<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number 333-30779
---------
----------------------------------
BIG LAKE FINANCIAL CORPORATION
------------------------------
(Exact Name of registrant as specified in its charter)
<TABLE>
<S> <C>
Florida 59-2613321
- ------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1409 S. Parrott Avenue
Okeechobee, Florida 34974
- ------------------- -----
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
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(941) 467-4663
--------------
(Registrant's telephone number including area code)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares of outstanding of each of the issuer's classes of
Common Stock:
<TABLE>
<S> <C>
Class Outstanding as of November 7, 1997
- --------------- ----------------------------------
Common Stock 470,423
Par Value $0.01 per share
</TABLE>
<PAGE> 2
BIG LAKE FINANCIAL CORPORATION
FORM 10-QSB-FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 1
Consolidated Statements of Income for the nine months
ended September 30, 1997 and 1996 and for the three months
ended September 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4-8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9-13
PART II: OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, 1997
(Unaudited) December 31, 1996*
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,116 $ 3,410
Federal funds sold 1,308 992
Investment securities:
Available-for-sale at fair value 14,311 15,215
Held-to-maturity at amortized cost 801 801
Loans receivable less allowance for credit losses 41,884 36,262
Accrued interest receivable 462 440
Bank premises and equipment - net 1,875 1,450
Intangible assets 637 701
Other assets 245 247
-------- --------
TOTAL $ 64,639 $ 59,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 11,795 $ 10,083
Interest-bearing 46,627 44,162
-------- --------
Total deposits 58,422 54,245
-------- --------
Accrued interest on deposits 471 305
Other accrued expenses and liabilities 265 114
-------- --------
Total liabilities 59,158 54,664
-------- --------
Commitments and contingencies - -
-------- --------
Stockholders' equity:
Common stock 3 3
Additional paid-in capital 3,070 3,070
Retained earnings 2,478 1,911
Treasury stock at cost (59) (59)
Unrealized loss on available-for-sale securities (11) (71)
-------- --------
Total stockholders' equity 5,481 4,854
-------- --------
TOTAL $ 64,639 $ 59,518
======== ========
Book value per common share $ 17.75 $ 15.72
======== ========
Common shares outstanding 308,711 308,711
======== ========
</TABLE>
*Condensed from December 31, 1996, audited balance sheet
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-1-
<PAGE> 4
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,854 $ 2,253 $ 1,002 $ 796
Investment income on investment securities 690 801 223 276
Other interest income 113 96 51 4
-------- -------- -------- --------
Total interest income 3,657 3,150 1,276 1,076
Interest expense on deposits 1,448 1,311 535 429
-------- -------- -------- --------
Net interest income before provision for
credit losses 2,209 1,839 741 647
Provision for credit losses 96 96 36 36
-------- -------- -------- --------
Net interest income 2,113 1,743 705 611
-------- -------- -------- --------
Fees and service charges 467 395 163 138
Other income 95 43 44 14
-------- -------- -------- --------
Total other income 562 438 207 152
-------- -------- -------- --------
Other expenses:
Salaries and employee benefits 906 792 315 274
Expenses of bank premises and fixed assets 247 207 92 67
Other operating expenses 678 592 225 194
-------- -------- -------- --------
Total other expenses 1,831 1,591 632 535
-------- -------- -------- --------
Income before provision for income taxes 844 590 280 228
Provision for income taxes 261 198 73 75
-------- -------- -------- --------
Net income $ 583 $ 392 $ 207 $ 153
======== ======== ======== ========
Earnings per share $ 1.89 $ 1.27 $ 0.67 $ 0.50
======== ======== ======== ========
Weighted average common shares outstanding during period 308,711 308,711 308,711 308,711
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-2-
<PAGE> 5
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1997 1996
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,190 $ 352
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Federal funds sold (316) 9,624
Investment securities 904 (4,688)
Loans (5,717) (5,527)
Other real estate (28) 72
Purchases of premises and equipment, net (504) (61)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (5,661) (580)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,177 103
Cash paid in lieu of fractional shares - (2)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,177 101
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (294) (127)
CASH AND CASH EQUIVALENTS AT JANUARY 1 3,410 2,896
------- -------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 3,116 $ 2,769
======= =======
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-3-
<PAGE> 6
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Big Lake Financial
Corporation (the "Company") and its wholly owned subsidiary Big Lake National
Bank (the "Bank"). The information contained in the financial statements is
unaudited. In the opinion of management, all adjustments have been made
(consisting only of normal recurring accruals) necessary to present a fair
statement of the results for interim periods. The results for interim periods
are not necessarily indicative of trends or results which may be expected
for a full year. It is suggested that these financial statements and notes be
read in conjunction with the Company's financial statements for the year ended
December 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination. Management does not anticipate that the allowances for credit
losses on loans and foreclosed real estate will change materially in the near
term.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, due from banks, federal
funds sold, investment securities, loans receivable, accrued interest
receivable, deposits, accrued interest payable, and off-balance sheet
commitments such as commitments to extend credit and standby letters of credit.
Management considers the cost of providing estimated fair values by each class
of financial instrument to exceed the benefits derived. In management's
opinion, the carrying amount of financial instruments approximates fair value.
Investment Securities
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 applies to all debt securities and to equity securities that
have readily determinable fair values. SFAS 115 requires the Company to carry
its securities classified "available-for-sale" at fair market value. The
Bank's investments in securities are classified in two categories and accounted
for as follows:
-4-
<PAGE> 7
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES(Continued)
Available-for-Sale. Securities available-for-sale consist of bonds,
notes, debentures, and certain equity securities not classified as
trading securities or as securities held-to-maturity.
Held-to-Maturity. Bonds, notes, and debentures for which the Bank has
the positive intent and ability to hold to maturity are reported at
cost and adjusted for amortization of premiums and accretion of
discounts. Such adjustments are recognized in interest income using
the interest method over the period to maturity.
Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the sale of
securities available-for-sale are determined using the specific-identification
method.
Mortgage-backed Securities
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized using methods approximating the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Should any be sold, cost of securities sold is determined using
the specific identification method.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts. Unearned discounts
on installment loans are recognized as income over the term of the loans using
a method that approximates the interest method. Nonrefundable loan fees and
certain direct loan origination costs are deferred and the net amount is
recognized into income over the life of the loans as a yield adjustment.
The Company has adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). For loans
considered impaired under SFAS 114, the Company is required to compute the
present value of expected cash flows from the impaired loan and adjust credit
losses accordingly. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest
income on other nonaccrual loans is recognized only to the extent of interest
payments received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions, and other information. Allowances for impaired
loans are generally determined based on collateral values or the present value
of estimated cash flows. The allowance is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
-5-
<PAGE> 8
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES (Continued)
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
provision for depreciation is computed by the straight-line method over the
estimated useful lives of the assets. For income tax purposes, the Company
utilizes straight-line and accelerated depreciation methods.
Other Real Estate
Foreclosed real estate includes formally foreclosed property and in-substance
foreclosed property. In-substance foreclosed properties are those properties
for which the Bank has taken possession, regardless of whether formal
foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the Bank's cost or the asset's fair value less costs to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date
of acquisition are charged to the allowance for loan losses. After
foreclosure, these assets are carried at the lower of their new cost basis or
fair value less cost to sell. Costs incurred in maintaining foreclosed real
estate and subsequent write-downs to reflect declines in the fair value of the
property are included in income (loss) on foreclosed real estate.
Interest Income on Loans
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed.
Employee Benefits
Profit-sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
Income Taxes
Deferred income taxes are provided for temporary differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes. The principal temporary differences are depreciation and
amortization, loan loss provisions, the use of cash basis accounting for income
tax purposes, and unrealized gain (loss) on securities available-for-sale.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and commercial
and standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the
statements of financial condition caption "Cash and Due from Banks."
-6-
<PAGE> 9
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES (Continued)
Intangible Assets
Intangible assets (consisting of core deposit premium and goodwill) are
amortized on a straight-line basis over seven and fifteen years, respectively.
For income tax purposes, intangibles are amortized over fifteen years on a
straight-line basis.
NOTE 2 - LOANS
Loans at September 30 consisted of (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Real estate $ 34,210 $ 27,265
Installment 5,370 5,339
Commercial and all others 2,969 1,993
-------- --------
Total loans, gross 42,549 34,597
Deferred loan fees (67) (55)
Allowance for credit losses (598) (448)
-------- ---------
Net loans $ 41,884 $ 34,094
======== =========
</TABLE>
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The Company's Board of Directors monitors the loan portfolio quarterly in order
to enable it to evaluate the adequacy of the allowance for credit losses. In
addition to reviews by regulatory agencies and the Company's certified public
accountants, the services of outside lending professionals have been engaged to
assist in the valuation of credit quality and loan administration. These
professionals compliment the system implemented by the Company which identifies
potential problem credits as early as possible, categorizes the credits as to
risk, and puts a reporting process in place to monitor the progress of the
credits.
The Company maintains the allowance for credit losses at a level sufficient to
absorb all estimated losses inherent in the loan portfolio. Activity in the
allowance for loan losses from January 1 through September 30 follows (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, January 1, $ 470 $ 363
Recoveries 58 10
Chargeoffs (26) (21)
Provision charged to expense 96 96
----- -----
Balance, September 30 $ 598 $ 448
===== =====
</TABLE>
-7-
<PAGE> 10
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
NOTE 4 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit, and interest rate
risk in excess of the amounts recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Financial instruments at September 30, 1997, consisted of commitments to extend
credit approximating $2.8 million and letters of credit of $24,000.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
NOTE 5 - SUBSEQUENT EVENTS
On October 29, 1997, the shareholders of CNB Financial Corporation ("CNB") voted
to merge with the Company. CNB operates in both Hendry and Glades County
markets with total assets of approximately $47 million and shareholders' equity
in excess of $4 million. On October 31, 1997, the merger of CNB and the Company
was completed. As a result of the transaction, each outstanding share of CNB
common stock (except shares held by CNB shareholders exercising dissenters'
rights) was converted into .40 shares of the Company's common stock.
As of November 7, 1997, approximately 161,712 shares of the Company's common
stock had been exchanged for CNB common stock.
-8-
<PAGE> 11
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's principal asset is its ownership of Big Lake National Bank (the
"Bank"). Accordingly, the Company's results of operations are primarily
dependent upon the results of operations of the Bank. The Bank conducts
commercial banking business consisting of attracting deposits from the general
public and applying those funds to the origination of commercial, consumer, and
real estate loans (including commercial loans collateralized by real estate).
The Bank's profitability depends primarily on net interest income, which is the
difference between interest income generated from interest-earning assets (i.e.,
loans and investments) less the interest expense incurred on interest-bearing
liabilities (i.e., customer deposits and borrowed funds). Net interest income
is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate earned and paid on these
balances. Net interest income is dependent upon the Bank's interest-rate spread
which is the difference between the average yield earned on its interest-earning
assets and the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The interest
rate spread is impacted by interest rates, deposit flows, and loan demand.
Additionally, and to a lesser extent, the Bank's profitability is affected by
such factors as the level of noninterest income and expenses, the provision for
credit losses, and the effective tax rate. Noninterest income consists
primarily of service fees on deposit accounts. Noninterest expense consists of
compensation and employee benefits, occupancy and equipment expenses, deposit
insurance premiums paid to the FDIC, and other operating expenses.
The Company is a one-bank holding company with consolidated assets of $64.6
million at September 30, 1997. Since December 31, 1996, the Company's total
assets have grown $5.1 million from $59.5 million, an increase of 8.6%. During
the same period, loans have increased by $5.6 million from $36.3 million to
$41.9 million, an increase of 15.5%. The Company continues to enjoy a
favorable operating environment as a result of local economic conditions and its
position as the only locally-owned bank in Okeechobee County.
Net income was $583,000 for the nine months ended September 30, 1997, compared
with $392,000 for the same period in 1996, an increase of $191,000, or 48.7%.
The increase in net income was due to improvements in the average yield on
interest-earning assets offset partially by an increase in the average cost of
interest-bearing liabilities. Also, non-interest income increased 28.3%, while
non-interest expenses increased only 15.1%. Loan growth throughout 1996 and
1997 was most responsible for the increase in net income.
STATEMENT OF CONDITION ANALYSIS
Average total loans for the nine months ended September 30, 1997, were $40.2
million versus $31.6 million for the same period in 1996, an increase of $8.6
million, or 27.3%. This growth has been funded primarily with the increase in
interest-bearing deposits of $3.5 million and maturities of investment
securities totaling $1.9 million. Noninterest-bearing deposits have grown $1.7
million, or 17.0%, since December 31, 1996, and $3.6 million, or 44.1%, since
September 30, 1996. Management seeks to maintain a favorable mix of deposits
and expects to continue its marketing of less costly deposit relationships.
-9-
<PAGE> 12
The following sets forth the liability mix change using monthly average
consolidated deposit aggregates:
<TABLE>
<CAPTION>
Percent Percent Percent
Deposit Types (Dollars in thousands) 9/97 of Total 9/96 of Total Change
- ------------- ------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Demand, money market, and NOW deposits $11,074 19.0% $11,275 21.8% (2.8)%
Savings 5,747 9.8 5,807 11.2 (1.4)%
Certificates of Deposit 28,733 49.3 24,749 47.9 1.4 %
Other borrowings 6 - 211 .5 (.5)%
Noninterest-bearing liabilities 12,755 21.9 9,624 18.6 3.3 %
-------- ----- -------- -----
$ 58,315 100.0% $ 51,666 100.0%
======== ===== ======== =====
</TABLE>
During the first nine months of 1997, the loan portfolio grew by 27.3% from the
average balances for the nine months ended September 30, 1996. All segments of
the loan portfolio experienced growth. The components of average loans for the
periods ended September 30, 1997 and 1996, follow:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
(Dollars in thousands)
Dollar Percent
1997 1996 Change Change
---- ---- ------ ------
<S> <C> <C> <C> <C>
Real estate loans $19,658 $15,665 $3,993 25.5%
Installment loans 5,032 4,079 953 23.4%
Commercial and all other loans 15,506 11,825 3,681 31.1%
------- ------- ------
$40,196 $31,569 $8,627
======= ======= ======
</TABLE>
Loan recoveries (net of chargeoffs of $26,000) of $32,000 for the nine months
ended September 30, 1997, compare favorably with loan chargeoffs (net of
recoveries of $10,000) of $11,000 for the same period in 1996. The balance in
the allowance for credit losses increased to $598,000 at September 30, 1997,
versus $448,000 at September 30, 1996. The allowance was 1.41% and 1.29% of
total gross loans at September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's management monitors liquidity ratios. The Company's principal
sources of funds are those generated by the Bank, including net increases in
deposits, principal and interest payments on loans, and proceeds from sales and
maturities of investment securities.
A principal objective of the Company's asset/liability management strategy is to
minimize its exposure to changes in interest rates by matching the maturity and
repricing horizons of interest-earning assets and interest-bearing liabilities.
This strategy is overseen in part through the direction of an Asset and
Liability Committee (the "ALCO Committee"), which establishes policies and
monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk as determined by the ALCO
Committee. The ALCO Committee uses internally generated reports to measure the
Bank's interest rate sensitivity. From these reports, the ALCO Committee can
estimate the net income effect of various interest rate scenarios.
-10-
<PAGE> 13
Management's strategy is to maintain a balanced interest rate risk position
to protect its net interest margin from market fluctuations. To this end,
the ALCO Committee reviews, on a monthly basis, the maturity and repricing of
assets and liabilities. The Company's cumulative one-year gap at September
30, 1997, was a negative 10.98% of assets. This falls within the ALCO
Committee's policy of a cumulative one-year gap range of negative 20% to
positive 20%.
The Company uses its resources principally to fund existing and continuing
loan commitments and to purchase investment securities. At September 30,
1997, the Company had commitments to originate loans totaling $2.8 million, and
had issued but unused letters of credit of $24,000 for the same period. In
addition, scheduled maturities of certificates of deposit during the 12
months following September 30, 1997, total $27.2 million. Management
believes that the Company has adequate resources to fund all its commitments,
that substantially all of its existing commitments will be funded within 12
months and, if so desired, that the Company can adjust the rates and terms
on certificates of deposit and other deposit accounts to retain deposits in a
changing interest rate environment.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996
General
Net earnings for the nine months ended September 30, 1997, were $583,000 or
$1.89 per share, compared to net earnings of $392,000, or $1.27 per share, for
the nine months ended September 30, 1996. The increase in net earnings was
primarily due to an increase in earning assets, particularly the increase
in loans having a higher yield than other earning assets. This change in
mix of earning assets also contributed to an overall increase in the average
yield of earning assets.
Interest Income and Expense
Interest income increased by $507,000 from $3,150,000 for the nine months
ended September 30, 1996, to $3,657,000 for the nine months ended September
30, 1997. Interest income on loans increased $601,000 due to an increase in
the average loan portfolio balance from $31.6 million for the nine months
ended September 30, 1996, to $40.2 million for the comparable 1997 period,
partially offset by a decrease in market interest rates, rather than a
material change in the loan composition. Interest on investment securities
decreased $111,000 due to a decrease in the average investment securities
portfolio from $17.7 million in 1996 to $15.8 million in 1997, and by a
decrease in the average yield on the investment securities portfolio of 21
basis points. Interest on other interest-earning assets increased $17,000 due
to an increase from $2.4 million in average other interest-earning assets in
1996 to $2.8 million in 1997 and an increase in the weighted average yield of
11 basis points.
Interest expense increased to $1,448,000 for the nine months ended September
30, 1997, from $1,311,000 for the nine months ended September 30, 1996.
Interest expense on deposit accounts increased because the average
interest-bearing deposits increased from $42.0 million for the nine months
ended September 30, 1996 to $45.6 million for the comparable 1997 period.
The average rate paid on interest-bearing deposits increased 8 basis points.
The increase in rates paid on deposits was caused by rising interest rates
since there was no material change in the deposit mix.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the
Company, the amounts of nonperforming loans, general economic conditions,
particularly as they relate to the Company's market area, and other factors
related to the collectibility of the Company's loan portfolio. There was no
change in the provision for the nine months ended September 30, 1996, as
compared with the nine months ended September 30, 1997.
-11-
<PAGE> 14
Other Income
Total other income increased $124,000 for the nine months ended September 30,
1997, compared to 1996, principally due to an increase in service fees on
deposit accounts associated with the increase in the number of deposit
accounts subject to service fees and recoveries from the sale of other real
estate.
Other Expense
Total other expense increased $240,000 to $1,831,000 for the nine months ended
September 30, 1997, from $1,591,000 for the nine months ended September 30,
1996, primarily due to an increase in employee compensation and benefits of
$114,000, expenses of premises and fixed assets of $40,000, and other expenses
of $86,000 (substantially all of which were related to the Merger and totaled
$83,000).
Comparison of Three Months Ended September 30, 1997 and 1996
General
Net earnings for the three months ended September 30, 1997, were $207,000 or
$0.67 per share, compared to net earnings of $153,000, or $0.50 per share,
for the three months ended September 30, 1996. The increase in net earnings
was primarily due to an increase in earning assets, particularly the increase
in loans having a higher yield than other earning assets. This change in mix
of earning assets also contributed to an overall increase in the average yield
of earning assets.
Interest Income and Expense
Interest income increased by $200,000 from $1,076,000 for the three months
ended September 30, 1996, to $1,276,000 for the three months ended September
30, 1997. Interest income on loans increased $206,000 due to an increase
in the average loan portfolio balance from $33.6 million for the three months
ended September 30, 1996, to $42.1 million for the comparable 1997 period.
Average yields on loans remained relatively stable at 9.52% in 1997 versus
9.48% in 1996. Interest on investment securities decreased $53,000 due to a
decrease in the average investment securities portfolio from $18.2 million in
1996 to $15.4 million in 1997, and by a decrease in the average yield on the
investment securities portfolio of 29 basis points. Interest on other
interest-earning assets increased $47,000 due to an increase from $.3 million
in average other interest-earning assets in 1996 to $3.7 million in 1997 and
an increase in the weighted average yield of 22 basis points.
Interest expense increased to $535,000 for the three months ended September
30, 1997, from $429,000 for the three months ended September 30, 1996.
Interest expense on deposit accounts increased because the average
interest-bearing deposits increased from $42.3 million for the three months
ended September 30, 1996 to $47.8 million for the comparable 1997 period.
The average rate paid on interest-bearing deposits increased 42 basis
points. The increase in rates paid on deposits was caused by rising interest
rates since there was no material change in the deposit mix.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the
Company, the amounts of nonperforming loans, general economic conditions,
particularly as they relate to the Company's market area, and other factors
related to the collectibility of the Company's loan portfolio. There was no
change in the provision for the three months ended September 30, 1996, as
compared with the three months ended September 30, 1997.
-12-
<PAGE> 15
Other Income
Total other income increased $55,000 for the three months ended September 30,
1997, compared to 1996, principally due to an increase in service fees on
deposit accounts associated with the increase in the number of deposit
accounts subject to service fees and recoveries from the sale of other real
estate.
Other Expense
Total other expense increased $97,000 to $632,000 for the three months ended
September 30, 1997, from $535,000 for the three months ended September 30,
1996, primarily due to an increase in employee compensation and benefits of
$41,000, expenses of premises and fixed assets of $25,000, and other expenses
of $31,000 (substantially all of which were related to the Merger and totaled
$21,000).
-13-
<PAGE> 16
BIG LAKE FINANCIAL CORPORATION
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) 27 - Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K.
None.
-14-
<PAGE> 17
BIG LAKE FINANCIAL CORPORATION
SIGNATURE
Pursuant to the requirements 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.
Big Lake Financial Corporation
-------------------------------
Date: November 13, 1997 /s/ Joe G. Mullins
-------------------- -------------------
Joe G. Mullins
Executive Vice President and
Chief Administrative Officer
Date: November 13, 1997 /s/ Anita DeWitt
-------------------- -------------------
Anita DeWitt
Treasurer and Principal Accounting Officer
-15-
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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