<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 March 31, 1998
Commission File Number 333-30779
--------------------------
BIG LAKE FINANCIAL CORPORATION
------------------------------
(Exact Name of registrant as specified in its charter)
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)
--------------------------
(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:
Class Outstanding as of May 12, 1998
---------- ---------------------------------
Common Stock 486,815
Par Value $0.01 per share
<PAGE> 2
BIG LAKE FINANCIAL CORPORATION
FORM 10-QSB - FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 1
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4-8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9-12
PART II: OTHER INFORMATION 13
SIGNATURES 14
</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>
March 31, 1998 December 31, 1997*
-------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,990 $ 6,492
Federal funds sold 11,385 3,296
Investment securities:
Available-for-sale at fair value 21,415 21,958
Held-to-maturity at amortized cost 600 801
Loans receivable less allowance for credit
losses 72,437 73,972
Accrued interest receivable 678 813
Bank premises and equipment - net 2,566 2,626
Intangible assets 595 616
Deferred income taxes 566 424
Other assets 1,052 794
-------- --------
TOTAL $116,284 $111,792
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 21,877 $ 19,793
Interest-bearing 83,930 81,539
-------- --------
Total deposits 105,807 101,332
Accrued interest on deposits 511 755
Other accrued expenses and liabilities 310 282
-------- --------
Total liabilities 106,628 102,369
-------- --------
Commitments and contingencies - -
-------- --------
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 7,085 6,855
Retained earnings 2,569 2,569
Unrealized loss on available-for-sale securities (3) (6)
-------- --------
Total stockholders' equity 9,656 9,423
-------- --------
TOTAL $116,284 $111,792
======== ========
Book value per common share $ 19.84 $ 19.36
======== ========
Common shares outstanding, adjusted for stock dividend 486,815 486,815
======== ========
</TABLE>
*Condensed from December 31, 1997, 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 three months ended
March 31
------------------------
1998 1997
-------- ----------
<S> <C> <C>
Interest and fees on loans $ 1,734 $ 887
Investment income on investment securities 280 236
Other interest income 166 34
--------- --------
Total interest income 2,180 1,157
Interest expense on deposits 852 442
--------- --------
Net interest income before provision for credit losses 1,328 715
Provision for credit losses 48 24
--------- --------
Net interest income 1,280 691
--------- --------
Fees and service charges 255 156
Other income 25 24
--------- --------
Total other income 280 180
--------- --------
Other expenses:
Salaries and employee benefits 572 297
Expenses of bank premises and fixed assets 155 77
Other operating expenses 468 238
--------- --------
Total other expenses 1,195 612
--------- --------
Income before provision for income taxes 365 259
Provision for income taxes 128 87
--------- --------
Net income $ 237 $ 172
========= ========
Earnings per share $ 0.49 $ 0.54
========= ========
Weighted average common shares outstanding during period 486,815 316,241
========= ========
</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 EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 294 $ 367
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Investment securities 750 248
Loans 1,285 (3,326)
Other real estate (202) 0
Purchases of premises and equipment, net (8) (38)
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,825 (3,116)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,475 3,131
Cash paid in lieu of fractional shares (7) 0
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,468 3,131
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,587 382
CASH AND CASH EQUIVALENTS AT JANUARY 1 9,788 4,402
------- -------
CASH AND CASH EQUIVALENTS AT MARCH 31 $16,375 $ 4,784
======= =======
</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)
MARCH 31, 1998
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Big Lake Financial
Corporation (the "Company") and its wholly owned subsidiaries Big Lake National
Bank and Clewiston National Bank (the "Banks"). 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, 1997.
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 Banks' allowances for losses on loans and foreclosed real estate. Such
agencies may require the Banks 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.
On an interim basis, 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
Banks' 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)
MARCH 31, 1998
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 credit
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 credit 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)
MARCH 31, 1998
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 Banks have 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 Banks' 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 credit 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 Banks have 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" and
"Federal funds sold."
- 6 -
<PAGE> 9
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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 consisted of (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Real estate $ 57,875 $ 58,455
Installment and other loans 9,692 10,546
Commercial and agricultural 6,585 6,671
-------- --------
Total loans, gross 74,152 75,672
Unearned income and deferred fees and credits (487) (517)
Allowance for credit losses (1,228) (1,183)
----------- ----------
Net loans $ 72,437 $ 73,972
======== ========
</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 credit losses follows (dollars in thousands):
<TABLE>
<CAPTION>
Three months Twelve months
ended March 31, ended December 31,
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of period $1,183 $ 470
Allowance for credit losses acquired
from Clewiston National Bank - 424
Recoveries 17 63
Chargeoffs (20) (54)
Provision charged to expense 48 280
------ ------
Balance, end of period $1,228 $1,183
====== ======
</TABLE>
- 7 -
<PAGE> 10
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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 March 31, 1998, consisted of commitments to extend
credit approximating $5.6 million and letters of credit of $99,000.
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 - STOCK DIVIDEND
On January 21, 1998, the Company's Board of Directors declared a stock dividend
payable at a rate of 2.5% of shares issued and outstanding to stockholders of
record on February 27, 1998, payable on or before March 19, 1998. Cash in lieu
of fractional shares was paid at the rate of $19.83 per share, which was the
estimated fair market value at that time. The total cash paid in lieu of
fractional shares amounted to $7,000.
NOTE 6 - YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is in the process of identifying, correcting, and testing the
systems for the year 2000 compliance. It is anticipated that all necessary
modifications will be completed by December 31, 1998, allowing adequate time for
testing. To date, confirmations have been received from the Banks' primary
processing vendors that plans are being developed to address processing of
transactions in the year 2000. Management has not yet assessed the year 2000
compliance expense and related potential effect on the Banks' earnings.
NOTE 7 - SUBSEQUENT EVENTS
On May 1, 1998, the Company merged Clewiston National Bank into Big Lake
National Bank. Although some additional costs will be incurred in connection
with this merger, management believes the impact on the results of operations is
not material and will be offset by continued cost savings associated with the
acquisition of CNB Financial Corporation in 1997.
- 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 assets are its ownership of Big Lake National Bank and
Clewiston National Bank (the "Banks"). Accordingly, the Company's results of
operations are primarily dependent upon the results of operations of the Banks.
The Banks conduct 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 Banks' 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
Banks' 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 Banks' earnings are 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 two-bank holding company with consolidated assets of $116.3
million at March 31, 1998. Since December 31, 1997, the Company's total assets
have grown $4.5 million from $111.8 million, an increase of 4.0%. During the
same period, net loans have decreased by $1.5 million from $73.9 million to
$72.4 million, a decrease of 2.1%. Big Lake National Bank loans increased
slightly with Clewiston National Bank accounting for the overall decline in
loans.
Net income was $237,000 for the three months ended March 31, 1998, compared
with $172,000 for the same period in 1997, an increase of $65,000, or 37.8%.
The increase in net income was due to increases in earning assets principally
resulting from the acquisition in 1997 of Clewiston National Bank.
STATEMENT OF CONDITION ANALYSIS
Average total loans for the three months ended March 31, 1998, were $75.0
million versus $38.0 million for the same period in 1997, an increase of $37.0
million, or 97.5%. Total average interest-bearing deposits for the three
months ended March 31, 1998, were $81.1 million versus $43.9 million for the
same period in 1997, an increase of $37.2 million, or 84.6%. The increases in
average loans and interest-bearing deposits reflect the acquisition of CNB
Financial Corporation and its wholly-owned subsidiary, Clewiston National Bank,
as of October 31, 1997.
Since December 31, 1997, total loans have declined $1.5 million, or 2.0%, while
total interest-bearing deposits have increased $2.4 million, or 2.9%. Total
deposits have grown $4.5 million, or 4.4%, from December 31, 1997, to March 31,
1998. The funds generated from the deposit growth have been invested in
Federal funds sold, which have grown from $3.3 million at December 31, 1997, to
$11.4 million at March 31, 1998, an increase of $8.1 million.
- 9 -
<PAGE> 12
Noninterest-bearing deposits have grown $2.1 million, or 10.5%, since December
31, 1997. The growth in noninterest-bearing deposits (which continues to
outpace total deposit growth) and the decline in higher cost deposits such as
certificates of deposit (which declined $2.7 million since December 31, 1997)
have helped moderate the overall increase in average yield on interest-bearing
deposits from 4.04% to 4.20%. Management seeks to maintain a favorable mix of
deposits and expects to continue its marketing of less costly deposit
relationships.
The following schedule sets forth the liability mix using monthly average
consolidated deposit aggregates (dollars in thousands):
<TABLE>
<CAPTION>
Three months Three months
Ended Percent Ended Percent
Deposit Types March 31, 1998 of Total March 31, 1997 of Total
- ------------- -------------- -------- -------------- --------
<S> <C> <C> <C> <C>
Interest-bearing demand, money market,
and NOW deposits $ 22,846 21.7% $ 11,802 20.9%
Savings 10,720 10.1 5,596 9.9
Certificates of Deposit 47,536 45.1 26,539 46.9
Noninterest-bearing liabilities 24,322 23.1 12,606 22.3
-------- ----- --------- -----
$105,424 100.0% $ 56,543 100.0%
======== ===== ========= =====
</TABLE>
The components of average loans for the periods ended March 31, 1998 and 1997,
follow:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
(Dollars in thousands)
Dollar Percent
1998 1997 Change Change
---- ---- ------ ------
<S> <C> <C> <C> <C>
Real estate loans $37,162 $18,261 $18,901 103.5%
Installment loans 9,026 4,678 4,348 92.9%
Commercial and all other loans 28,838 15,049 13,789 91.6%
-------- -------- --------
$75,026 $37,988 $37,038 97.5%
======= ======= =======
</TABLE>
For the three months ended March 31, 1998, loan chargeoffs of $3,000 (net of
recoveries of $17,000) are consistent with loan chargeoffs for the same period
in 1997 of $2,000 (net of recoveries of $1,000). The balance in the allowance
for credit losses increased to $1,228,000 at March 31, 1998, versus $1,183,000
at December 31, 1997. The allowance was 1.66% and 1.56% of total gross loans at
March 31, 1998, and December 31, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's management monitors liquidity ratios. The Company's principal
sources of funds are those generated by the Banks, 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.
- 10 -
<PAGE> 13
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
Banks' interest rate sensitivity. From these reports, the ALCO Committee can
estimate the net income effect of various interest rate scenarios.
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 March 31,
1998, was a negative 2.11% 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 March 31, 1998, the
Company had commitments to originate loans totaling $5.6 million, and had
issued but unused letters of credit of $99,000 for the same period. In
addition, scheduled maturities of certificates of deposit during the 12 months
following March 31, 1998, totaled $36.2 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 Three Months Ended March 31, 1998 and 1997
General
Net earnings for the three months ended March 31, 1998, were $237,000 or $0.49
per share, compared to net earnings of $172,000, or $0.54 per share, for the
three months ended March 31, 1997. The increase in net earnings was primarily
due to an increase in earning assets associated with the acquisition of CNB
Financial Corporation in 1997.
Interest Income and Expense
Interest income increased by $1,023,000 from $1,157,000 for the three months
ended March 31, 1997, to $2,180,000 for the three months ended March 31, 1998.
Interest income on loans increased $847,000 due to an increase in the average
loan portfolio balance from $38.0 million for the three months ended March 31,
1997, to $75.0 million for the comparable 1998 period. Average yields on loans
remained relatively stable at 9.24% in 1998 versus 9.34% in 1997. Interest on
investment securities increased $44,000 due to an increase in the average
investment securities portfolio from $16.1 million in 1997 to $19.1 million in
1998. The average yield on the investment securities portfolio for 1998 of
5.87% remained essentially constant from the 1997 level of 5.85%. Interest on
other interest-earning assets increased $132,000 due to an increase from $3,000
in average other interest-earning assets in 1997 to $12.1 million in 1998. The
increase in the lower yielding Federal funds sold in 1998 over 1997 contributed
to the overall decline in the average yield on total interest-earning assets
from 8.56% to 8.20%.
Interest expense increased to $852,000 for the three months ended March 31,
1998, from $442,000 for the three months ended March 31, 1997. Interest
expense on deposit accounts increased because the average interest-bearing
deposits increased from $43.9 million for the three months ended March 31,
1997, to $81.1 million for the comparable 1998 period. The average rate paid
on interest-bearing deposits increased 16 basis points. The increase in rates
paid on deposits was caused by rising interest rates and higher interest rates
on deposits acquired in 1997 from Clewiston National Bank.
- 11 -
<PAGE> 14
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. The provision
for the three months ended March 31, 1998, was $48,000 as compared with $24,000
for the three months ended March 31, 1997. The increase is a result of the
acquisition in 1997 of loans from Clewiston National Bank.
Other Income
Total other income increased $100,000 for the three months ended March 31,
1998, compared to 1997, principally due to the acquisition in 1997 of Clewiston
National Bank.
Other Expense
Total other expense increased $583,000 to $1,195,000 for the three months ended
March 31, 1998, from $612,000 for the three months ended March 31, 1997,
primarily due to the acquisition in 1997 of Clewiston National Bank. Operating
expenses were 4.16% of average assets for the three months ended March 31,
1998, versus 3.98% for the comparable period in 1997. This increase is a
result of the higher costs associated with the merger of Clewiston National
Bank. Management anticipates a decline in this ratio after Clewiston National
Bank is merged with and into Big Lake National Bank, the Banks' systems are
converted, and the related merger and conversion costs are recognized in the
second quarter of 1998.
- 12 -
<PAGE> 15
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) Exhibits.
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K.
None.
- 13 -
<PAGE> 16
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: May 12, 1998 /s/ Joe G. Mullins
--------------------------
Joe G. Mullins
Executive Vice President and
Chief Administrative Officer
Date: May 12, 1998
/s/ Anita DeWitt
--------------------------
Anita DeWitt
Treasurer and
Principal Accounting Officer
- 14 -
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,990
<INT-BEARING-DEPOSITS> 0
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0
0
<COMMON> 5
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<INCOME-PRETAX> 365
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<EPS-PRIMARY> 0.49
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<ALLOWANCE-CLOSE> 1,228
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