UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending December 31, 1997
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 0-28120
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Lexington B & L Financial Corp.
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Missouri 43-1739555
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(State or other jurisdiction of I.R.S. (I.R.S. Employer
Employer Incorporation or organization) Identification No.)
P.O. Box 190, Lexington, MO 64067
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(Address of principal executive offices) (Zip Code)
816-259-2247
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(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports). and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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As of February 9, 1998, there were 1,120,761 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
Transitional Small Business Disclosure Format
Yes No X
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
FORM 10-QSB
DECEMBER 31, 1997
INDEX PAGE
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PART I - FINANCIAL INFORMATION
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ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 1
CONSOLIDATED STATEMENTS OF INCOME 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-10
PART II - OTHER INFORMATION
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ITEM 1 - LEGAL PROCEEDINGS 11
ITEM 2 - CHANGES IN SECURITIES 11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS 11
ITEM 5 - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, September 30,
1997 1997
------------------------------
(Unaudited)
ASSETS
Cash $ 2,294 $ 635
Interest-bearing deposits 4,286 6,183
Certificates of deposit 25 25
Investment securities
Available-for-sale, at fair value 1,705 1,709
Held-to-maturity (estimated market
value of $14,897 at December 31, 1997
and $1,045 at September 30, 1997) 14,728 878
Mortgage-backed securities available-
for-sale, at fair value 1,420 1,669
Federal funds sold 1,400 ---
Stock in Federal Home Loan Bank of
Des Moines 578 464
Loans receivable (allowance for
loan losses of $592 at December 31,
1997 and $221 at September 30, 1997) 62,629 45,873
Accrued interest receivable 680 282
Premises and equipment 966 360
Cost in excess of net assets acquired 1,057 ---
Other assets 682 705
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TOTAL ASSETS $92,450 $58,783
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $74,138 $42,694
Advances from borrowers for taxes
and insurance 22 169
Advances from Federal Home Loan
Bank of Des Moines 340 ---
Notes payable 463 ---
Other liabilities 535 268
------- -------
TOTAL LIABILITIES 75,498 43,131
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par
value per share; 500,000
shares authorized, none
outstanding --- ---
Common stock, $.01 par value
per share; 8,000,000 shares
authorized, 1,265,000 issued
and outstanding at December
31, 1997 and September 30,
1997 13 13
Paid-in capital 12,215 12,115
Retained earnings - substantially
restricted 8,411 8,225
Unearned ESOP shares (843) (869)
Unearned MRDP shares (568) (656)
Treasury stock at cost (144,239
shares at December 31, 1997
and 206,500 shares at
September 30, 1997) (2,294) (3,205)
Unrealized gain on securities
available-for-sale, net of taxes 18 29
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TOTAL STOCKHOLDERS' EQUITY 16,952 15,652
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $92,450 $58,783
======= =======
See accompanying notes to Consolidated Financial Statements
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31,
1997 1996
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(Unaudited)
Interest Income
Mortgage loans $1,065 $ 885
Other loans 313 65
Investment securities and interest-
bearing deposits 319 177
Federal funds sold 30 ---
Mortgage-backed securities 25 33
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TOTAL INTEREST INCOME 1,752 1,160
Interest Expense
Deposits 916 600
Advances from FHLB 5 ---
Notes payable 12 ---
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TOTAL INTEREST EXPENSE 933 600
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NET INTEREST INCOME 819 560
Provision for Loan Losses 5 1
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 814 559
Non-interest Income
Service charges and other fees 71 7
Commissions, net 14 5
Income from foreclosed assets 1 ---
Loss on sale of investments (1) ---
Other 14 8
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TOTAL NON-INTEREST INCOME 99 20
Non-interest Expense
Employee salaries and benefits 411 129
Occupancy costs 41 15
Advertising 11 6
Data processing 26 14
Federal insurance premiums 11 26
Other 126 68
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TOTAL NON-INTEREST EXPENSE 626 258
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INCOME BEFORE INCOME TAXES 287 321
Income Taxes 101 116
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NET INCOME $ 186 $ 205
====== ======
Basic Earnings Per Share $ 0.19 $ 0.18
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Diluted Earnings Per Share $ 0.18 $ 0.18
====== ======
See accompanying notes to Consolidated Financial Statements
-2-
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
December 31,
1997 1996
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 186 $ 205
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 24 7
Amortization of premiums and discounts (3) (10)
Provisions for loan losses 5 1
Amortization of acquisition premium 19 ---
ESOP shares released 44 31
Amortization of deferred recognition
and retention plan 88 ---
Amortization of salary continuation
plan costs 19 13
Changes to assets and liabilities increasing
(decreasing) cash flows
Accrued interest receivable (12) (41)
Other assets (1) (39)
Other liabilities 41 (197)
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NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES 410 (30)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments of mortgage-
backed securities available-for-sale 246 59
Proceeds from maturities of certificates
of deposit --- 1,000
Proceeds from maturities of investment
securities held-to-maturity 2,820 ---
Purchase of investment securities held-
to-maturity (3,130) ---
Loans originated, net of repayments (608) (31)
Purchase of premises and equipment (229) ---
Cash paid in the acquisition of Lafayette
Bancshares, Inc. (1,235)
Cash acquired in acquisition of Lafayette
County Bancshares 1,551 ---
NET CASH PROVIDED BY (USED ------- -------
IN) INVESTING ACTIVITIES (585) 1,028
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 89 100
Net decrease in Federal funds sold 675 ---
Net decrease in advances from borrowers
for property taxes and insurance (147) (127)
Repayment of note payable (125) ---
Purchase of treasury stock (555) ---
NET CASH USED IN ------- -------
FINANCING ACTIVITIES (63) (27)
------- -------
NET INCREASE (DECREASE) IN CASH (238) 971
Cash and cash equivalents, beginning of period 6,818 6,268
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,580 $ 7,239
======= =======
See accompanying notes to Consolidated Financial Statements
-5-
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Presentation
- -----------------------------
The consolidated interim financial statements as of December 31, 1997 and for
the period then ended included in this report have been prepared by Lexington
B & L Financial Corp. ("Registrant" or "Company") without audit. The Company
is the holding company for B & L Bank and Lafayette County Bank. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation are reflected in the December 31,
1997, interim financial statements. The results of operations for the period
ended December 31, 1997, are not necessarily indicative of the operating
results for the full year. The consolidated interim financial statements as
of December 31, 1997, should be read in conjunction with the Registrant's
audited consolidated financial statements as of September 30, 1997 and for the
year then ended included in the Registrant's 1997 Annual Report to
Shareholders.
NOTE B--Earnings Per Share
- --------------------------
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128").
The Statement requires restatement of all prior-period earnings per share
("EPS") data presented. It replaces the presentation of primary EPS with
basic EPS and requires dual presentation of basic and diluted EPS on the face
of the statement of income. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.
During October 1997 the Company repurchased 33,850 shares of stock (3% of
outstanding shares). The total number of shares outstanding at December 31,
1997, after this purchase and the issuance of 96,111 shares in connection with
the acquisition of Lafayette Bancshares, Inc. is 1,120,761. The following
table presents the computation of EPS.
Three Months ended
December 31,
1997 1996
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(In thousands, except
per share amounts)
Basic earnings per share:
Income available to common shareholders $186 $205
==== ====
Average common shares outstanding 977 1,168
==== =====
Basic earnings per share $0.19 $0.18
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Diluted earnings per share:
Income available to common shareholders $186 $205
==== ====
Average common shares outstanding 977 1,168
Dilutive potential common shares outstanding
due to common stock options and awards 36 --
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Average number of common shares and dilutive
potential common shares outstanding 1,013 1,168
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Diluted earnings per share $0.18 $0.18
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-4-
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE C--Employee Stock Ownership Plan
In connection with its conversion to stock form, B & L Bank established an
ESOP for the exclusive benefit of participating employees (all salaried
employees who have completed at least 1000 hours of service in a twelve-month
period and have attained the age of 21). The ESOP borrowed funds from the
Company in an amount sufficient to purchase 101,200 shares (8% of the Common
Stock issued in the stock offering). The loan is secured by the shares
purchased and will be repaid by the ESOP with funds from contributions made by
B & L Bank, dividends received by the ESOP and any other earnings on ESOP
assets. B & L Bank presently expects to contribute approximately $149,600,
including interest, annually to the ESOP. Contributions will be applied to
repay interest on the loan first, then the remainder will be applied to
principal. The loan is expected to be repaid in approximately 10 years.
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the
ESOP and shares released from the suspense account are allocated among
participants in proportion to their compensation relative to total
compensation of all active participants. Benefits generally become 25% vested
after each year of credited service beyond one year. Vesting is accelerated
upon retirement, death or disability of the participant. Forfeitures are
returned to B & L Bank or reallocated to other participants to reduce future
funding costs. Benefits may be payable upon retirement, death, disability or
separation from service. Since B & L Bank's annual contributions are
discretionary, benefits payable under the ESOP cannot be estimated.
The Company accounts for its ESOP in accordance with Statement of Position
("SOP") 93-6, Employers' Accounting for Employee Stock Ownership Plans.
Accordingly, the debt of the ESOP is eliminated in consolidation and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated statements of financial condition. Contributions to the ESOP
shall be sufficient to pay principal and interest currently due under the loan
agreement. As shares are committed to be released from collateral, the
Company reports compensation expense equal to the average market price of the
shares for the respective period, and the shares become outstanding for
earnings per share computations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt and accrued interest. ESOP
compensation expense was $43,375 for the three months ended December 31, 1997
compared to $31,417 for the period ended December 31, 1996.
A summary of ESOP shares at December 31, 1997 is as follows:
Shares Allocated 14,300
Shares released for allocation 2,556
Unreleased shares 84,344
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TOTAL 101,200
=======
Fair value of unreleased shares $1,454,934
==========
NOTE D--Management Recognition and Development Plan
The Board of Directors adopted (November 27, 1996) and the shareholders
subsequently approved (January 27, 1997) a management recognition and
development plan ("MRDP"). Under the MRDP, 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). There were no shares vested under the plan at December 31, 1997. The
Company recognized $88,341 as MRDP compensation expense for the three months
ended December 31, 1997 and no expense for the same period ended December 31,
1996. The amortization method used attributes a higher percentage of
compensation cost to earlier years than to the later years of the service
period.
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E--Stock Options
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.
NOTE F--Acquisition
On October 1, 1997, the Company acquired Lafayette Bancshares, Inc., the
holding company for Lafayette County Bank, for $2,587,000 comprised of
$1,039,000 in cash and 96,111 shares of stock valued at $1,548,000. In
addition, the Company acquired the remaining minority interest of Lafayette
County Bank for cash amounting to $196,000. Also, approximately $185,000 of
expenses were incurred in connection with the acquisition. The transaction
was accounted for under the purchase method of accounting, with $1,063,000
recorded as cost in excess of net assets acquired.
NOTE G--Year 2000
The Federal Financial Institutions Examination Council requires all insured
financial institutions to complete an inventory of core computer functions and
set priorities for meeting Year 2000 conversion goals. As of December 31,
1997, hardware and software applications have been assessed and all mission
critical applications have been identified. The Company has been informed by
the applicable software vendors that all mission critical hardware and
applications are, or will be, fully tested and Year 2000 compliant by March
31, 1999. Other non-critical applications will become compliant by upgrading
existing software or by replacing older software that is already, or soon to
be, Year 2000 compliant. Estimated cost to the Company is not expected to be
material since all mission critical applications are supported by third party
vendors.
-6-
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The discussion and analysis included herein covers material changes in
results of operations during the three month periods ended December 31, 1997
and 1996 as well as those material changes in liquidity and capital resources
that have occurred since September 30, 1997.
The following should be read in conjunction with the Company's 1997
Annual Report to Shareholders, which contains the latest audited financial
statements and notes thereto, together with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained therein.
Therefore, only material changes in financial condition and results of
operation are discussed herein.
On October 1, 1997, the Company completed its acquisition of Lafayette
Bancshares, Inc., the holding company for Lafayette County Bank ( Lafayette ).
See Note F--Acquisition in Notes to Consolidated Financial Statements included
in this report.
Comparison of Financial Condition at December 31, 1997 and September 30, 1997
Financial Condition. Assets of the Company increased from $58.8 million
at September 30, 1997, to $92.5 million at December 31, 1997, resulting
primarily from the purchase of Lafayette Bancshares, Inc. The composition of
the earning assets and sources of funding for Lafayette at December 31, 1997
and interest yields earned and rates paid thereon for the quarter are
as follows:
Yield Yield
Amount Rate Amount Rate
- -----------------------------------------------------------------------------
(Dollars in Thousands)
Earning assets: Source of Funds:
Interest-bearing $ 485 3.88% NOW accounts $ 4,551 2.65%
deposits Money market
Investment securities: deposits 4,335 4.15
U.S. Government 4,092 5.58 Savings deposits 2,707 2.98
Federal agencies 8,899 6.36 Certificates of
deposits 16,028 5.85
Municipal securities 854 7.91 FHLB advances 340 6.32
Federal funds sold 1,400 4.91 Total interest- ------- ----
Loans: bearing
Commercial 3,479 8.96 liabilities 27,961 4.66
Agricultural 1,559 10.02 Non-interest
Real estate 6,579 9.34 bearing demand 3,992 ---
Consumer 4,901 10.42 ------- ----
------- ----- Total funding
Total earning assets $32,248 7.80% sources $31,953 4.66%
======= ===== ======= =====
Cash and interest-bearing deposits decreased $238,000 after adding $316,000 of
cash from the acquisition of Lafayette net of cash paid in the purchase.
Investment securities available-for-sale and held-to-maturity increased $13.8
million primarily from securities acquired from Lafayette and a $310,000 net
increase in purchases over securities maturing or called during the quarter.
Mortgage-backed securities decreased $249,000 resulting from monthly principal
payments on existing investments. Other assets increased $1.1 million as a
result of recording acquisition cost in excess of net assets on the
acquisition of Lafayette Bancshares, Inc. Total liabilities increased $32.4
million as result of increases in deposits of $31.4 million and $803,000 in
borrowed funds. After excluding the deposits acquired from Lafayette,
deposits reflect an increase of $89,000. Stockholders equity increased $1.3
million primarily from treasury shares reissued in the acquisition of
Lafayette Bancshares, Inc. and from earnings for the quarter ended December
31, 1997. Treasury stock decreased primarily from the issuance of 96,111
shares in the acquisition of Lafayette Bancshares, Inc., net of the purchase
of 33,850 additional treasury shares for $555,000.
The return on average assets for the three months ended December 31, 1997 was
0.76% compared to 1.32% for the same period ended December 31, 1996. The
return on average stockholders' equity was 4.37% for the quarter ended
December 31, 1997, compared to 4.31% for the same period a year ago.
Nonperforming assets were $497,000 or 0.54% of total assets at December
31, 1997, compared to $394,000 or 0.64% of total assets at September 30, 1997.
-7-
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Comparison of the three months ended December 31, 1997 to the three months
- --------------------------------------------------------------------------
ended December 31, 1996
- -----------------------
Net Income. Net income was $186,000 for the quarter ended December 31,
1997, compared to $205,000 for the quarter ended December 31, 1996. Net
interest income after provision for loan losses increased $255,000, non-
interest income increased $79,000 and non-interest expense increased $368,000.
Income tax expense decreased $15,000 due to the decrease in income before
income tax.
Net Interest Income. Net interest income of $819,000 for the quarter
ended December 31, 1997, increased by $259,000 or 46% from $560,000 for the
quarter ended December 31, 1996. Interest income increased $592,000 while
interest expense increased $333,000.
Interest Income. Interest income increased by $592,000, or 51%, from
$1,160,000 for the quarter ended December 31, 1996, to $1,752,000 for the
quarter ended December 31, 1997. Interest income from mortgage loans
increased $180,000 from $885,000 for the quarter ended December 31, 1996, to
$1,065,000 for the quarter ended December 31, 1997. Interest income on other
loans increased by $248,000 from $65,000 for the quarter ended December 31,
1996, to $313,000 for the quarter ended December 31, 1997. The increase in
loan interest income was due to an increase in both the average balance of
loans outstanding primarily from the acquisition of Lafayette, and higher
yields earned on loans. Interest and dividend income on investment securities
and interest bearing deposits increased $142,000 from $177,000 for the quarter
ended December 31, 1996, to $319,000 for the quarter ended December 31, 1997.
The increase in interest income from investment securities is the result a
higher volume and an improvement in the yield earned on securities. Interest
income from mortgage-backed securities decreased $8,000 from $33,000 for the
quarter ended December 31, 1996, to $25,000 for the quarter ended December 31,
1997. The decrease in interest income on mortgage backed securities resulted
from the monthly proceeds from principal payments creating a decrease in the
average balances in the investment.
Interest Expense. Interest expense increased $333,000 from $600,000 for
the three months ended December 31, 1996, to $933,000 for the three months
ended December 31, 1997. Interest expense on deposits increased $316,000
between the two periods and $17,000 of interest expense was incurred during
the period ended December 31, 1997 on borrowed funds acquired in the
acquisition of Lafayette. The increase in deposit interest can be attributed
to a higher volume of deposits acquired in the acquisition of Lafayette offset
partially by lower average rate paid on deposit accounts.
Provision for Loan Losses. Provision for loan losses increased $4,000
from $1,000 for the three months ended December 31, 1996, to $5,000 provided
in the three months ended December 31, 1997. For the quarter ended December
31, 1997, loan charge offs were $29,000 and recoveries on loans charged off
was $3,000.
Non-interest Income. Non-interest income increased $79,000 for the
quarter ended December 31, 1997, as compared to the quarter ended December 31,
1996. The increase can be attributed to service charge income of $45,000 and
insurance commissions of $11,000 earned during the quarter from operations of
Lafayette.
Non-interest Expense. Non-interest expense increased $368,000 from
$258,000 for the quarter ended December 31, 1996, to $626,000 for the quarter
ended December 31, 1997. Salaries and benefits cost increased $282,000 during
the first quarter ended December 31, 1997 over the same period a year ago.
This increase was primarily due to $141,000 in salary and benefit expense of
Lafayette which was acquired during the quarter. Also, contributing to the
increase in salaries and benefits was a $107,000 increase in employee benefit
plan expense i.e. MRDP plan, ESOP plan and the salary continuation plan.
Other expenses increased $58,000 of which $57,000 can be attributed to
expenses of Lafayette during the quarter. Also, contributing to the increase
in other expenses was $19,000 of goodwill amortization of cost in excess of
net assets acquired on the acquisition of Lafayette Bancshares, Inc. A
decrease of $15,000 in federal insurance premiums is primarily the result of
lower assessments by the insurance fund insuring deposits of the B & L Bank.
-8-
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LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
- -------------------------------
The Company's subsidiaries, B & L Bank and Lafayette County Bank, must
maintain an adequate level of liquidity to ensure availability of sufficient
funds to support loan growth and deposit withdrawals, satisfy financial
commitments and to take advantage of investment opportunities.
The primary source of liquidity for the Company's subsidiaries is liability
liquidity, which is the ability to raise new funds and renew maturing
liabilities. Principal sources of liability liquidity are customer deposits
and advances from Federal Home Loan Bank, of which both bank subsidiaries are
members. Asset liquidity is typically provided through proceeds from
principal and interest payments on loans, mortgage-backed securities,
investment securities and net operating income. While maturities and
scheduled maturities and amortization of loans, investment securities and
mortgage-backed securities are a somewhat predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
Liquid funds necessary for normal daily operations are maintained with the
Federal Home Loan Bank of Des Moines ("FHLB") and correspondent banks. Excess
funds over balances required to cover bank charges for services, are sold in
overnight Federal funds or transferred to time deposit accounts at the FHLB.
Normal daily operating expenses are not expected to change significantly in
the foreseeable future and customer deposits are expected to remain stable.
Historically, the Company's banking subsidiaries have been able to retain a
significant amount of its deposits as they mature. At December 31, 1997,
banking subsidiaries had approved loan commitments and outstanding lines of
credit totaling $1,528,000 and had undisbursed loans in process of $646,000.
At December 31, 1997, total stockholders equity of $16,952,000 represented
18.36% of total assets compared to $15,652,000 or 26.69% of total assets at
September 30, 1997. Book value per share at December 31, 1997 was $15.13
compared to $14.78 at September 30, 1997.
B & L Bank:
The Office of Thrift Supervision currently requires a thrift institution to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 5% of the average daily balance of its net
withdrawable deposits and short-term borrowing. In addition, short-term
liquid assets currently must constitute 1% of the sum of net withdrawable
deposit accounts plus short-term borrowings. B & L Bank's liquidity ratio
was 13.97% at December 31, 1997, and its short-term liquidity ratio at
December 31, 1997 was 8.95%. B & L Bank consistently maintains liquidity
levels in excess of regulatory requirements, and believes this is an
appropriate strategy for proper asset and liability management.
In addition, the Office of Thrift Supervision requires institutions such as B
& L Bank to meet certain tangible, core, and risk-based capital requirements.
Tangible capital generally consists of stockholders' equity minus certain
intangible assets. Core capital general consists of stockholders' equity.
The risk-based capital requirements presently address risk related to both
recorded assets and off-balance sheet commitments and obligations. The
following table summarizes B & L Bank's capital ratios and the ratios required
by regulation at December 31, 1997.
-9-
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<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Minimum
B & L Bank Required
Ratios at Capital
December 31, 1997 Ratios
---------------- ------
Risk-based capital 40.1% 8.0%
Core capital 21.8% 3.0%
Tangible capital 21.8% 1.5%
Lafayette County Bank:
The Federal Deposit Insurance Corporation adopted capital-related regulations
under FDICA. Under those regulations, a bank will be adequately capitalized
if it: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio
of Tier I capital to risk-adjusted assets of 4% or greater, (iii) had a ratio
of Tier I capital to adjusted total assets of 4% or greater; (iv) was not
subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital level for
any capital measure. The following table summaries Lafayette County Bank s
capital ratios and ratios required by regulation at December 31, 1997.
Lafayette Minimum
County Bank Required
Ratios at Capital
December 31, 1997 Ratios
----------------- ------
Risk-based capital 15.5% 8.0%
Tier 1 capital to net risk-
weighted assets 14.3% 4.0%
Tangible equity ratio 7.5% 4.0%
-10-
<PAGE>
<PAGE>
LEXINGTON B & L FINANCIAL CORP. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Registrant nor its banking subsidiaries, B & L Bank or Lafayette
County Bank, are a party to any material legal proceedings at this time. From
time to time the Company s banking subsidiaries ares involved in various
claims and legal actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
ITEM 27 FINANCIAL DATA SCHEDULE
-11-
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lexington B & L Financial Corp.
Date February 17, 1998 By: /s/ Erwin Oetting, Jr.
------------------------------
Erwin Oetting, Jr.
President and Chief Executive
Officer
Date February 17, 1998 By: /s/ E. Steva Vialle
------------------------------
E. Steva Vialle
Executive Vice President and
Chief Operating Officer
<PAGE>
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