<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-28120
LEXINGTON B & L FINANCIAL CORP.
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(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Missouri 43-1739555
--------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. Number)
919 Franklin Avenue, Lexington, Missouri 64067
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (660) 259-2247
-----------------------
Securities registered pursuant to Section 12(b) of the Act: None
-----------------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
</TABLE>
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO _____
-----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
other information statements incorporated by reference in Part III of this Form
10-KSB or any amendments to this Form 10-KSB. X
-----
The Registrant's revenues for the fiscal year under report were $8.1
million.
As of December 8, 2000, there were issued and outstanding 784,173 shares of
the Registrant's Common Stock. The Common Stock is listed for trading on the
NASDAQ SmallCap Market under the symbol "LXMO." Based on the bid and ask prices,
the aggregate value of the Common Stock outstanding held by on the nonaffiliates
of the Registrant on December 19, 2000 was $9,512,000 (784,173 shares at $12.13
per share). For purposes of this calculation, officers and directors of the
Registrant are considered nonaffiliates of the Company.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
September 30, 2000 ("Annual Report") (Parts I and II).
2. Portions of Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders (Part III).
<PAGE>
PART I
Item 1. Business
-----------------
General
Lexington B & L Financial Corp. ("Company"), a Missouri corporation, was
organized on November 29, 1995 for the purpose of becoming the holding company
for B & L Bank (formerly The Lexington Building and Loan Association, F.A.) upon
its conversion from a federal mutual savings and loan association to a federal
stock savings bank ("Conversion"). The Conversion was completed on June 5, 1996.
B&L Bank was originally chartered in 1887 as a Missouri-chartered mutual
savings and loan association under the name "The Lexington Building and Loan
Association," and converted to a federal charter and adopted the name "The
Lexington Building and Loan Association, F.A." in June 1995. B&L Bank is
regulated by the Office of Thrift Supervision ("OTS"), its primary federal
regulator, and the Federal Deposit Insurance Corporation ("FDIC"), the insurer
of its deposits. B&L Bank's deposits are federally insured by the FDIC under the
Savings Association Insurance Fund ("SAIF"). B&L Bank is a member of the Federal
Home Loan Bank ("FHLB") System.
On October 1, 1997, the Company acquired Lafayette County Bank of
Lexington/Wellington ("Lafayette County Bank") through the merger of Lafayette
County Bank's parent corporation, Lafayette Bancshares, Inc., with the Company.
The acquisition was accounted for as a purchase under generally accepted
accounting principles. Lafayette County Bank is a Missouri State chartered bank
whose deposits are insured up to applicable limits by the Bank Insurance Fund
("BIF") of the FDIC. Lafayette County Bank conducts its business from its main
office in Lexington, Missouri and its branch offices in Wellington and Callao,
Missouri.
The Company incorporated a mortgage banking subsidiary, B & L Mortgage,
Inc. in November 1998. B&L Mortgage offices are located in Odessa, Missouri. Its
primary business is the origination of one-to-four family mortgages for sale
into the secondary market.
The Company's banking subsidiaries are community oriented financial
institutions that engage primarily in the business of attracting deposits from
the general public and using these funds to originate one-to-four family
residential mortgages, commercial, agricultural and consumer loans within their
market areas. The Company is a portfolio lender and generally does not sell the
mortgage loans that it originates, except for loans originated by B&L Mortgage.
Market Area
Lexington, Missouri is located on the southern bank of the Missouri River
approximately 45 miles east of Kansas City, Missouri. Lexington, estimated
population of 4,900, is the county seat and the largest town in Lafayette
County. Lafayette County is predominately rural and contains several small
towns, although the western portions are becoming bedroom communities for
commuters to jobs in the Kansas City metropolitan area. The Company considers
its market area for loans and deposits to encompass Lafayette County and the
bordering areas of three surrounding counties (southern Ray County, northern
Johnson County and western Jackson County) and the area surrounding its Callao
office which encompasses all of Macon County.
The economy encompassing the Company's market area has its roots in
agriculture, although agriculture has declined as a source of revenue over the
decades. Most of the employment today is primarily based in services, light
manufacturing, state and local government and retail trade. Tourism is also part
of the local economy as Lexington has historic ties to the Civil War.
-1-
<PAGE>
Lending Activities
General. The principal lending activity of the Company is the origination
of conventional mortgage loans for the purpose of purchasing, constructing or
refinancing owner-occupied, one- to four-family residential property. The
Company also originates multi-family, commercial real estate, land, commercial,
agricultural and consumer loans. The Company's net loans receivable totaled
$64.7 million at September 30, 2000, representing 60.1% of consolidated total
assets. The Company's mortgage banking subsidiary originates mortgage loans for
sale into the secondary market. Such loans are classified on the Consolidated
Statement of Financial Position as "Loans held-for-sale" and at September 30,
2000 totaled $328,000.
Loan Portfolio Analysis. The following table sets forth the composition of
the Company's loan portfolio by type of loan as of the dates indicated. The
Company had no concentration of loans exceeding 10% of total gross loans other
than as set forth below.
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998
----- ---- -----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of loan:
Mortgage loans:
One-to-four family................................ $40,241 61.68% $39,439 62.93% $42,037 66.84%
Commercial real estate and multi-family........... 6,382 9.78% 5,703 9.10% 3,690 5.87%
Land.............................................. 1,783 2.73% 1,115 1.78% 653 1.04%
Construction...................................... 1,411 2.16% 1,176 1.87% 626 0.99%
------- ------ ------- ------ ------- ------
Total mortgage loans............................ 49,817 76.35% 47,433 75.68% 47,006 74.74%
Commercial loans.................................. 1,941 2.98% 2,815 4.49% 4,042 6.42%
Agriculture loans................................. 3,088 4.73% 3,225 5.15% 3,171 5.04%
Consumer and other loans
Home equity....................................... 728 1.12% 676 1.08% 790 1.26%
Loans on savings deposits......................... 2,293 3.51% 2,457 3.92% 1,986 3.16%
Automobile loans.................................. 5,554 8.51% 4,811 7.68% 4,968 7.90%
Other............................................. 1,828 2.80% 1,255 2.00% 933 1.48%
------- ------ ------- ------ ------- ------
Total consumer and other loans.................. 10,403 15.94% 9,199 14.68% 8,677 13.80%
------- ------ ------- ------ ------- ------
Total loans..................................... 65,249 100.00% 62,672 100.00% 62,896 100.00%
====== ====== ======
Add Deferred loan fees............................. 80 53 18
Less Allowance for possible loan losses............ 648 599 599
------- ------- -------
Loans receivable, net.............................. $64,681 $62,126 $62,315
======= ======= =======
</TABLE>
-2-
<PAGE>
The following table sets forth at September 30, 2000 certain information
regarding the dollar amount of loans maturing in the Company's portfolio based
on contractual terms to maturity, but does not include scheduled payments or
potential prepayments. Demand loans (loans having no stated repayment schedule
and no stated maturity) and overdrafts are reported as due in one year or less.
Mortgage loans which have adjustable interest rates are reported at their
contractual maturity date. Loan balances do not include undisbursed loan
proceeds, unearned discounts, and allowance for loan losses.
<TABLE>
<CAPTION>
After After After After
One Year 3 Years 5 Years 10 years
Within Through Through Through Through After
One Year 3 Years 5 Years 10 Years 15 Years 15 Years Total
-------- ------- ------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
One-to four-family................................ $1,630 $ 3,145 $2,453 $7,729 $ 9,649 $15,635 $40,241
Commercial real estate and multi-family........... 1,388 517 399 894 1,880 1,304 6,382
Land.............................................. 170 31 104 238 356 884 1,783
Construction...................................... 1,389 22 - - - - 1,411
------ ------- ------ ------ ------- ------- -------
Total mortgage loans............................. 4,577 3,715 2,956 8,861 11,885 17,823 49,817
Commercial loans.................................. 758 797 291 95 - - 1,941
Agriculture....................................... 1,199 1,347 366 176 - - 3,088
Consumer and other loans.......................... 3,382 4,244 2,086 632 47 12 10,403
------ ------- ------ ------ ------- ------- -------
Total loans...................................... $9,916 $10,103 $5,699 $9,764 $11,932 $17,835 $65,249
====== ======= ====== ====== ======= ======= =======
</TABLE>
Thee following table sets forth the dollar amount of all loans due after
September 30, 2001, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed- Adjustable
Rates Rates
----------- -------------
(In Thousands)
<S> <C> <C>
Mortgage loans:
One-to-four family...................................... $ 8,084 $30,527
Commercial real estate and multi-family................. 2,392 2,602
Land.................................................... 204 1,409
Construction............................................ 22 -
------- -------
Total mortgage loans.................................. 10,702 34,538
Commercial loans......................................... 493 690
Agriculture loans........................................ 436 1,453
Consumer and other loans................................. 6,736 285
------- -------
Total................................................. $18,367 $36,966
======= =======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the actual
life of such assets. The average life of loans ordinarily is substantially less
than their contractual terms because of prepayments. The average life of
mortgage loans tends to increase, however, when current mortgage loan market
rates are higher than rates on existing mortgage loans and, conversely, decrease
when rates on existing mortgage loans are higher than current mortgage loan
market rates.
-3-
<PAGE>
Residential Real Estate Lending. The primary lending activity of the Company
is the origination of mortgage loans to enable borrowers to purchase existing
one- to four-family homes. The Company presently originates for retention in its
portfolio both adjustable rate mortgage ("ARM") loans with terms of up to 25
years and fixed-rate mortgage loans with terms of up to 10 years. Borrower
demand for ARM loans versus fixed-rate mortgage loans is a function of the level
of interest rates, the expectations of changes in the level of interest rates
and the difference between the initial interest rates and fees charged for each
type of loan. The relative amount of fixed-rate mortgage loans and ARM loans
that can be originated at any time is largely determined by the demand for each
in a competitive environment.
The loan fees charged, interest rates and other provisions of the Company's
ARM loans are determined on the basis of its own pricing criteria and
competitive market conditions. The Company originates one-year ARM loans secured
by owner-occupied residences whose interest rates and payments generally are
adjusted annually to a rate typically equal to 2.875% above the one-year
constant maturity U.S. Treasury ("CMT") index. The Company occasionally offers
ARM loans with initial rates below those that would prevail under the foregoing
computations, determined by the Company based on market factors and competitive
rates for loans having similar features offered by other lenders for such
initial periods. At September 30, 2000, the initial interest rate on ARM loans
offered by the Bank ranged from 7.75% to 9.00% per annum. The periodic interest
rate cap (the maximum amount by which the interest rate may be increased or
decreased in a given period) on the Company's ARM loans is generally 1% per
adjustment period and the lifetime interest rate cap is generally 5% over the
initial interest rate of the loan.
The Company does not originate negative amortization loans. The terms and
conditions of the ARM loans offered by the Company, including the index for
interest rates, may vary from time to time. The Company believes that the
adjustment features of its ARM loans provide flexibility to meet competitive
conditions as to initial rate concessions while preserving the Company's
objectives by limiting the duration of the initial rate concession.
A significant portion of the Company's residential mortgage loans are not
readily saleable in the secondary market because they are not originated in
accordance with the purchase requirements of Freddie Mac or Fannie Mae. Although
such loans satisfy the Company's underwriting requirements, they are non-agency-
conforming because they do not satisfy collateral requirements, income and debt
ratios, acreage limits, or various other requirements imposed by Freddie Mac and
Fannie Mae. In addition, substantially all of the Company's ARM loans have
periodic interest rate caps of 1% per adjustment period and 5% lifetime over the
initial loan interest rate, while Freddie Mac and Fannie Mae secondary market
guidelines require higher adjustment periods and lifetime caps of 2% and 6%,
respectively. Accordingly, the Company's non-agency-conforming loans could be
sold only after incurring certain costs and/or discounting the purchase price.
The Company however, currently does not intend to sell its loans. The Company
has historically found that its origination of non-agency-conforming loans has
not resulted in high amounts of non-performing loans. In addition, the Company
believes that these loans satisfy a need in the Company's local community. As a
result, the Company intends to continue to originate such non-agency-conforming
loans.
The retention of ARM loans in the Company's loan portfolio helps reduce the
Company's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that during periods
of rising interest rates the risk of default on ARM loans may increase as a
result of repricing and the increased costs to the borrower. Furthermore,
because the ARM loans originated by the Company generally provide, as a
marketing incentive, for initial rates of interest below the rates that would
apply were the adjustment index used for pricing initially (discounting), these
loans are subject to increased risks of default or delinquency. Another
consideration is that although ARM loans allow the Company to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the periodic and lifetime interest rate
adjustment limits. Because of these considerations, the Company has no assurance
that yields on ARM loans will be sufficient to offset increases in the Company's
cost of funds.
-4-
<PAGE>
While fixed-rate single-family residential real estate loans are normally
originated with up to 10-year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, some mortgage loans in the Company's loan
portfolio contain due-on-sale clauses providing that the Company may declare the
unpaid amount due and payable upon the sale of the property securing the loan.
Typically, the Company enforces these due-on-sale clauses to the extent
permitted by law and as business judgment dictates. Thus, average loan maturity
is a function of, among other factors, the level of purchase and sale activity
in the real estate market, prevailing interest rates and the interest rates
payable on outstanding loans.
The Company generally requires title insurance insuring the status of its
lien on all of the real estate secured loans. The Company also requires that
fire and extended coverage casualty insurance (and, if appropriate, flood
insurance) be maintained in an amount at least equal to the outstanding loan
balance.
Appraisals are obtained on all properties and are conducted by independent
fee appraisers approved by the Board of Directors of each of its banking
subsidiaries. The Company's lending policies generally limit the maximum loan-
to-value ratio on mortgage loans secured by owner-occupied properties to 80% of
the lesser of the appraised value or the purchase price, with the condition that
the loan-to-value ratio may be increased to 90% provided that private mortgage
insurance coverage is obtained for the amount in excess of 80%.
Income Property Lending. Historically, the Company has engaged in limited
amounts of commercial real estate and multi-family lending (collectively,
"income property lending"). The Company does not actively solicit income
property loans but generally extends them as an accommodation to existing
customers and intends to continue to do so in the future. At September 30, 2000,
income property loans aggregated $6.4 million, or 9.78% of the gross loan
portfolio.
Substantially all of the income property loans are secured by properties
located in the Company's market area. Such properties include residential
properties of five or more units, strip shopping malls generally containing
between two and six store fronts, churches, and professional offices. Income
property loans are generally made for terms of 20 years with five- to 10-year
balloon payments and at variable interest rates that adjust annually.
Income property loans generally involve greater risks than one- to four-
family residential mortgage loans. Payments on loans secured by such properties
often depend on successful operation and management of the properties. Repayment
of such loans may be subject to a greater extent to adverse conditions in the
real estate market or the economy. The Company seeks to minimize these risks in
a variety of ways, including limiting the size of such loans, limiting the
maximum loan-to-value ratio to 70% and strictly scrutinizing the financial
condition of the borrower, the quality of the collateral and the management of
the property securing the loan. All of the properties securing the Company's
income property loans are inspected by the Company's lending personnel before
the loan is made. The Company also obtains appraisals on each property in
accordance with applicable regulations.
Construction Lending. The Company occasionally originates residential
construction loans to individuals or local builders to construct one- to four-
family homes. At September 30, 2000, construction loans totaled $1.4 million, or
2.16% of the gross loan portfolio.
Substantially all construction loans made to individuals provide for the
Company to originate a permanent loan upon the completion of construction, which
is generally an ARM loan as described under "-- Lending Activities --Residential
Real Estate Lending." The origination fee for construction loans is generally
1.5% of the principal amount. Construction loans are generally made for terms of
up to six months. Loans to builders are made less frequently and may be for the
construction of a pre-sold home or may be a loan to construct a speculative home
(i.e., a home for which no purchaser has been identified). Loans to builders are
generally limited to local builders well known to the Company.
-5-
<PAGE>
Construction lending is generally considered to involve a higher level of
risk as compared to one- to four- family residential permanent lending because
of the inherent difficulty in estimating both a property's value at completion
of the project and the estimated cost of the project. The nature of these loans
is such that they are generally more difficult to evaluate and monitor. If the
estimate of value proves to be inaccurate, the Company may be confronted at, or
prior to, the maturity of the loan, with a project whose value is insufficient
to assure full repayment. Loans for the construction of speculative homes carry
more risk because the payoff for the loan is dependent on the builder's ability
to sell the property prior to the time that the construction loan is due.
Land Lending. The Company originates loans secured by farm residences and
combinations of farm residences and farm real estate. The Company also
originates loans for the acquisition of land upon which the purchaser can then
build or upon which the purchaser makes improvements necessary to build upon or
to sell as improved lots. At September 30, 2000, the land loan portfolio totaled
$1.8 million, or 2.73% of total gross loans, substantially all of which were
secured by properties located in the Company's market area. Land loans are
generally made for the same terms and at the same interest rates as those
offered on income property loans, except that the loan-to-value ratio is
generally limited to 60%.
Loans secured by farm real estate generally involve greater risks than one-
to four-family residential mortgage loans. Payments on loans secured by such
properties may, in some instances, be dependent on farm income from the
properties. To address this risk, the Company does not consider farm income when
qualifying borrowers. In addition, such loans are more difficult to evaluate. If
the estimate of value proves to be inaccurate, the Company may be confronted
with a property the value of which is insufficient to assure full repayment in
the event of default and foreclosure.
Agricultural Lending. At September 30, 2000, the agricultural loan
portfolio totaled $3.1 million or 4.73% of total gross loans. The Company
presently originates both adjustable-rate and fixed-rate loans secured by
farmland located in the Company's market area. The Company offers adjustable-
rate loans that adjust monthly, quarterly and annually with maturities up to a
25-year term. The Company also offers fixed-rate loans with a 10-year term and a
10-year amortization schedule. The Company also makes agricultural operating
loans. Agricultural operating loans or lines generally are made for a term of
one year and are usually secured by a first or second mortgage, or liens on
property, farm equipment, grain, or growing crops. Personal guarantees are
frequently required for loans made to corporations and other business entities.
The agriculture loan portfolio is diversified and there is no concentration to
any one borrower.
In originating an agricultural real estate loan, the Company considers the
debt service coverage of the borrower's cash flow, the amount of working capital
available to the borrower, the financial history of the farmer and the appraised
value of the underlying property as well as the Company's experience with and
knowledge of the borrower. An environmental assessment is also performed. The
maximum loan-to-value for agricultural real estate loans is 75%.
The Company is approved to originate agricultural real estate and operating
loans with guarantees from USDA-FMHA up to a maximum of 90% of the principal and
interest. Once the guaranteed loan has been funded, the Company retains the loan
in its loan portfolio.
Agricultural lending affords the Company the opportunity to earn yields
higher than those obtainable on residential real estate lending. However,
agricultural lending involves a greater degree of risk than residential real
estate loans. Payments on agricultural loans are dependent on the successful
operation or management of the farm property securing the loan. The success of
the farm may be affected by many factors outside the control of the farm
borrower, including adverse weather conditions that limit crop yields (such as
hail, drought and floods), declines in market prices for agricultural products
and the impact of government regulations (including changes in price supports,
subsidies and environmental regulations). In addition, many farms are dependent
on a limited number of key individuals whose injury or death may significantly
affect the successful operation of the farm.
-6-
<PAGE>
The risk of crop damage by weather conditions can be reduced by the farmer
with multi-peril crop insurance which can guarantee set yields to provide
certainty of repayment. Unless the circumstances of the borrower merit
otherwise, the Company generally does not require its borrowers to procure
multi-peril crop or hail insurance. Farmers may mitigate the effect of price
declines through the use of futures contracts, options or forward contracts. The
Company does not monitor or require the use by borrowers of these instruments.
Commercial Lending Commercial business loans generally include equipment
loans with terms ranging up to seven years and working capital lines of credit
secured by inventory and accounts receivable. Working capital lines of credit
are generally renewable and made for a one-year term with a requirement that the
borrower extinguish any outstanding balance for a particular time period during
the year. Interest rates on commercial business loans are generally indexed to
the prime rate or an internal base rate. The Company generally requires annual
financial statements from its commercial business borrowers and personal
guarantees if the borrower is a corporation.
Commercial business lending generally involves greater risk than residential
mortgage lending and involves risks that are different from those associated
with residential, commercial and multi-family real estate lending. Real estate
lending is generally considered to be collateral based lending with loan amounts
based on predetermined loan to collateral values and liquidation of the
underlying real estate collateral is viewed as the primary source of repayment
in the event of borrower default. Although commercial business loans are often
collateralized by equipment, inventory, accounts receivable or other business
assets, the liquidation of collateral in the event of a borrower default is
often not a sufficient source of repayment because accounts receivable may be
uncollectible and inventories and equipment may be obsolete or of limited use,
among other things. Accordingly, the repayment of a commercial business loan
depends primarily on the creditworthiness of the borrower (and any guarantors),
while liquidation of collateral is a secondary and often insufficient source of
repayment.
Consumer Lending. Consumer lending has traditionally been a small part of
the Company's business. However, with the acquisition of Lafayette County Bank,
consumer loans have become a larger portion of the Company's loan portfolio.
Consumer loans generally have shorter terms to maturity and higher interest
rates than mortgage loans. The Company's consumer loans consist primarily of
home equity loans, deposit account loans, automobile loans and, to a
substantially lesser extent, unsecured loans. At September 30, 2000, the
Company's consumer loans totaled approximately $10.4 million, or 15.94% of the
Company's gross loans. The Company intends to emphasize consumer lending to a
greater degree by primarily cross-selling to its existing customer base.
Consumer loans are made at fixed interest rates and for varying terms.
Automobile and other loans are generally made for terms up to 60 months, while
home equity loans are made for terms up to 10 years. With respect to
substantially all home equity loans, the Company holds the first mortgage on the
borrower's residence.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans.
Loan Solicitation and Processing. Loan applicants come primarily from walk-
in customers and referrals by realtors and previous and present customers of the
Company. Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral generally is undertaken by a
Board-approved independent fee appraiser who is certified by the State of
Missouri.
-7-
<PAGE>
Consumer loans may be made by loan officers up to amounts authorized by the
bank's loan policies. All loans over specified amounts must be approved by the
Board of Directors of each banking subsidiary. Management of the Company
believes its local decision-making capabilities and the accessibility of its
senior officers is an attractive quality to customers within its market area.
The Company's loan approval process allows consumer loans to be approved in one
to two days and to expedite the approval and closing of mortgage loans.
Loan Originations, Sales and Purchases. During the year ended September 30,
2000, the Company's total gross loan originations were $26.3 million. Consistent
with its asset/liability management strategy, the Company's policy has been to
retain in its portfolio nearly all of the loans that it originates except for
loans originated by the mortgage banking subsidiary. During the year ended
September 30, 2000, the mortgage banking subsidiary originated $5.2 million of
loans held-for-sale, and sold $5.3 million into the secondary market.
The Company has occasionally purchased whole loans and loan participation
interests, primarily during periods of reduced loan demand in its market area.
At September 30, 2000, $2.0 million of the Company's gross loan portfolio
consisted of purchased whole loans and purchased participation interests. Any
such purchases are made in conformance with the Company's underwriting
standards. The Company may decide to purchase additional loans in the future
depending upon the demand for mortgage credit in its market area. During the
fiscal year ended September 30, 2000, the Company did not purchased any loans.
The following table shows loans originated, purchased, sold and repaid during
the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Total loans at beginning of period............................ $ 62,672 $ 62,896 $ 46,094
-------- -------- --------
Loans acquired from Lafayette County Bank on 10/1/98.......... - - 16,544
Loans originated:
One-to four family........................................... 9,575 8,231 8,457
Commercial real estate and multi-family...................... 1,171 3,324 2,962
Land......................................................... 947 540 189
Construction................................................. 1,178 3,298 700
-------- -------- --------
Total mortgage loans originated............................ 12,871 15,393 12,308
Commercial loans............................................. 2,811 3,430 3,702
Agriculture loans............................................ 1,765 3,429 3,095
Consumer and other loans..................................... 8,833 7,785 8,959
-------- -------- --------
Total loans originated..................................... 26,280 30,037 28,064
Loans purchased:
One-to-family ............................................... - 559 -
Loans sold:
Commercial real estate....................................... - - (119)
Principal repayments.......................................... (23,671) (30,761) (27,626)
Loans charged off............................................. (32) (59) (61)
-------- -------- --------
Net loan activity............................................. 2,577 (224) 16,802
-------- -------- --------
At end of period:
Total gross loans............................................ $ 65,249 $ 62,672 $ 62,896
======== ======== ========
</TABLE>
-8-
<PAGE>
Loan Commitments. The Company issues, without fee, commitments for one-to
four-family residential mortgage loans and operating or working capital lines of
credit. Such commitments are made in writing on specified terms and conditions
and at a specified rate of interest. The company had outstanding net loan
commitments of approximately $3.2 million at September 30, 2000, $2.9 million of
which were for variable rate loans. See Note M of Notes to Consolidated
Financial Statements.
Loan Origination and Other Fees. The Company, in some instances, receives
loan origination fees. Loan fees are a percentage of the principal amount of the
loan which are charged to the borrower for funding the loan. The amount of fees
charged by the Company is generally up to 1% for mortgage loans and 1.5% for
construction loans. Current accounting standards require that origination fees
received (net of certain loan origination costs) for originating loans to be
deferred and amortized into interest income over the contractual life of the
loan. Net deferred fees or costs associated with loans that are prepaid are
recognized as income at the time of prepayment.
Non-Performing Assets and Delinquencies. When a loan borrower fails to
make a required loan payment when due, the Company institutes collection
procedures. All loan payments that are contractually due are not considered
delinquent and collection procedures are not instituted until after the "actual
due date" which may vary between 15 to 30 days following the payment due date.
Borrowers are charged a late penalty on all payments made after the actual due
date. On real estate, commercial and agriculture loans, a pre-foreclosure letter
setting forth a date certain (generally 35 days after the date of the letter)
for instituting foreclosure procedures is mailed on or before 90 days after the
actual due date. Foreclosure procedures are instituted on the date specified in
the pre-foreclosure letter if the delinquency continues to that date.
When a consumer loan borrower fails to make a required payment on a
consumer loan within seven days of the payment due date, the Company institutes
collection procedures. The first notice is mailed to the borrower approximately
seven days following the actual due date. If payment is not promptly received, a
second and third notices are mailed to the borrower approximately 15 and 20 days
following the actual due date and the customer is contacted by telephone to
ascertain the cause of the delinquency. If the delinquency remains uncured, the
Bank mails an additional notice to the borrower on or before 30 days following
the actual due date. In most cases, delinquencies are cured promptly; however,
if by the 90th day of delinquency the delinquency has not been cured, the
Company begins legal action to repossess the collateral. The Company transfers
to repossessed assets the estimated market value of the collateral and charges
the allowance for loan losses with any deficiency at foreclosure. Except for
extenuating circumstances loan past due 120 days are charged off.
The Board of Directors of the Company's banking subsidiaries are informed
monthly as to the status of all loans that are delinquent more than 30 days, the
status on all loans currently in foreclosure, and the status of all foreclosed
and repossessed property owned by the Bank.
The Company has experienced fluctuating and, periodically, relatively high
levels of loan delinquencies. Management attributes this experience primarily to
its practice, consistent with its mission as a community-oriented financial
institution, of offering non-agency-conforming loan products that enable
borrowers with lesser financial resources to otherwise qualify for a loan. The
Company's loss experience, however, as measured by charge offs, has not been
significant. See "-- Lending Activities -- Allowance for Loan Losses." No
assurances can be given as to future delinquency and loss levels.
-9-
<PAGE>
The following table sets forth information regarding the Company's
delinquent loans, excluding loans 90 days or more delinquent and accounted for
on a non-accrual basis.
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998
---- ---- ----
Percentage Percentage Percentage
Principal of Gross Principal of Gross Principal of Gross
(Dollars in Thousands) Balance Loans Balance Loans Balance Loans
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days..................... $2,177 3.32% $1,453 2.32% $ 623 0.99%
60-89 days..................... 809 1.23% 741 1.18% 649 1.03%
------ ---- ------ ---- ------ ----
$2,986 4.55% $2,194 3.50% $1,272 2.02%
====== ==== ====== ==== ====== ====
</TABLE>
The following table sets forth information with respect to the Company's
non-performing assets at the dates indicated. The Company had no restructured
loans within the meaning of Statement of Financial Accounting Standards ("SFAS")
No. 15, at any of the dates indicated. However, at September 30, 2000, there
were loans totaling $47,000 which were past due contractually 90 days or more as
to principal or interest that were still accruing interest. In the opinion of
management collection of principal and interest on these loans is expected to
resume and sufficient collateral is believed to exist to protect the Company
from any significant loss.
<TABLE>
<CAPTION>
At September 30,
-----------------
2000 1999 1998
----- ----- -----
( in Thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis
Loans 90 days or more past due:
Residential real estate............................. $ 341 $ 377 $ 248
Commercial real estate.............................. - - 143
Commercial loans.................................... - - 15
Consumer and other loans............................ 26 20 118
Loans 30 to 89 days past due:
Residential real estate.............................. 17 21 -
Consumer............................................. 10 7 -
----- ----- -----
Total non-accrual loans................................ 394 425 524
Accruing loans 90 days or more past due
Commercial loans...................................... - - 18
Agriculture loans..................................... - - 11
Consumer loans........................................ 47 13 28
----- ----- -----
Total accruing loans 90 days or more past due.......... 47 13 57
----- ----- -----
Total loans past due 90 days or more................... 441 438 581
Real estate owned...................................... - 32 -
----- ----- -----
Total non-performing assets....................... $ 441 $ 470 $ 581
===== ===== =====
Total non-performing loans to net loans................ 0.68% 0.71% 0.93%
===== ===== =====
Total non-performing loans to total assets............. 0.41% 0.41% 0.62%
===== ===== =====
Total non-performing assets to total assets............ 0.41% 0.44% 0.62%
===== ===== =====
</TABLE>
-10-
<PAGE>
At September 30, 2000, management of the Company was unaware of any material
loans not disclosed in the above table but where known information about
possible credit problems of the borrowers caused management to have serious
doubts as to the ability of such borrowers to comply with their loan repayment
terms at that date and which may result in future inclusion in the non-
performing assets category.
The amount of interest collected in cash and included in the results of
operations on non-accruing loans for the year ended September 30, 2000 amounted
to approximately $50,000, before such loans were placed on non-accrual status.
Had such non-accruing loans been current in accordance with their original
terms, an additional $37,000 of interest income would have been recorded for the
year ended September 30, 2000.
Foreclosed Real Estate. See Note A of Notes to the Consolidated Financial
Statements for a discussion of the Bank's procedures for accounting for
foreclosed real estate. The Company had no of foreclosed real estate at
September 30, 2000.
Asset Classification. The Federal regulators have adopted various
regulations regarding problem assets of banking institutions. The regulations
require that each insured institution review and classify its assets on a
regular basis. In addition, in connection with examinations of insured
institutions, bank examiners have authority to identify problem assets and, if
appropriate, require them to be classified. There are three classifications for
problem assets: substandard, doubtful and loss. Substandard assets have one or
more defined weaknesses and are characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. If an asset or portion thereof is
classified as loss, the insured institution establishes specific allowances for
loan losses for the full amount of the portion of the asset classified as loss.
All or a portion of general loan loss allowances established to cover possible
losses related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Assets that do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are designated "special mention" and are monitored by the Company.
The aggregate amounts of the Company's classified assets and general and
specific loss allowances at the dates indicated, were as follows:
<TABLE>
<CAPTION>
At September 30,
-----------------
2000 1999 1998
----- ------ ------
(In Thousands)
<S> <C> <C> <C>
Loss.................................................. $ - $ - $ 26
Doubtful.............................................. - 7 15
Substandard assets.................................... 579 1,111 926
Special mention....................................... 146 587 460
----- ------ ------
Total classified assets............................. $ 725 $1,705 $1,427
===== ====== ======
General loss allowances............................... $ 648 $ 599 $ 573
Specific loss allowances.............................. - - 26
----- ------ ------
Total allowances for loan losses.................... $ 648 $ 599 $ 599
===== ====== ======
</TABLE>
Allowance for Loan Losses. The Company has established a systematic
methodology for determining provisions for loan losses. The methodology is set
forth in a formal policy and considers the need for an overall general valuation
allowance as well as specific allowances for individual loans.
-11-
<PAGE>
In originating loans, the Company recognizes that losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. The Company increases its allowance for loan losses
by charging provisions for loan losses against income.
The general valuation allowance is maintained to cover losses inherent in
the portfolio of performing loans. Management reviews the adequacy of the
allowance at least quarterly based on management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans
and economic conditions. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash flow. Specific
valuation allowances are established to absorb losses on loans for which full
collectibility may not be reasonably assured. The amount of the allowance is
based on the estimated value of the collateral securing the loan and other
analyses pertinent to each situation.
At September 30, 2000, the Company had an allowance for loan losses of
$648,000, which management believed to be adequate to absorb losses inherent in
the portfolio at that date. Although management believes that it uses the best
information available to make such determinations, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations.
While the Company believes it has established its existing allowance for
loan losses in accordance with generally accepted accounting principles, there
can be no assurance that regulators, in reviewing the Company's loan portfolio,
will not request the Company to increase significantly its allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing
allowance for loan losses is adequate or that substantial increases will not be
necessary should the quality of any loans deteriorate as a result of the factors
discussed above. Any material increase in the allowance for loan losses may
adversely affect the Company's financial condition and results of operations.
-12-
<PAGE>
The following table sets forth an analysis of the Company's allowance for
loan losses for the periods indicated. Where specific loan loss reserves have
been established, any differences between the loss allowances and the amount of
loss realized has been charged or credited to current income. As indicated by
the table, there has not been any material fluctuations in the allowance for
loan losses. Periodically, however, the allowance for loan losses has been
replenished in response to low level charge-offs. No assurances can be given as
to the level of future charge offs.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
2000 1999 1998
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Allowance at beginning of period................ $ 599 $ 599 $ 221
Allowance acquired from Lafayette
County Bank.................................... - - 391
Provision for loan losses....................... 70 36 26
Recoveries:
Residential real estate........................ - - -
Commercial real estate and
multi-family.................................. - 3 -
Commercial loans............................... - 4 4
Construction................................... 1 - 1
Consumer ...................................... 10 16 17
------- ------- -------
Total recoveries.............................. 11 23 22
Charge offs:
Residential real estate........................ - 13 -
Commercial real estate and
multi-family.................................. - 19 26
Commercial loans............................... - - 6
Construction................................... - - -
Consumer ...................................... 32 27 29
------- ------- -------
Total charge-offs............................. 32 59 61
------- ------- -------
Net charge-offs............................... 21 36 39
------- ------- -------
Balance at end of period........................ $ 648 $ 599 $ 599
======= ======= =======
Ratio of allowance to total
loans outstanding at the
end of period 0.99% 0.95% 0.95%
======= ======= =======
Ratio of net charge-offs to
average loans outstanding
during the period 0.03% 0.06% 0.06%
======= ======= =======
Ratio of allowance to
non-accrual loans 164.47% 140.94% 114.31%
======= ======= =======
</TABLE>
-13-
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. The portion of the allowance
to each loan category does not necessarily represent the total available for
losses within that category since the total allowance applies to the entire loan
portfolio. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any other category.
<TABLE>
<CAPTION>
At September 30,
-----------------
2000 1999 1998
----- ----- -----
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ -------- --------------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Real estate mortgage:
One-to-four family.................. $ 110 61.68% $ 100 62.93% $ 100 66.84%
Commerical real estate and
multi-family........................ 170 9.78% 150 9.10% 125 5.87%
Land................................ - 2.73% - 1.78% - 1.04%
Construction........................ - 2.16% - 1.87% - 0.99%
Commercial loans...................... 90 2.98% 100 4.49% 100 6.42%
Agricultural loans.................... 25 4.73% 25 5.15% 25 5.04%
Consumer and other loans.............. 180 15.94% 150 14.68% 150 13.80%
Unallocated........................... 73 - 74 - 99 -
----- ------ ----- ------ ----- ------
Total allowance for loan losses $ 648 100.00% $ 599 100.00% $ 599 100.00%
===== ====== ===== ====== ===== ======
</TABLE>
Investment Activities
The Company is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Des Moines, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Company may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like B&L Bank are also required
to maintain an investment in FHLB stock.
B&L Bank is required under federal regulations to maintain a minimum amount
of liquid assets. At September 30, 2000, B&L Bank's regulatory liquidity of
18.09% was significantly in excess of the 4% required by OTS regulations.
Management intends to hold all securities in B&L Bank's investment portfolio in
order to enable B&L Bank to provide liquidity for loan funding upon maturity of
such investment securities and to match more closely the interest-rate
sensitivities of its assets and liabilities.
The Boards of Directors of B & L Bank and Lafayette County Bank have
approved investment policies and procedures. The investment policies generally
limit investments to U. S. Government and agency securities, municipal bonds,
certificates of deposits, marketable investment grade corporate debt obligations
and mortgage-backed securities.
-14-
<PAGE>
Investments are made based on certain considerations, which include the
interest rate, yield, settlement date and maturity of the investment, liquidity
position, and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). The effect that the proposed investment would
have on the Company's credit and interest rate risk, and risk-based capital is
also given consideration during the evaluation.
The Company adopted SFAS No. 115 on October 1, 1993. At September 30, 2000,
the Company's portfolio classified as "available-for-sale" contained mortgage
backed securities and certain Federal Agency obligations. The "held-to-maturity"
contained all of the state and local debt securities and U. S. Treasury
securities and the majority of its portfolio of federal agency securities.
Consistent with the Company's asset/liability management strategy, at September
30, 2000, the majority of the investment portfolio matures within five years of
that date. See Note B of Notes to the Consolidated Financial Statements for the
specific classification of securities under SFAS No. 115.
The following table sets forth the composition of the Company's mortgage-
backed securities portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------
2000 1999 1998
---- ---- ----
Carrying Carrying Carrying
Value Value Value
----- ----- -----
(In Thousands)
<S> <C> <C> <C>
Government National
Mortgage Association
("GNMA").................... $ 220 $ 295 $ 265
Fannie Mae.................. 142 169 224
Freddie Mac................. 170 203 348
----- ----- -----
Total................... $ 532 $ 667 $ 837
===== ===== =====
</TABLE>
-15-
<PAGE>
The following table sets forth the composition of the Company's investment
securities portfolio and FHLB stock at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998
------- ------- -------
Carrying Percent Carrying Percent Carrying Percent
of of of
Value Portfolio Value Portfolio Value Portfolio
------------ ------------ ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government and Federal
Agency obligations............... $25,638 85.40% $27,675 84.63% $14,580 84.09%
State and local obligations...... 3,851 12.83% 4,358 13.33% 1,921 11.08%
------- ------- -------
Mortgage-backed securities....... 532 1.77% 667 2.04% 837 4.83%
------- ------ ------- ------ ------- ------
Total investment securities......... $30,021 100.00% $32,700 100.00% $17,338 100.00%
======= ====== ======= ====== ======= ======
Capital stock-FHLB-Des Moines....... $ 543 $ 535 $ 520
======= ======= =======
</TABLE>
The dividend yield on the capital stock of the FHLB-Des Moines was 6.34% for the
fiscal year ended September 30, 2000.
The following table sets forth the maturities of investment securities portfolio
at September 30, 2000.
<TABLE>
<CAPTION>
Book Value Total Investment Securities
One Year After One To Over Five To After Book Market
or Less Five Years Ten Years Ten Years Value Value
-------------- --------------- ------------- -------------- ------------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Government and
Federal Agencies.............. $ 100 $ 3,255 $3,661 $ 242 $ 7,258 $ 7,258
Mortgage-backed Securities.... - - 38 494 532 532
----- ------- ------ ------ ------- -------
Total available for sale........ 100 3,255 3,699 736 7,790 7,790
Held-to-maturity:
U.S. Government and
Federal Agencies.............. 201 14,855 2,825 499 18,380 17,794
State and local obligations... 250 615 610 2,376 3,851 3,798
----- ------- ------ ------ ------- -------
Total held-to-maturity.......... 451 15,470 3,435 2,875 22,231 21,592
----- ------- ------ ------ ------- -------
Total investment securities..... $ 551 $18,725 $7,134 $3,611 $30,021 $29,382
===== ======= ====== ====== ======= =======
Weighted average yield.......... 5.81% 5.94% 6.25% 5.63% 5.98%
===== ======= ====== ====== =======
</TABLE>
-16-
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Company's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Des Moines may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources. At September 30, 2000, the Company had no other
borrowing arrangements.
Deposit Accounts. Substantially all of the Company's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Company's market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary, according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of its deposit
accounts, the Company considers current market interest rates, profitability to
the Company, matching deposit and loan products and its customer preferences and
concerns. The Company reviews its deposit mix and pricing weekly.
The following table sets forth the composition of the Company's deposits at
September 30, 2000.
<TABLE>
<CAPTION>
Percentage
of Total
Balance Deposits
----------- -----------
(In Thousands)
Checking and Savings Deposits
-----------------------------
<S> <C> <C>
Demand non-interest bearing..................... $ 6,164 7.22%
NOW accounts.................................... 7,378 8.65%
Money market accounts........................... 7,364 7.08%
Passbook savings accounts....................... 6,044 8.63%
------- ------
26,950 31.58%
Certificates of Deposits
------------------------
With balances of less than $100,000............. 49,635 58.16%
With balances in excess of $100,000............. 8,753 10.26%
------- ------
58,388 68.42%
------- ------
Total Deposits.................................. $85,338 100.00%
======= ======
</TABLE>
The following table indicates the amount of the Company's certificates of
deposit of $100,000 or more by time remaining until maturity as of September 30,
2000.
Maturity Period Amount
----------
(In thousands)
Three months or less............................. $1,272
Over three through six months.................... 2,377
Over six through twelve months................... 2,649
Over twelve months............................... 2,455
------
Total....................................... $8,753
======
-17-
<PAGE>
Deposit Flow. The following table sets forth the balances and changes in
dollar amounts of deposits in the various types of accounts offered by the
Company at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------
2000 1999 1998
------ ------ -------
Percent Percent Percent
Of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
------------ ------- ------------- -------- ------- --------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing...................... $ 6,164 7.22% 768 $ 5,396 6.57% $ 738 $ 4,658 6.07%
NOW checking.............................. 7,378 8.65% (995) 8,373 10.19% 2,453 5,920 7.71%
Regular savings accounts (1).............. 7,364 8.63% 998 6,366 7.75% 38 6,328 8.24%
Money Market deposits..................... 6,044 7.08% 816 5,228 6.36% (1,442) 6,670 8.69%
------- ------ ------- ------- ------ ------- ------- ------
26,950 31.58% 1,587 25,363 30.87% 1,787 23,576 30.71%
Fixed-rate certificates which mature (1)
Within 1 year............................. 41,485 48.61% 7,961 33,524 40.81% 4,614 28,910 37.66%
After 1 year, but before 2 years.......... 8,624 10.11% (6,301) 14,925 18.17% 4,892 10,033 13.07%
After 2 years, but before 5 years......... 8,174 9.58% (17) 8,191 9.97% (5,343) 13,534 17.63%
Certificates maturing thereafter.......... 105 0.12% (42) 147 0.18% (564) 711 0.93%
------- ------ ------- ------- ------ ------- ------- ------
58,388 68.42% 1,601 56,787 69.13% 3,599 53,188 69.29%
------- ------ ------- ------- ------ ------- ------- ------
Total................................ $85,338 100.00% $ 3,188 $82,150 100.00% $ 5,386 $76,764 100.00%
======= ====== ======= ======= ====== ======= ======= ======
</TABLE>
(1) Included in savings accounts and certificate balances were individual
retirement account ("IRA") balances of $6,711,000, $6,649,000 and
$6,199,000 at September 30, 2000, 1999 and 1998, respectively.
Time Deposits by Rates. The following table sets forth the time deposits in
the Company classified by rates at the dates indicated.
At September 30,
----------------
2000 1999 1998
------- ------- -------
(In Thousands)
3.00 - 3.99%....................... $ 125 $ 551 $ 667
4.00 - 4.99%....................... 394 9,426 403
5.00 - 5.99%....................... 29,159 32,953 36,786
6.00 - 6.99%....................... 18,092 7,800 8,988
7.00 - 7.99%....................... 6,451 2,012 2,416
8.00 - 8.99%....................... 4,167 4,045 3,906
9.00% and over..................... - - 22
------- ------- -------
Total.......................... $58,388 $56,787 $53,188
======= ======= =======
-18-
<PAGE>
The following table sets forth the amount and maturities of time deposits at
September 30, 2000.
<TABLE>
<CAPTION>
Percent
Amount Due of Total
Less Than 1-2 2-3 3-4 After Certificates
One Year Years Years Years 4 Years Total Accounts
--------- ------- ------------- ------- ------- -------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%.................. $ 125 $ - $ - $ - $ - $ 125 0.21%
4.00 - 4.99%.................. 394 - - - - 394 0.67%
5.00 - 5.99%.................. 22,012 4,330 1,192 1,370 255 29,159 49.94%
6.00 - 6.99%.................. 11,397 2,490 2,065 1,249 891 18,092 30.99%
7.00 - 7.99%.................. 3,390 1,804 980 77 200 6,451 11.05%
8.00 - 8.99%.................. 4,167 - - - - 4,167 7.14%
------- ------ ------ ------ ------ ------- ------
$41,485 $8,624 $4,237 $2,696 $1,346 $58,388 100.00%
======= ====== ====== ====== ====== ======= ======
</TABLE>
Deposit Activities. The following table sets forth the deposit activities
of the Company for the periods indicated.
Year Ended September 30,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Beginning balance..................... $85,150 $76,764 $42,694
Deposits acquired in the acquisition
of Lafayette County Bank.............. - - 31,355
Net Deposits (withdrawals) before
interest credited..................... (3,853) 4,075 (777)
Interest credited..................... 4,041 4,311 3,492
------- ------- -------
Net increase (decrease) in Deposits... 188 8,386 34,070
------- ------- -------
Ending balance........................ $85,338 $85,150 $76,764
======= ======= =======
-19-
<PAGE>
Borrowings. The Company has the ability to use advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member of the FHLB-Des Moines, the Company's banking
subsidiaries are authorized to apply for advances on the security of such stock
and certain of its mortgage loans and other assets (principally securities that
are obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness standards have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit.
The Company had total new advances totaling $2.0 million during the year
ended September 30, 2000. The following table sets forth advances for the three
years ended at September 30, 2000:
At September 30,
----------------
2000 1999 1998
------ ------ -----
(in Thousands)
Average balance outstanding............ $5,182 $4,280 $ 307
====== ====== =====
Maximum amount outstanding
at any month end....................... $7,003 $5,494 $ 340
====== ====== =====
Balance outstanding at end of period. $7,003 $5,162 $ 140
====== ====== =====
Weighted average interest rate
during period.......................... 5.11% 5.26% 6.19%
====== ====== =====
Weighted average interest rate
at end of period....................... 5.54% 5.07% 5.68%
====== ====== =====
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REGULATION
General
B&L Bank is subject to extensive regulation, examination and supervision by
the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.
The activities of federal savings institutions are governed by the Home Owners'
Loan Act, as amended (the "HOLA") and, in certain respects, the Federal Deposit
Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. As a state bank that is not a member of the Federal
Reserve, Lafayette County Bank is subject to extensive regulation, examination
and supervision by the State of Missouri and the FDIC. These laws and
regulations delineate the nature and extent of the activities in which
depository institutions may engage. Lending activities and other investments
must comply with various statutory and regulatory capital requirements. In
addition, the Banks' relationship with their depositors and borrowers is also
regulated to a great extent, especially in such matters as the ownership of
deposit accounts and the form and content of the Banks' mortgage documents. The
Banks' must file reports with their regulators concerning their activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by regulatory
authorities to review the Banks' compliance with various regulatory
requirements. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such policies could have a material
adverse impact on the Banks and their operations.
Federal Regulation
Office of Thrift Supervision. The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury. The
OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. B&L Bank, as a member
of the FHLB-Des Moines, is required to acquire and hold shares of capital stock
in the FHLB-Des Moines in an amount equal to the greater of (i) 1.0% of the
aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Des Moines. B&L Bank
is in compliance with this requirement with an investment in FHLB-Des Moines
stock of $412,600 at September 30, 2000. Among other benefits, the FHLB-Des
Moines provides a central credit facility primarily for member institutions. It
is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of Directors of
the FHLB-Des Moines.
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds; BIF and the SAIF. As insurer of the Bank's deposits, the FDIC has
examination, supervisory and enforcement authority over the Banks.
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B&L Bank's accounts are insured by the SAIF and Lafayette County Bank's
deposits are insured by the BIF, each to the maximum extent permitted by law.
The Banks pay deposit insurance premiums based on a risk-based assessment system
established by the FDIC. Under applicable regulations, institutions are assigned
to one of three capital groups that are based solely on the level of an
institution's capital -- "well capitalized," "adequately capitalized," and
"undercapitalized" -- which are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed below. These
three groups are then divided into three subgroups which reflect varying levels
of supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications.
During 2000 SAIF and BIF members were charged an assessment of .021% of
assessable deposits for the purpose of paying interest on the obligations issued
by the Financing Corporation ("FICO") in the 1980s to help fund the thrift
industry cleanup.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Banks.
Liquidity Requirements. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imosed for failure to meet liquidity requirements. As of
September 30, 2000, B&L Bank's liquidity ratio was 18.09%.
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
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rating for asset quality, management, earnings or liquidity. (Regulatory
authorities may not, however, reclassify a significantly undercapitalized
institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At September 30, 2000, the Banks were categorized as "well capitalized"
under the applicable prompt corrective action regulations.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the appropriate regulatory authority
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard. Federal regulations
establish deadlines for the submission and review of such safety and soundness
compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the institution may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the institution may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the institution shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
institution shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks. Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
September 30, 2000, B&L Bank was in compliance with the QTL test.
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<PAGE>
OTS Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 4% core capital or leverage ratio,
defined as the ratio of core capital to adjusted total assets (3% for
institutions that receive the highest CAMELS examination rating). Core capital
is defined to include common stockholders' equity, non-cumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain servicing rights; and
(iii) equity and debt investments in subsidiaries that are not "includable
subsidiaries," which is defined as subsidiaries engaged solely in activities not
impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets, adjustments
are made to total assets to give effect to the exclusion of certain assets from
capital and to account appropriately for the investments in and assets of both
includable and non-includable subsidiaries. Institutions that fail to meet the
core capital requirement would be required to file with the OTS a capital plan
that details the steps they will take to reach compliance. In addition, the
OTS's prompt corrective action regulation provides that a savings institution
that has a leverage ratio of less than 4% (3% for institutions receiving the
highest CAMEL examination rating) will be deemed to be "undercapitalized" and
may be subject to certain restrictions. See "-- Federal Regulation -- Prompt
Corrective Action." As of September 30, 2000, B&L Bank had core capital ratio
of 21.25%.
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights. As of September 30, 2000, B&L Bank had tangible capital ratio of
12.77%.
Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
As of September 30, 2000, B&L Bank had a total risk-based capital equal to
21.75%.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
----
outgoing discounted
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cash flows from assets, liabilities and off-balance sheet contracts) that would
result from a hypothetical 200 basis point increase or decrease in market
interest rates divided by the estimated economic value of B&L Bank's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate risk component in calculating its total capital under the risk-
based capital rule. The interest rate risk component is an amount equal to one-
half of the difference between the institution's measured interest rate risk and
2%, multiplied by the estimated economic value of the Bank's assets. That dollar
amount is deducted from an association's total capital in calculating compliance
with its risk-based capital requirement. Under the rule, there is a two quarter
lag between the reporting date of an institution's financial data and the
effective date for the new capital requirement based on that data. A savings
association with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. The rule also provides that the Director of the OTS
may waive or defer an association's interest rate risk component on a case-by-
case basis. Under certain circumstances, a savings association may request an
adjustment to its interest rate risk component if it believes that the OTS-
calculated interest rate risk component overstates its interest rate risk
exposure. In addition, certain "well-capitalized" institutions may obtain
authorization to use their own interest rate risk model to calculate their
interest rate risk component in lieu of the OTS-calculated amount. The OTS has
postponed the date that the component will first be deducted from an
institution's total capital.
At September 30, 2000, B&L Bank is not subject to the interest rate risk
component.
FDIC Capital Requirements. The FDIC's minimum capital standards applicable
to FDIC-regulated banks require most banks to meet a "Tier 1" leverage capital
ratio of at least 4% of total assets (3% for banks with the highest CAMELS
examination rating). Tier 1 (or "core capital") consists of common
stockholders' equity, noncumulative perpetual preferred stock and minority
interests in consolidated subsidiaries minus all intangible assets other than
limited amounts of purchased mortgage servicing rights and certain other
accounting adjustments. Based on the definitions contained in the FDIC's capital
regulations, Lafayette County Bank had a Tier 1 leverage capital ratio of 14.68%
as of September 30, 2000.
FDIC regulations also require that banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as Tier 1 capital and Tier 2 or supplementary capital)
to risk weighted assets of 8% and Tier 1 capital to risk-weighted assets of 4%.
In determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the
risks the FDIC believes are inherent in the type of asset or item. The
components of Tier 1 capital are equivalent to those discussed above under the
4% leverage requirement. The components of supplementary capital currently
include cumulative perpetual preferred stock, adjustable-rate perpetual
preferred stock, mandatory convertible securities, term subordinated debt,
intermediate-term preferred stock and allowance for possible loan and lease
losses. Allowance for possible loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall, the amount of capital counted toward supplementary capital cannot
exceed 100% of Tier 1 capital. Since September 1995, the FDIC includes in its
evaluation of a bank's capital adequacy an assessment of the exposure to
declines in the economic value of the bank's capital due to changes in interest
rates. Based on the definitions contained in the FDIC's capital regulations,
Lafayette County Bank had a risk-based capital ratio of 15.83%, as of September
30, 2000.
FDIC capital requirements are designated as the minimum acceptable
standards for banks whose overall financial condition is fundamentally sound,
which are well-managed and have no material or significant financial weaknesses.
The FDIC capital regulations state that, where the FDIC determines that the
financial history or condition, including off-balance sheet risk, managerial
resources and/or the future earnings prospects of a bank are not adequate and/or
a bank has a significant volume of assets classified substandard, doubtful or
loss or otherwise criticized, the FDIC may determine that the minimum adequate
amount of capital for that bank is greater than the minimum standards
established in the regulation.
Limitations on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution including cash
dividends, payments to repurchase its shares and payments to shareholders of
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another institution in a cash-out merger. An application to and the prior
approval of the OTS is required before any capital distribution if the
institution does not meet the criteria for "expedited treatment" of applications
under OTS regulations (generally, compliance with all capital requirements and
examination ratings in one of two top categories), the total capital
distributions for the calendar year exceed net income for that year plus the
amount of retained net income for the preceding two years, the institution would
be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statue, regulation or agreement with OTS. If an
association's capital fell below its regulatory requirements or if the OTS
notified it that it was in need of more than normal supervision, the
association's ability to make capital distributions could be restricted. In
addition, the OTS could prohibit a proposed capital distributions, which would
otherwise be permitted by the regulation if the OTS determines that the
distribution would be an unsafe or unsound practice.
Neither bank would be permitted to make a capital distribution which would
make it "undercapitalized" within the meaning of the prompt corrective action
regulations. See "Federal Regulation - Prompt Corrective Actions".
Under Missouri state law, Lafayette County Bank, as a state bank, must
credit one-tenth of net earnings to a surplus fund until the surplus fund equals
40% of the bank's capital. The balance of the net earnings may be credited to
the profit and loss account of the bank. The credit balance of the account
constitutes the undivided profits at the close of the dividend period, and is
available for dividends. No bank can declare, credit or pay any dividend to its
stockholders until it shall have made good any existing impairment of its
capital.
The surplus fund up to 40% of the capital of the bank shall be used only
for the payment of losses in excess of undivided profits; provided, that the
excess of surplus over 40% upon the approval of the Missouri Director of
Finance, may be capitalized as a stock dividend or may be transferred to
undivided profits and used for cash dividends in the discretion of the board of
directors. At September 30, 2000, Lafayette County Bank's surplus fund exceeded
40% of its capital.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of B&L Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. The OTS by regulation has amended the loans to one borrower rule
to permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At September 30, 2000, B&L Bank's regulatory limit on loans to
one borrower was $1.2 million. At September 30, 2000, B&L Bank's largest
aggregate amount of loans to one borrower was $1.0 million.
Under Missouri law, Lafayette County Bank may not, directly or indirectly,
lend to any one borrower an amount or amounts which exceed 20% of its unimpaired
capital, which consist of common stock, capital surplus, retained earnings and
reserves. At September 30, 2000, Lafayette County Bank's lending limit to any
one borrower was $887,000. At September 30, 2000, the largest aggregate amount
of loans to one borrower, less any government guarantees, was $559,000
Activities of Savings Associations and their Subsidiaries. A savings
association may establish operating subsidiaries to engage in any activity that
the savings association may conduct directly and may establish service
corporation subsidiaries to engage in certain pre-approved activities. When a
savings association establishes or acquires a subsidiary or elects to conduct
any new activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency
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may, by regulation, require. Savings associations also must conduct the
activities of subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the Bank or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Activities and Investments of Insured State-Chartered Banks. Federal law
generally limits the activities as principal and equity investments of FDIC-
insured, state-chartered banks to those that are permissible for national banks.
Under regulations dealing with equity investments, an insured state bank
generally may not directly or indirectly acquire or retain any equity investment
of a type, or in an amount, that is not permissible for a national bank. An
insured state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary engaged in permitted activities,
(ii) investing as a limited partner in a partnership the sole purpose of which
is direct or indirect investment in the acquisition, rehabilitation or new
construction of a qualified housing project, provided that such limited
partnership investments may not exceed 2% of the bank's total assets, (iii)
acquiring up to 10% of the voting stock of a company that solely provides or
reinsures directors', trustees' and officers' liability insurance coverage or
bankers' blanket bond group insurance coverage for insured depository
institutions, and (iv) acquiring or retaining the voting shares of a depository
institution if certain requirements are met.
FDIC regulations provide that an insured state-chartered bank may not,
directly, or indirectly through a subsidiary, engage as "principal" in any
activity that is not permissible for a national bank unless the FDIC has
determined that such activities would pose no risk to the insurance fund of
which it is a member and the bank is in compliance with applicable regulatory
capital requirements. Any insured state-chartered bank directly or indirectly
engaged in any activity that is not permitted for a national bank must cease the
impermissible activity.
Transactions with Affiliates. Banks and savings associations must comply
with Sections 23A and 23B of the Federal Reserve Act relative to transactions
with affiliates. A holding company, its subsidiaries and any other company
under common control are considered affiliates of the subsidiary depository
institutions under the HOLA. Generally, Sections 23A and 23B: (i) limit the
extent to which the insured institution or its subsidiaries may engage in
certain covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus and place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and (ii) require that all such transactions be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the making
of loans, the purchase of assets, the issuance of a guarantee and similar types
of transactions. Any loan or extension of credit by the institution to an
affiliate must be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.
The Banks' authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation
O thereunder. Among other things, these regulations require that such loans be
made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
the Banks may make
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to such persons based, in part, on the Bank's capital position, and requires
certain board approval procedure to be followed. The OTS regulations, with
certain minor variances, apply Regulation O to savings institutions.
Federal Reserve System. The Federal Reserve Board regulations requires
banks and savings institutions to maintain non-interest earnings reserves
against their transaction accounts, primarily NOW and regular checking accounts.
The regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $42.8 million or less,
subject to adjustment by the Federal Reserve Board the reserve requirement is
3%; and for accounts aggregating greater than $42.8 million, the reserve
requirement is $1.284 million plus 10%, subject to adjustment by the Federal
Reserve Board between 8% and 14%, against that portion of total transaction
accounts in excess of $42.8 million. The first $4.9 million of otherwise
reservable balances, as adjusted by the Federal Reserve Board, are exempted from
the reserve requirements.
Community Reinvestment Act. The Banks are subject to the provisions of the
Community Reinvestment Act of 1977, which requires the appropriate federal bank
regulatory agency, in connection with its regular examination of an institution,
to assess the institution's record in meeting the credit needs of the community
serviced by the institution, including low and moderate income neighborhoods.
The regulatory agency's assessment of the institution's record is made available
to the public. Further, such assessment is required of any institution which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution. The Gramm-Leach-Bliley Act of 1999 extended the frequency of CRA
examinations to every five years for institutions with an "outstanding" rating
and every four years with a "satisfactory" rating.
Bank Holding Company Regulation
General. Upon consummation of the acquisition of Lafayette County Bank,
the Company became a bank holding company. Bank holding companies are subject
to comprehensive regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under the Bank Holding Company Act ("BHCA") and
the regulations of the Federal Reserve. As a bank holding company, the Company
is required to file with the Federal Reserve annual reports and such additional
information as the Federal Reserve may require and will be subject to regular
examinations by the Federal Reserve. The Federal Reserve also has extensive
enforcement authority over bank holding companies, including, among other
things, the ability to assess civil money penalties, to issue cease and desist
or removal orders and to require that a holding company divest subsidiaries
(including its bank subsidiaries). In general, enforcement actions may be
initiated for violations of law and regulations and unsafe or unsound practices.
Under the BHCA, a bank holding company must obtain Federal Reserve approval
before: (1) acquiring, directly or indirectly, ownership or control of any
voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
includes, among other things, operating a savings institution, mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of credit-
related insurance; leasing property on a full-payout, non-operating basis;
selling money orders, travelers' checks and United States Savings
-28-
<PAGE>
Bonds; real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers.
Interstate Banking and Branching. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "Riegle-Neal Act") was enacted
to ease restrictions on interstate banking. The Riegle-Neal Act allows the
Federal Reserve to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve may not approve the
acquisition of a bank that has not been in existence for the minimum time period
(not exceeding five years) specified by the statutory law of the host state.
The Riegle-Neal Act also prohibits the Federal Reserve from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. The Riegle-Neal Act does not
affect the authority of states to limit the percentage of total insured deposits
in the state which may be held or controlled by a bank holding company to the
extent such limitation does not discriminate against out-of-state banks or bank
holding companies. Individual states may also waive the 30% state-wide
concentration limit contained in the Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transaction is
prohibited by the law of any state, unless the home state of one of the banks
opted out of the Riegle-Neal Act by adopting a law after the date of enactment
of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving out-of-
state banks. Interstate acquisitions of branches are permitted only if the law
of the state in which the branch is located permits such acquisitions.
Interstate mergers and branch acquisitions are also subject to the nationwide
and statewide insured deposit concentration amounts described above.
The Riegle-Neal Act authorizes the applicable federal banking agency to
approve interstate branching de novo by national and state banks, but only in
states which specifically allow for such branching.
Financial Modernization. On November 12, 1999, the Gramm-Leach-Bliley
Financial Modernization Act of 1999 was enacted. The Legislation eliminates
many Federal and State law barriers to affiliations among banks and other
financial services providers. The legislation establishes a statutory framework
pursuant to which full affiliations can occur between banks and securities
firms, insurance companies, and other financial companies. The legislation
provides some degree of flexibility in structuring these new affiliations,
although certain activities may only be conducted through a holding company
structure. The legislation preserves the role of the Board of Governors of the
Federal Reserve System as the umbrella supervisor for holding companies, but
incorporates a system of functional regulation pursuant to which the various
Federal and State financial supervisors will continue to regulate the activities
traditionally within their jurisdictions. The legislation specifies that banks
may not participate in the new affiliations unless the banks are well-
capitalized and well-managed or if any bank affiliate had received a less than
"satisfactory" Reinvestment Act of 1977 rating as of its most recent
examination.
Dividends. The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earnings retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Federal Reserve policies also require that a bank holding company serve as a
source of financial strength to its subsidiary banks by standing ready to use
available resources to provide adequate capital funds to those banks during
periods of financial stress or adversity and by maintaining the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks where necessary. These regulatory policies could
affect the ability of the Company to pay dividends.
-29-
<PAGE>
Bank holding companies are required to give the Federal Reserve prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve may disapprove such a purchase or redemption if
it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order, or any condition
imposed by, or written agreement with, the Federal Reserve. This notification
requirement does not apply to any company that meets the well-capitalized
standard for commercial banks, has a safety and soundness examination rating of
at least a "2" and is not subject to any unresolved supervisory issues.
Capital Requirements. The Federal Reserve has established capital
requirements for bank holding companies that generally parallel the capital
requirements for banks. The Federal Reserve regulations provide that capital
standards will generally be applied on a bank only (rather than a consolidated)
basis on the case of a bank holding company with less than $150 million in total
consolidated assets.
TAXATION
Federal Taxation
General. The Company reports its income on a fiscal year basis using the
accrual method of accounting and will be subject to federal income taxation in
the same manner as other corporations with some exceptions, including
particularly the Banks' reserve for bad debts discussed below. The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Banks or the
Company. For additional information regarding income taxes, see Note I of Notes
to Consolidated Financial Statements.
Bad Debt Reserve. Historically, savings institutions such as B&L Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. B&L Bank's deductions with
respect to "qualifying real property loans," which are generally loans secured
by certain interest in real property, were computed using an amount based on B&L
Bank's actual loss experience, or a percentage equal to 8% of B&L Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to B&L Bank's loss
experience, B&L Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). For taxable years beginning after December
31, 1995, B&L Bank's bad debt deduction must be determined under the experience
method using a formula based on actual bad debt experience over a period of
years or, if the Bank is a "large" Bank (assets in excess of $500 million) on
the basis of net charge-offs during the taxable year. The new rules allowed an
institution to suspend bad debt reserve recapture for the 1996 and 1997 tax
years if the institution's lending activity for those years is equal to or
greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996
-30-
<PAGE>
adjusted for inflation. For this purpose, only home purchase or home improvement
loans are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continues to be subject to provisions of present law referred
to below that require recapture of the pre-1988 bad debt reserve in the case of
certain excess distributions to shareholders.
Distributions. To the extent that B&L Bank makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if B&L Bank's loan portfolio decreased since December
31, 1987) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in B&L Bank's taxable income. Nondividend distributions include
distributions in excess of B&L Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of B&L Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from B&L Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if B&L Bank makes a
"nondividend distribution," then approximately one and one-half times the Excess
Distribution would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes). See "REGULATION" for limits on the payment of dividends by B&L Bank.
B&L Bank does not intend to pay dividends that would result in a recapture of
any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI can be offset
by net operating loss carryovers. AMTI is increased by an amount equal to 75%
of the amount by which the Company's adjusted current earnings exceeds its AMTI
(determined without regard to this preference and prior to reduction for net
operating losses). For taxable years beginning after December 31, 1986, and
before January 1, 1996, an environmental tax of 0.12% of the excess of AMTI
(with certain modification) over $2.0 million is imposed on corporations,
including the Company, whether or not an Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Company may exclude from its income 100%
of dividends received from the Banks as a member of the same affiliated group of
corporations. The corporate dividends-received deduction is generally 70% in
the case of dividends received from unaffiliated corporations with which the
Company and the Banks will not file a consolidated tax return, except that if
the Company or the Banks owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
Audits. There have not been any Internal Revenue Service audits of the
Company's Federal income tax returns during the past five years.
State Taxation
Missouri Taxation. Missouri-based institutions, such as B&L Bank and
Lafayette County Bank, are subject to a special financial institutions tax,
based on net income without regard to net operating loss carryforwards, at the
rate of 7% of net income. This tax is in lieu of certain other state taxes on
financial institutions, on their property, capital or income, except taxes on
tangible personal property owned by B&L Bank or Lafayette County Bank and held
for lease or rental to others and on real estate, contributions paid pursuant to
the Unemployment Compensation Law of Missouri, social security taxes, sales
taxes and use taxes. In addition, B&L Bank and Lafayette County Bank are
entitled to credit against this tax all taxes paid to the State of Missouri or
any political subdivision, except taxes on tangible personal property owned and
held for lease or rental to others and on real estate, contributions paid
pursuant to the Unemployment Compensation Law of Missouri, social security
taxes, sales and use taxes, and taxes imposed by the Missouri Financial
Institutions Tax Law. Missouri also has a corporate income tax. However, the
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<PAGE>
Company has not been subject to the Missouri corporate income tax because of
income generated on its portfolio of Federal agency securities which are exempt
from corporate income tax.
There have not been any audits of either B & L Bank's or Lafayette County
Bank's Missouri tax returns by Missouri tax authorities during the past five
years.
As a Missouri-chartered corporation, the Company is subject to annual
franchise and income taxes imposed by the State of Missouri. Franchise taxes
are assessed at a rate of 1/20 of 1% of the par value of outstanding shares and
surplus. Income taxes are assessed at a rate of 6.25% of federal taxable income
derived from Missouri sources.
For additional information regarding taxation, see Note I of Notes to
Consolidated Financial Statements contained in the Annual Report.
Competition
Due to the proximity of Lexington to the Kansas City metropolitan area, the
Company operates in an extremely competitive market for the attraction of
savings deposits (its primary source of lendable funds) and in the origination
of loans. Historically, its most direct competition for savings deposits has
come from commercial banks and thrift institutions operating in its market area.
Some of these commercial banks are subsidiaries of large regional holding
companies having vastly greater resources at their disposal. At September 30,
2000, there were 11 commercial banks, including Lafayette County Bank, and no
other thrift institutions in Lafayette County. Particularly in times of high
market interest rates, the Company has faced competition for investors' funds
from short-term money market securities and corporate and U.S. Government
securities. The Company competes for loan originations with mortgage bankers,
thrift institutions, credit unions and commercial banks. Such competition for
deposits and loans may limit the Company's future growth and earnings prospects.
Personnel
As of September 30, 2000, the Company had 25 full-time and 8 part-time
employees. The employees are not represented by a collective bargaining unit.
The Company believes its relationship with its employees is good.
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<PAGE>
Executive Officers
The following table sets forth certain information regarding the executive
officers of the Company as of September 30, 2000:
<TABLE>
<CAPTION>
Name Age(1) Position
---- ------ --------
<S> <C> <C>
Erwin Oetting, Jr. 60 President and Chief Executive Officer
E. Steva Vialle 49 Executive Vice President, Chief Operating Officer, and Secretary
William J. Huhmann 61 Senior Vice President and Chief Financial Officer
Mark D. Summerlin 40 Senior Vice President
Terry L. Thompson 47 Vice President
</TABLE>
The following table sets forth certain information regarding the executive
officers of B&L Bank and Lafayette County Bank
<TABLE>
<CAPTION>
Name Age(1) Position
---- ------ --------
<S> <C> <C>
B&L Bank:
Erwin Oetting, Jr. 60 President and Chief Executive Officer
E. Steva Vialle 49 Executive Vice President, Chief Operating Officer and Secretary
Kathryn M. Swafford 38 Vice President and Treasurer
Mark D. Summerlin 40 Vice President
Lafayette County Bank:
William J. Huhmann 61 Chairman and Chief Financial Officer
Terry L. Thompson 47 President and Chief Executive Officer
Carol Summerlin 60 Senior Vice President and Cashier
Kirk Craven 38 Vice President
</TABLE>
________________________
(1) As of September 30, 2000.
Erwin Oetting, Jr. has been employed as an officer of the B&L Bank since
1960 and has been President and Chief Executive Officer since 1985. He is a
member of the LIDC Authority, the Lexington Housing Authority, the Lexington
Chamber of Commerce, and the Lexington Police Board and a trustee of Wentworth
Military Academy.
E. Steva Vialle has been employed by the B&L Bank since 1984 and has been
Executive Vice President, Chief Operating Officer and Secretary since 1994. He
is a member of the Lexington Industrial Development Corporation, the Lexington
Zoning Board and the Lexington Board of Adjustments.
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<PAGE>
William J. Huhmann has been employed by Lafayette County Bank since 1991
and has been Chairman of the Board and Chief Financial Officer since that date.
He is a member of the American Institute of CPAs and the Missouri Society of
CPAs.
Mark D. Summerlin has been employed by the B&L Bank since 1985. He is a
member of the Rotary Club, the Lexington Park Board, the Chamber of Commerce,
the Knights of Columbus and the Wentworth Country Club Board.
Terry L. Thompson has been employed by Lafayette County Bank since 1989.
He is member of the Rotary Club, Lexington R-V School Board and serves on
several committees of the Missouri Bankers Association.
Carol Summerlin has been employed by Lafayette County Bank since 1979.
She is a member of the Lexington Women's Club and the Lexington Chamber of
Commerce.
Kathryn M. Swafford has been employed by B&L Bank since 1984. She is a
member of the Lexington Park Board.
Kirk Craven has been employed by Lafayette County Bank since 1991.
Item 2. Description of Property
--------------------------------
B&L Bank owns its main office located at 919 Franklin Avenue, Lexington,
Missouri. The office was opened in 1960 and its size is approximately 3,500
square feet. In addition to Lafayette County Bank's home office located at
Highway 13 and 20th Street, Lexington, Missouri, it has two other branch offices
located in Wellington and Callao, Missouri. The Lexington office is a modern
banking office constructed in 1982 and contains approximately 5,000 square feet.
The branch office in Wellington was constructed around 1920 and has been
remodeled several times and contains approximately 2,000 square feet. The Callao
office was constructed around 1930 and has approximately 2,000 square feet. All
banking offices are owned and have vaults and contain rental safe deposit boxes.
At September 30, 2000, B&L bank is constructing a new and larger main banking
office located at 205 South 13th Street, Lexington, Missouri. The new facility
will have 7,500 square feet with a total construction cost of approximately $3.0
million, of which $1.7 million was paid on September 30, 2000. The new facility
will be occupied early in 2001. The existing banking offices of B&L Bank and
Lafayette County Bank in Lexington, Missouri, will be sold. At September 30,
2000, the net book value of the Company's premises and equipment (land, building
and improvements, furniture and equipment) was $2.8 million.
Item 3. Legal Proceedings
--------------------------
Periodically, there have been various claims and lawsuits involving the
Company, such as claims to enforce liens, condemnation proceedings on properties
on which the Company holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Company's
business. The Company is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 2000.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
------------------------------------------------------------------
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<PAGE>
The information contained under the section captioned "Common Stock
Information" on page 2 of the Annual Report to Stockholders ("Annual Report") is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------------
Results of Operations or Plan of Operations
-------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 6 of the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
------------------------------
(a) Financial Statements
Independent Auditor's Report*
Consolidated Statements of Financial Condition as of September
30, 2000 and 1999*
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 2000, 1999 and 1998*
Consolidated Statements of Income for the Years Ended
September 30, 2000, 1999 and 1998*
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000, 1999 and 1998*
Notes to the Consolidated Financial Statements*
* Included in the Annual Report attached as Exhibit 13 hereto and
incorporated herein by reference. All schedules have been omitted as
the required information is either inapplicable or included in the
Consolidated Financial Statements or related Notes contained in the
Annual Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
-----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
------------------------------------ ------------
The information contained under the section captioned "Proposal 1--
Election of Directors" contained in the Company's Proxy Statement, and "Part
I -- Business -- Personnel -- Executive Officers" of this report, is
incorporated herein by reference. Reference is made to the cover page of this
report for information regarding compliance with Section 16(a) of the Exchange
Act.
Item 10. Executive Compensation
--------------------------------
The information contained under the sections captioned "Executive
Compensation," "Directors' Compensation" under "Proposal 1 -- Election of
Directors" in the Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
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<PAGE>
Information required by this item is incorporated herein by reference
to the section captioned "Stock Ownership" of the Proxy Statement.
(b) Security Ownership of Management
The information required by this item is incorporated herein by
reference to the sections captioned "Proposal 1 -- Election of
Directors" and "Stock Ownership" of the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
The information required by this item is incorporated herein by reference
to the sections captioned "Proposal 1 -- Election of Directors" and "Stock
Ownership" of the Proxy Statement.
Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------
The information set forth under the section captioned "Transactions with
Management" in the Proxy Statement is incorporated herein by reference.
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<PAGE>
PART IV
Item 13. Exhibits List and Reports on Form 8-K
-----------------------------------------------
(a) Exhibits
3(a) Articles of Incorporation of the Registrant*
3(b) Amended and Restated Bylaws of the Registrant****
10(a) Employment Agreement with Erwin Oetting, Jr.**
10(b) Employment Agreement with E. Steva Vialle**
10(c) Salary Continuation Agreement with Erwin Oetting, Jr.**
10(d) Salary Continuation Agreement with E. Steva Vialle**
10(e) Severance Agreement with Mark D. Summerlin**
10(f) Severance Agreement with Kathryn M. Swafford**
10(g) 1996 Stock Option Plan***
10(h) Management Recognition and Development Plan***
(13) Annual Report to Stockholders
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditor
(27) Financial Data Schedule
___________________
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, filed on February 16, 1996.
** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1996.
*** Incorporated by reference to the Registrant's Definitive Proxy Statement
for the 2000 Annual Meeting of Stockholders.
**** Incorporated by Reference to the Registrant's Current Report on Form 8-
K filed on November 12, 1999.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended September
30, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LEXINGTON B & L FINANCIAL CORP.
Date: December 21, 2000 By: /s/ Erwin Oetting, Jr.
------------------------
Erwin Oetting, Jr.
President and Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Erwin Oetting, Jr. President, Chief Executive Officer December 21, 2000
-----------------------
Erwin Oetting, Jr. and Director (Principal Executive
Officer)
/s/ E. Steva Vialle Executive Vice President, Chief December 21, 2000
--------------------
E. Steva Vialle Operating Officer, Secretary
and Director
/s/ William J. Huhmann Senior Vice President and Chief December 20, 2000
-----------------------
William J. Huhmann Financial Officer (Principal
Financial and Accounting Officer)
/s/ Steve Oliaro Director December 21, 2000
------------------
Steve Oliaro
/s/ Norman Vialle Director December 21, 2000
------------------
Norman Vialle
/s/ Charles R. Wilcoxon Director December 21, 2000
------------------------
Charles R. Wilcoxon
</TABLE>
