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, 1997
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.
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(Exact name of small business issuer as specified in its charter)
Missouri 43-173955
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
919 Franklin Avenue, Lexington, Missouri 64067
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 259-2247
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section
12(g) of the Act: Common Stock, par value $.01 per share
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(Title of Class)
Check whether the Registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB. X
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The Registrant's revenues for the fiscal year under report were $4.6
million.
As of November 30, 1997, there were issued and outstanding 1,120,770
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 30, 1997 was $18,772,897
(1,120,770 shares at $16.75 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, 1997 ("Annual Report") (Parts I and II).
2. Portions of Definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders (Part III).
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PART I
Item 1. Business
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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. At September 30, 1997, the Company had total assets of $58.8
million, total deposits of $42.7 million and total stockholders' equity of
$15.7 million, or 26.6% of 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, 1997,
one- to four-family residential mortgage loans totalled $39.7 million, which
represented 85.5% 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.
Acquisition of Lafayette County Bank
On October 1, 1997, the Company acquired Lafayette County Bank of
Lexington/Wellington ("Lafayette County Bank") through the merger of Lafayette
County Bank's parent corporation, Lafayette Bancshares, Inc., with the
Company. All outstanding shares of Lafayette Bancshare's common stock were
converted into $.92 in cash plus .0851 share of the Company's common stock. A
total of 96,111 shares of the Company's common stock were issued from treasury
shares and $1,039,292.13 was and paid to Lafayette Bancshares' shareholders in
connection with the merger. The acquisition was accounted for as a purchase
under generally accepted accounting principles.
Lafayette County Bank is a Missouri state chartered bank whose deposits
are insured up to applicable limits by the Bank Insurance Fund ("BIF") of the
FDIC. Lafayette County Bank's principal business consists of attracting
deposits from the general public and originating commercial, agricultural,
real estate and installment loans. Lafayette County Bank conducts its
business from its main office in Lexington, Missouri and its branch offices in
Wellington and Callao, Missouri. At September 30, 1997, Lafayette County Bank
had total assets of $34.6 million, total deposits of $31.3 million and
stockholders' equity of $2.0 million.
Because the acquisition of Lafayette County Bank was consummated after
the close of the Company's fiscal year, the assets of Lafayette County Bank
and its results of operations for periods prior to October 1, 1997 are not
reflected in the financial information contained herein.
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
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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.
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 $45.9 million at September 30, 1997, representing 78.0% of
consolidated total assets.
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,
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1997 1996 1995
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Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Type of Loan:
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One- to four-
family. . . . $39,721 85.48% $40,537 88.51% $37,486 90.07%
Commercial real
estate and
multi-family. 1,553 3.34 1,120 2.45 978 2.35
Land . . . . . 536 1.15 489 1.07 483 1.16
Construction . 1,101 2.37 613 1.34 427 1.02
Total mortgage ------- ------ ------- ------ ------- ------
loans. . . . 42,911 92.34 42,759 93.37 39,374 94.60
Other Loans:
Home equity . 608 1.31 486 1.06 301 0.72
Loans on savings
accounts. . . 1,101 2.37 1,210 2.64 844 2.03
Automobile
loans . . . . 1,446 3.11 1,090 2.38 839 2.02
Other. . . . . 401 0.87 253 0.55 262 0.63
Total other ------- ------ ------- ------ ------- ------
loans. . . . 3,556 7.66 3,039 6.63 2,246 5.40
------- ------ ------- ------ ------- ------
Total loans . 46,467 100.00% 45,798 100.00% 41,620 100.00%
====== ====== ======
Less:
Loans in process 373 249 308
Allowance for
possible loan
losses. . . . 221 201 201
Loans receivable, ------- ------- -------
net . . . . . $45,873 $45,348 $41,111
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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, 1997, $39.7 million, or
85.5% 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 $35,946
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at September 30, 1997. 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
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, 1997, $40.1
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, 1997, 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 Freddie Mac or Fannie Mae.
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 Freddie Mac and Fannie Mae. 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 Freddie Mac and
Fannie Mae 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
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loans in full upon sale of the property pledged as security or upon
refinancing the original loan. In addition, 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,
1997, income property loans aggregated $1.6 million, or 3.3% of the gross loan
portfolio.
The average principal balance of the loans in the Bank's income property
loan portfolio was approximately $44,387 at September 30, 1997. 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, 1997, construction loans totalled $1.1
million, or 2.4% 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.
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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 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, 1997, the land loan portfolio
totalled $536,000, or 1.2% 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, 1997, the Bank's consumer loans totalled approximately $3.6
million, or 7.7% 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, 1997 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
-------------------- ------- -------- -------- -------- -----
1998 1999 2000
---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family. $2,543 $2,126 $2,230 $5,168 $12,239 $8,555 $6,860 $39,721
Commercial real estate
and multi-family. . 297 127 97 173 429 262 168 1,553
Land . . . . . . . . 30 29 28 99 199 121 30 536
Construction . . . . 1,101 -- -- -- -- -- -- 1,101
Total mortgage loans 3,971 2,282 2,355 5,440 12,867 8,938 7,058 42,911
Consumer and other
loans . . . . . . . 1,961 593 450 405 123 24 -- 3,556
------ ------ ------ ------ ------- ------ ------ -------
Total loans . . . $5,932 $2,875 $2,805 $5,845 $12,990 $8,962 $7,058 $46,467
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The following table sets forth the dollar amount of all loans due after September 30, 1998, which have
fixed interest rates and have floating or adjustable interest rates.
Fixed- Floating- or
Rates Adjustable-Rates Total
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(In Thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family . . . . . . . . . . . . . $1,705 $35,473 $37,178
Commercial real estate and multi-family. . . . 166 1,090 1,256
Land . . . . . . . . . . . . . . . . . . . . . 22 484 506
Construction . . . . . . . . . . . . . . . . . -- -- --
Total mortgage loans . . . . . . . . . . . 1,893 37,047 38,940
Consumer and other loans. . . . . . . . . . . . 1,595 -- 1,595
------ ------- -------
Total. . . . . . . . . . . . . . . . . . . $3,488 $37,047 $40,535
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</TABLE>
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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
Vice President 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, 1997, the Bank's total gross mortgage loan originations were $9.1 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, 1997, $4.1 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, 1997, the Bank purchased
$209,000 of one- to four-family mortgage loans and $318,000 of commercial real
estate mortgage loans. 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,
--------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Total mortgage loans at beginning
of period . . . . . . . . . . . . . $42,759 $39,374 $38,547
------- ------- -------
Loans originated:
One- to four-family. . . . . . . . . 7,288 6,589 6,372
Commercial real estate and
multi-family. . . . . . . . . . . . 365 376 110
Land . . . . . . . . . . . . . . . . 219 124 170
Construction . . . . . . . . . . . . 1,219 900 1,205
------- ------- -------
Total mortgage loans originated. . 9,091 7,989 7,857
Loans purchased:
One- to four-family. . . . . . . . . 209 3,815 --
Commercial real estate and
multi-family . . . . . . . . . . . 318 -- --
------- ------- -------
Total loans purchased. . . . . . 527 3,815 --
Loans sold. . . . . . . . . . . . . . -- -- --
Mortgage loan principal
repayments . . . . . . . . . . . . . 9,466 8,419 7,030
------- ------- -------
Net mortgage loan activity. . . . . . 152 3,385 827
------- ------- -------
Total gross mortgage loans at
end of period . . . . . . . . . . . $42,911 $42,759 $39,374
======= ======= =======
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 $1.4 million at September 30, 1997, $1.0 million
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, 1997.
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
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30th day of the month ("actual due date"). Borrowers are charged a late
penalty on all payments made after the 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,
-----------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Percentage Percentage Percentage
Principal of Gross Principal of Gross Principal of Gross
Balance Loans Balance Loans Balance Loans
------- ----- ------- ----- ------- -----
(Dollars in Thousands)
Loans
delinquent
for:
30 -
59 days. $ 939 2.02% $1,088 2.38% $ 653 1.58%
60 -
89 days. 328 0.71 331 0.72 728 1.76
------ ---- ------ ---- ------ ----
$1,267 2.73% $1,419 3.10% $1,381 3.34%
====== ==== ====== ==== ====== ====
-9-
<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,
--------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Loans 90 days or more delinquent
and accounted for on
a non-accrual basis:
Residential real estate . . . . . . $334 $495 $489
Commercial . . . . . . . . . . . . -- 106 --
Consumer . . . . . . . . . . . . . 60 177 57
---- ---- ----
Total non-accrual loans. . . . . 394 778 546
Real estate owned . . . . . . . . . -- -- 28
---- ---- ----
Total non-performing assets . . . . $394 $778 $574
==== ==== ====
Total loans delinquent 90 days or
more to net loans . . . . . . . . 0.86% 1.33% 1.33%
==== ==== ====
Total loans delinquent 90 days or
more to total assets . . . . . . 0.67% 1.26% 1.09%
==== ==== ====
Total non-performing assets to
total assets. . . . . . . . . . . 0.67% 1.26% 1.15%
==== ==== ====
At September 30, 1997, 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, 1997
amounted to approximately $11,300, before such loans were placed on non-
accrual status. Had such non-accruing loans been current in accordance with
their original terms, no additional interest income of would have been
recorded for the year ended September 30, 1997.
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, 1997.
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
-10-
<PAGE>
<PAGE>
is a high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that 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,
---------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Loss. . . . . . . . . . . . . . . . . . $ 15 $ 59 $ 50
Doubtful. . . . . . . . . . . . . . . . -- -- --
Substandard assets. . . . . . . . . . . 350 602 489
Special mention . . . . . . . . . . . . 151 67 126
---- ---- ----
Total classified assets . . . . . . . $516 $728 $665
==== ==== ====
General loss allowances . . . . . . . . $206 $142 $151
Specific loss allowances. . . . . . . . 15 59 50
---- ---- ----
Total allowances. . . . . . . . . . . $221 $201 $201
==== ==== ====
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, 1997, the Bank had an allowance for loan losses of
$221,000, 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.
-11-
<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,
------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Allowance at beginning of period. $201 $201 $178
---- ---- ----
Provision for loan losses . . . . 29 10 33
Recoveries. . . . . . . . . . . . -- -- --
Charge-offs:
Residential real estate. . . . . -- -- --
Commercial real estate and
multi-family. . . . . . . . . . -- -- --
Construction . . . . . . . . . . -- -- --
Consumer . . . . . . . . . . . . 9 10 10
---- ---- ----
Total charge-offs . . . . . . 9 10 10
---- ---- ----
Net charge-offs . . . . . . . 9 10 10
---- ---- ----
Balance at end of period. . . . . $221 $201 $201
==== ==== ====
Ratio of allowance to total
loans outstanding at the
end of the period. . . . . . . . 0.48% 0.44% 0.49%
==== ==== ====
Ratio of net charge-offs to
average loans outstanding
during the period. . . . . . . . 0.02% 0.02% 0.02%
==== ==== ====
Ratio of allowance to
non-accrual loans. . . . . . . . 56.10% 25.83% 36.79%
===== ===== =====
-12-
<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,
-------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
% 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 $ 55 85.48% $ 65 88.51% $ 67 90.07%
Commercial and multi-
family . . . . . . 61 3.34 59 2.45 44 2.35
Land. . . . . . . . -- 1.15 -- 1.07 -- 1.16
Construction. . . . -- 2.37 -- 1.34 -- 1.02
Consumer . . . . . . 40 7.66 77 6.63 64 5.40
Unallocated. . . . . 65 -- -- -- 26 --
Total allowance for ---- ------ ---- ------ ---- ------
loan losses. . . . $221 100.00% $201 100.00% $201 100.00%
==== ====== ==== ====== ==== ======
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, 1997, the Bank's regulatory
liquidity of 19.3% 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.
-13-
<PAGE>
<PAGE>
The Bank adopted SFAS No. 115 on October 1, 1993. At September 30, 1997,
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 management strategy, at September 30, 1997, 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,
----------------------------------------
1997 1996 1995
-------- -------- --------
Carrying Carrying Carrying
Value Value Value
----- ----- -----
(In Thousands)
Government National
Mortgage Association
("GNMA") . . . . . . . . . . . $ 290 $ 319 $ 415
Fannie Mae. . . . . . . . . . . 409 524 658
Freddie Mac . . . . . . . . . . 970 1,220 1,462
------ ------ ------
Total . . . . . . . . . . . $1,669 $2,063 $2,535
====== ====== ======
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,
------------------------------------------------------
1997 1996 1995
---------------- ----------------- -----------------
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 agency
obligations(1) . . $ 1,709 15.64% $ 2,906 20.14% $ 893 11.85%
State and local
obligations(1) . . 878 8.03 848 5.88 718 9.53
Interest-bearing
deposits . . . . . 6,183 56.58 5,620 38.96 2,933 38.93
Mortgage-backed
securities(1) . . . 1,669 15.27 2,063 14.30 2,535 33.65
Certificates of
deposit . . . . . . 25 0.23 2,525 17.50 -- --
Capital stock - FHLB-
Des Moines(2) . . . 464 4.25 464 3.22 455 6.04
------- ------ ------- ------ ------ ------
Total investment
securities, FHLB
stock and mortgage-
backed securities . $10,928 100.00% $14,426 100.00% $7,534 100.00%
======= ====== ======= ====== ====== ======
- ------------------
(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, 1997, 1996 and 1995. 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 7.00%
for the fiscal year ended September 30, 1997.
-14-
<PAGE>
<PAGE>
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,
1997.
<PAGE>
<TABLE>
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)
<S> <C> <C> <C> <C> <C> <C>
U.S Government and federal
agency obligations . . . . $ 502 $1,007 $ -- $ 200 $1,709 $1,709
State and local obligations -- 105 250 523 878 1,049
Interest-bearing deposits . 6,183 -- -- -- 6,183 6,183
Certificates of deposit . . 25 -- -- -- 25 25
------ ------ ----- ------ ------ ------
Total investment securities
and interest-bearing
deposits . . . . . . . . . $6,710 $1,112 $ 250 $ 723 $8,795 $8,966
====== ====== ===== ====== ====== ======
Weighted average yield. . . 5.45% 6.87% 9.21% 9.63% 6.08%
==== ==== ==== ====
Mortgage-backed securities. $413 $219 -- $1,037 $1,669
==== ==== ====== ======
Weighted average yield. . . 6.00% 5.93% -- 7.51% 6.93%
==== ==== ==== ====
</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, 1997, 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.
-15-
<PAGE>
<PAGE>
The following table sets forth certain information concerning the Bank's
time deposits and other interest-bearing deposits at September 30, 1997.
Weighted Percentage
Average Original Checking and Minimum of Total
Interest Rate Term Savings Deposits Amount Balance Deposits
- ------------- ---- ---------------- ------ ------- --------
(In Thousands)
2.50% None Demand and NOW
accounts(1) $ 250 $ 1,759 4.12%
4.52 None Money market accounts 2,500 2,415 5.66
3.01 None Passbook savings
accounts 10 3,881 9.09
Certificates of Deposit
-----------------------
3.75 91-day Fixed-term, fixed-rate 500 22 0.05
5.11 6 months Fixed-term, fixed-rate 500 3,100 7.26
5.11 9 months Fixed-term, fixed-rate 500 50 0.12
5.52 12 months Fixed-term, fixed-rate 500 7,996 18.73
5.75 18 months Fixed-term, fixed-rate 500 4,936 11.56
5.80 24 months Fixed-term, fixed-rate 500 2,700 6.32
6.05 30 months Fixed-term, fixed-rate 500 2,384 5.58
6.26 36 months Fixed-term, fixed-rate 500 3,700 8.67
6.06 48 months Fixed-term, fixed-rate 500 2,322 5.44
6.34 60 months Fixed-term, fixed-rate 500 900 2.11
7.52 72 months Fixed-term, fixed-rate 500 6,429 15.06
7.00 120 months Fixed-term, fixed-rate 500 100 0.23
------- ------
$42,694 100.00%
======= ======
- -----------------
(1) Includes non-interest-bearing accounts with an aggregate balance of
$687,000.
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, 1997.
Maturity Period Amount
--------------- ------
(In Thousands)
Three months or less. . . . . . . . . . . . . . $ --
Over three through six months . . . . . . . . . 620
Over six through 12 months. . . . . . . . . . . 481
Over 12 months. . . . . . . . . . . . . . . . . 2,043
-------
Total. . . . . . . . . . . . . . . . . . . $ 3,144
=======
-16-
<PAGE>
<PAGE>
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.
<PAGE>
<TABLE>
At September 30,
------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ---------------------------- ---------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------ ----- ---------- ------ ----- ---------- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing . . . $ 687 1.61% $182 $ 505 1.20% $ 200 $ 305 0.72%
NOW checking . . . . . . . 1,072 2.51 100 972 2.30 (180) 1,152 2.72
Regular savings accounts (1) 3,881 9.09 29 3,852 9.12 262 3,590 8.47
Money market deposits. . . 2,415 5.66 333 2,082 4.93 112 1,970 4.64
------- ------ ---- ------- ------ ------ ------- ------
8,055 18.87 644 7,411 17.55 394 7,017 16.55
Fixed-rate certificates
which mature (1):
Within 1 year. . . . . . 19,423 45.49 557 18,866 44.67 (417) 19,283 45.48
After 1 year, but
within 2 years. . . . . 5,330 12.48 (986) 6,316 14.95 28 6,288 14.83
After 2 years, but
within 5 years. . . . . 9,540 22.35 442 9,098 21.54 4,597 4,501 10.61
Certificates maturing
thereafter. . . . . . . . 346 0.81 (200) 546 1.29 (4,766) 5,312 12.53
------- ------ ---- ------- ------ ------ ------- ------
34,639 81.13 (187) 34,826 82.45 (558) 35,384 83.45
------- ------ ---- ------- ------ ------ ------- ------
Total . . . . . . . . . $42,694 100.00% $457 $42,237 100.00% $ (164) $42,401 100.00%
======= ====== ==== ======= ====== ====== ======= ======
</TABLE>
<PAGE>
- ----------------
(1) Included in savings accounts and certificate balances were individual
retirement account ("IRA") balances of (in thousands) $3,782, $3,567 and
$3,672 at September 30, 1997, 1996 and 1995, respectively.
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,
--------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
3.00 - 3.99%. . . . . . . . $ 22 $ 8 $ 998
4.00 - 4.99%. . . . . . . . 229 913 2,709
5.00 - 5.99%. . . . . . . . 22,909 20,863 18,120
6.00 - 6.99%. . . . . . . . 5,362 7,222 7,383
7.00 - 7.99%. . . . . . . . 2,381 2,230 2,219
8.00 - 8.99%. . . . . . . . 3,736 3,590 3,955
9.00% and over. . . . . . . -- -- --
------- ------- -------
Total . . . . . . . . . . $34,639 $34,826 $35,384
======= ======= =======
-17-
<PAGE>
<PAGE>
The following table sets forth the amount and maturities of time deposits
at September 30, 1997.
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%. . $ 22 $ -- $ -- $ -- $ -- $ 22 0.06%
4.00 - 4.99%. . 229 -- -- -- -- 229 0.66
5.00 - 5.99%. . 16,926 4,420 1,563 -- -- 22,909 66.14
6.00 - 6.99%. . 1,464 679 832 1,609 778 5,362 15.48
7.00 - 7.99%. . 782 231 174 1,094 100 2,381 6.87
8.00 - and over -- -- -- 3,736 -- 3,736 10.79
------- ------ ------ ------ ---- ------- ------
Total . . . . $19,423 $5,330 $2,569 $6,439 $878 $34,639 100.00%
======= ====== ====== ====== ==== ======= ======
Savings Activities
The following table sets forth the deposit activities of the Bank for the
periods indicated.
Year Ended September 30,
-----------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Beginning balance . . . . . . . . $42,237 $42,401 $40,711
Net deposits (withdrawals)
before interest credited . . . . (1,220) (1,765) 347
Interest credited . . . . . . . . 1,677 1,601 1,343
Net increase (decrease) in
deposits . . . . . . . . . . . . 457 (164) 1,690
------- ------- -------
Ending balance. . . . . . . . . . $42,694 $42,237 $42,401
======= ======= =======
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, 1997, 1996 and 1995, the Bank had no borrowings from the
FHLB-Des Moines.
-18-
<PAGE>
<PAGE>
REGULATION
General
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.
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) 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, 1997.
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 that insures the deposits, up to prescribed statutory limits,
of depository institutions. The FDIC maintains 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.
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The Bank's deposit accounts are insured by the FDIC under the SAIF to the
maximum extent permitted by law. The Bank 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" or
"undercapitalized"), which are defined in the same manner as the regulations
establishing the prompt corrective action system under the FDIA as discussed
below. The Bank's assessments expensed for the year ended September 30, 1997
were $42,000.
Pursuant to the Deposit Insurance Fund ("DIF") Act, which was enacted on
September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Bank, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of 0.065% 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 .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 Act 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
may take and what effect, if any, the adoption of a new charter would have on
the operation of the Bank.
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 4.0%) of its net withdrawable accounts plus short-term
borrowings. 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
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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, 1997, the Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, 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; (vi) asset quality; (vii)
earnings, and (viii) compensation, fees and benefits. The regulations 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. If the OTS determines that the Association fails to
meet any standard prescribed by the regulations, the agency may require the
Association to submit to the agency an acceptable plan to achieve compliance
with the standard. 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 Internal Revenue Code of
1986, as amended ("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
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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 Federal Home Loan Mortgage Corporation or 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, 1997, the Bank was in compliance with the QTL test.
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. The Company is not subject to
any minimum 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 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."
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 totaled 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 in risk-weighted assets.
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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 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.
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.
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
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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, 1997, the Bank's limit on loans to one borrower was $1.8
million. At September 30, 1997, the Bank's largest aggregate amount of loans
to one borrower was $1.0 million.
Activities of Savings 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 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 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.
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Bank Holding Company Regulation
General. Upon consummation of the acquisition of Lafayette County Bank
the Company become a bank holding company. Bank holding companies are subject
to comprehensive regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under the Bank Holding Company Act ("BHCA") and
the regulations of the Federal Reserve. As a bank holding company, the
Company will be required to file with the Federal Reserve annual reports and
such additional information as the Federal Reserve may require and will be
subject to regular examinations by the Federal Reserve. The Federal Reserve
also has extensive enforcement authority over bank holding companies,
including, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to require that a holding company
divest subsidiaries (including its bank subsidiaries). In general,
enforcement actions may be initiated for violations of law and regulations and
unsafe or unsound practices.
Under the BHCA, a bank holding company must obtain Federal Reserve
approval before: (1) acquiring, directly or indirectly, ownership or control
of any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(3) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve regulation or
order, have been identified as activities closely related to the business of
banking or managing or controlling banks. The list of activities permitted by
the Federal Reserve includes, among other things, operating a savings
institution, mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; providing
certain investment and financial advice; underwriting and acting as an
insurance agent for certain types of credit-related insurance; leasing
property on a full-payout, non-operating basis; selling money orders,
travelers' checks and United States Savings Bonds; real estate and personal
property appraising; providing tax planning and preparation services; and,
subject to certain limitations, providing securities brokerage services for
customers.
Interstate Banking and Branching. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "Riegle-Neal Act") was
enacted to ease restrictions on interstate banking. The Riegle-Neal Act
allows the Federal Reserve to approve an application of an adequately
capitalized and adequately managed bank holding company to acquire control of,
or acquire all or substantially all of the assets of, a bank located in a
state other than such holding company's home state, without regard to whether
the transaction is prohibited by the laws of any state. The Federal Reserve
may not approve the acquisition of a bank that has not been in existence for
the minimum time period (not exceeding five years) specified by the statutory
law of the host state. The Riegle-Neal Act also prohibits the Federal Reserve
from approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home
state or in any state in which the target bank maintains a branch. The
Riegle-Neal Act does not affect the authority of states to limit the
percentage of total insured deposits in the state which may be held or
controlled by a bank holding company to the extent such limitation does not
discriminate against out-of-state banks or bank holding companies. Individual
states may also waive the 30% state-wide concentration limit contained in the
Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transaction is
prohibited by the law of any state, unless the home state of one of the banks
opts out of the Riegle-Neal Act by adopting a law after the date of enactment
of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches will be permitted
only if the law of the state in which the
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branch is located permits such acquisitions. Interstate mergers and branch
acquisitions will also be subject to the nationwide and statewide insured
deposit concentration amounts described above.
The Riegle-Neal Act authorizes the applicable federal banking agency to
approve interstate branching de novo by national and state banks, but only in
states which specifically allow for such branching.
Dividends. The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the
Federal Reserve's view that a bank holding company should pay cash dividends
only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earnings retention
that is consistent with the company's capital needs, asset quality and overall
financial condition. The Federal Reserve also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends.
Bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption
if it determines that the proposal would constitute an unsafe or unsound
practice or would violate any law, regulation, Federal Reserve order, or any
condition imposed by, or written agreement with, the Federal Reserve. This
notification requirement does not apply to any company that meets the
well-capitalized standard for commercial banks, has a safety and soundness
examination rating of at least a "2" and is not subject to any unresolved
supervisory issues.
Capital Requirements. The Federal Reserve has established capital
requirements for bank holding companies that generally parallel the capital
requirements for national banks. The Federal Reserve regulations provide that
capital standards will generally be applied on a bank only (rather than a
consolidated) basis on the case of a bank holding company with less than $150
million in total consolidated assets.
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") to, 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 and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the income tax laws and
regulations applicable to the Bank or the Company.
Tax Bad Debt Reserves. Historically, savings institutions such as the
Bank which met certain definitional tests primarily related to their assets
and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Bank's
deductions with respect to "qualifying real property loans," which are
generally loans secured by certain interest in real property, were computed
using an amount based on the Bank's actual loss experience, or a percentage
equal to 8% of the Bank's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve.
-26-
<PAGE>
<PAGE>
The provisions repealing the current thrift bad debt rules were passed by
Congress as part of "The Small Business Job Protection Act of 1996." The new
rules eliminated the 8% of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after
December 31, 1995. These rules also require that all institutions recapture
all or a portion of their bad debt reserves added since the base year (last
taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such
the new rules will have no effect on the net income or federal income tax
expense. For taxable years beginning after December 31, 1995, the Bank's bad
debt deduction has been determined under the experience method using a formula
based on actual bad debt experience over a period of years. The new rules
allow an institution to suspend bad debt reserve recapture for the 1996 and
1997 tax years if the institution's lending activity for those years is equal
to or greater than the institution's average mortgage lending activity for the
six taxable years preceding 1996, adjusted for inflation. For this purpose,
only home purchase or home improvement loans are included and the institution
can elect to have the tax years with the highest and lowest lending activity
removed from the average calculation. If an institution is permitted to
postpone the reserve recapture, it must begin its six year recapture no later
than the 1998 tax year. The unrecaptured base year reserves will not be
subject to recapture as long as the institution continues to carry on the
business of banking. In addition, the balance of the pre-1988 bad debt
reserves continue to be subject to provisions of present law referred to below
that require recapture in the case of certain excess distributions to
shareholders.
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 Code 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 $2.0 million is imposed on corporations, including the Bank, whether or
not an Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the
same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Bank will not file a consolidated
tax return, except that if the Company or the Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
-27-
<PAGE>
<PAGE>
Other Federal Tax Matters. Other recent changes in the federal tax
system could also affect the business of the Bank. These changes include
limitations on the deduction of personal interest paid or accrued by
individual taxpayers, limitations on the deductibility of losses attributable
to investment in certain passive activities and limitations on the
deductibility of contributions to individual retirement accounts. The Bank
does not believe these changes will have a material effect on its operations.
Audits. There have not been any Internal Revenue Service audits of the
Bank's Federal income tax returns during the past five years.
State Taxation
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.
For additional information regarding taxation, see Note H of Notes to
Consolidated Financial Statements contained in the Annual Report.
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, 1997, there were 11 commercial banks, including Lafayette County
Bank, and no other 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, 1997, the Bank had 9 full-time and one part-time
employees. The employees are not represented by a collective bargaining unit.
The Bank believes its relationship with its employees is good.
-28-
<PAGE>
<PAGE>
Executive Officers
The following table sets forth certain information regarding the
executive officers of the Company as of September 30, 1997.
Name Age(1) Position
- ---- ------ --------
Erwin Oetting, Jr. 57 President and Chief Executive Officer
E. Steva Vialle 46 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. 57 President and Chief Executive Officer
E. Steva Vialle 46 Executive Vice President, Chief Operating
Officer and Secretary
Kathryn M. Swafford 35 Vice President and Treasurer
Mark D. Summerlin 37 Vice President
- ----------------
(1) As of September 30, 1997.
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. She is a member of the Lexington Park
Board.
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, 1997, the net
book value of the Bank's premises and equipment (land, building and
improvements, furniture and equipment) was $360,000.
-29-
<PAGE>
<PAGE>
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 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, 1997.
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 to Stockholders ("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, 1997 and 1996*
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1997, 1996 and 1995*
Consolidated Statements of Income for the Years Ended
September 30, 1997, 1996 and 1995*
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995*
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.
-30-
<PAGE>
<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.
-31-
<PAGE>
<PAGE>
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
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditor
(27) Financial Data Schedule
___________________
* 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 Annual Report on Form 10-K
for the year ended September 30, 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, 1997.
-32-
<PAGE>
<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 24, 1997 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 Executive December 24, 1997
Erwin Oetting, Jr. Officer and Director
(Principal Executive Officer)
/s/ E. Steva Vialle
- ------------------------ Executive Vice President, December 24, 1997
E. Steva Vialle Chief Operating Officer,
Secretary and Director
/s/ William J. Huhmann
- ------------------------ Senior Vice President and December 24, 1997
William J. Huhmann Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Steve Oliaro
- ------------------------ Director December 24, 1997
Steve Oliaro
/s/ Norman Vialle
- ------------------------ Director December 24, 1997
Norman Vialle
/s/ Charles R. Wilcoxon
- ------------------------ Director December 24, 1997
Charles R. Wilcoxon
/s/ Glenn H. Twente
- ------------------------ Director December 24, 1997
Glenn H. Twente
<PAGE>
<PAGE>
EXHIBIT 13
1997 Annual Report to Stockholders
<PAGE>
<PAGE>
1997 ANNUAL REPORT
LEXINGTON B & L FINANCIAL CORP.
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP.
1997 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................................................ 40
Corporate Information................................................. 41
<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 subsidiaries, B & L Bank and Lafayette
County Bank, we are pleased to present our second Annual Report as a public
company.
Lexington B & L Financial Corp. stock trades on the Nasdaq (Small Cap) Stock
Market under the symbol "LXMO". We began the year at $11.125 per share and
closed on September 30, 1997 at $16.25 per share representing a 46% gain on
the year. Earnings for the year ended September 30, 1997 were $746,500 or $.70
per share. Our return on average assets for the year ended September 30, 1997
was 1.24% while our return on average equity was 4.23%.
We have worked hard throughout the year to increase shareholder value. We
completed our first stock repurchase program in April of 1997, with the
repurchase of 126,500 of our outstanding shares. Through our second repurchase
program, which was completed in October, we repurchased 113,850 shares. In
July of 1997 we paid our first $0.15 per share semiannual dividend.
Following the end of the year, we completed the acquisition of Lafayette
County Bank, which operates three branches in Lexington, Wellington and
Callao. Lafayette County Bank will retain its name and operate as a subsidiary
of Lexington B & L Financial Corp. We are excited by Lafayette County Bank's
ability to contribute experience in commercial, agricultural and consumer
lending, which will greatly enhance our range of community banking services.
Our primary focus continues to be directed toward 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. ("Company"), a Missouri corporation, was
organized on November 29, 1995, for the purpose of becoming the holding
company for B & L Bank ("Bank"), 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 Lexington at a price of $10.00 per share
to certain former mutual members of B & L Bank and the general public. At
September 30, 1997, the Company had total consolidated assets of $58.8 million
and consolidated stockholders' equity of $15.7 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 federal 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, 1997, there were approximately
309 stockholders of record and 1,058,500 shares of common stock outstanding
(including unreleased Employee Stock Ownership Plan ("ESOP") shares of
86,900). 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 range of the Company's common
stock for the year ended September 30, 1997 and 1996. This information was
provided by the Nasdaq Stock Market.
High Low Dividends
---- --- ---------
Fiscal 1996
Third Quarter $11.00 $ 9.375 N/A
Fourth Quarter $11.00 $ 9.50 N/A
Fiscal 1997
First Quarter $13.50 $10.875 N/A
Second Quarter $15.75 $12.875 N/A
Third Quarter $16.75 $14.125 N/A
Fourth Quarter $16.625 $15.50 $0.15
-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. 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,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
SELECTED FINANCIAL CONDITION
DATA:
Total assets.............. $58,783 $61,670 $49,981 $47,727 $47,479
Loans receivable, net..... 45,873 45,348 41,111 39,379 37,605
Mortgage-backed securities 1,669 2,063 2,535 3,135 3,710
Cash, interest-bearing
deposits and investment
securities(1)............ 9,430 12,547 5,218 4,115 5,073
FHLB stock................ 464 464 455 455 455
Deposits.................. 42,694 42,237 42,401 40,711 41,004
Stockholders' equity,
substantially restricted. 15,652 18,762 7,195 6,598 6,030
Year Ended September 30,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amounts)
SELECTED OPERATING DATA:
Interest income........... $ 4,597 $ 4,073 $ 3,611 $ 3,331 $ 3,631
Interest expense on
deposits................. 2,298 2,333 2,003 1,617 1,891
------- ------- ------- ------- -------
Net interest income... 2,299 1,740 1,608 1,714 1,740
Provision for loan losses. 29 10 33 5 21
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 2,270 1,730 1,575 1,709 1,719
Noninterest income........ 84 99 --- 47 10
Noninterest expense....... 1,218 1,144 704 877 767
------- ------- ------- ------- -------
Income before income
taxes................... 1,136 685 871 879 962
Income taxes.............. 390 224 300 292 312
------- ------- ------- ------- -------
Net income............. $ 746 $ 461 $ 571 $ 587 $ 650
======= ======= ======= ======= =======
Net income per share...... $ 0.70 $ 0.40 * * *
======= =======
Dividends per share....... $ 0.15 $ --- * * *
======= =======
-3-
<PAGE>
<PAGE>
At or For the Year Ended September 30,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
KEY OPERATING RATIOS:
Performance Ratios:
Return on average assets
(net income divided by
average assets)......... 1.24% .84% 1.17% 1.24% 1.67%
Return on average equity
(net income divided by
average equity)......... 4.23 4.24 8.36 9.32 14.11
Interest rate spread
(difference between
average yield on
interest-earning assets
and average cost of
interest-bearing
liabilities)........... 2.40 2.22 2.75 3.20 3.28
Net interest margin (net
interest income as a
percentage of average
interest-earning assets) 3.78 3.25 3.38 3.69 3.76
Noninterest expense to
assets................. 2.07 1.86 1.40 1.83 1.62
Average interest-earning
assets to interest-bearing
liabilities............ 139 124 115 114 112
Dividend payout ratio
(dividends paid divided by
net income per share).. 21.43 --- * * *
Quality Ratios:
Allowance for loan losses
to total loans receivable
at end of period....... .48 .44 .49 .45 .46
Net charge offs to average
outstanding loans receivable
during the period...... .06 .02 .02 --- ---
Non-performing assets to
total assets (2)....... .67 1.26 1.15 .76 .57
Capital Ratios:
Equity to total assets at
end of period (3)..... 26.63 30.42 14.39 13.83 12.70
Average equity to average
assets................ 29.24 19.73 14.00 13.26 11.80
At September 30,
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
OTHER DATA:
Number of:
Real estate loans
outstanding............ 1,167 1,245 1,267 1,296 1,312
Deposit accounts........ 4,487 4,573 4,660 4,475 4,415
Full-service offices.... 1 1 1 1 1
* Operating as a mutual institution
- ---------------
(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, 1997, 1996 and 1995.
-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, 1997, 89.9% of the Bank's
mortgage loan and mortgage-backed securities portfolio was composed of
adjustable-rate loans and securities and the average maturity of the
mortgage-backed securities portfolio was less than twelve 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 net portfolio value ("NPV"), and the applicable limits
approved by the Bank's Board of Directors, as of September 30, 1997, 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)% (9)%
+300 bp (25) (4)
+200 bp (20) (1)
+100 bp (10) (1)
0 bp --- ---
-100 bp 8 (2)
-200 bp 10 (3)
-300 bp 11 (3)
-400 bp 20 (2)
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.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND 1996
- ----------------------------------------------------------------
Total assets decreased to $58.8 million at September 30, 1997, from $61.7
million at September 30, 1996. The decrease results primarily from the use of
certificates of deposit and investments to purchase 206,500 shares of treasury
stock at a cost of $3.2 million. Loans originated, net of repayments remained
constant and the increase of $.5 million in loans was the result of loans
purchased. Other assets increased $139,000, primarily the result of deferred
costs associated with the acquisition of Lafayette County Bank. Deposits
increased $457,000 from a strong economy in the Company's trade area. Other
liabilities decreased $240,000, primarily resulting from the payment of SAIF
assessment in first quarter of fiscal 1997. Equity decreased to $15.7 million
at September 30, 1997, from $18.8 million in 1996, primarily resulting from
the purchase of treasury stock and implementation of the management
recognition and development plan ("MRDP").
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
- --------------------------------------------------------------------------
1996
- ----
NET INCOME. Net income increased by $285,000, or 62.0%, to $746,000 for the
year ended September 30, 1997, from $461,000 for the year ended September 30,
1996. This increase was primarily due to increased earnings in 1997 from the
investing of the conversion proceeds for a full year, net of an increase in
noninterest expenses.
NET INTEREST INCOME. Net interest income increased 32.1%, to $2.3 million for
the year ended September 30, 1997, from $1.7 million for the year ended
September 30, 1996. Total interest income increased $524,000 to $4.6 million
in 1997 from $4.1 million in 1996, primarily as a result of the availability
of conversion funds for investment for the full year and, to a lesser extent,
an increase in the average yield of the loan portfolio to 8.41% from 8.13% and
an increase in the average yield of the investment securities and
interest-bearing deposits to 5.93% from 5.83%. Interest expense on deposits
decreased $35,000, or 1.5%, primarily as a result of lower average deposits,
offset by an increase in cost of deposits to 5.46% in 1997 from 5.39% in 1996.
Because the Company's average yield on interest-earning assets rose more than
the average rate paid on interest-bearing liabilities, the Company's net
interest spread increased to 2.40% for 1997 compared to 2.22% for the 1996
year.
-6-
<PAGE>
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $29,000 for the
year ended September 30, 1997, as compared to $10,000 for the year ended
September 30, 1996. The increase in the provision for loan losses was
primarily attributable to an increase in the allowance for loan losses to
reflect the increase in loans and management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience and economic
conditions.
NONINTEREST INCOME. Noninterest income decreased $15,000 to $84,000 for the
year ended September 30, 1997, primarily resulting from a $4,000 increase in
service charges and other fees, $8,000 decrease in net commissions in the
service subsidiary, $8,000 decrease in net income from sale of foreclosed real
estate, $4,000 increase in gain on sale of investments and $7,000 decrease in
other income.
NONINTEREST EXPENSE. Noninterest expense increased $73,000 to $1,218,000 for
the year ended September 30, 1997, from $1,145,000 for the year ended
September 30, 1996, primarily due to increases in employee salaries and
benefits of $242,000, professional and consulting fees of $129,000 and other
expenses of $37,000, offset by a decrease of $336,000 in Federal deposit
insurance premiums because of the approximately $281,000 for the one-time SAIF
assessment in 1996 and a reduced premium cost beginning January 1, 1997. The
increase in employee salaries and benefits results primarily from the ESOP
plan expense for a full year in fiscal 1997 and the implementation of the MRDP
in June 1997. The professional and consulting fees increase of $129,000
results from operating as a public company.
INCOME TAXES. The provision for income taxes increased to $390,000 for the
year ended September 30, 1997, from $224,000 for the year ended September 30,
1996, due to higher earnings without a corresponding increase in expenses.
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. 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.
NONINTEREST INCOME. Noninterest 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.
-7-
<PAGE>
<PAGE>
NONINTEREST EXPENSE. Noninterest 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.
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,
-------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets(2):
Loans receivable.. $45,109 $3,792 8.41% $41,201 $ 3,350 8.13% $40,249 $ 3,112 7.73%
Mortgage-backed
securities....... 1,895 119 6.30 2,283 147 6.44 2,820 183 6.49
Investment securities
and other interest-
bearing deposits.. 10,251 608 5.93 9,252 539 5.83 4,476 316 7.06
Certificates of
deposit........... 1,256 78 6.21 794 37 4.66 --- --- ---
------- ------ ------- ------- ------- -------
Total interest-
bearing assets... 58,511 4,597 7.86 53,530 4,073 7.61 47,545 3,611 7.59
Noninterest-earning
assets:
Office properties
and equipment, net 370 396 418
Real estate, net... 1 2 24
Other noninterest-
earning assets.... 1,516 1,134 791
------- ------- -------
Total assets...... $60,398 $55,062 $48,778
======= ======= =======
Interest-bearing
liabilities:
Passbook, NOW and
money market
accounts.......... $ 7,303 201 2.75 $ 7,893 223 2.83 $ 8,101 242 2.99
Certificates of
deposit........... 34,763 2,096 6.03 35,427 2,110 5.96 33,272 1,761 5.29
------- ------ ------- ------- ------- -------
Total deposits.... 42,066 2,297 5.46 43,320 2,333 5.39 41,373 2,003 4.84
------ ------- -------
Noninterest-bearing
liabilities:
Noninterest-bearing
deposits........... 123 393 181
Other liabilities.. 547 485 397
------- ------- -------
Total liabilities. 42,736 44,198 41,951
Stockholders'
equity........... 17,662 10,864 6,827
------- ------- -------
Total liabilities
and stockholders'
equity........... $60,398 $55,062 $48,778
======= ======= =======
Net interest income. $ 2,300 $ 1,740 $ 1,608
======= ======= =======
Interest rate
spread............. 2.40% 2.22% 2.75%
==== ==== ====
Net interest margin. 3.78% 3.25% 3.38%
==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities........ 139% 124% 115%
=== === ===
- ---------------
(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.
</TABLE>
-9-
<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,
-------------------------------
1997 1996 1995
---- ---- ----
Weighted average yield on:
Loan portfolio......................... 8.35% 8.06% 8.00%
Mortgage-backed securities............. 6.93 7.02 7.02
Investment securities and interest-
bearing deposits...................... 6.13 5.85 6.38
Certificates of deposit................ 5.70 5.67 ---
All interest-earning assets............ 7.95 7.56 7.80
Weighted average rate paid on:
Deposits............................... 5.53 5.47 5.42
All interest-bearing liabilities....... 5.53 5.47 5.42
Interest rate spread (spread between
weighted average yield on interest-
earning assets and weighted average
rate paid on all interest-bearing
liabilities)........................... 2.42 2.09 2.38
-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,
--------------------------------------------------------
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- --------------------------
Rate Volume Net Rate Volume Net
---- ------ --- ---- ------ ---
(Dollars in Thousands)
Interest-earning
assets:
Loans receivable(1) $ 117 $ 325 $ 442 $ 163 $ 75 $ 238
Mortgage-backed
securities........ (4) (24) (28) (1) (35) (36)
Investment securities
and other interest-
bearing deposits.. (2) 7 5 (63) 286 223
Certificates of
deposit........... 17 25 42 19 18 37
----- ----- ----- ----- ----- -----
Total net change
in income on
interest-earning
assets........... 128 333 461 118 344 462
Interest-bearing
liabilities:
Passbook, NOW and
money market
accounts.......... 6 18 24 (13) (6) (19)
Certificates of
deposit........... (28) 40 12 231 118 349
----- ----- ----- ----- ----- -----
Total interest-
bearing
liabilities...... (22) 58 36 218 112 330
----- ----- ----- ----- ----- -----
Net change in net
interest income.. $ 150 $ 275 $ 425 $(100) $ 232 $ 132
===== ===== ===== ===== ===== =====
- -------------------
(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, 1997 was approximately
19.3%. 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, 1997, the
Company originated mortgage loans in the amount of $9.0 million. During the
year ended September 30, 1997, the Company also purchased $0.2 million of two-
to four-family mortgage loans secured by real estate. The Company also
purchased $0.3 million of non-residential mortgage loans. 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 1997, 1996 and 1995, the Company
(or the Bank) used its sources of funds primarily to fund loan commitments and
to pay deposit withdrawals. At September 30, 1997, the Company had loan
commitments for ARM and fixed rate loans, which amounted to $1,041,750 and
$370,000, respectively.
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, 1997,
certificates of deposit amounted to $34.6 million, or 81.1% of total deposits,
including $15.2 million which were scheduled to mature in more than one year
at September 30, 1997. At September 30, 1997, $19.4 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, 1997. 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.
ACQUISITION OF LAFAYETTE COUNTY BANK
- ------------------------------------
The Company on March 12, 1997, announced the execution of a definitive
agreement with Lafayette Bancshares, Inc., the holding company for Lafayette
County Bank. On October 1, 1997, the merger was completed in accordance with
the Agreement and Plan of Merger. As a result, Lafayette County Bank became a
wholly-owned subsidiary of the Company. Each share of Lafayette common stock
has been converted into the right to receive .0851 share of Lexington common
stock and $0.92 in cash. Cash was paid in lieu of a fractional share of
Lexington at the rate of $16.098 per share. The transaction resulted in
Lexington issuing 96,120 shares of previously purchased treasury stock and
approximately $1,040,000 in cash resulting in a total purchase price of
approximately $3.5 million.
At September 30, 1997, Lafayette County Bank assets included $1.5 million cash
and interest-bearing deposits, $13.5 million investments, $2.1 million federal
funds sold and $16.5 million gross loans. The loan portfolio consisted of $4.8
million of commercial and agricultural loans, $7.2 million of real estate
loans and $4.5 million of consumer loans.
Lafayette County Bank, headquartered in Lexington, Missouri, had total assets
of $33.7 million at September 30, 1997. It has three full service offices, one
in Lexington, one in Wellington and one in Callao, Missouri.
See Note P of the Notes to the Consolidated Financial Statements.
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, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Morton, Horton & Carlson, P.C.
Mexico, Missouri
November 12, 1997
-14-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30
1997 1996
------------------
ASSETS
Cash (includes interest-bearing deposits of
$6,183,087 and, $5,619,441, respectively) $ 6,818,315 $ 6,268,048
Certificates of deposit 24,854 2,524,854
Investment securities--Note B
Available-for-sale, at fair value 1,708,545 2,906,125
Held-to-maturity (fair value of $1,048,925
and $1,004,791, respectively) 878,312 847,702
Mortgage-backed securities available-for-sale,
at fair value--Note C 1,669,040 2,063,402
Stock in Federal Home Loan Bank ("FHLB")
of Des Moines 464,300 464,300
Loans receivable--Note D 45,873,319 45,347,771
Accrued interest receivable--Note E 282,399 301,697
Premises and equipment--Note F 359,502 381,186
Other assets 704,332 564,938
----------- -----------
TOTAL ASSETS $58,782,918 $61,670,023
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits--Note G $42,694,282 $42,236,793
Advances from borrowers for property
taxes and insurance 168,920 162,659
Other liabilities 268,110 508,602
----------- -----------
TOTAL LIABILITIES 43,131,312 42,908,054
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 and outstanding 12,650 12,650
Additional paid-in capital 12,115,432 12,071,392
Retained earnings - substantially restricted
--Notes I and M 8,225,011 7,649,330
Unearned ESOP shares--Note J (869,002) (971,240)
Unearned MRDP shares--Note J (656,001) ---
Treasury stock, at cost (206,500 shares of
common stock) (3,205,690) ---
Unrealized gain (loss) on securities
available-for-sale, net of tax 29,206 (163)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 15,651,606 18,761,969
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $58,782,918 $61,670,023
=========== ===========
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, 1997, 1996 AND 1995
UNREALIZED
ADDITIONAL UNEARNED GAIN (LOSS) UNEARNED TOTAL
COMMON PAID-IN RETAINED ESOP ON MRDP TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS SHARES SECURITIES SHARES STOCK EQUITY
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September
30, 1994 $ --- $ --- $6,617,765 $ --- $ (19,425) $ --- $ --- $ 6,598,340
Net income --- --- 570,692 --- --- --- --- 570,692
Change in
unrealized
gain (loss)
on securities --- --- --- --- 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 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 --- --- --- --- (6,349) --- --- (6,349)
------- ---------- ---------- ---------- ---------- ------- --------- -----------
BALANCE AT
SEPTEMBER 30,
1996 12,650 12,071,392 7,649,330 (971,240) (163) --- --- 18,761,969
Net income --- --- 746,456 --- --- --- --- 746,456
Release of ESOP
shares --- 44,040 --- 102,238 --- --- --- 146,278
Change in
unrealized
gain (loss)
on securities --- --- --- --- 29,369 --- --- 29,369
Repurchase of
common stock --- --- --- --- --- --- (3,979,479) (3,979,479)
Adoption of MRDP
--Note J --- --- --- --- --- (773,789) 773,789 ---
Amortization of
MRDP --- --- --- --- --- 117,788 --- 117,788
Dividends declared
($.15 per share) --- --- (170,775) --- --- --- --- (170,775)
------- ----------- ---------- ---------- ---------- --------- --------- -----------
BALANCE AT
SEPTEMBER 30,
1997 $12,650 $12,115,432 $8,225,011 $(869,002) $ 29,206 $(656,001) $(3,205,690) $15,651,606
======= =========== ========== ========= ========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-16-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30
1997 1996 1995
---------------------------------
INTEREST INCOME
Mortgage loans $3,513,711 $3,140,193 $2,962,378
Other loans 278,094 210,256 149,183
Investment securities and interest-
bearing deposits 686,082 575,708 316,121
Mortgage-backed securities 119,357 147,119 183,102
---------- ---------- ----------
Total Interest Income 4,597,244 4,073,276 3,610,784
INTEREST EXPENSE ON DEPOSITS--Note G 2,297,735 2,332,708 2,002,990
---------- ---------- ----------
Net Interest Income 2,299,509 1,740,568 1,607,794
PROVISION FOR LOAN LOSSES--Note D 29,190 10,013 32,460
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 2,270,319 1,730,555 1,575,334
NONINTEREST INCOME (LOSS)
Service charges and other fees 29,023 24,342 26,320
Commissions, net 16,994 25,960 20,856
Income (loss) from foreclosed real estate (25) 8,490 (5,600)
Gain (loss) on sale of investments--Note B 4,407 (175) (46,606)
Other 33,370 40,203 4,864
---------- ---------- ----------
Total Noninterest Income (Loss) 83,769 98,820 (166)
NONINTEREST EXPENSE
Employee salaries and benefits 712,655 470,209 327,870
Occupancy costs 60,523 58,453 58,868
Advertising 12,642 10,545 7,665
Data processing 55,068 58,142 49,298
Federal insurance premium 41,828 378,003 94,006
Professional and consulting fees 156,332 27,240 29,981
Other 178,584 141,910 136,788
---------- ---------- ----------
Total Noninterest Expense 1,217,632 1,144,502 704,476
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,136,456 684,873 870,692
INCOME TAXES--Note H 390,000 224,000 300,000
---------- ---------- ---------
NET INCOME $ 746,456 $ 460,873 $ 570,692
========== ========== =========
NET INCOME PER SHARE $ .70 $ .40 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
1997 1996 1995
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 746,456 $ 460,873 $ 570,692
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 27,394 27,589 28,135
Amortization of premiums and discounts (18,953) (57,278) (53,092)
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 ---
Provisions for loan losses 29,190 10,013 32,460
Stock and patronage dividends --- (9,100) (18,636)
Proceeds for past patronage dividends --- 25,368 ---
ESOP shares released 146,278 40,848 ---
Amortization of deferred recognition
and retention plan 117,788 --- ---
Changes to assets and liabilities
increasing (decreasing) cash flows
Accrued interest receivable 19,299 (149,167) (30,063)
Other assets (139,394) (57,177) 537
Other liabilities (255,180) 300,511 (42,506)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 672,878 584,165 533,322
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of
mortgage-backed securities
available-for-sale 429,046 438,777 629,255
Proceeds from sales of securities
available-for-sale 2,400,343 --- 429,375
Proceeds from maturity of securities
held-to-maturity --- 43,459 ---
Proceeds from maturity of certificates
of deposit 2,500,000 --- 769,000
Loans originated, net of repayments (28,799) (436,345) (1,806,852)
Proceeds from sales of foreclosed real
estate 10,903 40,570 69,600
Purchase of certificates of deposits --- (2,500,000) ---
Purchase of securities available-
for-sale (1,205,046) (2,000,625) ---
Purchase of securities held-to-maturity --- (105,000) ---
Purchase of loans (536,843) (3,814,934) ---
Purchase of life insurance policies
to fund salary continuation plan --- (460,000) ---
Purchase of premises and equipment (5,710) (556) (24,333)
---------- ---------- ----------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 3,563,894 (8,794,654) 66,045
-18-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
YEAR ENDED SEPTEMBER 30
1997 1996 1995
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 457,489 $ (164,490) $ 1,689,796
Net increase (decrease) in advances
from borrowers for property
taxes and insurance 6,260 (11,534) (1,911)
Proceeds from sale of common stock --- 12,083,954 ---
Loan to ESOP --- (1,012,000) ---
Payment of dividends (170,775) --- ---
Purchase of treasury stock (3,979,479) --- ---
----------- ----------- -----------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (3,686,505) 10,895,930 1,687,885
----------- ----------- -----------
NET INCREASE IN CASH 550,267 2,685,441 2,287,252
CASH, BEGINNING OF YEAR 6,268,048 3,582,607 1,295,355
----------- ----------- -----------
CASH, END OF YEAR $ 6,818,315 $ 6,268,048 $ 3,582,607
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for
Interest on deposits $ 2,319,244 $ 2,368,816 $ 1,993,279
=========== =========== ===========
Income tax $ 293,560 $ 275,302 $ 307,393
=========== =========== ===========
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 $ 10,903 $ 30,785 $ 42,803
=========== =========== ===========
Stock and patronage dividends $ --- $ 9,100 $ 18,636
=========== =========== ===========
Allocation of MRDP shares of
common stock $ 773,789 $ --- $ ---
=========== =========== ===========
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying reporting policies and practices of Lexington B & L Financial
Corp. (the "Company) and subsidiary conform to generally accepted accounting
principles ("GAAP") and to prevailing practices within the thrift industry. A
summary of the more significant accounting policies follows:
NATURE OF OPERATIONS: The Company, a Missouri corporation, was incorporated in
November, 1995, for the purpose of becoming the holding company of B & L Bank
("Bank"). On June 5, 1996, the Bank converted from a mutual to a stock form of
ownership and the Company completed its initial public offering and acquired
all of the outstanding capital stock of the Bank.
The Bank provides a variety of financial services to individual and corporate
customers. The Bank's primary deposit products are interest-bearing checking
and savings accounts and certificates of deposit. Its primary lending products
are one- to four-family residential loans.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, the Bank, and its
wholly-owned subsidiary, whose activities consist principally of selling
mortgage redemption insurance to the Bank's customers. Significant
intercompany balances and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES: Investment securities are classified as held to
maturity, which are recorded at amortized cost, or available-for-sale, which
are recorded at fair value. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity
until realized, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
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.
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.
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.
-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
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.
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.
-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
INCOME TAXES: 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. As changes in tax law or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
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.
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, including ESOP shares
released, 1,064,532 for the year ended September 30, 1997. Weighted average
number of shares used in the per share calculation for the year ended
September 30, 1996, was 1,164,464 stated on a pro forma basis as if the shares
were outstanding for the entire year.
-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
NEW ACCOUNTING STANDARDS: In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings per Share and No. 129, Disclosure of Information about Capital
Structure. Both statements are effective for financial statements issued after
December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"). It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure.
In June, 1997, the FASB issued SFAS No. 130, Reporting of Comprehensive Income
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. Both statements are effective for financial statements for
periods beginning after December 15, 1997. SFAS No. 130 establishes standards
for reporting and display of comprehensive income in a full set of general
purpose financial statements. An enterprise shall continue to display an
amount for net income but will also be required to display other comprehensive
income, which includes other changes in equity. SFAS No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers.
Upon adoption, these statements will not have a significant effect upon the
presentation of the Company's financial statements.
RECLASSIFICATION: Certain amounts in the 1996 and 1995 consolidated financial
statements have been reclassified to conform with the 1997 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, 1997 $1,705,327 $ 10,191 $ 6,973 $1,708,545
========== ======== ======== ==========
September 30, 1996 $2,900,600 $ 5,997 $ (472) $2,906,125
========== ======== ======== ==========
State and local obligations
held-to-maturity:
September 30, 1997 $ 878,312 $170,613 $ --- $1,048,925
========== ======== ======== ==========
September 30, 1996 $ 847,702 $157,548 $ (459) $1,004,791
========== ======== ======== ==========
The scheduled contractual maturities of debt securities at September 30, 1997,
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.
-23-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE B--INVESTMENT SECURITIES - CONT'D
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------------- ---------------------
Amounts maturing:
One year or less $ --- $ --- $ 500,117 $ 502,318
After one year through five
years 105,000 107,006 998,823 1,006,814
After five years through
ten years 250,000 317,660 --- ---
After ten years 523,312 624,259 206,387 199,413
-------- ---------- ---------- ----------
$878,312 $1,048,925 $1,705,327 $1,708,545
======== ========== ========== ==========
During 1996, state and local obligations held-to-maturity with amortized costs
of $43,634 were called for redemption resulting in gross loss of $175.
During 1997 and 1995, securities available-for-sale sold for total proceeds of
$2,004,750 and $429,375, respectively, resulting in a gross realized gain of
$4,407 in 1997 and a gross realized loss of $46,606 in 1995.
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, 1997
GNMA $ 65,626 $24,292 $ --- $ 289,918
FNMA 405,236 5,286 (1,805) 408,717
FHLMC 957,582 13,478 (655) 970,405
---------- ------- -------- ----------
$1,628,444 $43,056 $ (2,460) $1,669,040
========== ======= ======== ==========
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
========== ======= ======== ==========
The amortized cost and fair value of mortgage-backed securities at September
30, 1997, 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.
-24-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE C--MORTGAGE-BACKED SECURITIES - CONT'D
AMORTIZED FAIR
COST VALUE
----------------------
Amounts maturing:
One year or less $ 413,855 $ 413,572
After one year through five years 219,179 218,807
After ten years 995,410 1,036,661
---------- ----------
$1,628,444 $1,669,040
========== ==========
Mortgage-backed securities were pledged to secure deposits as required or
permitted by law, with an amortized cost of $587,834 and fair value of
$592,024 at September 30, 1997.
NOTE D--LOANS RECEIVABLE
Loans receivable consist of the following at September 30:
1997 1996
-----------------------
Mortgage loans
One- to four-family residences $39,720,752 $40,537,065
Multi-family residential 96,746 103,352
Commercial 1,456,803 1,016,901
Construction 1,100,600 613,000
Land 535,841 488,610
----------- -----------
42,910,742 42,758,928
Less undisbursed portion of mortgage loans 373,243 249,502
42,537,499 42,509,426
Consumer and other loans
Home equity $ 608,490 $ 486,389
Loans on savings 1,101,365 1,210,549
Automobile loans 1,446,035 1,089,563
Other 400,930 252,844
----------- -----------
3,556,820 3,039,345
----------- -----------
46,094,319 45,548,771
Less allowance for loan losses 221,000 201,000
----------- -----------
$45,873,319 $45,347,771
=========== ===========
At September 30, 1997 and 1996, the Company serviced loans amounting to $-0-
and $21,106, respectively, for the benefit of others. Also, the Company had
loans serviced by others amounting to $4,090,051 and $4,670,821 at September
30, 1997 and 1996, respectively.
-25-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE D--LOANS RECEIVABLE - CONT'D
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 ENDED SEPTEMBER 30
1997 1996
-----------------------
Balance, beginning of period $ 208,175 $ 198,292
Originations 46,000 19,658
Payments (16,770) (9,775)
--------- ---------
BALANCE, END OF PERIOD $ 237,405 $ 208,175
========= =========
Allowance for loan losses is as follows:
YEAR ENDED SEPTEMBER 30
1997 1996 1995
---------------------------------
Balance, beginning of period $ 201,000 $ 201,000 $ 178,000
Provision for loan losses 29,190 10,013 32,460
Charge-offs, net of recoveries (9,190) (10,013) (9,460)
--------- --------- ---------
BALANCE, END OF PERIOD $ 221,000 $ 201,000 $ 201,000
========= ========= =========
At September 30, 1997 the Company had no impaired loans. The average recorded
investment in impaired loans during the year ended September 30, 1997, was
$36,180 and the amount of interest included in interest income on such loans
for the year ended September 30, 1997, amounts to approximately $11,300.
NOTE E--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at September 30:
1997 1996
-----------------------
Loans receivable $258,726 $208,028
Mortgage-backed securities 9,664 12,074
Investments and other 14,009 81,595
-------- --------
$282,399 $301,697
======== ========
-26-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE F--PREMISES AND EQUIPMENT
Premises and equipment consists of the following at September 30:
1997 1996
-----------------------
Land $ 48,676 $ 48,676
Building and improvements 515,595 515,595
Furniture and equipment 161,432 155,722
-------- --------
725,703 719,993
Less accumulated depreciation and amortization 366,201 338,807
-------- --------
$359,502 $381,186
======== ========
NOTE G--DEPOSITS
Deposit account balances are summarized as follow at September 30:
WEIGHTED AVERAGE
RATE AT 1997 1996
SEPTEMBER 30, ---------------- ------------------
1997 AMOUNT % AMOUNT %
---------------- ---------------- ------------------
Noninterest-bearing ---% $ 686,976 1.6% $ 505,264 1.2%
NOW 2.50 1,072,471 2.5 971,504 2.3
Money Market 4.52 2,414,694 5.7 2,082,300 4.9
Passbook savings 3.01 3,880,715 9.1 3,851,499 9.1
----------- ----- ----------- -----
3.14 8,054,856 18.9 7,410,567 17.5
Certificates of deposit:
3.00 to 3.99% 3.75 21,644 --- 8,107 ---
4.00 to 4.99% 4.75 228,492 0.5 912,701 2.2
5.00 to 5.99% 5.61 22,909,386 53.7 20,862,976 49.4
6.00 to 6.99% 6.33 5,362,602 12.6 7,222,095 17.1
7.00 to 7.99% 7.29 2,381,205 5.5 2,230,029 5.3
8.00 to 8.99% 8.00 3,736,097 8.8 3,590,318 8.5
----------- ----- ----------- -----
6.08 34,639,426 81.1 34,826,226 82.5
----------- ----- ----------- -----
5.53% $42,694,282 100.0% $42,236,793 100.0%
==== =========== ===== =========== =====
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $3,144,000 and $3,241,000 at September 30, 1997 and
1996, respectively. Deposits over $100,000 are not federally insured.
The Company had deposits of approximately $1,062,553 and $871,096 for its
directors and officers at September 30, 1997 and 1996, respectively.
-27-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE G--DEPOSITS - CONT'D
At September 30, 1997, contractual maturities of certificate accounts are as
follows:
STATED YEAR ENDED SEPTEMBER 30
INTEREST RATE 1998 1999 2000 2001 2002 AFTER
- ------------- ---------------------------------------------------------------
3.00 to 3.99% $ 21,644 $ --- $ --- $ --- $ --- $ ---
4.00 to 4.99% 228,492 --- --- --- --- ---
5.00 to 5.99% 16,926,254 4,419,910 1,563,222 --- --- ---
6.00 to 6.99% 1,463,555 679,791 832,441 1,609,129 531,447 246,239
7.00 to 7.99% 782,759 230,965 173,769 1,093,712 --- 100,000
8.00 to 8.99% --- --- --- 3,736,097 --- ---
----------- ---------- ---------- ---------- -------- --------
$19,422,704 $5,330,666 $2,569,432 $6,438,938 $531,447 $346,239
=========== ========== ========== ========== ======== ========
Interest expense on deposits are as follows:
YEAR ENDED SEPTEMBER 30
1997 1996 1995
-----------------------------------
Passbook, Now and Money Market
savings accounts $ 200,987 $ 223,471 $ 242,172
Certificate accounts 2,096,748 2,109,237 1,760,818
---------- ---------- ----------
$2,297,735 $2,332,708 $2,002,990
========== ========== ==========
NOTE H--INCOME TAXES
Components of income tax expense (benefit) are as follows:
YEAR ENDED SEPTEMBER 30
1997 1996 1995
-----------------------------------
Current $356,000 $319,900 $317,200
Deferred 34,000 (95,900) (17,200)
-------- -------- ---------
$390,000 $224,000 $300,000
======== ======== ========
In addition, the Company recorded deferred income tax (benefit) to equity
relating to unrealized gains and losses on investment securities
available-for-sale of $14,699, ($3,175) and $12,809 for the years ended
September 30, 1997, 1996 and 1995, respectively.
-28-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE H--INCOME TAXES - CONT'D
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
1997 1996 1995
------------------------------------------------
AMOUNT % AMOUNT % AMOUNT %
------------------------------------------------
Income tax expense at
statutory rates $386,395 34.0% $232,857 34.0% $296,035 34.0%
Increase (decrease) in taxes
resulting from:
Officers life insurance (8,087) (.7) --- --- --- ---
Tax exempt income, net of
related expenses (24,281) (2.1) (21,573) (3.2) (19,508) (2.2)
State income tax, net of
federal benefit 35,640 3.1 14,208 2.1 23,232 2.7
Other, net 333 --- (1,492) (.2) 241 ---
-------- ---- -------- ---- -------- ----
$390,000 34.3% $224,000 32.7% $300,000 34.5%
======== ==== ======== ==== ======== ====
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
1997 1996
------------------------
Deferred tax assets
Allowance for loan losses $ 34,700 $ 29,200
Excess pension contribution 43,700 ---
Unrealized loss on available-for-sale securities --- 81
Savings Association Insurance Fund assessment --- 103,800
Deferred compensation 31,500 11,200
Deferred tax liabilities
Depreciation (32,500) (33,800)
Federal Home Loan Bank of Des Moines stock
dividend (57,000) (57,000)
Unrealized gain on available-for-sale
securities (14,607) ---
-------- --------
NET DEFERRED TAX ASSET $ 5,793 $ 53,481
======== ========
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.
-29-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE I--REGULATORY CAPITAL REQUIREMENTS - CONT'D
The following table presents the Bank's capital position relative to its
regulatory capital requirements under FIRREA at September 30, 1997:
REGULATORY CAPITAL
TANGIBLE CORE RISK-BASED
---------------------------------------
(Dollars in Thousands)
GAAP capital $12,065 $12,065 $12,065
Adjustments to capital:
Unrealized gains (29) (29) (29)
General valuation allowances
as defined --- --- 206
------- ------- -------
REGULATORY CAPITAL 12,036 12,036 12,242
Regulatory capital requirement 879 1,757 2,460
------- ------- -------
EXCESS REGULATORY CAPITAL $11,157 $10,279 $ 9,782
======= ======= =======
Regulatory capital ratio 20.6% 20.6% 39.8%
Regulatory capital requirement 1.5 3.0 8.0
---- ---- ----
EXCESS REGULATORY CAPITAL RATIO 19.1% 17.6% 31.8%
==== ==== ====
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. There are no conditions or
events since the Bank was notification of well capitalized classification that
management believes have changed the institutions category.
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, 1997, 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, 1997, were
substantially restricted because of the effect of these bad debt reserves.
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 $35,500, $27,224 and
$9,250 was recognized for the years ended September 30, 1997, 1996 and 1995,
respectively.
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<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE J--BENEFIT PLANS - CONT'D
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, 1997,
1996 and 1995 was $50,605, $30,289 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 8.25%. 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, 1997 and 1996, was $131,709 and $40,848, respectively. The fair
value of unreleased shares based on market price of the Company's stock at
September 30, 1997 and 1996 was $1,412,125 and $1,056,224, respectively.
The number of ESOP shares are summarized as follows at September 30:
1997 1996
----------------------
Allocated shares 14,300 4,076
Unreleased shares 86,900 97,124
------- --------
101,200 101,200
======= =======
The Board of Directors adopted (November 27, 1996) and the shareholders
subsequently approved (January 27, 1997) a management recognition and
development plan ("MRDP"). Under the MRDP, common stock of 50,600 shares was
awarded to certain directors, officers and employees of the Company and the
Bank. The award will not require any payment by the recipients and will vest
over five years beginning one year after the date of the award (June 11,
1997). Amortization of the award resulted in a charge to compensation and
benefit expense of $117,788 in 1997.
-31-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE K--STOCK OPTION
The Company has authorized the adoption of a stock option plan. Under the
stock option plan, options to acquire 126,500 shares of the Company's common
stock may be granted to certain officers, directors and employees of the
Company or the Bank. The options will enable the recipient to purchase stock
at an exercise price equal to the fair market value of the stock at the date
of the grant. On June 11, 1997, the Company granted options for 101,200 shares
for $15.125 per share. The options will vest over the five years following the
date of grant and are exercisable for up to ten years.
No options have been exercised at September 30, 1997. During fiscal 1997, the
Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize, as expense over the vesting period, the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to disclose pro forma net earnings as if the fair
value-based method defined in SFAS No. 123 had been applied, while continuing
to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. The Company has elected to apply
the recognition provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123. Accordingly, no compensation expense
has been recognized for its incentive stock options. Had compensation cost for
the Company's incentive stock options been determined based upon the fair
value at the grant date consistent with the methodology prescribed under SFAS
No. 123, the Company's net earnings and net earnings per share would have been
decreased by approximately $67,326, $0.06 per share, in 1997. The weighted
average fair value of the options granted during 1997 is estimated at $6.94
per share on the date of grant using an option-pricing model with the
following assumptions; excepted dividend yield of 1.14%, risk-free interest
rate of 6.10% and an expected life of ten years.
Pro forma net earnings reflect only options granted and vested in fiscal 1997.
Therefore, the full impact of calculating compensation expense for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amount presented above because compensation expense is reflected over the
options' vesting period.
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.
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<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK - CONT'D
At September 30, 1997 and 1996, the Bank was committed to originate loans
aggregating approximately $1,411,750 and $879,900, respectively. Fixed loan
commitments approximated $370,000 and $18,000 at September 30, 1997 and 1996,
respectively, with interest rates ranging from 8.50% to 10.00%
At September 30, 1997, the Company had amounts on deposit at banks and federal
agencies in excess of federally insured limits of approximately $6,530,000.
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
-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
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 and certificates of deposit: The carrying amounts
of cash and due from depository institutions and certificates of deposit
approximate their fair value.
Investment and mortgage-backed securities: Fair value is determined by
reference to quoted market prices.
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.
-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
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, 1997 (dollars in thousands) are as follows:
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------------------------------
ASSETS
Cash $ 6,818 $ 6,818 $ 6,268 $ 6,268
Certificates of deposit 25 25 25 25
Investment securities
available-for-sale 1,709 1,709 2,063 2,906
Investment securities
held-to-maturity 878 1,049 848 1,005
Mortgage-backed securities 1,669 1,669 2,063 2,063
Stock in FHLB 464 464 464 464
Loans receivable 45,873 45,120 45,348 44,613
Accrued interest receivable 282 282 302 302
LIABILITIES
Transaction accounts 8,055 8,055 7,411 7,411
Certificates of deposit 34,639 34,934 34,826 35,185
Advances from borrowers for
taxes and insurance 169 169 163 163
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
1997 1996
-------------------------------
CONDENSED BALANCE SHEET
ASSETS
Cash and cash equivalents $ 2,467,092 $ 108,198
Certificates of deposit --- 3,022,615
Securities available-for-sale --- 2,005,937
ESOP note receivable 907,572 978,602
Accrued interest receivable --- 45,177
Investment in subsidiary 12,065,107 12,644,333
Other 220,252 ---
----------- -----------
TOTAL ASSETS $15,660,023 $18,804,862
=========== ===========
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<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
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued income taxes $ 8,417 $ 42,893
Stockholders' equity 15,651,606 18,761,969
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,660,023 $18,804,862
=========== ===========
PERIOD FROM
JUNE 5, 1996
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
CONDENSED STATEMENT OF INCOME
Dividends from subsidiary $1,500,000 $ ---
Interest income 268,678 113,174
Gain on sale of investments 4,407 ---
---------- ---------
1,773,085 113,174
Expenses 265,171 ---
---------- ---------
Income before equity in undistributed
earnings of subsidiary and income
taxes 1,507,914 113,174
Increase (Decrease) in undistributed
equity of subsidiary (758,458) 103,543
---------- ---------
INCOME BEFORE INCOME TAXES 749,456 216,717
Income taxes 3,000 41,100
---------- ---------
NET INCOME $ 746,456 $ 175,617
========== =========
PERIOD FROM
JUNE 5, 1996
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income $ 746,456 $ 175,617
Adjustments to reconcile net
income to net cash provided from
operating activities:
(Increase) Decrease in undistributed
equity of subsidiary 758,458 (103,543)
Amortization of MRDP 117,788 ---
Other (211,966) (26,627)
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,410,736 45,447
-36-
<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
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Cash flow from investing activities:
Purchase of certificates of deposit (1,500,017) (3,000,000)
Purchase of securities available-
for-sale --- (2,000,624)
Proceeds from and maturities of
certificates of deposit 4,522,649 ---
Proceeds from sale of securities
available-for-sale 2,004,750 ---
Investment in subsidiary --- (6,041,977)
---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 5,027,382 (11,042,601)
Cash flows from financing activities:
Net proceeds from sale of common stock --- 12,083,954
Loan to ESOP --- (1,012,000)
Principal collected from ESOP 71,030 33,398
Dividends paid (170,775) ---
Purchase of treasury stock (3,979,479) ---
---------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (4,079,224) 11,105,352
---------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 2,358,894 108,198
Cash and cash equivalents at
beginning of period 108,198 ---
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,467,092 $ 108,198
========== ===========
Non-cash investing and financing
activities:
Allocation of MRDP shares of
common stock 773,789 N/A
========== ===========
NOTE P--SUBSEQUENT EVENT, ACQUISITION OF LAFAYETTE COUNTY BANK
The purchase of Lafayette County Bank. was completed on October 1, 1997, in
accordance with the Agreement and Plan of Merger, resulting in Lafayette
County Bank becoming a subsidiary of the Company. In the transaction,
Lafayette shareholders received 96,120 shares of the Company's common stock,
$1,039,140 cash and cash payments for fractional shares. The purchase price
also included the assumption of debt, net of assets acquired. The total
purchase price approximated $3,500,000 and will be accounted for under the
purchase method of accounting. The allocation of the purchase price to
tangible and intangible assets acquired by the Company is based on
management's estimates. The resulting goodwill of approximately $1,000,000
will be amortized on a straight-line basis over fifteen years.
-37-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE P--SUBSEQUENT EVENT, ACQUISITION OF LAFAYETTE COUNTY BANK - CONT'D
The following pro forma condensed combined statement of financial condition is
provided as of September 30, 1997, giving effect to the merger as though it
had been consummated on that date. Pro forma condensed combined statements of
income are provided for the year ended September 30, 1997, giving effect to
the merger as though it had occurred at the beginning of the period. The pro
forma condensed financial statements are presented for illustration purposes
only, and therefore, are not necessarily indicative of the operating results
and financial position which may occur in the future.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1997
ACQUISITION
ENTRIES(1)
--------------- PRO FORMA
LEXINGTON LAFAYETTE DEBIT CREDIT COMBINED
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS
Cash $ 6,818 $ 1,542 $ --- $ 1,235 $ 7,125
Investments 4,745 15,617 --- --- 20,362
Loans 45,873 16,152 --- --- 62,025
Goodwill --- 264 3,589 2,782 1,071
Other 1,347 1,062 --- 181 2,228
------- ------- ------ ------- -------
TOTAL ASSETS $58,783 $34,637 3,589 4,198 $92,811
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $42,694 $31,346 --- --- $74,040
FHLB advances --- 340 --- --- 340
Notes payable --- 588 --- --- 588
Other 437 356 149 --- 644
------- ------- ------ ------- -------
TOTAL
LIABILITIES 43,131 32,630 149 --- 75,612
Stockholders'
Equity 15,652 2,007 2,007 1,547 17,199
------- ------- ------ ------- -------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $58,783 $34,637 2,156 1,547 $92,811
======= ======= ------ ------ =======
$5,745 $5,745
====== ======
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<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONT'D
NOTE P--SUBSEQUENT EVENT, ACQUISITION OF LAFAYETTE COUNTY BANK - CONT'D
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1997
PRO FORMA
ADJUSTMENTS(2)
---------------- PRO FORMA
LEXINGTON LAFAYETTE DEBIT CREDIT COMBINED
----------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest Income $4,597 $2,410 $ 68 $ --- $6,939
Interest Expense 2,298 1,251 --- --- 3,549
------ ------ ------ ------ ------
NET INTEREST INCOME 2,299 1,159 68 --- 3,390
Provision for Loan
Losses 29 206 --- --- 235
------ ------ ------ ------ ------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 2,270 953 68 --- 3,155
Noninterest Income 84 244 --- --- 328
Noninterest Expense 1,218 870 70 --- 2,158
------ ------ ------ ------ ------
INCOME BEFORE
INCOME TAXES 1,136 327 138 --- 1,325
Income Taxes 390 113 --- 25 478
------ ------ ------ ------ ------
NET INCOME $ 746 $ 214 $ 138 $ 25 $ 847
====== ====== ====== ====== ======
Net Income Per
Share $ 0.70 $ 0.19 $ 0.73
====== ====== ======
Average Shares
Outstanding 1,065 1,130 1,161
===== ===== =====
- -----------------
(1) Acquisition entry to combined statement of financial condition includes:
(a) the purchase of minority interest in Lafayette County Bank for $196 cash
resulting in $47 goodwill, and (b) Lexington's purchase of Lafayette for
$1,039 cash, $1,466 cost of treasury stock and assumption of liabilities of
$609 resulting in $1,039 goodwill and $81 additional paid-in capital. (2) Pro
forma adjustments to combined statement of income include $68 reduced interest
income resulting from cash used in acquisition, net of income taxes of $25 and
amortization of goodwill on a straight line basis over fifteen years of $70.
The goodwill is assumed to not be tax deductible.
-39-
<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
Executive Vice-President, Chief
Operating Officer and Secretary Steve Oliaro
President
William J. Huhmann Baker Memorials, Inc.
Senior Vice-President and
Chief Financial Officer Norman Vialle
Owner, Maid-Rite Drive In
Mark D. Summerlin Charles R. Wilcoxon
Senior Vice-President Retired Businessman
Terry L. Thompson Glenn H. Twente
Vice-President Retired Chiropractor
B & L BANK OFFICERS
Erwin Oetting, Jr. E. Steva Vialle
President and Chief Executive Officer Executive Vice-President, Chief
Operating Officer and Secretary
Kathryn M. Swafford Mark D. Summerlin
Vice-President and Treasurer Vice-President
LAFAYETTE COUNTY BANK
OFFICERS: DIRECTORS:
William J. Huhmann William J. Huhmann
Chairman and Chief Financial Officer Chairman of the Board
Terry L. Thompson Terry L. Thompson
President and Chief Executive Officer
Alfred Block
Donald L. Coen Farmer
Executive Vice President
Ranie Thompson
Carol Summerlin Retired Businessman
Senior Vice President
William C. LaHue, M.D.
Kirk Craven Doctor.
Vice President
Norman Rasa
Betty Teter Business / Farmer
Assistant Vice-President
-40-
<PAGE>
<PAGE>
LAFAYETTE COUNTY BANK - CONT'D
OFFICERS: DIRECTORS:
Mary Ann Campbell Erwin Oetting, Jr.
Assistant Cashier President, B & L Bank.
Elsie Binder E. Steva Vialle
Assistant Cashier Executive Vice-President, B & L Bank
Steve Oliaro
President, Baker Memorials, Inc.
CORPORATE INFORMATION
OFFICES INDEPENDENT AUDITORS
LEXINGTON B & L FINANCIAL CORP Moore, Horton & Carlson, P.C.
AND B & L BANK Mexico, Missouri
919 Franklin Avenue GENERAL COUNSEL
Lexington, Missouri 64067
Telephone (816) 259-2247 Aull, Sherman, Worthington,
Giorza & Maycock, LLC
LAFAYETTE COUNTY BANK Lexington, Missouri
MAIN OFFICE SPECIAL COUNSEL
545 South Highway 13 Breyer & Aguggia
Lexington, Missouri 64067 Washington, D.C.
BRANCH LOCATIONS REGISTRAR AND TRANSFER AGENT
558 Highway 224 Registrar and Transfer Company
Wellington, Missouri 64097 10 Commerce Drive
Cranford, New Jersey 07016
Second and Highway 3
Callao, Missouri 63534
- ------------------------------------------------------------------------------
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at the office of B & L Bank,
919 Franklin Avenue, Lexington, Missouri, on Tuesday, January 13, 1998 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.
-41-
<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>
<PAGE>
Exhibit 23
Consent of Independent Auditors
<PAGE>
<PAGE>
MH&C MOORE, HORTON & CARLSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
510 South Muldrow St., P.O. Box 775 Mexico, Missouri 65265
Phone (314) 581-6773 FAX (314) 581-3209
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Lexington B & L Financial Corp.
Lexington, Missouri 64067
We hereby consent to the incorporation by reference in the Registration
Statement of Lexington B & L Financial Corp. on Form S-8 (File No. 333-29807),
of our report dated November 12, 1997, accompanying the consolidated financial
statements incorporated by reference in Lexington B & L Financial Corp.'s
Annual Report on Form 10-KSB for the year ended September 30, 1997.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
December 24, 1997
<PAGE>
<PAGE>
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