<PAGE>
EXHIBIT 13
2000 Annual Report to Stockholders
<PAGE>
Lexington B & L Financial Corp.
2000 ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
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................. 6
Independent Auditors' Report.......................................................................... 13
Consolidated Statements of Financial Condition........................................................ 14
Consolidated Statements of Stockholders' Equity....................................................... 15
Consolidated Statements of Income..................................................................... 17
Consolidated Statements of Cash Flows................................................................. 18
Notes to Consolidated Financial Statements............................................................ 20
Directors and Officers................................................................................ 38
Corporate Information................................................................................. 39
Stockholder Information............................................................................... 40
</TABLE>
<PAGE>
[LOGO] LETTERHEAD OF LEXINGTON B & L FINANCIAL CORP.]
-------------------------------------------------------------------------
President's Message
To Our Stockholders:
Earnings for the year ended September 30, 2000 were $835.000, a record level of
earnings and an increase of 26.5% over 1999 results. Earnings per share diluted
were $1.10 per share or an increase of 52.8% over last year. Record earnings
along with the continuation of the Company's buy back of outstanding shares
contributed to the increase in per share earnings. Although, stockholders
equity decreased from $15.1 million at September 30, 1999 to $13.9 million at
September 30, 2000, tangible book value increased 9.8% to $16.68 per share.
Our return on average assets for the year ended September 30, 2000 was 0.79%
while our return on average equity was 5.93%. We paid a $0.15 per share
semiannual dividend in January and July this year.
Lexington B & L Financial Corp. stock trades on the Nasdaq (Small Cap) Stock
Market under the symbol LXMO. We began the year at $12.50 per share, reached a
high of $13.50 and closed on September 30, 2000 at $11.00 per share. We are
disappointed with the market performance of the Company's stock and the Board
and Management is committed to increasing the market value of your stock.
During the year we continued the stock repurchase program with the purchase of
148,612 shares of our outstanding stock at a cost of $1.9 million.
Our primary focus continues to be directed towards being a community-oriented
financial institution offering a full range of outstanding financial products
and services for our customers. A major step towards this goal started this
year with the construction of our new banking facility in Lexington, Missouri.
With the merger of our two banking subsidiaries early next year, the addition of
a larger facility was necessary. The merged institution, operating from its new
facility, will be better positioned to improving and expanding our financial
products and services.
The management and staff of Lexington B & L Financial Corp. appreciate your
support and confidence.
Sincerely,
/s/ Erwin Oetting Jr.
Erwin Oetting Jr.,
President
-1-
<PAGE>
BUSINESS OF THE CORPORATION
Lexington B & L Financial Corp. ("Company"), a Missouri corporation, was
organized in 1995, for the purpose of becoming the holding company for B & L
Bank ("B&L") 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. On October 1, 1997, the Company acquired 100% of the
outstanding stock of Lafayette County Bank ("LCB"). The acquisition was
accounted for utilizing the purchase method of accounting. During November
1998, the Company formed a mortgage banking subsidiary, B & L Mortgage, Inc.
("MTG"). MTG has been originating residential mortgages for resale in the
secondary mortgage market. At September 30, 2000, the Company had total
consolidated assets of $107.7 million and consolidated stockholders' equity of
$13.9 million.
The Company is not engaged in any significant business activity other than
holding the stock of B&L, LCB and MTG. Accordingly, the information set forth in
this report, including financial statements and related data, applies primarily
to the operations of its two banking subsidiaries and mortgage banking
subsidiary.
B&L is a federal stock savings bank, originally organized in 1887. B&L is
regulated by the Office of Thrift Supervision ("OTS"). LCB is a Missouri state
chartered bank regulated by the Missouri Division of Finance and the Federal
Deposit Insurance Corporation ("FDIC"). The deposits of B&L and LCB are insured
up to applicable limits by the FDIC. The two banking subsidiaries are members
of the Federal Home Loan Bank ("FHLB") System.
The Company's banking subsidiaries operate as community-oriented financial
institutions devoted to serving the needs of their customers in Lexington,
Missouri and nearby communities. The banking subsidiaries' business consists
primarily of attracting deposits from the general public and using those funds
to originate residential real estate, commercial, agriculture and consumer
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, 2000, there were approximately 500
stockholders of record and 784,173 shares of common stock outstanding (including
unreleased Employee Stock Ownership Plan ("ESOP") shares of 56,228 and
Management Recognition and Development Plan ("MRDP") shares of 20,240).
Dividend payments by the Company are dependent primarily on dividends received
by the Company from its banking subsidiaries. Under federal regulations, the
dollar amount of dividends the banks may pay is dependent upon their capital
position and recent net income. Generally, if they satisfy their regulatory
capital requirements, they may make dividend payments up to the limits
prescribed in the OTS and FDIC regulations. However, B&L 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 OTS regulations. The Company also has certain dividend limitations
applicable under Missouri law which prohibited it 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 the market price range of the Company's common
stock for the years ended September 30, 2000 and 1999. This information was
provided by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
------------------------------------------------ ---------------------------------------------
High Low Dividends High Low Dividends
------------------------------------------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $13.438 $12.125 --- $13.000 $11.000 ---
Second Quarter $13.500 $10.875 $0.15 $12.125 $10.375 $0.15
Third Quarter $13.125 $ 9.000 --- $11.750 $10.625 ---
Fourth Quarter $12.438 $ 9.625 $0.15 $13.500 $11.125 $0.15
</TABLE>
-2-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the consolidated
financial position and results of operations of the Company at and for the dates
indicated. The consolidated data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Company and its
subsidiaries presented herein.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $107,687 $106,693 $93,761 $58,789 $61,670
Loans receivable, net 64,680 62,126 62,315 45,888 45,348
Investment securities 30,021 32,700 17,338 4,256 8,342
Cash and interest-bearing deposits(1) 4,746 6,091 8,985 6,843 6,268
FHLB stock 543 535 520 464 464
Deposits 85,338 85,150 76,764 42,694 42,237
Stockholders' equity 13,944 15,110 15,593 15,652 18,762
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income $ 7,640 $ 7,337 $ 6,997 $ 4,597 $ 4,073
Interest expense 4,374 4,282 3,776 2,298 2,333
-------- -------- ------- ------- -------
Net interest income 3,266 3,055 3,221 2,299 1,740
Provision for loan losses 70 37 26 29 10
-------- -------- ------- ------- -------
Net interest income after provision for loan
losses 3,196 3,018 3,195 2,270 1,730
Noninterest income 465 403 305 84 99
Noninterest expense 2,441 2,438 2,483 1,218 1,144
-------- -------- ------- ------- -------
Income before income taxes 1,220 983 1,017 1,136 685
Income taxes 385 323 358 390 224
-------- -------- ------- ------- -------
Net income 835 $ 660 $ 659 $ 746 $ 461
======== ======== ======= ======= =======
Basic income per share $ 1.12 $ 0.74 $ 0.68 $ 0.70 $ 0.40
======== ======== ======= ======= =======
Diluted income per share $ 1.10 $ 0.72 $ 0.66 $ 0.69 $ 0.40
======== ======== ======= ======= =======
Dividends per share $ 0.30 $ 0.30 $ 0.30 $ 0.15 $ ---
======== ======== ======= ======= =======
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ---- -----
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
Performance Ratios:
Return on average assets (net income divided by
average assets) 0.79% 0.63% 0.70% 1.24% 0.84%
Return on average equity (net income divided by
average equity) 5.93 4.20 4.00 4.23 4.24
Interest rate spread (difference between average yield
on interest-earning assets and average cost of
interest-bearing liabilities) 2.60 2.26 2.63 2.40 2.22
Net interest margin (net interest income to
average interest-earning assets) 3.32 3.10 3.64 3.93 3.25
Noninterest expense to assets 2.27 2.29 2.65 2.07 1.86
Average interest-earning assets to interest-bearing
liabilities 116 119 124 139 124
Dividend payout ratio (dividends paid divided by
net income per share-basic) 29.79 40.54 44.12 21.43 ---
Asset Quality Ratios:
Allowance for loan losses to total loans receivable at
end of period 0.99 0.96 0.95 0.48 0.44
Net charge offs to average outstanding loans
receivable during the period 0.03 0.06 0.06 0.02 0.02
Non-performing assets to total assets (2) 0.41 0.43 0.56 0.67 1.26
Capital Ratios:
Equity to total assets at end of period 12.95 14.16 16.63 26.63 30.42
Average equity to average assets 13.38 15.08 17.58 29.24 19.73
<CAPTION>
At September 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Number of:
Loans outstanding 2,926 3,053 3,095 1,595 1,616
Deposit accounts 10,630 10,659 10,449 4,487 4,573
Full-service offices 4 4 4 1 1
</TABLE>
____________________
(1) Includes interest-bearing deposits in other depository institutions.
(2) Non-performing assets include non-accrual loans and other repossessed
assets.
-4-
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table provides a summary of operations by quarter for the years
ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Fiscal 2000 Quarter Ended
------------------------------------------------------------------
September 30 June 30 March 31 December 31
------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Interest income $1,962 $1,931 $1,879 $1,868
Interest expense 1,103 1,089 1,100 1,082
------ ------ ------ ------
Net interest income 859 842 779 786
Provision for loan losses 28 16 14 12
------ ------ ------ ------
Net interest income after provision
for loan losses 831 826 765 774
Noninterest income 101 138 106 120
Noninterest expense 590 600 627 624
------ ------ ------ ------
Income before income taxes 342 364 244 270
Income taxes 94 124 83 84
------ ------ ------ ------
Net income $ 248 $ 240 $ 161 $ 186
====== ====== ====== ======
Basic income per share $ 0.34 $ 0.34 $ 0.21 $ 0.23
====== ====== ====== ======
Diluted income per share $ 0.34 $ 0.33 $ 0.21 $ 0.22
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1999 Quarter Ended
------------------------------------------------------------------
September 30 June 30 March 31 December 31
------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Interest income $1,890 $1,850 $1,855 $1,742
Interest expense 1,094 1,102 1,086 1,000
------ ------ ------ ------
Net interest income 796 748 769 742
Provision for loan losses 11 --- 13 13
------ ------ ------ ------
Net interest income after provision
for loan losses 785 748 756 729
Noninterest income 53 142 123 85
Noninterest expense 504 656 683 595
------ ------ ------ ------
Income before income taxes 334 234 196 219
Income taxes 90 86 72 75
------ ------ ------ ------
Net income $ 244 $ 148 $ 124 $ 144
====== ====== ====== ======
Basic income per share $ 0.28 $ 0.16 $ 0.14 $ 0.16
====== ====== ====== ======
Diluted income per share $ 0.26 $ 0.16 $ 0.14 $ 0.16
====== ====== ====== ======
</TABLE>
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains certain "forward-looking statements". These forward-
looking statements, which are included in Management's Discussion and Analysis,
describe future plans or strategies and include the Company's expectations of
future financial results. The words "believe", "expect", "anticipate",
"estimate", "project" and similar expressions identify forward-looking
statements. The Company's ability to predict results or the effect of future
plans or strategies is inherently uncertain. Factors which could affect actual
results include interest rate trends, the general economic climate in the
Company's market area and the country as a whole, loan delinquency rates, and
changes in federal and state regulations. These factors should be considered in
evaluating the forward-looking statements and undue reliance should not be
placed on such statements.
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 Company consists principally of attracting deposits from the
general public and using such deposits to originate one- to four-family
residential mortgages, commercial, agricultural and consumer loans. The Company
also invests in U.S. Treasury securities, certificates of deposit, U.S. Federal
agency securities, state and local obligations and mortgage-backed securities.
The Company plans to continue to fund its assets primarily with deposits and
FHLB advances.
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 interest-bearing liabilities, consisting
primarily 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 Company's strategy is to operate as a conservative, well-capitalized,
profitable community-oriented financial institution dedicated to financing home
ownership, commercial, agricultural and consumer needs within the market it
serves and to provide quality service to all customers. The Company 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 Company's net interest earnings due to
changes in interest rates, the Company`s strategy on interest rate sensitivity
risk is to manage the exposure to potential risks associated with changing
interest rates by maintaining a balance sheet posture where annual net interest
earnings and the market value of portfolio equity are not significantly impacted
by unexpected changes in interest rates.
-6-
<PAGE>
Interest Rate Sensitivity of Net Portfolio Value
------------------------------------------------
The Company manages its interest rate risk by measuring the effect of interest
rate changes on the market value of assets and liabilities and the resulting
changes in the market value of portfolio stockholders' equity. The following
table illustrates at September 30, 2000 the percent of change in market value of
B&L and LCB stockholders' equity given various changes in interest rates.
<TABLE>
<CAPTION>
Basis
Point ("bp")
Change Net Portfolio Value
-----------------------------------------------------------------
in Rates $ Amount $ Change % Change
------------------ ---------------- ------------- -------------
<S> <C> <C> <C>
+300 bp $10,387 $(2,544) (20)%
+200 bp 11,386 (1,545) (12)
+100 bp 12,247 (684) (5)
0 bp 12,931 0 ---
-100 bp 13,685 754 6
-200 bp 15,057 2,126 16
-300 bp 15,999 3,068 24
</TABLE>
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, have features that restrict changes in interest
rates on a short-term basis and over the life of the asset. 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, 2000 and 1999
----------------------------------------------------------------
Total assets increased to $107.7 million at September 30, 2000, from $106.7
million at September 30, 1999. The increase can primarily be attributed to a
$1.8 million increase in FHLB advances. Deposits increased $188,000 principally
from an increase in retail certificates of deposits. Maturing investment
securities contributed to a $2.7 million decrease in investment portfolio. The
majority of the new funds were invested into the loan portfolio, which increased
$2.6 million and $1.7 million into the construction of a new banking facility
located in Lexington, Missouri. Equity decreased from $15.1 million at September
30, 1999 to $13.9 million at September 30, 2000, primarily from the purchase of
treasury stock. For the year ended September 30, 2000, the Company acquired
148,612 shares of its outstanding common stock at a cost of $1.9 million.
Comparison of Operating Results for the Year Ended September 30, 2000 and 1999
------------------------------------------------------------------------------
Net Income. For the year ended September 30, 2000, net income of $835,000,
increased $175,000 or 26.5% over the $660,000 reported last year. Earnings per
share-diluted for the year ended September 30, 2000, increased 38 cents or 52.8%
to $1.10 per share over the $0.72 per share last year. The increase in net
income can be attributed to an improvement in the interest spread and interest
margin and higher noninterest income. The purchase of treasury stock also
contributed to the increase in diluted earnings per share.
Net Interest Income. Net interest income increased 6.9% or $211,000 to $3.3
million for the year ended September 30, 2000, over the $3.1 million for the
year ended September 30, 1999. Total interest income increased $303,000 to $7.6
million from the $7.3 million in 1999. The increase can be attributed to
increased yield on average earning assets, despite a decrease in earning assets
of $187,000 to $98.5 million during the year ended September 30, 2000 from $98.7
million
-7-
<PAGE>
last year. The interest rate spread increased 33 basis points to 2.60% from
2.27% for the same period last year. The net interest margin increased 22 basis
points to 3.32% from 3.10% for the year ended September 30, 1999. The increase
in the net interest spread and the net interest margin can be attributed to the
yield on loans, which are adjustable to changes in interest rates. The average
yield on the loan portfolio increased 27 basis points to 8.77% over the 8.50%
realized last year. The average cost of interest bearing liabilities of 5.16%
for the year ended September 30, 2000 was virtually unchanged from the 5.17%
reported during the same period a year ago.
Provision for Loan Losses. The provision for loan losses was $70,000 for the
year ended September 30, 2000, as compared to $37,000 for last year. Loan
charge-offs for the year September 30, 2000 totaled to $31,000 compared to
$59,000 last year. Net loan charge-offs for 2000 amounted to $21,000 or 0.3% of
average outstanding loans, compared to $37,000 or 0.6% last year. The increase
in the provision for loan losses over last year is attributable to provisions
required by the Company's methodologies and documentation requirement to
determine the provision for losses and the adequacy of the allowance for loan
losses.
Noninterest Income. Noninterest income increased $62,000 to $465,000 for the
year ended September 30, 2000. The increased noninterest income can be
attributed to a $57,000 increase in service charges and other fees. Included in
other fees were mortgage banking fees of $68,000 for 2000 compared to $76,000
earned last year.
Noninterest Expense. Noninterest expense increased $3,000 for the year ended
September 30, 2000 over last year. Employee compensation and benefits declined
$43,000 as a result of a $69,000 decrease in the MRDP expense, which totaled
$104,000 for the year ended September 30, 2000, compared to $173,000 last year.
The five year amortization period of the Management Recognition and Development
Plan ("MRDP") expense is weighted towards higher expense in the earlier years.
Income Taxes. The provision for income taxes increased $62,000 to $385,000 for
the year ended September 30, 2000, from $323,000 for the year ended September
30, 1999. The effective tax rate for 2000 was 31.6% compared to 32.9% for last
year. The decline in the effective tax rate is the result of sales taxes paid
on the construction of the new office building, which is a direct reduction in
the state income tax. Also contributing to the lower effective tax rate is an
increase in tax-exempt interest income on state and municipal security holdings.
Comparison of Operating Results for the Year Ended September 30, 1999 and 1998
------------------------------------------------------------------------------
Net Income. For the year ended September 30, 1999, net income increased to
$660,000 over the $659,000 reported last year. The increase resulted primarily
from higher noninterest income and lower noninterest expenses. Increased
noninterest income can be attributed to mortgage banking fees amounting to
$76,000 from the newly formed Mortgage Banking Subsidiary and from a $19,000
increase in insurance commissions. The decrease in noninterest expense can be
attributed to lower MRDP expense.
Net Interest Income. Net interest income decreased 5.2%, to $3.1 million for
the year ended September 30, 1999, from $3.2 million for the year ended
September 30, 1998. Total interest income increased $340,000 to $7.3 million in
1999 from $7.0 million in 1998, primarily as a result of higher volume of
interest-earning assets. Average interest-earning assets for the year ended
September 30, 1999, increased $10.1 million to $98.7 million from $88.6 million
for the year ended September 30, 1998.
The interest rate spread decreased 37 basis points to 2.27% for the year ended
September 30, 1999, from 2.63% last year. The net interest margin decreased from
3.64% last year to 3.10% for the year ended September 30, 1999. The decrease in
the net interest spread and the net interest margin can be attributed to the
change in the mix of earning assets. The investment in securities increased
from 27% last year to 36% of earning assets during the year ended September 30,
1999. The yield and interest spread on securities is lower than the yield on
other earning assets. The increase in securities was the result of match
funding an increase in short-term public deposits. The average cost of
interest-bearing liabilities was 5.17% for the year ended September 30, 1999
compared to 5.27% last year. The decrease in the cost of funds can be
attributed to the general decline in interest rates during first nine months of
the Company's fiscal year ending September 30, 1999.
-8-
<PAGE>
Provision for Loan Losses. The provision for loan losses was $37,000 for the
year ended September 30, 1999, as compared to $26,000 for the year ended
September 30, 1998 and the allowance for loan losses of $599,000 remained
unchanged from a year ago. Loan losses for 1999 totaled $59,000 compared to
$61,000 last year. Net loan charge-offs for 1999 amounted to $37,000 compared
to $39,000 in 1998, or .06% of average outstanding loans for both years.
Noninterest Income. Noninterest income increased $99,000 to $403,000 for the
year ended September 30, 1999, primarily resulting from an $81,000 increase in
service charges and other fees, a $19,000 increase in net insurance commissions
and a $5,000 increase in gain on sale of investments. Included in the increase
from service charges and other fees was $76,000 of mortgage banking fees earned
in 1999. Partially offsetting these increases was a larger loss from foreclosed
real estate which increased $6,000.
Noninterest Expense. Noninterest expense decreased $45,000 to $2.4 million for
the year ended September 30, 1999, from $2.5 million for the year ended
September 30, 1998. The decrease can primarily be attributed to a $74,000
decrease in employee compensation and benefits and a $8,000 decrease in
professional and consulting fees. The decrease in employee compensation and
benefits can be attributed to a $129,000 decrease in the MRDP expense, which for
1999 totaled $173,000, compared to $302,000 last year. The increase in
occupancy cost can be attributed to operating facilities of the new mortgage
banking subsidiary. Increased data processing expense resulted from Year 2000
cost and implementation costs of data processing software.
Income Taxes. The provision for income taxes decreased to $323,000 for the year
ended September 30, 1999, from $358,000 for the year ended September 30, 1998,
due to increased tax-exempt interest income on state and municipal security
holdings.
-9-
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------- ------------------------------ -----------------------------
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 $ 62,440 $5,475 8.77% $ 62,023 $5,275 8.50% $62,958 $5,469 8.69%
Investment securities
and other interest-
bearing deposits 33,783 2,030 6.01 35,397 2,003 5.66 23,793 1,427 6.00
Federal funds sold 2,253 135 5.99 1,243 59 4.75 1,857 101 5.44
-------- ------ -------- ------ ------- ------
Total interest-
earning assets 98,476 7,640 7.76 98,663 7,337 7.44 88,608 6,997 7.90
Noninterest-earning assets 6,708 5,628 5,092
-------- -------- -------
Total assets $105,184 $104,291 $93,700
======== ======== =======
Interest-bearing liabilities:
NOW, money market and
passbook accounts $ 22,454 804 3.58 22,902 818 3.57 $19,463 668 3.43
Certificates of deposit 56,889 3,280 5.77 55,264 3,205 5.80 51,459 3,045 5.92
-------- ------ -------- ------ ------- ------
Total deposits 79,343 4,084 5.15 78,166 4,023 5.15 70,922 3,713 5.24
FHLB advances 5,182 265 5.11 4,280 225 5.26 307 19 6.19
Notes payable 253 25 9.88 341 34 9.97 449 44 9.80
-------- ------ -------- ------ ------- ------
Total interest-
bearing liabilities 84,778 4,374 5.16 82,787 4,282 5.17 71,678 3,776 5.27
------ ------ ------
Noninterest-bearing
liabilities 6,331 5,773 5,550
-------- -------- -------
Total liabilities 91,109 88,560 77,228
Stockholders' equity 14,075 15,731 16,472
-------- -------- -------
Total liabilities and
stockholders' equity $105,184 $104,291 $93,700
======== ======== =======
Net interest income $3,266 $3,055 $3,221
====== ====== ======
Interest rate spread 2.60% 2.27% 2.63%
==== ==== ====
Net interest margin 3.32% 3.10% 3.64%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 116% 119% 124%
======== ======== =======
</TABLE>
____________________________________
(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.
-10-
<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.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------- ---------------------------
Rate Volume Net Rate Volume Net
------ -------- ----- ------ -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $165 $ 35 $200 $(113) $(81) $(194)
Investment securities and other interest-bearing
deposits 120 (93) 27 (85) 661 576
Federal funds sold 18 58 76 (12) (30) (42)
---- ----- ---- ----- ---- -----
Total net change in income on
interest-earning assets 303 0 303 (210) 550 340
Interest-bearing liabilities:
Passbook, NOW and money market accounts 2 (16) (14) 28 121 150
Certificates of deposit (19) 94 75 (62) 222 160
FHLB advances (6) 46 40 (4) 210 206
Notes payable 0 (9) (9) 1 (11) (10)
---- ----- ---- ----- ---- -----
Total interest-bearing liabilities (23) 115 92 (36) 542 506
---- ----- ---- ----- ---- -----
Net change in net interest income $326 $(115) $211 $(174) $ 8 $(166)
==== ===== ==== ===== ==== =====
</TABLE>
________________________________
(1) For purposes of calculating volume, rate and rate/volume variances, non-
accrual loans are included in the weighted-average balance outstanding
-11-
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company's subsidiaries 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's deposits
and advances from the FHLB. Asset liquidity is typically provided from the
proceeds from principal and interest payments on loans, investment securities
and net operating income. While scheduled maturities of loans and investment
securities are somewhat predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Liquid funds necessary for normal daily operations are maintained with the FHLB
of Des Moines and correspondent banks. Excess funds over balances required to
cover bank charges for services, are sold in overnight Federal funds or
transferred to time deposit accounts at the FHLB. At September 30, 2000, the
Company and its subsidiaries held $4.5 million in excess funds in time deposit
accounts at the FHLB and Federal funds sold.
The Company uses its sources of funds primarily to fund loan commitments and to
pay deposits withdrawals. At September 30, 2000, the Company had commitments to
originate loans aggregating approximately $3.2 million. As of September 30,
2000, certificates of deposit amounted to $58.4 million, or 65.4% of total
deposits, including $41.5 million, which are scheduled to mature in less than
one year. Historically, the Company has been able to retain a significant amount
of its deposits as they mature. The Company believes it has adequate resources
to fund all loan commitments through deposit growth by adjusting the offering
rates of certificates to retain deposits in changing interest rate environments
or, if necessary, through FHLB advances.
Net cash provided by operating activities for the Company during the year ended
September 30, 2000, was $1.5 million. Net income of $835,000, adjusted for non-
cash charges, largely accounted for the net cash provided by operating
activities. Net cash used by investing activities was $2.5 million. The largest
component of cash used by investing activities was the increase in loans
originated and the construction of a new banking facility. Net cash used by
financing activities was $265,000. The largest component of cash used by
financing activities was the purchase of treasury stock. The largest component
of cash provided by financing activities was the increase in FHLB advances.
At September 30, 2000, the Company's total stockholders' equity totaled $13.9
million or 12.9% of total assets compared to $15.1 million or 14.2% at September
30, 1999. The decrease can be attributed to the repurchase of the Company's
common stock, which during the year ended September 30, 2000, amounted to $1.9
million. The Company is not subject to any regulatory capital requirements.
B&L and LCB are subject to certain capital requirements imposed by the OTS and
FDIC, which were satisfied at September 30, 2000. See Note J 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 industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
Impact of New Accounting Standards
----------------------------------
See Note A of the Notes to the Consolidated Financial Statements.
-12-
<PAGE>
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Lexington B & L Financial Corp.
Lexington, Missouri
We have audited the accompanying consolidated statements of financial condition
of Lexington B & L Financial Corp. ("Company") as of September 30, 2000 and
1999, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
2000. 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 the Company at
September 30, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2000, in
conformity with generally accepted accounting principles.
Moore, Horton & Carlson, P.C.
Mexico, Missouri
November 22, 2000
-13-
<PAGE>
Lexington B & L Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30
2000 1999
------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,657,815 $ 1,872,199
Interest-bearing deposits 3,087,806 4,218,661
Investment securities--Note B
Available-for-sale, at fair value 7,789,500 8,354,070
Held-to-maturity (fair value of $21,591,759 and $23,700,980, respectively) 22,231,430 24,345,763
Federal funds sold 1,374,000 518,000
Stock in FHLB of Des Moines 542,900 534,900
Loans held for sale 327,750 467,144
Loans receivable--Note C 64,680,411 62,125,817
Accrued interest receivable--Note D 1,132,059 1,025,068
Premises and equipment--Note E 2,832,177 1,180,159
Foreclosed real estate --- 32,000
Cost in excess of net assets acquired 863,044 937,266
Other assets 1,167,943 1,081,807
------------ ------------
TOTAL ASSETS $107,686,835 $106,692,854
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits--Note F $ 85,338,476 $ 85,150,252
Advances from borrowers for property taxes and insurance 180,097 181,925
Advances from FHLB--Note G 7,002,646 5,161,576
Notes payable--Note H 178,219 273,219
Other liabilities 1,043,236 815,587
------------ ------------
TOTAL LIABILITIES 93,742,674 91,582,559
Commitments and contingencies--Note M
Stockholders' Equity--Notes I, J and K
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 12,650 12,650
Additional paid-in capital 12,293,275 12,276,979
Retained earnings 9,491,125 8,904,935
Accumulated other comprehensive loss (158,962) (133,218)
Unearned ESOP shares (562,282) (664,522)
Unearned MRDP shares (77,379) (181,410)
Treasury stock at cost (480,827 and 332,215 shares, respectively) (7,054,266) (5,105,119)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,944,161 15,110,295
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,686,835 $106,692,854
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE>
Lexington B & L Financial Corp.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Unearned Total
Common Paid-In Retained Comprehensive ESOP MRDP Treasury Stockholders'
Stock Capital Earnings Income (Loss) Shares Shares Stock Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1997 $12,650 $12,115,432 $8,225,011 $ 29,206 $(869,002) $(656,001) $(3,205,690) $15,651,606
Comprehensive income:
Net income --- --- 658,706 --- --- --- --- 658,706
Other comprehensive income
(loss) - unrealized loss on
securities available-for-sale,
net of reclassification
adjustments for amounts
included in net income, net
of tax benefit of $3,183 --- --- --- (6,363) --- --- --- (6,363)
------- ----------- ---------- ----------- --------- --------- ----------- -----------
Total comprehensive income --- --- 658,706 (6,363) --- --- --- 652,343
------- ----------- ---------- ----------- --------- --------- ----------- -----------
Repurchase of common stock --- --- --- --- --- --- (2,389,541) (2,389,541)
Release of ESOP shares --- 63,884 --- --- 102,240 --- --- 166,124
Amortization of MRDP --- --- --- --- --- 301,778 --- 301,778
Acquisition of LCB --- 81,502 --- --- --- --- 1,465,693 1,547,195
Dividends paid
($.30 per share) --- --- (336,228) --- --- --- --- (336,228)
------- ----------- ---------- ----------- --------- --------- ----------- -----------
BALANCE AT
SEPTEMBER 30, 1998 12,650 12,260,818 8,547,489 22,843 (766,762) (354,223) (4,129,538) 15,593,277
Comprehensive income:
Net income --- --- 660,051 --- --- --- --- 660,051
Other comprehensive income
(loss) - unrealized loss on
securities
available-for-sale,
net of reclassification
adjustments for amounts
included in net income, net
of tax benefit of $80,647 --- --- --- (156,061) --- --- --- (156,061)
------- ----------- ---------- ----------- --------- --------- ----------- -----------
Total comprehensive income --- --- 660,051 (156,061) --- --- --- 503,990
------- ----------- ---------- ----------- --------- --------- ----------- -----------
Repurchase of common stock --- --- --- --- --- --- (975,581) (975,581)
Release of ESOP shares --- 16,161 --- --- 102,240 --- --- 118,401
Amortization of MRDP --- --- --- --- --- 172,813 --- 172,813
Dividends paid
($.30 per share) --- --- (302,605) --- --- --- --- (302,605)
------- ----------- ---------- ----------- --------- --------- ----------- -----------
BALANCE AT
SEPTEMBER 30, 1999 12,650 12,276,979 8,904,935 (133,218) (664,522) (181,410) (5,105,119) 15,110,295
</TABLE>
-15-
<PAGE>
Lexington B & L Financial Corp.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Cont'd
Years ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Unearned Total
Common Paid-In Retained Comprehensive ESOP MRDP Treasury Stockholders'
Stock Capital Earnings Income (Loss) Shares Shares Stock Equity
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comprehensive income:
Net income --- --- 834,554 --- --- --- --- 834,554
Other comprehensive income
(loss) - unrealized loss on
securities available-for-sale,
net of reclassification
adjustments for amounts
included in net income, net
of tax benefit of $14,778 --- --- --- (25,744) --- --- --- (25,744)
------- ----------- ---------- --------- ------- -------- ----------- -----------
Total comprehensive income --- --- 834,554 (25,744) --- --- --- 808,810
------- ----------- ---------- --------- ------- -------- ----------- -----------
Repurchase of common stock --- --- --- --- --- --- (1,949,147) (1,949,147)
Release of ESOP shares --- 16,296 --- --- 102,240 --- --- 118,536
Amortization of MRDP --- --- --- --- --- 104,031 --- 104,031
Dividends paid
($.30 per share) --- --- (248,364) --- --- --- --- (248,364)
------- ----------- ---------- --------- --------- -------- ----------- -----------
BALANCE AT
SEPTEMBER 30, 2000 $12,650 $12,293,275 $9,491,125 $(158,962) $(562,282) $(77,379) $(7,054,266) $13,944,161
======= =========== ========== ========= ========= ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE>
Lexington B & L Financial Corp.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
--------------------------------------------
<S> <C> <C> <C>
Interest Income
Mortgage loans $4,045,390 $3,857,030 $4,067,412
Other loans 1,428,686 1,418,028 1,400,962
Investment securities and interest-bearing deposits 2,029,792 2,002,566 1,427,533
Federal funds sold 135,466 59,629 101,173
---------- ---------- ----------
Total Interest Income 7,639,334 7,337,253 6,997,080
Interest Expense
Deposits 4,083,754 4,023,320 3,712,727
Advances from FHLB 264,960 224,660 19,320
Notes payable 24,856 34,730 44,006
---------- ---------- ----------
Total Interest Expense 4,373,570 4,282,710 3,776,053
---------- ---------- ----------
Net Interest Income 3,265,764 3,054,543 3,221,027
Provision for Loan Losses 69,865 36,707 25,673
---------- ---------- ----------
Net Interest Income After Provision for Loan Losses 3,195,899 3,017,836 3,195,354
Noninterest Income
Service charges and other fees 336,886 279,724 198,265
Commissions, net 53,915 65,427 46,072
Net expense of foreclosed real estate (2,684) (11,449) (5,935)
Gain on sale of investments 7,560 7,742 2,437
Other 68,493 61,679 63,774
---------- ---------- ----------
Total Noninterest Income 464,170 403,123 304,613
Noninterest Expense
Employee compensation and benefits 1,415,683 1,458,933 1,533,049
Occupancy costs 210,733 206,562 184,636
Advertising 34,049 34,075 37,343
Data processing 115,278 122,398 100,258
Federal insurance premium 21,620 30,690 30,950
Professional and consulting fees 157,808 147,362 155,341
Amortization of intangible assets arising from acquisitions 74,222 74,222 74,222
Other 411,622 363,666 367,462
---------- ---------- ----------
Total Noninterest Expense 2,441,015 2,437,908 2,483,261
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,219,054 983,051 1,016,706
Income Taxes--Note I 384,500 323,000 358,000
---------- ---------- ----------
NET INCOME $ 834,554 $ 660,051 $ 658,706
========== ========== ==========
Basic Income per share $ 1.12 $ 0.74 $ 0.68
========== ========== ==========
Diluted Income per share $ 1.10 $ 0.72 $ 0.66
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
Lexington B & L Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
-----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 834,554 $ 660,051 $ 658,706
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 93,575 93,154 91,367
Amortization of premiums and discounts (13,948) (12,649) (33,363)
Amortization of deferred loan fees 7,670 3,443 1,797
Provision for salary continuation plan costs 86,444 79,566 74,682
Amortization of cost in excess of net assets acquired 74,222 74,222 74,222
(Gain) loss on sales of foreclosed real estate (2,000) --- 5,935
Gain on held-to-maturity securities (7,560) (7,742) (2,437)
Provisions for loan losses 69,865 36,707 25,673
Provision for deferred income tax (benefit) (68,800) (58,000) (131,500)
Originations of loans held for sale (5,175,988) (4,701,875) ---
Proceeds from sale of loans held for sale 5,315,382 4,234,731 ---
ESOP shares released 118,536 118,401 166,125
Amortization of MRDP 104,031 172,813 301,778
Changes to assets and liabilities increasing (decreasing) cash flows
Accrued interest receivable (106,991) (278,554) (464,115)
Other assets (2,558) (29,746) 374,975
Other liabilities 141,205 6,893 92,474
----------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,467,639 391,415 1,236,319
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities/sales of securities available-for-sale 1,122,994 1,769,118 901,185
Proceeds from maturities/calls of securities held-to-maturity 2,312,500 9,365,652 12,501,350
Net (increase) decrease in federal funds sold (856,000) 457,000 1,100,000
Proceeds from redemption (purchase) of FHLB stock (8,000) (14,600) 57,700
Loans originated, net of repayments (2,603,129) 658,171 (341,486)
Proceeds from sales of foreclosed real estate 5,000 17,708 18,564
Purchase of securities available-for-sale (577,058) (7,969,831) (1,393,967)
Purchase of securities held-to-maturity (198,547) (18,743,090) (11,522,177)
Purchase of loans --- (558,666) ---
Cash paid in the acquisition of LCB --- --- (1,235,223)
Cash acquired in acquisition of LCB --- --- 1,540,826
Purchase of premises and equipment (1,745,593) (317,041) (287,627)
----------- ------------ ------------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES (2,547,833) (15,335,579) 1,339,145
</TABLE>
-18-
<PAGE>
Lexington B & L Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cont'd
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
-----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 188,224 $ 8,386,356 $ 2,714,409
Net increase (decrease) in advances from borrowers for property
taxes and insurance (1,828) 15,716 (2,711)
Payments on notes payable (95,000) (95,000) (220,000)
Advance from FHLB
Borrowings 2,000,000 6,050,000 ---
Repayments (158,930) (1,028,424) (200,000)
Payment of dividends (248,364) (302,605) (336,228)
Purchase of treasury stock (1,949,147) (975,581) (2,389,541)
----------- ----------- -----------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (265,045) 12,050,462 (434,071)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (1,345,239) (2,893,702) 2,141,393
Cash and due from banks, beginning of year 6,090,860 8,984,562 6,843,169
----------- ----------- -----------
CASH AND DUE FROM BANKS, END OF YEAR $ 4,745,621 $ 6,090,860 $ 8,984,562
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for
Interest $ 3,690,455 $ 4,247,161 $ 3,764,309
=========== =========== ===========
Income taxes $ 347,956 $ 453,823 $ 371,027
=========== =========== ===========
Noncash investing and financing activities are as follows
Loans to facilitate sales of real estate $ 29,000 $ 36,000 $ ---
=========== =========== ===========
Foreclosed real estate acquired by foreclosure or deed in lieu
of foreclosure $ --- $ 113,004 $ ---
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
Lexington B & L Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying reporting policies and practices of the Company and its
subsidiaries conform to generally accepted accounting principles ("GAAP") and to
prevailing practices within the thrift and banking industries. 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
("B&L"). On June 5, 1996, B&L converted from mutual to stock form of ownership
and the Company completed its initial public offering and acquired all of the
outstanding capital stock of B&L. On October 1, 1997, the Company acquired 100%
of the outstanding stock of Lafayette County Bank ("LCB"), in a transaction
accounted for as a purchase.
During November 1998, the Company formed a wholly-owned subsidiary, B & L
Mortgage, Inc. ("MTG"), to originate and sell loans primarily in the secondary
market. MTG currently retains no servicing rights on loans originated.
The Company provides a variety of financial services to individual and corporate
customers including checking, money market and savings accounts and certificates
of deposit. Its primary lending products are one- to four-family residential
mortgage, commercial, agriculture and consumer loans.
Principles of Consolidation: The consolidated financial statements include the
---------------------------
accounts of the Company and its wholly-owned subsidiaries, B&L, LCB and MTG, and
a wholly-owned subsidiary of B&L, whose activities consist principally of
selling mortgage redemption insurance to B&L'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.
Mortgage-backed securities represent participating interests in pools of long-
term first mortgage loans originated and serviced by issuers of the securities.
These securities are reported at fair value.
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 sale 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 a method which approximates the interest method over
the period to expected maturity.
Stock in Federal Home Loan Bank of Des Moines: Stock in the FHLB 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 Held for Sale: Mortgage loans originated and held for sale are carried at
-------------------
the lower of cost or market on an aggregate basis. Loans held for sale were
originated by MTG and are generally committed for sale at the time of
origination. MTG recognizes no gain or loss on the sale of these loans and
receives a predetermined fee for the origination. Sales are made without
recourse and no rights are retained on loans sold to others.
-20-
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
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 a method which approximates the interest
method.
The Company's real estate loan portfolio consists primarily of long-term loans
secured by first-trust deeds on single-family residences, other residential
property, commercial property and land. The adjustable-rate mortgage is the
Company's primary loan investment.
Mortgage loans are generally placed on nonaccrual status when principal or
interest is delinquent for 90 days or more. Interest income on loans is
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. Interest on consumer loans continues to
accrue even if the loan is 90 days or more past due and is reversed when
management determines the interest to be uncollectible.
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.
Management applies its normal loan review procedures in determining when a loan
is impaired. All nonaccrual loans are considered impaired, except those
classified as small-balance homogeneous loans which are collectively evaluated
for impairment. The Company considers all one-to four-family residential
mortgage loans, residential construction loans, and all consumer and other loans
to be smaller homogeneous loans. Impaired loans are assessed individually and
impairment identified 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. Management has elected to continue to use its
existing nonaccrual methods for recognizing interest income on impaired loans.
Premises and Equipment: Premises and equipment have been stated at cost less
----------------------
accumulated depreciation and amortization. Depreciation and amortization are
computed generally 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.
Cost in Excess of Net Assets Acquired: Amounts paid for subsidiaries in excess
-------------------------------------
of the fair value of the net assets are recorded as an asset and are being
amortized on a straight-line basis over fifteen years.
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.
-21-
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
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, commercial, agriculture and consumer loans located
primarily in Lafayette and Macon Counties, 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
GAAP. 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: Basic income per share is based upon the weighted average
---------------------
number of common shares outstanding during the periods presented. Diluted income
per share include the effects of all dilutive potential common shares
outstanding during each period
New Accounting Standards: In June 1998, the Financial Accounting Standards
-------------------------
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133,
as amended by SFAS No. 137, standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS No. 133, entities are required
to carry all derivative instruments in the statement of financial position at
fair value. The FASB has deferred implementation of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company does not expect the statement to have
a significant effect on the consolidated financial statements.
In September 2000, FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This Statement
replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments and Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. This Statement will be effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The Company does not expect the
statement to have a significant effect on the consolidated financial statements.
-22-
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cont'd
Reclassification: Certain amounts in the prior periods consolidated financial
----------------
statements have been reclassified to conform with the current year presentation.
NOTE B--INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
--------------------
Cost Gains Losses Value
------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 2000:
Available-for-sale
U.S. Government and Federal agency obligations $ 7,488,262 $ 12,632 $(243,140) $ 7,257,754
Mortgage-backed securities 544,201 4,341 (16,796) 531,746
----------- -------- --------- -----------
$ 8,032,463 $ 16,973 $(259,936) $ 7,789,500
=========== ======== ========= ===========
Held-to-maturity
U.S. Government and Federal agency obligations $18,380,040 $ --- $(586,154) $17,793,886
State and local obligations 3,851,390 74,677 (128,194) 3,797,873
----------- -------- --------- -----------
$22,231,430 $ 74,677 $(714,348) $21,591,759
=========== ======== ========= ===========
September 30, 1999:
Available-for-sale
U.S. Government and Federal agency obligations $ 7,888,180 $ 4,000 $ 205,236 $ 7,686,944
Mortgage-backed securities 668,330 7,089 8,293 667,126
----------- -------- --------- -----------
$ 8,556,510 $ 11,089 $ 213,529 $ 8,354,070
=========== ======== ========= ===========
Held-to-maturity
U. S. Government and Federal agency obligations $19,988,048 $ 4,795 $ 597,647 $19,395,196
State and local obligations 4,357,715 103,241 155,172 4,305,784
----------- -------- --------- -----------
$24,345,763 $108,036 $ 752,819 $23,700,980
=========== ======== ========= ===========
</TABLE>
The scheduled contractual maturities of debt securities at September 30, 2000,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations without call
or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
----------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Amounts maturing:
One year or less $ 448,338 $ 450,150 $ 99,707 $ 99,500
After one year through five years 15,469,256 15,092,743 3,340,381 3,255,343
After five years through ten years 3,438,566 3,303,257 3,823,826 3,699,047
After ten years 2,875,270 2,746,609 768,549 735,610
----------- ----------- ---------- ----------
$22,231,430 $21,592,759 $8,032,463 $7,789,500
=========== =========== ========== ==========
</TABLE>
-23-
<PAGE>
NOTE B--INVESTMENT SECURITIES - Cont'd
Securities held-to-maturity were called for redemption for total proceeds of
$257,500 and $2,180,000, resulting in a gross realized gain of $7,560 and $7,742
in 2000 and 1999 respectively.
Investment securities were pledged to secure deposits as required or permitted
by law, with an amortized cost of $10,685,791 and $11,886,933 and fair value of
$10,316,413 and $11,336,772 at September 30, 2000 and 1999, respectively.
NOTE C--LOANS RECEIVABLE
Loans receivable consist of the following at September 30:
<TABLE>
<CAPTION>
2000 1999
----------------------------
<S> <C> <C>
Mortgage loans:
One- to four-family residences $40,241,161 $39,438,952
Multi-family residential 6,021,199 865,939
Commercial 361,023 4,837,556
Construction 1,410,832 1,175,564
Land 1,783,385 1,114,963
----------- -----------
49,817,600 47,432,974
Consumer and other loans:
Commercial 1,941,232 2,815,300
Agricultural 3,087,504 3,224,414
Home equity 727,763 676,118
Loans on savings 2,293,050 2,457,390
Automobile 5,553,598 4,810,853
Other 1,828,293 1,254,606
----------- -----------
15,431,440 15,238,681
----------- -----------
65,249,040 62,671,655
Net deferred loan-origination fees 79,771 53,371
Allowance for loan losses (648,400) (599,209)
----------- -----------
$64,680,411 $62,125,817
=========== ===========
</TABLE>
At September 30, 2000 and 1999, the Company serviced loans amounting to $111,621
and $125,904, respectively, for the benefit of others. Also, the Company had
loans serviced by others amounting to $1,834,794 and $2,004,285 at September 30,
2000 and 1999, respectively.
-24-
<PAGE>
NOTE C--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:
<TABLE>
<CAPTION>
Year ended September 30
2000 1999
------------------------
<S> <C> <C>
Balance, beginning of year $ 412,643 $ 420,190
Originations 47,025 131,171
Payments (169,912) (138,718)
--------- ---------
BALANCE, END OF YEAR $ 289,756 $ 412,643
========= =========
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
--------------------------------
<S> <C> <C> <C>
Balance, beginning of year $599,209 $599,127 $221,000
Added through purchase of LCB --- --- 391,385
Provision for loan losses 69,865 36,707 25,673
Charge-offs, net of recoveries (20,674) (36,625) (38,931)
-------- -------- --------
BALANCE, END OF YEAR $648,400 $599,209 $599,127
======== ======== ========
</TABLE>
The recorded investment in impaired loans, for which there is no need for a
valuation allowance based upon the measure of the loan's fair value of the
underlying collateral at September 30, 2000 and 1999, was $26,667 and $24,920,
respectively. The average recorded investment in impaired loans during the year
ended September 30, 2000 and 1999, was $22,071 and $110,167, respectively. The
amount of interest included in interest income on such loans for the year ended
September 30, 2000 and 1999, amounted to approximately $500 and $10,000,
respectively.
NOTE D--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consist of the following at September 30:
<TABLE>
<CAPTION>
2000 1999
-----------------------
<S> <C> <C>
Loans $ 698,145 $ 562,710
Investment securities and interest bearing deposits 433,914 462,358
---------- ----------
$1,132,059 $1,025,068
========== ==========
</TABLE>
-25-
<PAGE>
NOTE E-PREMISES AND EQUIPMENT
Premises and equipment consists of the following at September 30:
<TABLE>
<CAPTION>
2000 1999
-----------------------
<S> <C> <C>
Land $ 555,594 $ 541,394
Building and improvements 870,140 875,990
Furniture and equipment 953,328 943,085
Construction in progress 1,727,002 ---
---------- ----------
4,106,064 2,360,469
Less accumulated depreciation and amortization 1,273,887 1,180,310
---------- ----------
$2,832,177 $1,180,159
========== ==========
</TABLE>
NOTE F--DEPOSITS
Deposit account balances are summarized as follow at September 30:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------
Amount % Amount %
----------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing $ 6,164,136 7.22% $ 5,395,991 6.4%
NOW 7,378,359 8.65 8,373,349 9.8
Money Market 6,043,478 7.08 8,016,583 9.4
Passbook savings 7,364,041 8.63 6,576,908 7.7
----------- ----- ----------- -----
26,950,014 31.58 28,362,831 33.3
Certificates of deposit:
3.00 to 3.99% 125,000 0.15 551,453 0.7
4.00 to 4.99% 394,561 0.46 9,426,040 11.1
5.00 to 5.99% 29,158,806 34.17 32,953,018 38.7
6.00 to 6.99% 18,092,386 21.27 7,800,186 9.1
7.00 to 7.99% 6,450,863 7.49 2,011,813 2.4
8.00 to 8.99% 4,166,846 4.88 4,044,911 4.7
----------- ----- ----------- -----
58,388,462 68.42 56,787,421 66.7
----------- ----- ----------- -----
$85,338,476 100.0% $85,150,252 100.0%
=========== ===== =========== =====
Weighted Average Interest Rates 5.20% 4.66%
==== ====
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $8,753,289 and $7,584,967 at September 30, 2000 and
1999, respectively. Deposits over $100,000 are not federally insured.
The Company had deposits of approximately $2,101,000 and $2,131,000 for its
directors and officers at September 30, 2000 and 1999, respectively.
-26-
<PAGE>
NOTE F--DEPOSITS - Cont'd
At September 30, 2000, contractual maturities of certificate accounts are as
follows:
<TABLE>
<CAPTION>
Stated
Interest Rate 2001 2002 2003 2004 2005 After
------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 125,000 $ --- $ --- $ --- $ --- $ ---
4.00 to 4.99% 394,561 --- --- --- --- ---
5.00 to 5.99% 22,011,582 4,329,697 1,192,316 1,370,505 249,772 4,934
6.00 to 6.99% 11,397,191 2,489,713 2,065,489 1,248,511 891,482 ---
7.00 to 7.99% 3,389,545 1,804,541 979,783 76,932 100,062 100,000
8.00 to 8.99% 4,166,846 --- --- --- --- ---
----------- ---------- ---------- ---------- ---------- --------
$41,484,725 $8,623,951 $4,237,588 $2,695,948 $1,241,316 $104,934
=========== ========== ========== ========== ========== ========
</TABLE>
Interest expense on deposits are as follows:
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
Now, Money Market and Passbook savings accounts $ 803,907 $ 818,220 $ 667,482
Certificate accounts 3,279,847 3,205,100 3,045,245
---------- ---------- ----------
$4,083,754 $4,023,320 $3,712,727
========== ========== ==========
</TABLE>
NOTE G--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from FHLB consist of the following at September 30:
<TABLE>
<CAPTION>
2000 1999
--------------------------
<S> <C> <C>
6.50% fixed rate, due on or before March 15, 2000 $ --- $ 35,000
6.70% fixed rate, due on or before March 15, 2001 35,000 35,000
6.80% fixed rate, due on or before March 15, 2002 35,000 35,000
5.25% fixed rate, due in monthly installments over a
period of fifteen years through December 2, 2013 1,839,199 1,932,886
4.76% fixed rate, final maturity date of December 15,
2008, callable quarterly beginning December 15, 2003 2,500,000 2,500,000
5.47% fixed rate, due in monthly installments over a
period of fifteen years through October 21, 2013,
callable quarterly beginning October 21, 2003 593,447 623,690
6.90% fixed rate, due August 29, 2003 1,000,000 ---
6.61% fixed rate, due September 30, 2003 1,000,000 ---
---------- ----------
$7,002,646 $5,161,576
========== ==========
</TABLE>
-27-
<PAGE>
NOTE G--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES - Cont'd
Scheduled maturities of FHLB advances are as follows:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
------------------------------
<S> <C>
2001 $ 165,666
2002 172,766
2003 2,145,254
2004 153,148
2005 161,472
Thereafter 4,204,340
----------
$7,002,646
==========
</TABLE>
The advances are collateralized by a blanket pledge agreement with FHLB under
which the Company can draw advances of unspecified amounts. The Company must
hold an unencumbered portfolio of one- to four-family residential mortgages with
a book value of not less than 170% of the indebtedness. The Company also has
pledged Federal agency securities with an amortized cost value of $2,352,350 and
a fair value of $2,287,921. The advance agreements include certain prepayment
privileges that generally include penalty provisions if prepaid before certain
specified dates.
NOTE H--NOTES PAYABLE
Notes payable at September 30, 2000 and 1999, were acquired in the purchase of
LCB. The notes are unsecured, bear interest at the rate of 10% and are payable
to the previous owners of LCB. Principal payments are due in equal annual
installments of $95,000 through July 3, 2001, with the final payment in the
amount of $83,219 due on July 3, 2002.
NOTE I--INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
----------------------------------
<S> <C> <C> <C>
Current $415,300 $381,000 $ 484,400
Deferred (benefit) (68,800) (58,000) (126,400)
-------- -------- ---------
$384,500 $323,000 $ 358,000
======== ======== =========
</TABLE>
During 1996, the Small Business Job Protection Act (the "Act) was signed into
law. The Act eliminated the percentage of taxable income bad debt deductions for
thrift institutions for tax years beginning after December 31, 1995. The Act
provides that bad debt reserves accumulated prior to 1988 be exempt from
recapture. Bad debt reserves accumulated after 1987 are subject to recapture
over a six year period. B&L has provided for deferred income taxes for the
reserve recapture after 1987; therefore the impact of this legislation will not
have a material effect on B&L's financial statements.
Prior to the enactment of the Act, B&L accumulated approximately $2,000.000 for
which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for income tax
purposes only. If any of this amount is used other than to absorb loan losses
(which is not anticipated), the amount will be subject to income tax at the
current corporate rates.
-28-
<PAGE>
NOTE I--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:
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
---------------------------------------------------------------
Amount % Amount % Amount %
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $414,478 34.0% $334,237 34.0% $345,680 34.0%
Increase (decrease) in taxes resulting from:
Officers life insurance (10,056) (0.8) (9,420) (1.0) (9,655) (0.9)
Tax exempt income, net of related expenses (66,077) (5.4) (61,891) (6.3) (41,346) (4.1)
Amortization of intangible assets arising
from acquisitions 25,235 2.1 25,235 2.6 25,235 2.5
State income tax, net of federal benefit 21,780 1.8 36,300 3.7 39,804 3.9
Other, net (860) (0.1) (1,461) (0.1) (1,718) (0.2)
-------- ---- -------- ---- -------- ----
$384,500 31.6% $323,000 32.9% $358,000 35.2%
======== ==== ======== ==== ======== ====
</TABLE>
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 at
September 30:
<TABLE>
<CAPTION>
2000 1999
---------------------
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $192,800 $167,100
Unearned MRDP shares 120,700 119,000
Deferred compensation 123,600 91,600
Unrealized loss on available-for-sale securities 84,000 59,222
Capital loss 663 663
Deferred tax liabilities
Depreciation (41,000) (40,400)
FHLB stock dividend (58,300) (58,300)
-------- --------
NET DEFERRED TAX ASSET $422,463 $338,885
======== ========
</TABLE>
NOTE J--REGULATORY CAPITAL REQUIREMENTS
The Company's subsidiary banks are subject to various regulatory capital
requirements administered by OTS and FDIC. Failure to meet the capital
requirements can initiate certain mandatory and discretionary actions by
regulators that could have a material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company's subsidiary banks must meet capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Company's subsidiary banks to maintain minimum amounts and ratios,
as set forth in the table below of Total Risk-Based Capital to Risk-Weighted
Assets and Tier 1 Capital to Risk-Weighted Assets, Tier 1 Capital to Adjusted
Assets (the leverage ratio), and Tangible Capital to Adjusted Assets.
-29-
<PAGE>
NOTE J--REGULATORY CAPITAL REQUIREMENTS - Cont'd
<TABLE>
<CAPTION>
Minimum
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------- ---------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 2000
B & L Bank
Total Risk-Based Capital $8,199 21.75% * $3,016 8.00% * $3,770 10.00%
(to Risk Weighted Assets)
Tier 1 Capital 8,013 21.25 * 1,508 4.00 * 3,766 6.00
(to Risk Weighted Assets)
Tier 1 Capital 8,013 12.77 * 1,883 3.00 * 3,138 5.00
(to Adjusted Assets)
Tangible Capital 8,013 12.77 * 942 1.50 N/A N/A
(to Adjusted Assets)
Lafayette County Bank
Total Risk-Based Capital $3,704 15.83% * $1,871 8.00% * $2,339 10.00%
(to Risk Weighted Assets)
Tier 1 Capital 3,435 14.68 * 936 4.00 * 2,697 6.00
(to Risk Weighted Assets)
Tier 1 Capital 3,435 7.64 * 1,798 3.00 * 2,248 5.00
(to Adjusted Assets)
Tangible Capital 3,435 7.64 * 674 1.50 N/A N/A
(to Adjusted Assets)
As of September 30, 1999
B & L Bank
Total Risk-Based Capital $7,617 22.86% * $2,665 8.00% * $3,332 10.00%
(to Risk Weighted Assets)
Tier 1 Capital 7,396 22.20 * 1,333 4.00 * 3,724 6.00
(to Risk Weighted Assets)
Tier 1 Capital 7,396 11.92 * 1,862 3.00 * 3,103 5.00
(to Adjusted Assets)
Tangible Capital 7,396 11.92 * 931 1.50 N/A N/A
(to Adjusted Assets)
Lafayette County Bank
Total Risk-Based Capital $3,294 14.79% * $1,781 8.00% * $2,227 10.00%
(to Risk Weighted Assets)
Tier 1 Capital 3,015 13.54 * 891 4.00 * 2,659 6.00
(to Risk Weighted Assets)
Tier 1 Capital 3,015 6.80 * 1,722 4.00 * 2,215 5.00
(to Adjusted Assets)
Tangible Capital 3,015 6.80 * 665 1.50 N/A N/A
(to Adjusted Assets)
</TABLE>
* more than or equal to
Management believes that as of September 30, 2000 and 1999, the Company's
banking subsidiaries meet all capital requirements to which they are subject.
-30-
<PAGE>
NOTE K--EMPLOYEE BENEFITS
B&L is a participating employer in the Financial Institution Retirement Fund, a
multi-employer defined benefit pension plan that covers substantially all full-
time employees after one year of service. B&L's policy is to fund pension costs
as necessary. The plan has been fully funded since June 30, 1997. Pension
expense of $37,800, $36,000, and $36,000 was recognized for the years ended
September 30, 2000, 1999 and 1998, respectively.
B&L 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, subject to internal revenue code
limitations.
The Company has also entered into salary continuation agreements with four 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, 2000, 1999
and 1998, was $86,444, $79,566, and $74,682, respectively.
In connection with the conversion from mutual to stock form, B&L established an
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 are eliminated in consolidation.
B&L 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. 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,
2000, 1999 and 1998, was $98,601, $95,399, and $140,054, respectively. The fair
value of unreleased shares based on market price of the Company's stock at
September 30, 2000 and 1999 was $618,508, and $822,356, respectively.
The number of ESOP shares are summarized as follows at September 30:
2000 1999
---------------
Allocated shares 44,972 34,747
Unreleased shares 56,228 66,453
------- -------
101,200 101,200
======= =======
-31-
<PAGE>
NOTE K--EMPLOYEE BENEFITS - Cont'd
The Board of Directors adopted and the shareholders subsequently approved an
MRDP. Under the MRDP, common stock of 50,600 shares was awarded to certain
directors, officers and employees of the Company and B&L. 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 $104,031, $172,813
and $301,778 in 2000, 1999 and 1998, respectively.
The Company has entered into three year employment agreements with certain
members of management. Under the agreements, the Company will pay the members
their initial base salaries, which may be increased at the discretion of the
Board of Directors. Additionally, the agreements provide for severance payments
if employment is terminated following a change in control. These payments will
be equal to 2.99 times their average annual compensation paid during the five
years immediately preceding the change in control.
The Company has authorized and the shareholders have approved the adoption of a
stock option plan. Under the stock option plan, options to acquire 126,500
shares of the Company's stock may be granted to certain officers, directors and
employees of the Company and B&L. 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 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 10 years. No options
have been exercised at September 30, 2000.
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 allows entities to disclose pro forma net income and income per share as if
the fair value-based method defined in SFAS No. 123 has 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. Had
compensation expense for the Company's incentive and nonstatutory stock options
been determined based upon the fair value of the grant date consistent with the
methodology prescribed under SFAS No. 123, the Company's net earnings and
diluted earnings per share would have been reduced by approximately $88,453,
$88,453 and $88,453 or $0.10, $0.07 and $0.05 per share for the year ended
September 30, 2000, 1999 and 1998, respectively.
Following is a summary of the fair values of options granted using the Black-
Scholes option-pricing model for the years ended September 30, 2000, 1999 and
1998:
Fair value at grant date $6.94
Assumptions:
Dividend yield 1.14 %
Volatility 20.27 %
Risk-free interest rate 6.10 %
Expected life 10 years
Pro forma net earnings reflect only options granted and vested in fiscal 2000,
1999 and 1998. Therefore, the full impact of calculating compensation expense
for stock options under SFAS is not reflected in the pro forma net earnings
amount presented above because compensation expense is reflected over the
options' vesting period.
-32-
<PAGE>
NOTE L--INCOME PER SHARE
The shares used in calculation of basic and diluted income per share are as
follows:
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
-----------------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding 746,406 896,545 965,088
Stock options and MRDP 15,008 17,704 27,388
------- ------- -------
761,414 914,249 992,476
======= ======= =======
</TABLE>
NOTE M--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CONCENTRATIONS OF
CREDIT RISK AND CONTINGENCIES
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 Company evaluates each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's credit evaluation of
the counterparty. Such collateral consists primarily of residential properties.
At September 30, 2000 and 1999, the Company was committed to originate loans
aggregating approximately $3,218,000 and $2,323,000, respectively. Fixed loan
commitments at September 30, 2000 and 1999, amounted to approximately $332,000
and $838,000 with interest rates ranging from 7.0% to 12.0% and 7.5% to 12.0%,
respectively. The Company also has outstanding letters of credit in the amount
of $37,000 at September 30, 2000 and 1999.
At September 30, 2000 and 1999, the Company had amounts on deposit at banks and
federal agencies in excess of federally insured limits of approximately
$4,076,658 and $5,179,000, respectively.
The Company has expended to date, $1,727,002 on the construction of the new
facility in Lexington, Missouri. The estimated cost to complete the project is
approximately $1,185,000.
In addition, the Company from time to time becomes a defendant in certain claims
and legal actions arising in the ordinary course of business. At September 30,
2000, there were no such claims and legal actions.
-33-
<PAGE>
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Values of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or not
recognized in the statement of financial condition. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
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 interest-bearing deposits: 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.
Federal funds sold: The carrying value approximates fair value.
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans held for sale: The carrying value approximates fair value based on
sales commitments at the time of origination.
Loans receivable: The fair value of first mortgage loans is estimated by
using discounted cash flow analyses, using interest rates currently offered
by the Company 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.
-34-
<PAGE>
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - Cont'd
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.
Advances from FHLB: The fair value is estimated by discounting the future
cash flows using interest rates currently offered by the FHLB for advances
with similar maturities.
Notes payable: 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 Company's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. The valuation techniques employed above involve uncertainties
and are affected by assumptions used and judgements regarding prepayments,
credit risk, discount rates, cash flows and other factors. Changes in
assumptions could significantly affect the reported fair value.
In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. The fair value estimates do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market. The amounts
at September 30, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------------------------
(Dollars in Thousands)
ASSETS
<S> <C> <C> <C> <C>
Cash $ 1,695 $ 1,695 $ 1,872 $ 1,872
Interest-bearing deposits 3,088 3,088 4,219 4,219
Investment securities available-for-sale 7,790 7,790 8,354 8,354
Investment securities held-to-maturity 22,231 21,565 24,346 23,700
Federal funds sold 1,374 1,374 518 518
Stock in FHLB 543 543 535 535
Loans held for sale 328 328 467 467
Loans receivable 64,680 65,199 62,126 64,316
Accrued interest receivable 1,132 1,132 1,025 1,025
LIABILITIES
Transaction accounts 26,950 26,950 28,363 28,363
Certificates of deposit 58,388 58,108 56,787 56,738
Advances from borrowers for taxes and insurance 180 180 182 182
Advances from FHLB 7,003 6,915 5,162 5,054
Notes payable 178 178 273 273
</TABLE>
-35-
<PAGE>
NOTE O--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets, 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.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
2000 1999
----------------------------
<S> <C> <C>
ASSETS
Cash $ 520,597 $ 2,574,247
Municipal investment held-to-maturity 265,000 ---
ESOP note receivable 656,119 746,867
Investment in subsidiaries:
B & L Bank 8,040,174 7,381,549
Lafayette County Bank 4,413,035 4,061,513
B & L Mortgage, Inc. 59,351 503,328
Other 196,686 145,132
----------- -----------
TOTAL ASSETS $14,150,962 $15,412,636
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 28,582 $ 29,123
Notes payable 178,219 273,219
Stockholders' equity 13,944,161 15,110,294
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $14,150,962 $15,412,636
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
-------------------------------------------
<S> <C> <C> <C>
Income
Dividends from subsidiary $ --- $ 3,700,000 $ 2,300,000
Interest 93,894 100,919 91,009
---------- ----------- -----------
93,894 3,800,919 2,391,009
Expenses
MRDP 104,031 172,813 301,778
Interest 24,856 34,730 44,005
Professional fees 78,498 71,414 96,956
Other 22,332 24,482 29,567
---------- ----------- -----------
229,717 303,439 472,306
---------- ----------- -----------
Income before equity in undistributed earnings
of subsidiaries and income taxes (135,823) 3,497,480 1,918,703
Increase (decrease) in undistributed equity of subsidiaries 923,377 (2,908,429) (1,389,497)
---------- ----------- -----------
INCOME BEFORE INCOME TAXES 787,554 589,051 529,206
Income taxes (benefit) (47,000) (71,000) (129,500)
---------- ----------- -----------
NET INCOME $ 834,554 $ 660,051 $ 658,706
========== =========== ===========
</TABLE>
-36-
<PAGE>
NOTE O--CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS - Cont'd
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30
2000 1999 1998
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 834,554 $ 660,051 $ 658,706
Adjustments to reconcile net income to net cash
provided from operating activities:
(Increase) decrease in undistributed equity of subsidiaries (923,377) 2,908,429 1,389,497
Amortization of MRDP 104,031 172,813 301,778
Increase (decrease) in other assets and liabilities (52,095) 43,157 (142,907)
----------- ---------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (36,887) 3,784,450 2,207,074
Cash flow from investing activities
Purchase of security held-to-maturity (265,000) --- ---
Cash paid in the acquisition of LCB --- --- (1,235,223)
Cash acquired in acquisition of LCB --- --- 9,105
Surplus distribution from subsidiary 450,000 --- ---
Investment in subsidiary --- (500,000) ---
----------- ---------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES 185,000 (500,000) (1,226,118)
Cash flows from financing activities
Principal payments on notes payable (95,000) (95,000) (220,000)
Principal collected from ESOP 90,748 83,631 77,074
Dividends paid (248,364) (302,606) (336,228)
Purchase of treasury stock (1,949,147) (975,581) (2,389,541)
----------- ---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,201,763) (1,289,556) (2,868,695)
----------- ---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (2,053,650) 1,994,894 (1,887,739)
Cash, beginning of year 2,574,247 579,353 2,467,092
----------- ---------- -----------
CASH, END OF YEAR $ 520,597 $2,574,247 $ 579,353
=========== ========== ===========
</TABLE>
-37-
<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 Executive Vice-President, Chief
Operating Officer and Secretary Operating Officer and Secretary
William J. Huhmann Steve Oliaro
Senior Vice-President and President
Chief Financial Officer Baker Memorials, Inc.
Mark D. Summerlin Norman Vialle
Senior Vice-President Retired Businessman
Terry L. Thompson Charles R. Wilcoxon
Vice-President Retired Businessman
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 President and Chief Executive
Officer
Carol Summerlin Alfred Block
Senior Vice President Farmer
Kirk Craven Ranie Thompson
Vice President Retired Businessman
William C. LaHue, M.D.
Doctor
-38-
<PAGE>
LAFAYETTE COUNTY BANK - CONT'D
OFFICERS: DIRECTORS:
Betty Teter Norman Rasa
Assistant Vice-President Business / Farmer
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
Vickie Church Steve Oliaro
Assistant Cashier 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 (660) 259-2247 Aull, Sherman, Worthington,
Giorza & Hamilton, LLC
LAFAYETTE COUNTY BANK Lexington, Missouri
MAIN OFFICE SPECIAL COUNSEL
545 South Highway 13 Muldoon, Murphy & Faucette LLP
Lexington, Missouri 64067 Washington, D.C.
BRANCH LOCATIONS
558 Highway 224
Wellington, Missouri 64097
Second and Highway 3
Callao, Missouri 63534
-39-
<PAGE>
STOCKHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at the main office of B & L
Bank, 919 Franklin Avenue, Lexington, Missouri, on Tuesday, January 9, 2001 at
10:00 a.m., local time.
SHAREHOLDER AND GENERAL INQUIRIES REGISTRAR AND TRANSFER AGENT
E. Steva Vialle Registrar and Transfer Company
B & L Bank 10 Commerce Drive
919 Franklin Street Cranford, New Jersey 07016-3572
Lexington, Missouri 64067 (800) 866-1340
(660) 259-2247
ANNUAL AND OTHER REPORTS
A COPY OF THE FORM 10-KSB (WITHOUT EXHIBITS) 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. THE COMPANY'S FORM 10-KSB IS ALSO AVAILABLE THROUGH
THE SEC'S WORLD WIDE WEB SITE ON THE INTERNET (http://www.sec.gov).
-40-
