of business, the Company makes loans to its directors
and officers at substantially the same terms prevailing at the time of
origination for comparable transactions with borrowers. The following is
a summary of related party loan activity:
Year end September 30
1996 1995
----------------------
Balance, beginning of period $198,292 $240,705
Originations 19,658 ---
Payments (9,775) (42,413)
-------- --------
BALANCE, END OF PERIOD $208,175 $198,292
======== ========
Allowance for loan losses is as follows:
Year Ended September 30
1996 1995 1994
----------------------------
Balance, beginning of period $201,000 $178,000 $173,000
Provision for loan losses 10,013 32,460 5,000
Charge-offs, net of recoveries (10,013) (9,460) ---
-------- -------- --------
BALANCE, END OF PERIOD $201,000 $201,000 $178,000
======== ======== ========
At September 30, 1996 the recorded investment in impaired loans, for which
there is no need for a valuation allowance based upon the measure of the
loan's fair value of the underlying collateral, was $105,781. The average
recorded investment in impaired loans during the year ended September 30,
1996, was $38,798 and the related interest
-26-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE D--LOANS RECEIVABLE - Cont'd
income that would have been recorded had the loans been current in accordance
with their original terms amounted to approximately $5,600. The amount of
interest included in interest income on such loans for the year ended
September 30, 1996, amounts to approximately $2,300.
The allowance for losses on foreclosed real estate is $-0- at September 30,
1996 and 1995, and October 1, 1994.
NOTE E--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at September 30:
1996 1995
------------------
Loans receivable $208,028 $128,583
Mortgage-backed securities 12,074 14,597
Investments and other 81,595 9,350
-------- --------
$301,697 $152,530
======== ========
NOTE F--PREMISES AND EQUIPMENT
Premises and equipment consists of the following at September 30:
1996 1995
------------------
Land $ 48,676 $ 48,676
Building and improvements 515,595 515,595
Furniture and equipment 155,722 155,166
-------- --------
719,993 719,437
Less accumulated depreciation and amortization 338,807 311,218
-------- --------
$381,186 $408,219
======== ========
NOTE G--DEPOSITS
Deposit account balances are summarized as follow at September 30:
Weighted
Average
Rate at 1996 1995
September ---------------- ----------------
30,
1996 Amount % Amount %
-------- -----------------------------------
Non-interest-bearing ---% $ 505,264 1.2% $ 305,152 .7%
NOW 2.52 971,504 2.3 1,152,353 2.7
Money Market 3.28 2,082,300 4.9 1,969,883 4.7
Passbook savings 3.05 3,851,499 9.1 3,589,906 8.5
---------- ---- ---------- ----
7,410,567 17.5 7,017,294 16.6
-27-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE G--DEPOSITS - Cont'd
Weighted
Average
Rate at
September 1996 1995
30, --------------- -----------------
1996 Amount % Amount %
-------- ------------------------------------
Certificates of deposit:
3.00 to 3.99% 3.75% $ 8,107 ---% $ 998,231 2.4%
4.00 to 4.99% 4.54 912,701 2.2 2,708,827 6.4
5.00 to 5.99% 5.52 20,862,976 49.4 18,119,665 42.7
6.00 to 6.99% 6.34 7,222,095 17.1 7,383,464 17.4
7.00 to 7.99% 7.32 2,230,029 5.3 2,218,704 5.2
8.00 to 8.99% 8.00 3,590,318 8.5 3,955,098 9.3
----------- ----- ----------- -----
34,826,226 82.5 35,383,989 83.4
----------- ----- ----------- -----
$42,236,793 100.0% $42,401,283 100.0%
=========== ===== =========== =====
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $3,241,000 and $2,885,000 at September 30, 1996 and
1995, respectively. Deposits over $100,000 are not federally insured.
The Company had deposits of approximately $871,096 and $1,022,882 for its
directors and officers at September 30, 1996 and 1995, respectively.
At September 30, 1996, contractual maturities of certificate accounts are as
follows:
Stated Year Ended September 30
Interest Rate 1997 1998 1999 2000 2001 After
- ------------- ----------------------------------------------------------------
3.00 to 3.99% $ 8,107 $ --- $ --- $ --- $ --- $ ---
4.00 to 4.99% 688,667 224,034 --- --- --- ---
5.00 to 5.99% 15,018,395 4,113,755 1,581,015 149,811 --- ---
6.00 to 6.99% 3,133,694 1,217,731 666,632 838,211 820,227 545,600
7.00 to 7.99% 17,076 760,594 230,442 169,890 1,052,027 ---
8.00 to 8.99% --- --- --- --- 3,590,318 ---
----------- ---------- ---------- ---------- --------- --------
$18,865,939 $6,316,114 $2,478,089 $1,157,912 $5,462,572 $545,600
=========== ========== ========== ========== ========== ========
Interest expense on deposits are as follows:
Year Ended September 30
1996 1995 1994
--------------------------------
Passbook, Now and Money Market savings
accounts $ 223,471 $ 242,172 $ 278,938
Certificate accounts 2,109,237 1,760,818 1,337,971
---------- ---------- ----------
$2,332,708 $2,002,990 $1,616,909
========== ========== ==========
-28-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE H--INCOME TAXES
Components of income tax expense (benefit) are as follows:
Year Ended September 30
1996 1995 1994
----------------------------
Current $319,900 $317,200 $304,000
Deferred (95,900) (17,200) (12,700)
-------- -------- --------
$224,000 $300,000 $291,300
======== ======== ========
In addition, the Company recorded deferred income tax (benefit) to equity
relating to unrealized gains and losses on investment securities available-
for-sale of ($3,175), $12,809 and ($9,715) for the years ended September 30,
1996, 1995 and 1994, respectively.
The provision for income taxes as shown on the consolidated statements of
income differs from amounts computed by applying the statutory federal income
tax rate of 34% to income before taxes as follows:
Year Ended September 30
1996 1995 1994
-------------------------------------------
Amount % Amount % Amount %
-------------------------------------------
Income tax expense at statutory
rates $232,857 34.0% $296,035 34.0% $298,750 34.0%
Increase (decrease) in taxes
resulting from:
Tax bad debt deduction --- --- --- --- (22,072)(2.5)
Tax exempt income, net of
related expenses (21,573)(3.2) (19,508)(2.2) (19,813)(2.2)
State income tax, net of
federal benefit 14,208 2.1 23,232 2.7 29,700 3.4
Other, net (1,492) (.2) 241 --- 4,735 .5
-------- ---- -------- ---- -------- ----
$224,000 32.7% $300,000 34.5% $291,300 33.2%
======== ==== ======== ==== ======== ====
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities are as follows:
September 30
1996 1995
------------------
Deferred tax assets
Allowance for loan losses $ 29,200 $ 29,213
Excess pension contribution --- 7,374
Unrealized loss on available-for-sale
securities 81 ---
Savings Association Insurance Fund assessment 103,800 ---
Deferred compensation 11,200 ---
Deferred tax liabilities
Depreciation (33,800) (36,637)
Federal Home Loan Bank of Des Moines stock
dividend (57,000) (53,650)
Unrealized gain on available-for-sale
securities --- (3,094)
-------- --------
NET DEFERRED TAX ASSET (LIABILITY) $ 53,481 $(56,794)
======== ========
-29-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE I--REGULATORY CAPITAL REQUIREMENTS
Pursuant to the Financial Institutions Reform Recovery and Enforcement Act
("FIRREA") of 1989, as implemented by a rule promulgated by OTS, saving
institutions are required to have a minimum regulatory tangible capital equal
to 1.5% of adjusted total assets, a minimum of 3.0% core/leverage capital
ratio, and a minimum 8% total risk-based capital. FIRREA also restricts
investment activities with respect to noninvestment grade corporate debt and
certain other investments and increases the required ratio of housing-related
assets in order to qualify as a savings institution.
The following table presents the Bank's capital position relative to its
regulatory capital requirements under FIRREA at September 30, 1996:
Regulatory Capital
Tangible Core Risk-based
----------------------------
(Dollars in Thousands)
GAAP capital $12,644 $12,644 $12,644
Adjustments to capital:
Unrealized losses 4 4 4
General valuation allowances as
defined --- --- 142
-------- ------- -------
REGULATORY CAPITAL 12,648 12,648 12,790
Regulatory capital requirement 894 1,788 2,376
-------- ------- -------
EXCESS REGULATORY CAPITAL $11,754 $10,860 $10,414
======= ======= =======
Regulatory capital ratio 19.7% 18.2% 35.1%
Regulatory capital requirement 1.5 3.0 8.0
-------- ------- -------
EXCESS REGULATORY CAPITAL RATIO 18.2% 15.2% 27.1%
==== ==== ====
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established additional capital requirements which require regulatory action
against depository institutions in one of the undercapitalized categories
defined in implementing regulations. Institutions such as the Bank, which are
defined as "well capitalized", must generally have a leverage capital (core)
ratio of at least 5%, a tier risk-based capital ratio of at least 6% and a
total risk-based capital ratio of at least 10%. In November 1994, the OTS
revised its regulations whereby unrealized gains or losses on available-
for-sale securities accounted for under SFAS No. 115 are not considered in the
determination of regulatory capital. FDICIA also provided for increased
supervision by federal regulatory agencies, increased reporting requirements
for insured depository institutions and other changes in the legal and
regulatory environment for institutions.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts, which
differs from the provisions for such losses charged to income. Accordingly,
retained earnings at September 30, 1996, includes income of approximately
$2,000,000 for which no provision for federal income taxes has been made. If,
in the future, this portion of retained earnings is used for any purpose other
than to absorb loan losses, federal income taxes may be imposed at the then
applicable rates. The Bank's retained earnings at September 30, 1996, were
substantially restricted because of the effect of these bad debt reserves.
-30-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE J--BENEFIT PLANS
The Company is a participating employer in a multi-employer plan trusteed
pension plan that covers and provides defined benefits to substantially all
full-time employees of the Company after one year of service. The plan assets
exceeded vested benefits as of June 30, 1995, the date of the most current
actuarial valuation. The Company portion of the plan assets and accumulated
plan benefits has not been determined. Pension expense of $27,224, $9,250 and
$93,166 was recognized for the years ended September 30, 1996, 1995 and 1994,
respectively.
The Company also has a 401(k) salary reduction plan for all full-time
employees. The plan is entirely funded by participant contributions.
Participants may make deferrals up to 15% of compensation.
The Company has also entered into a salary continuation agreement with two of
its officers. These agreements provide for monthly deferred compensation
payments for a period of 180 months following retirement. The Company has
purchased life insurance policies to fund these agreements. Deferred
compensation charged to operations for the years ended September 30, 1996,
1995 and 1994 was $30,289, $-0- and $-0-, respectively.
In connection with the conversion from mutual to stock form, the Company
established an employee stock ownership plan ("ESOP") for the benefit of
participating employees. Employees are eligible to participate upon attaining
age twenty-one and completing one year of service.
The ESOP borrowed $1,012,000 from the Company to fund the purchase of 101,200
shares of the Company's common stock. The purchase of shares of the ESOP was
recorded in the consolidated financial statements through a credit to common
stock and additional paid-in capital with a corresponding charge to a contra
equity account for the unreleased shares. The loan is secured solely by the
common stock and is to be repaid in equal quarterly installments of principal
and interest payable through March, 2006 at the prime rate published in the
Wall Street Journal (8.25% at September 30, 1996). The intercompany ESOP note
and related interest were eliminated in consolidation.
The Company makes quarterly contributions to the ESOP which are equal to the
debt service less dividends on unallocated ESOP shares used to repay the loan.
Dividends on allocated shares will be paid to participants of the ESOP. The
ESOP shares are pledged as collateral on the ESOP loan. 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.
Effective with the date of the stock conversion the Company adopted Statement
of Position ("SOP") 93-6. 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 to the ESOP loan. ESOP expense for the year ended
September 30, 1996 was $40,848. The fair value of unreleased shares based on
market price of the Company's stock was $1,056,224 at September 30, 1996.
The number of ESOP shares at September 30, 1996 are summarized as follows:
Shares released for allocation 4,076
Unreleased shares 97,124
-------
101,200
=======
-31-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE K--INCENTIVE PLANS
Management Recognition Plan and Trust ("MRP"): The Company intends to seek
approval of the MRP at a meeting of stockholders as a method of providing
officers, employees and nonemployee directors of the Company with a
proprietary interest in the Company in a manner designed to encourage such
persons to remain with the Company. The Company plans to contribute funds to
the MRP to enable the trust to acquire, in the aggregate, 4% of the shares of
common stock in the conversion. Such shares would be acquired either through
open market purchases or from authorized but unissued shares of common stock.
Under the MRP, awards would be granted in the form of shares of common stock
held by the MRP. These shares represent deferred compensation and would be
accounted for as a reduction of stockholders' equity.
Stock Option Plan: The Company also intends to seek stockholder approval of
the 1996 Stock Option Plan ("Stock Option Plan") which will reserve a number
of shares equal to 10% of the number of shares issued in the conversion. The
Stock Option Plan provides for the grant of options at an exercise price equal
to the fair market value on the date of grant. The Stock Option Plan is
intended to promote stock ownership by directors and selected officers and
employees of the Company to increase their proprietary interest in the Company
as an incentive to contribute to the success of the Company and to reward
officers and key employees for outstanding performance.
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend credit.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
Company's exposure to credit loss in the event of nonperformance by the other
party is represented by the contractual amount of those instruments. The
Company does not generally require collateral or other security on unfunded
loan commitments until such time that loans are funded.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation
of the counterparty. Such collateral consists primarily of residential
properties.
At September 30, 1996 and 1995, the Bank was committed to originate loans
aggregating approximately $879,900 and $784,900, respectively. Fixed loan
commitments approximated $18,000 and $15,000 at September 30, 1996 and 1995,
respectively, with interest rates ranging from 8.50% to 10.00%.
At September 30, 1996, the Company had amounts on deposit at banks and federal
agencies in excess of federally insured limits of approximately $8,458,000.
-32-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE M--PLAN OF CONVERSION
On November 15, 1995, the Lexington Building and Loan Association, F.A.
(currently B & L Bank) Board of Directors adopted, and on February 14, 1996,
subsequently amended, a plan ("Plan") to convert from a federally-chartered
mutual savings and loan association to a federally-chartered stock savings
bank. The Plan included the formation of a holding company which acquired all
of the capital stock of the Bank issued upon its conversion from a mutual to
stock form of ownership. In connection with the conversion, which was
consummated on June 5, 1996, the Company issued and sold to the public
1,265,000 shares of its common stock (par value $.01 per share) at a price of
$10.00 per share. The proceeds, net of $566,046 in conversion costs, received
by the Company for the issuance amounted to $12,083,954. Prior to the
completion of the conversion, the Company had no assets or liabilities and did
not conduct any business other than of an organizational nature.
At the time of conversion, the Bank established a liquidation account in the
amount equal to the equity of the Bank as of the date of the latest balance
sheet contained in the final prospectus. The liquidation account is
maintained for the benefit of certain eligible account holders who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible account holders
have reduced their qualifying deposits. Subsequent increases will not restore
an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible account holder will be entitled
to receive a distribution from the liquidation account proportionate to the
current adjusted qualifying balances for accounts then held.
The Bank may not declare or pay cash dividends on or repurchase any of its
shares of common stock, if the effect would cause stockholder's equity to be
reduced below applicable regulatory capital maintenance requirements or if
such declaration and payment would otherwise violate regulatory requirements.
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
On October 1, 1995, the Company adopted SFAS No. 107, Disclosures about Fair
Values of Financial Instruments, which requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statement of financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein.
Cash and due from banks: The carrying amounts of cash and due from
depository institutions approximate their fair value.
Certificates of deposit: The carrying amount of certificates of deposit
approximate their fair value.
Investment and mortgage-backed securities: Fair value is determined by
reference to quoted market prices.
-33-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans receivable: The fair value of first mortgage loans is estimated by
using discounted cash flow analyses, using interest rates currently offered
by the Bank for loans with similar terms to borrowers of similar credit
quality. The majority of real estate loans are residential. First mortgage
loans are segregated by fixed and adjustable interest terms. The fair value
of consumer loans is calculated by using the discounted cash flow based upon
the current market for like instruments. Fair values for impaired loans are
estimated using discounted cash flow analyses.
Accrued interest receivable: The carrying value approximates fair value.
Transaction deposits: Transaction deposits, payable on demand or with
maturities of 90 days or less, have a fair value equal to book value.
Certificates of deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Advances from borrowers for taxes and insurance: The book value
approximates fair value.
All other liabilities: The book value approximates fair value.
Off-balance sheet instruments: The fair value of a loan commitment and a
letter of credit is determined based on the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreement and the present creditworthiness of the counterparties. Neither
the fees earned during the year on these instruments nor their value at
year-end are significant to the Bank's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. The valuation techniques employed above involve uncertainties
and are affected by assumptions used and judgements regarding prepayments,
credit risk, discount rates, cash flows and other factors. Changes in
assumptions could significantly affect the reported fair value.
In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. The fair value estimates do not include
the benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market. The amounts
at September 30, 1996 (dollars in thousands) are as follows:
Carrying Fair
Amount Value
-----------------
ASSETS
Cash $ 6,268 $ 6,268
Certificates of deposit 2,525 2,525
Investment securities available-for-sale 2,906 2,906
Investment securities held-to-maturity 848 1,005
-34-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
Carrying Fair
Amount Value
-----------------
ASSETS - Cont'd
Mortgage-backed securities $ 2,063 $ 2,063
Stock in FHLB 464 464
Loans receivable 45,348 44,613
Accrued interest receivable 302 302
LIABILITIES
Transaction accounts 7,411 7,411
Certificates of deposit 34,826 35,185
Advances from borrowers for taxes and insurance 163 163
NOTE O--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheet and condensed statements of income and
cash flows for Lexington B & L Financial Corp. should be read in conjunction
with the consolidated financial statements and the notes thereto.
September 30
1996
------------
CONDENSED BALANCE SHEET
ASSETS
Cash and cash equivalents $ 108,198
Certificates of deposit 3,022,615
Securities available-for-sale 2,005,937
ESOP note receivable 978,602
Accrued interest receivable 45,177
Investment in subsidiary 12,644,333
-----------
TOTAL ASSETS $18,804,862
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued income taxes $ 42,893
Stockholders' equity 18,761,969
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,804,862
===========
-35-
<PAGE>
<PAGE>
Lexington B & L Financial Corp. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Cont'd
NOTE O--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS - Cont'd
Period From
June 5, 1996
to
September 30,
1996
------------
CONDENSED STATEMENT OF INCOME
Equity in income of the subsidiary $ 103,543
Interest income 113,174
Income taxes (41,100)
-----------
NET INCOME $ 175,617
===========
Period From
June 5, 1996
to
September 30,
1996
------------
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Net income $ 175,617
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in income of the subsidiary (103,543)
Amortization of premiums and discounts on
securities 65
Interest credited to certificates of deposit (22,615)
Increase in accrued interest receivable (45,177)
Increase in accrued income taxes 41,100
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 45,447
Cash flows from investing activities
Purchase of common stock of the subsidiary (6,041,977)
Purchase of certificates of deposit (3,000,000)
Purchase of securities available-for-sale (2,000,624)
-----------
NET CASH USED IN INVESTING ACTIVITIES (11,042,601)
Cash flows from financing activities
Proceeds from sale of common stock 12,083,954
Loan to ESOP (1,012,000)
Principal collected from ESOP 33,398
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,105,352
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 108,198
Cash and cash equivalents at beginning of period ---
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,198
===========
-36-
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
OFFICERS: DIRECTORS:
LEXINGTON B & L FINANCIAL CORP. LEXINGTON B & L FINANCIAL CORP.
AND B & L BANK
Erwin Oetting, Jr. Erwin Oetting, Jr.
President and Chief Executive Officer Chairman of the Board
E. Steva Vialle E. Steva Vialle
Treasurer, Chief Financial Officer
and Secretary Steve Oiaro
President
B & L BANK Baker Memorial, Inc.
Erwin Oetting, Jr. Norman Vialle
President and Chief Executive Officer Owner
Maid-Rite Drive In
E. Steva Vialle
Executive Vice-President, Chief Charles R. Wilcoxon
Financial Officer and Secretary Retired businessman
Kathryn M. Swafford Glenn H. Twente
Treasurer Retired Chiropractor
Mark D. Summerlin
Chief Loan Officer
CORPORATE INFORMATION
MAIN OFFICE INDEPENDENT AUDITORS
919 Franklin Avenue Moore, Horton & Carlson, P.C.
Lexington, Missouri 64067 Mexico, Missouri
Telephone (816) 259-2247
GENERAL COUNSEL REGISTRAR AND TRANSFER AGENT
Aull, Sherman, Worthington, Registrar and Transfer Company
Giorza & Maylock, LLC 10 Commerce Drive
Lexington, Missouri Cranford, New Jersey 07016
SPECIAL COUNSEL
Breyer & Aguggia
Washington, D.C.
-37-
<PAGE>
<PAGE>
______________________________________________________________________________
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at the office of B & L Bank,
919 Franklin Avenue, Lexington, Missouri, on Monday, January 27, 1997 at 10:00
a.m., Central Time.
______________________________________________________________________________
A COPY OF THE FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE FOR
VOTING AT THE ANNUAL MEETING OF STOCKHOLDERS UPON WRITTEN REQUEST TO THE
SECRETARY, LEXINGTON B & L FINANCIAL CORP., 919 FRANKLIN AVENUE, LEXINGTON,
MISSOURI 64067.
-38-
<PAGE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
<PAGE>
<PAGE>
Exhibit 21
Subsidiaries of Registrant
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
B & L Bank 100% United States
B & L Financial Services, Inc. 100% Missouri
- -----------------
(1) The operations of the Company's subsidiaries are included in the
Company's consolidated financial statements.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 649
<INT-BEARING-DEPOSITS> 5619
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-MARKET> 1005
<LOANS> 45348
<ALLOWANCE> 201
<TOTAL-ASSETS> 61670
<DEPOSITS> 42237
<SHORT-TERM> 0
<LIABILITIES-OTHER> 671
<LONG-TERM> 0
0
0
<COMMON> 13
<OTHER-SE> 18749
<TOTAL-LIABILITIES-AND-EQUITY> 61670
<INTEREST-LOAN> 3350
<INTEREST-INVEST> 723
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<INTEREST-TOTAL> 4073
<INTEREST-DEPOSIT> 2333
<INTEREST-EXPENSE> 2333
<INTEREST-INCOME-NET> 1740
<LOAN-LOSSES> 10
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<EXPENSE-OTHER> 1144
<INCOME-PRETAX> 685
<INCOME-PRE-EXTRAORDINARY> 685
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 2.91
<LOANS-NON> 601
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 67
<ALLOWANCE-OPEN> 201
<CHARGE-OFFS> 10
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 201
<ALLOWANCE-DOMESTIC> 201
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
