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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 DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1409 SOUTH PARROTT AVENUE, OKEECHOBEE, FLORIDA 34974
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 467-4663
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 $0.01 PER SHARE
(Title of Class)
Check whether the issuer has (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 issuer was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year was $6,305,000.
The aggregate market value of the Common Stock of the issuer held by
non-affiliates of the issuer (271,482 shares) on March 17, 1998 was
approximately $5,701,122. As of such date, no organized trading market existed
for the Common Stock of the issuer. The aggregate market value was computed by
reference the last sale of the Common Stock of the issuer at $21.00 per share
on February 27, 1998. For the purposes of this response, directors, officers
and holders of 5% or more of the issuer's Common Stock are considered the
affiliates of the issuer at that date.
As of February 28, 1998, there were issued and outstanding 475,223
shares of the issuer's Common Stock.
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TABLE OF CONTENTS
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OCC Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Deposit Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Correspondent Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Data Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effect of Governmental Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest and Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Industry Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 16
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Comparison of Years Ended December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 22
Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Impact of Inflation and Changing Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Future Accounting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 43
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . 44
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . 46
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 48
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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PART I
ITEM 1. BUSINESS
GENERAL
Big Lake Financial Corporation ("BLF") was incorporated under the laws of
the State of Florida on August 8, 1985. BLF is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act")
and owns all of the voting shares of Big Lake National Bank. On October 31,
1997, BLF closed the merger of CNB Financial Corporation ("CNB") with and into
BLF (the "BLF/CNB Merger"). As a result of the BLF/CNB Merger, the outstanding
shares of CNB common stock were converted into an aggregate of 166,512 shares
of BLF Common Stock and Clewiston National Bank (a wholly owned subsidiary of
CNB) became a wholly owned subsidiary of BLF. BLF has no significant
operations other than owning the stock of Big Lake National Bank and Clewiston
National Bank (collectively, the "Banks"). Big Lake National Bank and
Clewiston National Bank, which are national banking associations, are the only
source of revenue for BLF.
BLF has filed an application with the Office of the Comptroller of the
Currency (the "OCC") to merge Clewiston National Bank with and into Big Lake
National Bank. BLF anticipates that, subject to the receipt of such OCC
approval, the merger of Clewiston National Bank into Big Lake National Bank
will be consummated in April, 1998.
BLF provides a range of consumer and commercial banking services to
individuals, businesses and industries. The basic services offered by BLF
include: demand interest-bearing and noninterest bearing accounts, money
market deposit accounts, NOW accounts, time deposits, safe deposit services,
credit cards, cash management, direct deposits, notary services, money orders,
night depository, travelers' checks, cashier's checks, domestic collections,
savings bonds, bank drafts, automated teller services, drive-in tellers, and
banking by mail. In addition, BLF makes secured and unsecured commercial and
real estate loans and issues stand-by letters of credit. BLF provides
automated teller machine (ATM) cards, as a part of the HONOR ATM Network,
thereby permitting customers to utilize the convenience of larger ATM networks.
In addition to the HONOR ATM Network, the Bank also provides the Presto and
Cirrus systems for ATM use. In addition to the foregoing services, the offices
of BLF provide customers with extended banking hours. BLF does not have trust
powers and, accordingly, no trust services are provided.
The revenues of BLF are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest and
dividends from investment and mortgage-backed securities, and short-term
investments. The principal sources of funds for BLF's lending activities are
its deposits, repayment of loans, and the sale and maturity of investment
securities. The principal expenses of BLF are the interest paid on deposits,
and operating and general administrative expenses.
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As is the case with banking institutions generally, BLF's operations are
materially and significantly influenced by general economic conditions and by
related monetary and fiscal policies of financial institution regulatory
agencies, including the Federal Reserve and the OCC. Deposit flows and costs of
funds are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
financing of real estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered and other factors
affecting local demand and availability of funds. BLF faces strong competition
in the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. See "Competition."
OCC AGREEMENT
On July 23, 1997, CNB entered into an agreement with the OCC that imposes
certain restrictions and requirements on CNB's operations. Among other things,
this agreement calls for improvement in the areas of compliance, executive
management, loan administration, strategic planning, liquidity management,
independent loan review, and loan quality. CNB also must maintain certain
capital ratios, develop a three-year capital plan, and develop a dividend
policy that permits the payment of dividends only with the prior approval of
the OCC. Management believes that the OCC agreement was prompted in part by
the failure of CNB's former management to address concerns raised by the OCC in
prior examination reports and the additional loan loss reserves mandated by the
OCC for two loans. In response to the OCC agreement, CNB appointed a new
President and Chief Executive Officer. Management believes CNB has
substantially complied with all requirements of the OCC agreement, including
the maintenance of the required minimum capital levels. Management does not
anticipate any significant impact on the results of operations and financial
condition of CNB as a result of the OCC agreement.
Subsequent to December 31, 1997, the OCC completed an examination of CNB's
allowance for loan losses. All OCC adjustments have been reflected in the
consolidated financial statements of the Company as of December 31, 1997. In
1998, the Company anticipates that CNB will be merged with and into BLF. At
that time, management anticipates the OCC agreement will terminate.
LENDING ACTIVITIES
BLF offers a range of lending services, including real estate, consumer
and commercial loans, to individuals and small businesses and other
organizations that are located in or conduct a substantial portion of their
business in BLF's market area. BLF's consolidated total loans at December 31,
1997 were $75.7 million, or 67.7% of total BLF consolidated assets. The
interest rates charged on loans vary with the degree of risk, maturity, and
amount of the loan, and are further subject to competitive pressures, money
market rates, availability of funds, and government regulations. BLF has no
foreign loans or loans for highly leveraged transactions.
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BLF's loans are concentrated in three major areas: commercial loans, real
estate loans, and consumer loans. A majority of BLF's loans are made on a
secured basis. As of December 31, 1997, approximately 77.2% of BLF's
consolidated loan portfolio consisted of loans secured by mortgages on real
estate, of which approximately 55.5% of the total loan portfolio is secured by
1-4 family residential properties.
BLF's commercial loan portfolio includes loans to individuals and
small-to-medium sized businesses located primarily in Okeechobee and Highlands
Counties for working capital, equipment purchases, and various other business
purposes. Through Clewiston National Bank, BLF's loan portfolio includes loans
to businesses in Hendry County. A majority of commercial loans are secured by
real estate, equipment, or similar assets, but these loans may also be made on
an unsecured basis. Commercial loans may be made at variable or fixed rates of
interest. Commercial lines of credit are typically granted on a one-year
basis, with loan covenants and monetary thresholds. Other commercial loans
with terms or amortization schedules of longer than one year will normally
carry interest rates which vary with the prime lending rate and will become
payable in full and are generally refinanced in three to five years.
Commercial and industrial loans not secured by real estate amounted to
approximately 7.5% of BLF's total loan portfolio as of December 31, 1997.
BLF's real estate loans are secured by mortgages and consist primarily of
loans to individuals and businesses for the purchase, improvement of or
investment in real estate and for the construction of single-family residential
units or the development of single-family residential building lots. These
real estate loans may be made at fixed or variable interest rates. BLF
generally does not make fixed-rate commercial real estate loans for terms
exceeding three years. Loans in excess of three years are generally
adjustable. BLF's residential real estate loans generally are repayable in
monthly installments based on up to a 30-year amortization schedule with
variable interest rates.
BLF's consumer loan portfolio consists primarily of loans to individuals
for various consumer purposes, but includes some business purpose loans which
are payable on an installment basis. The majority of these loans are for terms
of less than five years and are secured by liens on various personal assets of
the borrowers, but consumer loans may also be made on an unsecured basis.
Consumer loans are made at fixed and variable interest rates, and are often
based on up to a five-year amortization schedule.
For additional information regarding BLF's loan portfolio, see "BLF's
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition."
Loan originations are derived from a number of sources. Loan originations
can be attributed to direct solicitation by BLF's loan officers, existing
customers and borrowers, advertising, walk-in customers and, in some instances,
referrals from brokers.
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Certain credit risks are inherent in making loans. These include
prepayment risks, risks resulting from uncertainties in the future value of
collateral, risks resulting from changes in economic and industry conditions,
and risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility. BLF attempts to minimize loan losses through various
means. In particular, on larger credits, BLF generally relies on the cash flow
of a debtor as the source of repayment and secondarily on the value of the
underlying collateral. In addition, BLF attempts to utilize shorter loan terms
in order to reduce the risk of a decline in the value of such collateral.
DEPOSIT ACTIVITIES
Deposits are the major source of BLF's funds for lending and other
investment activities. BLF considers the majority of its regular savings,
demand, NOW and money market deposit accounts to be core deposits. These
accounts comprised approximately 51.1% of BLF's consolidated total deposits at
December 31, 1997. Approximately 48.9% of BLF's consolidated deposits at
December 31, 1997 were certificates of deposit. Generally, BLF attempts to
maintain the rates paid on its deposits at a competitive level. Time deposits
of $100,000 and over made up approximately 6.2% of BLF's consolidated total
deposits at December 31, 1997. The majority of the deposits of BLF are
generated from Okeechobee and Hendry Counties. BLF does not accept brokered
deposits. For additional information regarding BLF's deposit accounts, see
"BLF'S Management's Discussion and Analysis of Financial Condition and Results
of Operations - Financial Condition."
INVESTMENTS
BLF invests a portion of its assets in U.S. Treasury and U.S. Government
agency obligations, certificates of deposit, collateralized mortgage
obligations ("CMO's"), and federal funds sold. BLF's investments are managed
in relation to loan demand and deposit growth, and are generally used to
provide for the investment of excess funds at minimal risks while providing
liquidity to fund increases in loan demand or to offset fluctuations in
deposits.
With respect to BLF's investment portfolio, BLF's total portfolio may be
invested in U.S. Treasury and general obligations of its agencies because such
securities generally represent a minimal investment risk. Occasionally, BLF
purchases certificates of deposits of national and state banks. These
investments may exceed $100,000 in any one institution (the limit of FDIC
insurance for deposit accounts). CMO's are secured with Federal National
Mortgage Association ("FNMA") mortgage-backed securities and generally have a
shorter life than the stated maturity. Federal funds sold is the excess cash
BLF has available over and above daily cash needs. This money is invested on
an overnight basis with approved correspondent banks.
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BLF monitors changes in financial markets. In addition to investments for
its portfolio, BLF monitors its daily cash position to ensure that all
available funds earn interest at the earliest possible date. A portion of the
investment account is designated as secondary reserves and invested in liquid
securities that can be readily converted to cash with minimum risk of market
loss. These investments usually consist of U.S. Treasury obligations, U.S.
government agencies and federal funds. The remainder of the investment account
may be placed in investment securities of different type and longer maturity.
Daily surplus funds are sold in the federal funds market for one business day.
BLF attempts to stagger the maturities of its securities so as to produce a
steady cash-flow in the event BLF needs cash, or economic conditions change to
a more favorable rate environment.
CORRESPONDENT BANKING
Correspondent banking involves one bank providing services to another bank
which cannot provide that service for itself from an economic or practical
standpoint. BLF is required to purchase correspondent services offered by
larger banks, including check collections, purchase of Federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participation with
correspondent banks.
BLF sells loan participations to correspondent banks with respect to loans
which exceed BLF's lending limit. Management of BLF has established
correspondent relationships with the NationsBank, SunTrust and Compass Bank.
As compensation for services provided by a correspondent, BLF maintains certain
balances with such correspondent in non-interest bearing accounts. Such
compensating balances are not deemed significant to BLF's operations.
DATA PROCESSING
BLF has a data processing department which provides a full range of data
processing services, including an automated general ledger, deposit accounting,
and commercial, mortgage and installment lending data processing.
EFFECT OF GOVERNMENTAL POLICIES
The earnings and business of the Company are and will be affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply
of credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for these
purposes influence in various ways the overall level of investments, loans,
other extensions of credit and deposits, and the interest rates paid on
liabilities and received on assets.
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INTEREST AND USURY
BLF is subject to numerous state and federal statutes that affect the
interest rates that may be charged on loans. These laws do not, under present
market conditions, deter BLF from continuing the process of originating loans.
SUPERVISION AND REGULATION
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a
brief summary of certain statutes, rules, and regulations affecting BLF, Big
Lake National Bank and Clewiston National Bank. This summary is qualified in
its entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of BLF, Big Lake National
Bank or Clewiston National Bank. Supervision, regulation, and examination of
banks by regulatory agencies are intended primarily for the protection of
depositors, rather than shareholders.
Bank Holding Company Regulation. BLF is a bank holding company,
registered with the Federal Reserve under the BHC Act. As such, BLF is subject
to the supervision, examination and reporting requirements of the BHC Act and
the regulations of the Federal Reserve. The BHC Act requires that a bank
holding company obtain the prior approval of the Federal Reserve before (i)
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any bank, (ii) taking any action that causes a bank to become a
subsidiary of the bank holding company, or (iii) merging or consolidating with
any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks concerned and the convenience and needs of the
community to be served. Consideration of financial resources generally focuses
on capital adequacy and consideration of convenience, and needs issues includes
the parties' performance under the Community Reinvestment Act of 1977 (the
"CRA"), both of which are discussed below.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the
bank's
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record is made available to the public. Further, such assessment is required
of any bank which has applied to (i) charter a national bank, (ii) obtain
deposit insurance coverage for a newly chartered institution, (iii) establish a
new branch office that will accept deposits, (iv) relocate an office, or (v)
merge or consolidate with, or acquire the assets or assume the liabilities of,
a federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the record of each subsidiary bank of the
applicant bank holding company, and such records may be the basis for denying
the application.
The BHC Act generally prohibits a bank holding company from engaging in
activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit transactions,
and certain insurance underwriting activities have all been determined by
regulations of the Federal Reserve to be permissible activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order
a holding company or its subsidiaries to terminate any activity or terminate
its ownership or control of any subsidiary, when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Bank Regulation. Each of Big Lake National Bank and Clewiston National
Bank is chartered under the national banking laws and their deposits are
insured by the FDIC to the extent provided by law. Each bank is subject to
comprehensive regulation, examination and supervision by the OCC and to other
laws and regulations applicable to banks. Such regulations include limitations
on loans to a single borrower and to its directors, officers and employees;
restrictions on the opening and closing of branch offices; the maintenance of
required capital and liquidity ratios; the granting of credit under equal and
fair conditions; and the disclosure of the costs and terms of such credit. Big
Lake National Bank and Clewiston National Bank are examined periodically by the
OCC, to whom they submit periodic reports regarding their financial condition
and other matters. The OCC has a broad range of powers to enforce regulations
under its jurisdiction, and to take discretionary actions determined to be for
the protection and safety and soundness of banks, including the institution of
cease and desist orders and the removal of directors and officers. The OCC
also has the authority to approve or disapprove mergers, consolidations, and
similar corporate actions.
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There are various statutory limitations on the ability of BLF to pay
dividends. The OCC also has the general authority to limit the dividend
payment by banks if such payment may be deemed to constitute an unsafe and
unsound practice. For information on the restrictions on the right of Big Lake
National Bank and Clewiston National Bank to pay dividends to BLF, see Part II
- - Item 5 "Market for the Registrant's Common Equity and Related Stockholder
Matters."
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, banks are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit or
the providing of any property or service.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") imposed major regulatory reforms, stronger capital standards
for savings and loan associations and stronger civil and criminal enforcement
provisions. FIRREA also provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with (i) the default
of a commonly controlled FDIC insured depository institution, or (ii) any
assistance provided by the FDIC to a commonly controlled FDIC insured
institution in danger of default.
The FDIC Improvement Act of 1993 ("FDICIA") made a number of reforms
addressing the safety and soundness of deposit insurance funds, supervision,
accounting, and prompt regulatory action, and also implemented other regulatory
improvements. FDICIA also recapitalized the Bank Insurance Fund, based on an
assessment rate schedule that may extend to 15 years. Annual full-scope,
on-site examinations are required of all insured depository institutions. The
cost for conducting an examination of an institution may be assessed to that
institution, with special consideration given to affiliates and any penalties
imposed for failure to provide information requested. Insured state banks also
are precluded from engaging as principal in any type of activity that is
impermissible for a national bank, including activities relating to insurance
and equity investments. The Act also recodified current law restricting
extensions of credit to insiders under the Federal Reserve Act.
Also important in terms of its effect on banks has been the deregulation
of interest rates paid by banks on deposits and the types of deposit accounts
that may be offered by banks. Most regulatory limits on permissible deposit
interest rates and minimum deposit amounts expired several years ago. The
effect of the deregulation of deposit interest rates generally has been to
increase the costs of funds to banks and to make their costs of funds more
sensitive to fluctuations in money market rates. A result of the pressure on
banks interest margins due to deregulation has been a trend toward expansion of
services offered by banks and an increase in the emphasis placed on fee or non-
interest income.
8
<PAGE> 12
Capital Requirements. Regulatory agencies have approved guidelines to
implement a risk-based capital framework that makes capital requirements more
sensitive to the risk profiles of individual banking companies. These
guidelines define capital as either core (Tier 1) capital or supplementary
(Tier 2) capital. Tier 1 capital consists primarily of shareholders' equity,
while Tier 2 capital is comprised of certain debt instruments and a portion of
the reserve for loan losses. Big Lake National Bank and Clewiston National
Bank are each required to have a Tier 1 capital ratio of at least 4.00% and a
total risk-based capital ratio (Tier 1 plus Tier 2) of at least 8.00%. At
December 31, 1997, Big Lake National Bank's Tier 1 and total risk-based capital
ratios were 11.56% and 12.81%, respectively. Also at December 31, 1997,
Clewiston National Bank's Tier 1 and total risk-based capital ratios were
14.32% and 15.57% respectively.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized."
The OCC has issued final regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is
not subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1
risk-based capital ratio that is less than 4% or has a leverage ratio that is
less than 4%; (iv) an institution is "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3% or a leverage ratio that is less than 3%;
and (v) an institution is "critically undercapitalized" if its "tangible
equity" is equal to or less than 2% of its total assets. The OCC also, after
an opportunity for a hearing, has authority to downgrade an institution from
"well capitalized" to "adequately capitalized" or to subject an "adequately
capitalized" or "undercapitalized" institution to the supervisory actions
applicable to the next lower category, for supervisory concerns.
Generally, FDICIA requires that an "undercapitalized" institution must
submit an acceptable capital restoration plan to the appropriate federal
banking agency within 45 days after the institution becomes "undercapitalized"
and the agency must take action on the plan within 60 days. The appropriate
federal banking agency may not accept a capital restoration plan unless, among
other requirements, each company having control of the institution has
guaranteed that the institution will comply with the plan until the institution
has been adequately capitalized on average during each of the three consecutive
calendar quarters and has provided adequate assurances of performance. The
aggregate liability under this provision of all companies having control of an
institution is limited to the lesser of (i) 5% of the institution's total
assets at the time the institution
9
<PAGE> 13
becomes "undercapitalized" or (ii) the amount which is necessary, or would have
been necessary, to bring the institution into compliance with all capital
standards applicable to the institution as of the time the institution fails to
comply with the plan filed pursuant to FDICIA.
An "undercapitalized" institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the appropriate
federal banking agency has accepted its capital restoration plan, the
institution is implementing the plan, and the agency determines that the
proposed action is consistent with and will further the achievement of the
plan, or the appropriate Federal banking agency determines the proposed action
will further the purpose of the "prompt corrective action" sections of FDICIA.
If an institution is "critically undercapitalized," it must comply with
the restrictions described above. In addition, the appropriate Federal banking
agency is authorized to restrict the activities of any "critically
undercapitalized" institution and to prohibit such an institution, without the
appropriate Federal banking agency's prior written approval, from: (i)
entering into any material transaction other than in the usual course of
business; (ii) engaging in any covered transaction with affiliates (as defined
in Section 23A(b) of the Federal Reserve Act); (iii) paying excessive
compensation or bonuses; and (iv) paying interest on new or renewed liabilities
at a rate that would increase the institution's weighted average costs of funds
to a level significantly exceeding the prevailing rates of interest on insured
deposits in the institution's normal market areas.
The "prompt corrective action" provisions of FDICIA also provide that in
general no institution may make a capital distribution if it would cause the
institution to become "undercapitalized." Capital distributions include cash
(but not stock) dividends, stock purchases, redemptions, and other
distributions of capital to the owners of an institution.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking
provisions, including disclosure requirements and substantive contractual
limitations with respect to deposit accounts.
As of December 31, 1997, Big Lake National Bank and Clewiston National
Bank met the capital requirements of a "well capitalized" institution.
The OCC has proposed revising its risk-based capital requirements to
ensure that such requirements provide for explicit consideration by commercial
banks of interest rate risk. Under the proposed rule, a bank's interest rate
risk exposure would be quantified using either the measurement system set forth
in the proposal or the bank's internal model for measuring such exposure, if
such model is determined to be adequate by the bank's examiner. If the dollar
amount of a bank's interest rate risk exposure, as measured by either
measurement system, exceeds 1%
10
<PAGE> 14
of the bank's total assets, the bank would be required under the proposed rule
to hold additional capital equal to the dollar amount of the excess. It is
anticipated that the regulatory agencies will issue a revised proposed rule for
further public comment. Pending issuance of such revised proposal, BLF's
management cannot determine what effect, if any, an interest rate risk
component would have on the capital of their subsidiary banks.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and
orders. Among other things, the agencies may require that institutions cease
and desist from certain activities, may preclude persons from participating in
the affairs of insured depository institutions, may suspend or remove deposit
insurance, and may impose civil money penalties against institution-affiliated
parties for certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of Big Lake National Bank
and Clewiston National Bank will vary from time to time, depending on a number
of factors, including conditions in the money markets, the costs and
availability of funds, and prevailing interest rates.
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking, however, is subject to prior approval by the OCC. Any
such approval would take into consideration several factors, including the
bank's level of capital, the prospects and economics of the proposed branch
office, and other conditions deemed relevant by the OCC for purposes of
determining whether approval should be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of a
bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of BLF may be less likely to benefit
from the rapid increases in stock prices that may result from tender offers or
similar efforts to acquire control of other companies. Federal law also
imposes restrictions on acquisitions of stock in a bank holding company and a
state bank. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve
before acquiring control of any bank holding company and the OCC before
acquiring control of any national bank (such as Big Lake National Bank and
Clewiston National Bank). Upon receipt of such notice, the OCC may approve or
disapprove the acquisition. The Change in Bank Control Act creates a
rebuttable presumption of control if a member or group acquires a certain
percentage or more of a bank holding company's or state bank's voting stock, or
if one or more other control factors set forth in the Act are present.
11
<PAGE> 15
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1996, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state will be
permissible one year after enactment. Interstate branching and consolidation
of existing bank subsidiaries in different states will be permissible beginning
June 1, 1997. The Florida legislature also recently enacted a law that allows
out-of-state bank holding companies (located in states that allow Florida bank
holding companies to acquire banks and bank holding companies in that state) to
acquire Florida banks and Florida bank holding companies. The law, which
became effective May 1, 1997, essentially provides for out-of-state entry by
acquisition only (and not by interstate branching) and requires the acquired
Florida bank to have been in existence for at least two years.
Effect of Governmental Policies. The earnings and businesses of BLF, Big
Lake National Bank and Clewiston National Bank are affected by the policies of
various regulatory authorities of the United States, especially the Federal
Reserve. The Federal Reserve, among other things, regulates the supply of
credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments, loans,
other extensions of credit, and deposits, and the interest rates paid on
liabilities and received on assets.
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to continue. The restructuring has
been caused by product and technological innovations in the financial services
industry, deregulation of interest rates, and increased competition from
foreign and nontraditional banking competitors, and has been characterized
principally by the gradual erosion of geographic barriers to intrastate and
interstate banking and the gradual expansion of investment and lending
authorities for bank institutions.
Members of Congress and the administration have indicated their intention
to consider additional legislation designed to institute reforms to promote the
viability of the industry. Certain of the proposals would revise the federal
regulatory structure for insured depository institutions; others would affect
the nature of products, services, and activities that bank holding companies
and their subsidiaries may offer or engage in, and the types of entities that
may control depository institutions. There can be no assurance as to whether
or in what form any such proposed legislation might be enacted, or what impact
such legislation might have upon BLF.
COMPETITION
BLF encounters strong competition both in making loans and in attracting
deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit
12
<PAGE> 16
multi-bank holding companies as well as an increasing level of interstate
banking have created a highly competitive environment for commercial banking.
In one or more aspects of its business, BLF competes with other commercial
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking companies, and
other financial intermediaries. Most of these competitors, some of which are
affiliated with bank holding companies, have substantially greater resources
and lending limits, and may offer certain services that BLF does not currently
provide. In addition, many of BLF's non-bank competitors are not subject to
the same extensive federal regulations that govern bank holding companies and
federally insured banks. Recent federal and state legislation has heightened
the competitive environment in which financial institutions must conduct their
business, and the potential for competition among financial institutions of all
types has increased significantly.
To compete, BLF relies upon specialized services, responsive handling of
customer needs, and personal contacts by its officers, directors, and staff.
Large multi-branch banking competitors tend to compete primarily by rate and
the number and location of branches while smaller, independent financial
institutions tend to compete primarily by rate and personal service.
EMPLOYEES
As of December 31, 1997, BLF, Big Lake National Bank and Clewiston
National Bank, collectively had 76 full-time employees (including executive
officers) and 4 part-time employees. The employees are not represented by a
collective bargaining unit. BLF and the Banks consider relations with
employees to be good.
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
Reference is hereby made to the statistical and financial data contained
in the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for statistical and financial data
providing a review of BLF's business activities.
ITEM 2. PROPERTIES
The main office of BLF and Big Lake National Bank is located at 1409 S.
Parrott Avenue, Okeechobee, Florida 34974, in a two-story building of
approximately 8,010 square feet, which is owned by BLF. Big Lake National Bank
also has banking offices located at 1801 Highway 441 SE, Okeechobee, Florida
34974, in a one-story building of approximately 1,196 square feet, which is
owned by Big Lake National Bank and a branch at 199 N. U.S. Highway 27, Lake
Placid, Florida 33852, in a one-story building of approximately 2,000 square
feet, which is owned by Big Lake National Bank. Big Lake National Bank also
has an operations center adjacent to the
13
<PAGE> 17
branch office at 1801 Highway 441 S.E., Okeechobee, Florida 34974. This
facility is a one-story building of approximately 3,600 square feet, which is
owned by Big Lake National Bank.
Clewiston National Bank is located at 300 South Berner Road, Clewiston,
Florida 33440, in a one-story building of approximately 5,700 square feet,
which is owned by Clewiston National Bank. Clewiston National Bank also has
banking offices located at 401 E. Sugarland Highway, Clewiston, Florida 33440,
in a one-story building of approximately 1,600 square feet, which is leased by
Clewiston National Bank (under a lease which, with renewal options, expires in
2001), a branch at 6th Street and Highway 27, Moore Haven, Florida 33471, in a
one-story building of approximately 2,800 square feet, which is leased by
Clewiston National Bank (under a lease which, with renewal options, expires in
1998), and a branch at 17 N. Lee Street, LaBelle, Florida 33935, in a
one-story building of approximately 1,960 square feet, which is owned by
Clewiston National Bank. Clewiston National Bank also owns a one-story
building of approximately 1,600 square feet located at 100 S. Berner,
Clewiston, Florida 33440, which is leased to a third party with purchase and
renewal options. The lease term expires in 2002.
ITEM 3. LEGAL PROCEEDINGS
BLF, Big Lake National Bank and Clewiston National Bank are periodically
parties to or otherwise involved in legal proceedings arising in the normal
course of business, such as claims to enforce liens, claims involving the
making and servicing of real property loans, and other issues incident to their
respective businesses. Management does not believe that there is any pending
or threatened proceeding against BLF or the Banks which, if determined
adversely, would have a material adverse effect on BLF's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of BLF security holders during the
fourth quarter of the year ended December 31, 1997.
14
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The shares of BLF Common Stock are not actively traded, and such trading
activity, as it occurs, takes place in privately negotiated transactions.
There is no established public trading market for the shares of BLF Common
Stock. Management of BLF is aware of certain transactions in its shares that
have occurred since January 1, 1996, although the trading prices of all stock
transactions are not known. The following sets forth the high and low trading
prices for certain trades of BLF Common Stock that occurred in transactions
known to BLF management in the respective periods during 1996 and 1997:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -------------------------------
HIGH LOW SHARES HIGH LOW SHARES
---- --- ------ ---- --- ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 15.00 15.00 212 15.00 15.00 11,037
2nd Quarter - - - - - -
3rd Quarter - - - 15.00 15.00 125
4th Quarter 22.50 22.50 2,680 15.00 15.00 225
</TABLE>
BLF had approximately 571 shareholders of record as of December 31, 1997.
DIVIDENDS
BLF has not paid any cash dividends in the past. BLF intends that, for
the foreseeable future, it will retain earnings to finance continued growth
rather than pay cash dividends on BLF Common Stock. If at any time BLF's Board
determines to pay dividends on the BLF Common Stock, the timing and the extent
to which dividends are paid by BLF will be determined by such Board in light of
then-existing circumstances, including BLF's rate of growth, profitability,
financial condition, existing and anticipated capital requirements, the amount
of funds legally available for the payment of cash dividends, regulatory
constraints and such other factors as the Board determines relevant. The source
of funds for payment of dividends by BLF will be dividends received from Big
Lake National Bank. Payments by the Banks to BLF are limited by law and
regulations of the bank regulatory authorities. There are various statutory and
contractual limitations on the ability of the Banks to pay dividends to BLF.
The OCC also has the general authority to limit the dividends paid by national
banks if such payment may be deemed to constitute an unsafe and unsound
practice. As national banks, Big Lake National Bank and Clewiston National
Bank may not pay dividends from its paid-in surplus. All dividends must be paid
out of undivided profits then on hand, after deducting expenses, including
reserves for losses and bad debts. In addition, a national bank is prohibited
from declaring a dividend on its shares of common stock until its surplus equals
its stated capital, unless there has been transferred to surplus
15
<PAGE> 19
no less than one/tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The
approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year exceeds the total of its net profits for that
year combined with its retained net profits for the preceding two years, less
any required transfers to surplus.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Interest income $ 5,491 $ 4,229 $ 3,195 $ 2,548 $ 2,368
Interest expense 2,204 1,736 1,211 781 669
--------- ----------- ----------- ----------- ---------
Net interest income 3,287 2,493 1,984 1,767 1,699
Provision for loan losses 280 132 70 14 160
--------- ----------- ----------- ----------- ---------
Net interest income after
provision for loan losses 3,007 2,361 1,914 1,753 1,539
Noninterest income 814 589 518 385 419
Noninterest expenses 2,847 2,112 1,574 1,575 1,536
--------- ----------- ----------- ----------- ---------
Earnings before income taxes 974 838 858 563 422
Provision for income taxes 316 287 308 188 139
--------- ----------- ----------- ----------- ---------
Net earnings $ 658 $ 551 $ 550 $ 375 $ 283
========= =========== =========== =========== =========
Per share data (1):
Earnings per share $ 1.96 $ 1.79 $ 1.78 $ 1.21 $ 0.90
Cash dividends declared $ - $ - $ - $ - $ -
Book value at end of period $ 19.83 $ 15.71 $ 14.21 $ 12.13 $ 11.37
Common shares outstanding at
end of period (1) 475,223 308,711 308,711 308,711 313,435
Weighted average common shares
outstanding during period (1) 336,463 308,711 308,711 311,034 313,435
Total assets at end of period $ 111,792 $ 59,518 $ 55,824 $ 37,175 $ 34,787
Cash and cash equivalents $ 9,788 $ 4,402 $ 12,520 $ 4,582 $ 3,976
Investment securities $ 22,759 $ 16,015 $ 11,922 $ 6,507 $ 4,822
Loans, net $ 73,972 $ 36,262 $ 28,663 $ 24,580 $ 24,148
Deposits $ 101,332 $ 54,245 $ 50,793 $ 33,299 $ 31,032
Stockholders' equity $ 9,423 $ 4,854 $ 4,386 $ 3,744 $ 3,563
Total loans before allowance
for loan losses $ 75,155 $ 36,732 $ 29,026 $ 24,904 $ 24,464
Allowance for loan losses $ 1,183 $ 470 $ 363 $ 323 $ 316
Nonperforming loans $ 1,536 $ 111 $ 30 $ 291 $ 335
Nonperforming loans and other assets $ 1,797 $ 111 $ 126 $ 299 $ 532
Allowance for loan losses as a
percentage of period-end total loans 1.57% 1.28% 1.25% 1.30% 1.29%
Allowance for loan losses as a
percentage of nonperforming loans 77.02% 423.42% 1210.00% 111.00% 94.33%
Total nonperforming loans as a
percentage of total loans 2.37% 0.30% 0.10% 1.17% 1.37%
Total nonperforming loans as a
percentage of total assets 1.37% 0.19% 0.05% 0.78% 0.96%
Total nonperforming loans and
real estate owned as a
percentage of total assets 1.61% 0.19% 0.23% 0.80% 1.53%
</TABLE>
- -----------------------
(1) Adjusted for the 2.5% stock dividends in shares of BLF Common Stock in
1992 through 1996.
16
<PAGE> 20
RECENT DEVELOPMENTS
On October 31, 1997, BLF closed the BLF/CNB merger. As a result of the
transaction, the outstanding shares of CNB common stock were converted into an
aggregate of 166,512 shares of BLF Common Stock. The BLF/CNB Merger has been
accounted for as a purchase and, accordingly, amounts presented at Management's
Discussion and Analysis of Financial Condition and Results of Operations
include operating results of CNB from and after October 31, 1997 and its
financial position as of December 31, 1997.
GENERAL
BLF's principal asset is its ownership of Big Lake National Bank and
Clewiston National Bank. Accordingly, BLF's results of operations are
primarily dependent upon the results of operations of the Banks. As noted
previously, BLF anticipates merging Clewiston National Bank into Big Lake
National Bank in April, 1998. BLF 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). BLF'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 BLF'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, BLF's profitability is affected by such
factors as the level of noninterest income and expenses, the provision for loan
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.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition of BLF at, and results of operations of BLF for the years ended,
December 31, 1997 and 1996. This discussion should be read in conjunction
with the consolidated financial statements and related footnotes of BLF
presented elsewhere herein.
17
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
A national bank is required to maintain a liquidity reserve of at
least 3% of its net transaction deposit accounts under $47.8 million. Where
net transaction deposit accounts exceed $47.8 million, the reserve requirements
are $1,434,000 plus 10% of the amount over $47.8 million. The liquidity
reserve may consist of cash on hand, cash on demand deposit with other
correspondent banks, and other investments and short-term marketable securities
as determined by the rules of the OCC, such as federal funds sold and United
States securities or securities guaranteed by the United States. As of
December 31, 1997 and 1996, Big Lake National Bank had liquidity ratios of
56.6% and 29.1%, respectively.
BLF'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.
BLF uses its capital resources principally to fund existing and
continuing loan commitments and to purchase investment securities. At December
31, 1997 and 1996, BLF had commitments to originate loans totaling $4.7 million
and $2.4 million, respectively, and had issued but unused letters of credit of
$103,000 and $74,000, respectively. In addition, scheduled maturities of
certificates of deposit during the 12 months following December 31, 1997 and
1996 totaled $39.1 million and $23.1 million, respectively. Management
believes that BLF 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 BLF can adjust the rates and terms on certificates of
deposit and other deposit accounts to retain deposits in a changing interest
rate environment.
In accordance with risk capital guidelines issued by the OCC, Big Lake
National Bank and Clewiston National Bank are required to maintain a minimum
standard of total capital to risk-weighted assets of 8.0%. Additionally, the
OCC requires banks to maintain a minimum leverage-capital ratio of Tier 1
capital (as defined) to average assets. The leverage-capital ratio ranges from
3.0% to 5.0% based on the bank's rating under the regulatory rating system.
The following table summarizes the regulatory capital levels and ratios
for Big Lake National Bank and Clewiston National Bank:
18
<PAGE> 22
<TABLE>
<CAPTION>
ACTUAL RATIOS
------------------------------
BIG LAKE CLEWISTON
NATIONAL NATIONAL REGULATORY
BANK BANK REQUIREMENT
----------- ----------- -----------
<S> <C> <C> <C>
AT DECEMBER 31, 1997
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS 12.81% 15.57% 8.00%
TIER I CAPITAL TO RISK-WEIGHTED ASSETS 11.56% 14.32% 4.00%
TIER I CAPITAL TO AVERAGE ASSETS - LEVERAGE ASSETS 7.85% 8.81% 4.00%
AT DECEMBER 31, 1996
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS 12.12% 14.49% 8.00%
TIER I CAPITAL TO RISK-WEIGHTED ASSETS 10.87% 13.24% 4.00%
TIER I CAPITAL TO AVERAGE ASSETS - LEVERAGE ASSETS 7.37% 8.85% 4.00%
</TABLE>
RESULTS OF OPERATIONS
Net interest income, which constitutes the principal source of income for
BLF, represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The principal
interest-earning assets are investment securities and loans made to businesses
and individuals. Interest-bearing liabilities primarily consist of time
deposits, interest-bearing checking accounts ("NOW accounts"), retail savings
deposits and money market accounts. Funds attracted by these interest-bearing
liabilities are invested in interest-earning assets. Accordingly, net
interest income depends upon the volume of average interest-earning assets and
average interest-bearing liabilities and the interest rates earned or paid on
them.
Net interest income was $3,287,000 for BLF for the year ended December
31, 1997, compared with $2,493,000 for the year ended December 31, 1996. This
improvement in net interest income was a result of a higher volume of net
interest-earning assets offset in part by a lower interest-rate spread.
The following table shows selected ratios for the periods ended or at the
dates indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1996
------- ------
<S> <C> <C>
Average equity as a percentage of average assets 8.50% 8.01%
Equity to total assets at end of period 8.43% 8.16%
Return on average assets 0.92% 0.98%
Return on average equity 10.82% 12.26%
Noninterest expense to average assets 3.98% 3.76%
</TABLE>
19
<PAGE> 23
The rates and yields at the dates indicated were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YIELD OR RATE AT
---------------------------------
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Loans 9.68% 9.49%
Investment securities 5.85% 6.00%
Other interest-earning assets 5.13% 5.26%
All interest-earning assets 8.45% 8.17%
Savings deposits 2.67% 3.11%
NOW accounts 2.62% 2.02%
Money market deposits 2.26% 2.24%
Certificates of deposit 6.10% 5.30%
All interest-bearing liabilities 4.73% 4.14%
Interest-rate spread 3.72% 4.03%
</TABLE>
20
<PAGE> 24
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of BLF
from interest-earning assets and the resultant average yield; (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) net interest margin. Average balances were based on average daily
balances.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996
------------------------------ -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $ 44,735 $ 4,332 9.68% $ 32,531 $ 3,087 9.49%
Investment securities 16,765 981 5.85% 17,354 1,042 6.00%
Other interest-earning assets(2) 3,470 178 5.13% 1,901 100 5.26%
-------- ------- -------- -------
Total interest-earning assets 64,970 5,491 8.45% 51,786 4,229 8.17%
------- -------
Noninterest-earning assets 6,549 4,314
-------- --------
Total assets $ 71,519 $ 56,100
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 11,977 299 2.50% $ 11,263 235 2.09%
Savings 6,066 162 2.67% 5,781 180 3.11%
Certificates of deposit 28,556 1,742 6.10% 24,646 1,306 5.30%
Other borrowings 25 1 4.00% 247 15 6.07%
-------- ------- -------- -------
Total interest-bearing
liabilities 46,624 2,204 4.73% 41,937 1,736 4.14%
------- -------
Noninterest-bearing liabilities 18,813 9,670
Stockholders' equity 6,082 4,493
-------- --------
Total liabilities and
stockholders' equity $ 71,519 $ 56,100
======== ========
Net interest/dividend income $ 3,287 $ 2,493
======= =======
Interest-rate spread(3) 3.72% 4.03%
==== ====
Net interest margin(4) 5.06% 4.81%
==== ====
Ratio of average interest-earning assets
to average interest-bearing
liabilities 139.35% 123.49%
======= ========
</TABLE>
- --------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits due from other banks and federal
funds sold.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
21
<PAGE> 25
The following table sets forth certain information regarding changes
in interest income and interest expense of BLF for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in interest rate
(change in rate multiplied by prior volume), (2) changes in the volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 VS. 1996
INCREASE (DECREASE) DUE TO
-----------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 63 $1,158 $ 24 $ 1,245
Investment securities (27) (35) 1 (61)
Other interest-earning assets (2) 83 (3) 78
------ ------ ------- -------
Total 34 1,206 22 1,262
------ ------ ------- -------
Interest-bearing liabilities:
Demand, money market and NOW deposits 46 15 3 64
Savings (26) 9 (1) (18)
Certificates of deposit 197 207 32 436
Other borrowings (5) (13) 4 (14)
------ ------ ------- --------
Total 212 218 38 468
------ ------ ------- -------
Net change in interest income $ (178) $ 988 $ (16) $ 794
====== ====== ======= =======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
General
Net earnings for the year ended December 31, 1997 were $658,000, or $1.96
per share, compared to net earnings of $551,000, or $1.79 per share, for the
year ended December 31, 1996. Net earnings for 1997 versus 1996 were increased
$107,000, or 19.4%. The favorable growth in earning assets was offset in part
by higher costs associated with the merger of CNB and increases in other
expenses for BLF related to its growth in lending.
Interest Income and Expense
Interest income increased by $1,262,000 from $4,229,000 for the year ended
December 31, 1996 to $5,491,000 for the year ended December 31, 1997. Interest
income on loans increased $1,245,000 due to an increase in the average loan
portfolio balance from $32.5 million for the year ended December 31, 1996 to
$44.7 million for the comparable 1997 period, and an increase of 19 basis
points in the weighted average yield of loans. Of the $12.2 million increase
in the average loan portfolio balance, Clewiston National Bank accounted for
$5.3 million, with the remainder of the
22
<PAGE> 26
increase of $6.9 million attributable to Big Lake National Bank. The favorable
increase in the weighted average yield of loans was generated by Big Lake
National Bank, which posted an increase of 26 basis points from 1996 to 1997,
reflecting the increasing interest rate environment. Clewiston National Bank's
weighted average yield for 1997 was 9.21% versus 9.75% for Big Lake National
Bank. The inclusion of Clewiston National Bank for the two months ended
December 31, 1997, depressed the BLF's weighted average yield of loans in 1997
by 7 basis points.
Interest on investment securities decreased $61,000 due to a decrease in
the average investment securities portfolio to $16.8 million in 1997 from $17.4
million in 1996 and a decrease in the average yield earned from 6.00% in 1996
to 5.85% in 1997. Interest on other interest-earning assets increased $78,000
due to an increase from $1.9 million in average other interest-earning assets
in 1996 to $3.5 million in 1997, partially offset by a decline in the weighted
average yield of 13 basis points. Of the $600,000 decrease in the average
investment portfolio balance, the inclusion of Clewiston National Bank for the
two months ended December 31, 1997, generated an increase of $1.2 million,
which was offset by a decline at Big Lake National Bank of $1.8 million. The
decline at Big Lake National Bank was due to the re-deployment of matured
lower-yielding investments into higher yielding loans.
Interest expense increased to $2,204,000 for the year ended December 31,
1997, from $1,736,000 for the year ended December 31, 1996. Interest expense
on deposit accounts increased because of an increase in the average balance
from $41.9 million in 1996 to $46.6 million in 1997 and an increase in the
average rates paid on interest-bearing liabilities of 59 basis points. Of the
$4.7 million increase in the average balances of interest-bearing liabilities,
the inclusion of Clewiston National Bank for the two months ended December 31,
1997, generated an increase of $6.0 million, which was offset by a decline at
Big Lake National Bank of $1.3 million. The decline at Big Lake National Bank
was due to a change in mix that resulted in an increase in noninterest-bearing
transaction accounts of $3.1 million. The increase in the weighted average
interest rates paid on deposits resulted from a general increase in the
interest rate environment and a shift into higher cost certificates of deposit.
Provision for Loan Losses
The provision for loan 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 BLF, the
amounts of nonperforming loans, general economic conditions, particularly as
they relate to BLF's market area, and other factors related to the
collectibility of BLF's loan portfolio. The increase in the provision from
$132,000 for the year ended December 31, 1996 to $280,000 for the year ended
December 31, 1997 was primarily due to the impact of acquiring CNB and its
higher level of nonperforming loans. For the two months ended December 31,
1997, Clewiston National Bank recorded provisions for loan losses totaling
$148,000 to strengthen its allowance for loan losses and address potential
exposure from nonperforming loans. The increase in the allowance for loan
losses is consistent with the increase in nonperforming loans from $111,000 at
December 31, 1996, to $1,536,000 at December 31, 1997.
23
<PAGE> 27
Other Income
Total noninterest income increased $225,000. For the two months ended
December 31, 1997, Clewiston National Bank posted income from service charges
on deposit accounts of $76,000, which accounted for 45.0% of the total increase
of $169,000. The remaining increase of $93,000 was attributable principally to
the increase in transaction accounts of $3.1 million from December 31, 1996 to
December 31, 1997. For the same period, Clewiston National Bank posted income
from other fees totaling $3,000, and Big Lake National Bank reported an
increase in other fees of $53,000, principally due to rebates for insurance and
recoveries of operating losses.
Other Expense
Total noninterest expense increased $735,000 to $2,847,000 for the year
ended December 31, 1997 from $2,112,000 for the year ended December 31, 1996,
primarily due to increases in compensation and employee benefits of $312,000,
occupancy expense of $30,000, furniture and equipment expense of $59,000, and
miscellaneous expenses of $334,000. For the two months ended December 31,
1997, Clewiston National Bank accounted for increases of $140,000, $17,000,
$37,000, and $125,000, respectively. Merger-related expenses of $149,000 were
recorded in 1997. The remaining increases of $267,000 were attributable to the
overall growth at Big Lake National Bank, which included personnel additions in
its lending function, expansion to its drive-in facilities at the main office,
and the construction of a new operations center.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1996 AND 1995
General
Net earnings for the year ended December 31, 1996 were $551,000, or $1.79
per share, compared to net earnings of $550,000, or $1.78 per share, for the
year ended December 31, 1995. Net earnings for 1996 versus 1995 were level due
primarily to BLF's acquisition of its Lake Placid branch in late 1995.
Favorable growth in earning assets was offset by higher costs including the
amortization of goodwill and core deposit premiums.
Interest Income and Expense
Interest income increased by $1,034,000 from $3,195,000 for the year ended
December 31, 1995 to $4,229,000 for the year ended December 31, 1996. Interest
income on loans increased $567,000 due to an increase in the average loan
portfolio balance from $26.8 million for the year ended December 31, 1995 to
$32.5 million for the comparable 1996 period, partially offset by a decrease of
22 basis points in the weighted average yield of total interest-earning assets.
The decrease in the weighted average yield was due to a change in the
composition of the interest-earning assets, which was associated with the
acquisition of deposits at Lake Placid. The acquisition of the Lake Placid
branch occurred late in 1995 resulting in little impact on the average yield
for interest-earning assets
24
<PAGE> 28
in 1995; however, the composition of interest-earning assets at December 31,
1995, was substantially changed from the averages throughout 1995. Upon
acquisition of the Lake Placid branch, BLF invested approximately $10.2 million
of net proceeds from the assumption of deposits and liabilities into lower
yielding assets. In 1996, as the funds from maturing investments were
re-deployed into higher yielding loans, the weighted average yield on total
interest-earning assets improved, but lagged 1995 results.
Interest on investment securities increased $577,000 due to an increase in
the average investment securities portfolio to $17.4 million in 1996 from $7.6
million in 1995 partially offset by a slight decrease in the average yield
earned from 6.08% in 1995 to 6.00% in 1996. Interest on other interest-earning
assets decreased $110,000 due to a decrease from $3.6 million in average other
interest-earning assets in 1995 to $1.9 million in 1996 and a decrease in the
weighted average yield of 55 basis points, primarily due to an overall
declining interest rate environment.
Interest expense increased to $1,736,000 for the year ended December 31,
1996, from $1,211,000 for the year ended December 31, 1995. Interest expense
on deposit accounts increased because of an increase in the average balance
from $26.7 million in 1995 to $41.9 million in 1996 and a slight increase in
the average rates paid on interest-bearing liabilities of 6 basis points. The
mix of deposits and the volume changes were impacted by the acquisition of
$11.2 million in deposits by BLF in its purchase of the Lake Placid branch on
December 15, 1995.
Provision for Loan Losses
The provision for loan 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 BLF, the
amounts of nonperforming loans, general economic conditions, particularly as
they relate to BLF's market area, and other factors related to the
collectibility of BLF's loan portfolio. The increase in the provision from
$70,000 for the year ended December 31, 1995 to $132,000 for the year ended
December 31, 1996 was primarily due to the increase in average loans
outstanding for the same periods, from approximately $26.8 million in 1995 to
$32.5 million in 1996, and an increase in nonperforming loans from $30,000 at
December 31, 1995, to $111,000 at December 31, 1996.
Other Income
Total noninterest income increased $71,000 primarily due to the
acquisition of Lake Placid deposit accounts in 1995. The increase in service
charges, fees, and commissions of $108,000 was partially offset by losses on
the sale of other real estate owned totaling $8,000 versus a gain of $18,000 in
the comparable period for 1995.
25
<PAGE> 29
Other Expense
Total noninterest expense increased $538,000 to $2,112,000 for the year
ended December 31, 1996 from $1,574,000 for the year ended December 31, 1995,
primarily due to increases in compensation and employee benefits of $274,000,
amortization of goodwill and core deposit premiums of $84,000, and other
operating expenses of $170,000 resulting primarily from the increased costs
associated with the acquisition of the Lake Placid branch.
ASSET/LIABILITY MANAGEMENT
A principal objective of BLF'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 which are 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.
As a part of BLF's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate sensitive" and monitors the bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate sensitive if it will
reprice or mature within the time period analyzed, usually one year or less.
The interest rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. During a period
of rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income, while a positive
gap would tend to adversely affect net interest income. If the repricing of
each bank's assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest rates on net
interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing
26
<PAGE> 30
liabilities may not be affected uniformly by changes in interest rates. In
addition, the magnitude and duration of changes in interest rates may have a
significant impact on net interest income. For example, although certain
assets and liabilities may have similar maturities or period of repricing, they
may react in different degrees to changes in market interest rates. Interest
rates on certain types of assets and liabilities fluctuate in advance of
changes in general market interest rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, prepayment (on loans) and early withdrawal (of deposit accounts) levels
also could deviate significantly from those assumed in calculating the interest
rate gap. The ability of many borrowers to service their debts also may
decrease in the event of an interest rate increase.
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. BLF's cumulative one-year gap at December 31, 1997
was a negative 7.39% of assets.
The ALCO Committee's policy does not state a negative to positive
cumulative one year gap range. However, BLF management anticipates that it
will adopt a policy similar to that of CNB's policy, which states a cumulative
one-year gap range of negative 20% to positive 20%.
Principal among BLF's asset/liability management strategies has been the
emphasis on managing its interest rate sensitive liabilities in a manner
designed to attempt to reduce BLF's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of BLF's interest
rate sensitive liabilities may reduce the potential impact that a rise in
interest rates might have on BLF's net interest income. BLF seeks to maintain a
core deposit base by providing quality services to its customers without
significantly increasing its cost of funds or operating expenses. BLF's
demand, money market, and NOW deposit accounts approximated 39.9% and 39.1% of
total deposits at December 31, 1997 and 1996, respectively. These accounts
bore a weighted average cost of deposits of 0.99% and 1.20% during the years
ended December 31, 1997 and 1996, respectively. Management anticipates that
these accounts will continue to comprise a significant portion of BLF's total
deposit base. BLF also maintains a portfolio of liquid assets in order to
reduce its overall exposure to changes in market interest rates. At December
31, 1997 and 1996, approximately 17.0% and 8.2%, respectively, of BLF's total
assets consisted of cash and due from banks, federal funds sold, and short-term
investment securities. In addition, at December 31, 1997 and 1996, Big Lake
National Bank's liquidity ratio was approximately 56.6% and 29.1%,
respectively. BLF also maintains a "floor," or minimum rate, on certain of its
floating or prime based loans. These floors allow BLF to continue to earn a
higher rate when the floating rate falls below the established floor rate.
27
<PAGE> 31
The following table sets forth certain information relating to BLF's
interest-earning assets and interest-bearing liabilities at December 31, 1997
that are estimated to mature or are scheduled to reprice within the period
shown:
<TABLE>
<CAPTION>
UNDER 3 TO 12 OVER
3 MONTHS MONTHS 1-5 YEARS 5 YEARS TOTALS
-------- ------- --------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 3,296 $ - $ - $ - $ 3,296
Loans (1) 15,441 34,147 19,241 4,797 73,626
Securities (2) 5,140 4,351 12,929 339 22,759
---------- --------- --------- -------- ---------
Total rate-sensitive assets $ 23,877 $ 38,498 $ 32,170 $ 5,136 $ 99,681
========== ========= ========= ======== =========
Money market and NOW accounts (2) $ 20,698 $ - $ - $ - $ 20,698
Savings accounts (2) 11,301 - - - 11,301
Certificates of deposit (2) 18,411 20,230 10,899 - 49,540
---------- --------- --------- -------- ---------
Total rate-sensitive liabilities $ 50,410 $ 20,230 $ 10,899 $ - $ 81,539
========== ========= ========= ======== =========
Gap (repricing differences) $ (26,533) $ 18,268 $ 21,271 $ 5,136 $ 18,142
========== ========= ========= ======== =========
Cumulative Gap $ (26,533) $ (8,265) $ 13,006 $ 18,142
========== ========= ========= ========
Cumulative GAP/total assets -23.73% -7.39% 11.63% 16.23%
========= ========= ========= ========
Total Assets $ 111,792
=========
</TABLE>
- ---------------------
(1) In preparing the table above, adjustable-rate loans were included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans were
scheduled according to their contractual maturities.
(2) Excludes noninterest bearing deposit accounts. Money market, NOW, and
savings deposits were regarded as maturing immediately. All other time
deposits were scheduled through the maturity dates. Investments were
scheduled through their contractual maturity dates.
FINANCIAL CONDITION
Lending Activities
A significant source of income for BLF is the interest earned on loans.
At December 31, 1997, BLF's total assets were $111.8 million and its net loans
were $74.0 million or 66.2% of total assets. At December 31, 1996, BLF's total
assets were $59.5 million and its net loans were $36.2 million or 60.9% of
total assets.
28
<PAGE> 32
Big Lake National Bank's primary market area consists of Okeechobee
and Lake Placid, Florida, located in Okeechobee County and Highlands County,
Florida, respectively. This region's economy is primarily dependent upon
agriculture, light industry, and tourism. Okeechobee is located on the northern
end of Lake Okeechobee in South Central Florida and is the seat of government
for Okeechobee County. Okeechobee County has a diverse group of employers.
Lake Okeechobee, located in the southern portion of the County, is a 750 square
mile lake bordered by four other counties. The lake serves as a tourist
attraction. Big Lake National Bank's primary market area also includes Lake
Placid, Florida, which is located approximately 70 miles east of Fort Myers in
Highlands County. Agriculture is the main income producing industry around the
city. The area also supports the citrus and cattle industries.
Clewiston National Bank's primary market area consists of Clewiston,
Florida, which is located approximately 56 miles southwest of Okeechobee.
Clewiston is located in Hendry County. In the early 1980s, Hendry County was
essentially a rural community, dependent on several seasonal or cyclical
industries. As the Fort Myers and West Palm Beach business markets have
experienced expansion over the past ten years, Hendry County's location between
these two metropolitan areas has afforded relocation and business opportunities
for industries desiring a proximate location to two of Florida's major growth
regions.
There is no assurance that the Okeechobee, Lake Placid or Clewiston
communities will continue to experience economic growth. Adverse conditions in
any one or more of the industries operating in such markets or slow-down in
general economic conditions could have an adverse effect on BLF.
Lending activities are conducted pursuant to a written policy which has
been adopted by BLF. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of Big Lake National Bank.
29
<PAGE> 33
The following table sets forth information concerning BLF's loan portfolio
by type of loan at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1997 1996
---------------- ---------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
-------- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate loans $ 58,455 77.3% $29,149 79.2%
Installment loans 10,547 13.9 5,436 14.8
Commercial and all other loans 6,670 8.8 2,208 6.0
-------- ----- ------- -----
Total loans 75,672 100.0% 36,793 100.0%
===== =====
Less:
Deferred loan and unearned fees 517 61
Allowance for loan losses 1,183 470
-------- -------
Loans, net $ 73,972 $36,262
======== =======
</TABLE>
The following table reflects the contractual principal repayments by period
of BLF's loan portfolio at December 31, 1997 (excluding nonaccrual loans):
<TABLE>
<CAPTION>
1 YEAR 1 THROUGH AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate loans $18,815 $13,152 $25,733 $57,700
Installment loans 4,530 5,073 795 10,398
Commercial and all other loans 3,649 1,602 725 5,976
------- ------- ------- -------
Total loans $26,994 $19,827 $27,253 $74,074
======= ======= ======= =======
Loans with maturities over one year:
Fixed rate $17,787
Variable rate 29,293
-------
Total maturities greater than one year $47,080
=======
</TABLE>
The following table sets forth total loans originated and repaid during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Originations:
Real Estate loans $14,340 $8,769
Installment loans 6,080 3,918
Commercial and all other loans 9,468 813
------ ------
Total loans originated 29,888 13,500
Acquisition of CNB loans 34,726 -
Principal reductions 25,735 5,796
------- ------
Increase in total loans $38,879 $7,704
======= ======
</TABLE>
30
<PAGE> 34
Asset Quality
Management seeks to maintain a high quality of assets through conservative
underwriting and sound lending practices. The majority of the loans in BLF's
loan portfolio are collateralized by residential and commercial real estate
mortgages. As of December 31, 1997 and 1996, approximately 77.3% and 79.2%,
respectively, of the total loan portfolio was collateralized by real estate of
which 21.7% and 24.9% of the total loan portfolio was secured by commercial
real estate as of December 31, 1997 and 1996, respectively. The level of
delinquent loans and real estate owned also is relevant to the credit quality
of a loan portfolio. As of December 31, 1997, total nonperforming assets were
$1,797,000 or 1.6% of total assets, compared to $111,000 or 0.2% of total
assets at December 31, 1996.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on BLF's profitability. However, as part
of its loan portfolio management strategy, BLF generally limits its loans to a
maximum of 80% of the value of the underlying real estate as determined by
appraisal. In addition, knowledgeable members of management make physical
inspections of properties being considered for mortgage loans. Management
believes that such precautions reduce BLF's exposure to the risk associated
with a downturn in real estate values.
Commercial loans also entail risks since repayment is usually dependent
upon the successful operation of the commercial enterprise. They also are
subject to adverse conditions in the economy. Commercial loans are generally
riskier than mortgage loans because they are typically underwritten on the
basis of the ability to repay from the cash flow of a business rather than on
the ability of the borrower or guarantor to repay. Further, the collateral
underlying a commercial loan may depreciate over time, cannot be appraised with
as much precision as real estate, and may fluctuate in value based on the
success of the business.
The repayment of consumer installment loans and other loans to individuals
is closely linked to the economic conditions of the communities in which BLF
operates (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Lending Activities"). For the
most part, these local economies enjoy diverse labor forces. The majority of
these consumer installment loans are secured by collateral which limits, to a
degree, any loss BLF would suffer upon default.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted
by economic or other conditions. BLF, on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratios, and industry trends.
Concentrations of loans in the following categories constituted the total loan
portfolio as of December 31, 1997:
31
<PAGE> 35
<TABLE>
<S> <C>
Real estate mortgage loans 77.3%
Installment loans 13.9%
Commercial loans and other loans 8.8%
------
100.0%
======
</TABLE>
The Loan Committee of the Board of Directors of Big Lake National Bank
concentrates its efforts and resources, and that of its senior management and
lending officers, on loan review and underwriting procedures. Internal
controls include ongoing reviews of loans made to monitor documentation and the
existence and valuations of collateral. In addition, management of BLF has
established a review process with the objective of identifying, evaluating, and
initiating necessary corrective action for marginal loans. The goal of the
loan review process is to address classified and nonperforming loans as early
as possible.
Classification of Assets
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan as nonaccrual when principal
or interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans are generally charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by BLF as a result of foreclosure or by deed in lieu
of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
loan losses at the time it is transferred to OREO. Further allowances for
losses in OREO are recorded at the time management believes additional
deterioration in value has occurred.
Management has adopted SFAS No. 114, which considers a loan to be impaired
if it is probable that BLF will be unable to collect all amounts due under the
contractual terms of the loan agreement. If a loan is considered impaired, its
value generally should be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate. As a practical
expedient, however, the loan's value may be based on (i) the loan's market
price or (ii) the fair value of the loan's collateral, less discounted
estimated costs to sell, if the collateral is expected to be the sole source of
repayment. If the value of the loan is less than the recorded investment in
the loan, a loss should be recognized by recording a valuation allowance and a
corresponding increase to the provision for loan losses charged to operating
expenses.
32
<PAGE> 36
Situations may occur where (i) BLF receives physical possession of a
debtor's assets regardless of whether formal foreclosure proceedings have been
initiated or completed or (ii) the debtor has effectively surrendered control
of the underlying collateral in contemplation of foreclosure. These situations
are referred to as "in-substance foreclosures." SFAS No. 114 recognizes the
practical problems of accounting for the operation of an asset the creditor
does not possess, and states that a loan for which foreclosure is probable
should continue to be accounted for as a loan.
At December 31, 1997 and 1996, loans considered by management to be
impaired or in-substance foreclosed totaled $1,163,000 and $-0-, respectively.
The impaired loans for 1997 were also classified as nonaccrual loans.
33
<PAGE> 37
The following tables sets forth certain information on nonaccrual loans and
real estate owned, the ratio of such loans and real estate owned to total
assets as of the dates indicated, and certain other related information:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Real estate $1,057 $ 85
Installment loans 59 -
Commercial and all other loans 413 26
------ -----
Total nonaccrual loans 1,529 111
Accruing loans over 90 days delinquent 7 -
Troubled debt restructurings - -
------ -----
Total nonperforming loans 1,536 111
Other real estate owned:
Real estate acquired by foreclosure or
deed in lieu of foreclosure 261 -
------ -----
Total nonperforming loans and other real
estate owned $1,797 $ 111
====== =====
Total nonperforming loans as a percentage
of total loans 2.37% 0.30%
====== =====
Total nonperforming loans as a percentage
of total assets 1.37% 0.19%
====== =====
Total nonperforming loans and real estate
owned as a percentage of total assets 1.61% 0.19%
====== =====
</TABLE>
A summary of the nonperforming loans and assets for the Banks at December 31,
1997, follows (dollars in thousands):
<TABLE>
<CAPTION>
Big Lake Clewiston
National National
Bank Bank
---------- -----------
<S> <C> <C>
Nonperforming loans $ 366 $ 1,170
Nonperforming assets 28 233
------- --------
Total $ 394 $ 1,403
======= ========
</TABLE>
Allowance for Loan Losses
In originating loans, BLF recognizes that loan 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 and,
in the case of a collateralized loan, the quality of the
34
<PAGE> 38
collateral for the loan as well as general economic conditions. It is
management's policy to attempt to maintain an adequate allowance for loan
losses based on, among other things, BLF's historical loan loss experience,
evaluation of economic conditions and regular reviews of any delinquencies and
loan portfolio quality. Specific allowances are provided for individual loans
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the collateral for the loan.
Management recognizes the greater inherent risks in connection with commercial
and consumer lending. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Provision for Loan Losses."
Management continues to actively monitor BLF's asset quality and to
charge-off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes
it uses the best information available to make determinations with respect to
the allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in
making the initial determinations. BLF's allowance for loan losses at December
31, 1996 was $470,000. BLF increased the allowance to $1,183,000 as of
December 31, 1997 consistent with the increase in the loan portfolio and the
rise in nonperforming loans as a percentage of total assets (principally from
Clewiston National Bank). Management considers several factors in determining
the reserves, including the favorable charge off history, the relatively low
level of nonperforming assets, and the value of the underlying collateral.
While total nonperforming loans as a percentage of total loans have increased
to 2.37% at December 31, 1997, from 0.30% at December 31, 1996, management
considers substantially all of the nonperforming loans to be adequately
collateralized. Without expectation of any significant losses from the
liquidation of the underlying collateral, management believes its net additions
(excluding the allowance for loan losses acquired from CNB of $424,000) to the
allowance for loan losses of $289,000 from December 31, 1996, to December 31,
1997, are adequate when compared with BLF's nonperforming loans and total
loans.
35
<PAGE> 39
The following table sets forth information with respect to activity in
BLF's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31
----------------------
(Dollars in Thousands)
1997 1996
------ ------
<S> <C> <C>
Allowance at beginning of period $ 470 $ 363
------- ---------
Allowance for loan losses acquired from CNB 424 -
------- ---------
Charge-offs:
Real estate loans 16 8
Installment loans 36 23
Commercial and all other loans 2 15
------- ---------
Total loans charged-off 54 46
Recoveries 63 21
------- ---------
Net charge-offs (9) 25
------- ---------
Provision for loan losses charged to operating expenses 280 132
------- ---------
Allowance at end of period $ 1,183 $ 470
======= =========
Net charge-offs as a percentage of average
loans outstanding 0.02% 0.08%
======= =========
Allowance for loan losses as a percentage of period-end total loans 1.57% 1.28%
======= =========
Allowance for loan losses as a percentage of nonperforming loans 77.02% 432.42%
======= =========
Average loans outstanding, net $44,735 $ 32,531
======= =========
Period-end total loans $75,155 $ 36,732
======= =========
</TABLE>
BLF classifies its loan portfolio for internal purposes as mortgage loans,
installment loans and commercial loans. BFL prepares its quarterly computation
of allowance for losses in this manner. The following table presents
information regarding the BLF's total allowance for losses as well as the
allocation of such amounts to the various categories of loans (dollars in
thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1997 1996
------------------- --------------------
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage loan system $ 586 49.5% $ 224 48.2%
Installment loan system 327 27.6 86 12.5
Commercial loan system 270 22.9 160 39.3
------ ----- ----- -----
Total allowance for loan losses $1,183 100.0% $ 470 100.0%
====== ===== ===== =====
</TABLE>
36
<PAGE> 40
The allowance for loan losses represented 1.57% of the total loans
outstanding as of December 31, 1997, compared with 1.28% of the total loans
outstanding as of December 31, 1996, which reflects the increase in
nonperforming loans associated with the acquisition of CNB.
Investment Securities
BLF's investment securities portfolio at December 31, 1997 primarily
consisted of United States Government agency obligations. The following table
sets forth the amortized cost of the BLF's investment portfolio at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Investment securities:
Available-for-sale:
U.S. Government agency obligations $21,484 $15,237
Mortgage-backed securities 250 -
Obligations of states and municipalities 95 -
Other securities 138 92
------- -------
Total available-for-sale 21,967 15,329
Held-to-maturity:
Obligations of states and municipalities 801 801
------- -------
Total investment securities, at amortized cost $22,768 $16,130
======= =======
</TABLE>
37
<PAGE> 41
The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio as follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
-------------------- ------------------- ------------------- ------------------ -----------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
---------- ------- ------- ------- -------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997:
U.S. Government and
agency securities $ 9,027 5.68% $12,480 5.86% $ - 0.00% $ 218 5.82% $21,725 5.78%
Obligations of states
and municipalities 245 6.79% 450 6.02% 50 4.80% 151 6.95% 896 6.32%
Other securities - 0.00% - 0.00% - 00.0% 138 4.16% 138 4.16%
-------- ---- ------- ------ ------- -------
Total $ 9,272 5.71% $12,930 5.87% $ 50 4.80% $ 507 5.70% $22,759 5.79%
======== ======= ====== ======= =======
December 31, 1996:
U.S. Government and
agency securities $ 501 6.27% $14,622 5.89% $ - -% $ - -% $15,123 5.90%
Obligations of states
and municipalities - -% 600 6.06% 50 4.80% 151 6.95% 801 6.15%
Other securities - -% - -% - -% 92 3.89% 92 3.89%
-------- ------- ------ ------- -------
Total $ 501 6.27% $15,222 5.90% $ 50 4.80% $ 243 5.79% $16,016 5.90%
======== ======= ====== ======= =======
</TABLE>
38
<PAGE> 42
Deposit Activities
Deposits are the major source of BLF's funds for lending and other
investment purposes. Deposits are attracted principally from within BLF's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by
BLF on a periodic basis. The determination of rates and terms is predicated on
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest
on deposits offered by other insured depository institutions having the same
type of charter in such depository institutions' normal market area. Under
these regulations, "well capitalized" depository institutions may accept,
renew, or rollover deposits at such rates without restriction, "adequately
capitalized" depository institutions may accept, renew or rollover deposits at
such rates with a waiver from the FDIC (subject to certain restrictions on
payments of rates), and "undercapitalized" depository institutions may not
accept, renew or rollover deposits at such rates. The regulations contemplate
that the definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Supervision, Regulation and Governmental Policy -- Capital Requirements." As
of December 31, 1997, Big Lake National Bank and Clewiston National Bank each
met the definition of a "well capitalized" depository institution.
The following table shows the distribution of, and certain other
information relating to, BLF's deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1997 1996
-------------------------- ---------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposits $ 19,793 19.5% $ 10,083 18.6%
NOW deposits 13,807 13.6 6,860 12.6
Money market deposits 6,891 6.8 4,297 7.9
Savings deposits 11,301 11.2 6,492 12.0
--------- ---- -------- ----
Subtotal 51,792 51.1 27,732 51.1
--------- ---- -------- ----
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Certificates of deposit:
4.00% - 4.99% 14,983 14.8 11,868 21.9
5.00% - 5.99% 21,363 21.1 9,457 17.4
6.00% - 6.99% 12,640 12.5 4,834 8.9
7.00% - 7.99% 554 .5 354 .7
---------- ----- -------- -----
Total certificates of deposit (1) 49,540 48.9 26,513 48.9
---------- ---- -------- -----
Total deposits $ 101,332 100.0% $ 54,245 100.0%
========== ===== ======== =====
</TABLE>
__________________________
(1) Includes individual retirement accounts ("IRAs") totaling $3,650 and
$252 at December 31, 1997 and 1996, respectively, all of which are in
the form of certificates of deposit.
The following tables show the average amount outstanding and the average
rate paid on each of the following deposit account categories during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996
-------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ---------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand, money market
and NOW $ 30,144 0.99% $ 19,755 1.20%
Savings deposits 6,066 2.67% 5,781 3.11%
Certificates of deposit 28,556 6.10% 24,646 5.30%
-------- --------
Total deposits $ 64,766 3.40% $ 50,182 3.43%
======== ========
</TABLE>
BLF does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect on BLF. Management believes
that substantially all of BLF's depositors are residents in its primary market
areas. BLF currently does not accept brokered deposits. As shown in the
tables below, a significant amount of BLF's certificates of deposit will mature
during the year ending December 31, 1998. The high volume of maturities during
this period is primarily due to customer demand for certificates of deposit
having original maturities of 12 months or less. Based upon current and
anticipated levels of interest rates and past practice, BLF management
anticipates that substantially all of BLF's certificates of deposit maturing
during this time period will be renewed or replaced by certificates of deposit
issued to other customers at competitive market rates, which may be higher or
lower than the rates currently being paid. Consequently, BLF management does
not believe that the maturity of BLF's certificates of deposit during the year
ending December 31, 1998, will have a material adverse effect on BLF's
liquidity. However, if BLF is required to pay substantially higher rates to
obtain the renewal of these or
40
<PAGE> 44
other certificates of deposit or alternative sources of funds, the higher net
interest expense could have a material adverse effect on BLF's net income.
The following tables present by various interest rate categories the
amounts of certificates of deposit at December 31, 1997 and 1996 which mature
during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------
1998 1999 2000 2001 2002 TOTAL
---- ---- ---- ---- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997:
4.00% - 4.99% $14,734 $ 160 $ 1 $ 86 $ 2 $14,983
5.00% - 5.99% 14,415 4,291 631 715 1,311 21,363
6.00% - 6.99% 9,710 484 1,076 456 914 12,640
7.00% - 7.99% 198 161 195 - - 554
------- ------ ------ ------- ------ -------
Total certificates of deposit $39,057 $5,096 $1,903 $1,257 $2,227 $49,540
======= ====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------
1997 1998 1999 2000 2001 TOTAL
---- ---- ---- ---- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
4.00% - 4.99% $11,626 $ 193 $ 49 $ - $ - $11,868
5.00% - 5.99% 7,272 1,207 445 62 471 9,457
6.00% - 6.99% 4,175 272 111 59 217 4,834
7.00% - 7.99% 44 - 206 104 - 354
-------- ------ ---- ---- ----- -------
Total certificates of deposit $23,117 $1,672 $811 $225 $ 688 $26,513
======= ====== ==== ==== ===== =======
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Due in three months or less $2,639 $1,835
Due from three months to one year 2,840 1,767
Due from twelve months to three years 515 300
Due over three years 258 -
------ ------
$6,252 $3,902
====== ======
</TABLE>
41
<PAGE> 45
The following table sets forth the net deposit flows of BLF during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Net increase (decrease) before interest credited $ 2,471 $ 1,673
Net interest credited 1,965 1,779
------- -------
Net deposit increase (decrease) $ 4,436 $ 3,452
======= =======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning BLF
presented in this Proxy Statement have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of BLF is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
FUTURE ACCOUNTING REQUIREMENTS
SFAS No. 125 and its amendment SFAS No. 127 apply to certain transfers and
servicing of financial assets and extinguishments of liabilities effective
January 1, 1997 (except as deferred by SFAS No. 127). BLF has not transferred
and serviced significant financial assets nor does it anticipate that these
Statements will have any material impact on the financial statements of BLF.
SFAS Nos. 128 and 129 addressing earnings per share and disclosure of
information about the capital structure, respectively, are effective for BLF's
financial statements issued after December 15, 1997. SFAS No. 128 establishes
standards for the computation and presentation of earnings per share ("EPS").
This statement is not expected to have a material impact on the financial
statements of BLF. SFAS No. 129 requires only additional disclosure and will
not have any material impact on the financial statements of BLF. Two other
accounting pronouncements, SFAS Nos. 130 and 131, which address reporting of
comprehensive income and business segments, respectively, also become effective
for financial statements issued after December 15, 1997. Likewise, these
statements are not expected to have any material impact on BLF's financial
position, results of operations, or disclosures presented herein.
42
<PAGE> 46
ITEM 7. FINANCIAL STATEMENTS
The financial statements of BLF as of and for the years ended December 31,
1997 and 1996 are set forth in this Form 10-KSB as Exhibit 13.1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
43
<PAGE> 47
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
BLF does not have any securities registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934 and, accordingly, is not subject
to Section 16(a) of the Act.
Board of Directors. The Board of Directors of BLF currently consists of
seven directors, divided into three classes. Each director is elected to serve
for a three-year term or until his or her successor is elected. Each director
of BLF currently also serves as a director of Big Lake National Bank. The
following table sets forth certain information with respect to the directors of
BLF:
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER PRINCIPAL OCCUPATION
OF BLF OR BIG LAKE DIRECTOR AND BUSINESS
NATIONAL BANK TERM EXPERIENCE DURING
NAME AND AGE SINCE EXPIRES PAST FIVE YEARS
-------------------------- --------------------- ------- -----------------------------------
<S> <C> <C> <C>
John W. Abney, Sr., 47 1986 1999 Building Contractor
John B. Boy, Jr., 44 1997 1998 CPA
Mary Beth Cooper, 49 1986 1999 Homemaker
H. G. Culbreth, Jr., 52 1986 1998 Auto Franchise Dealer
Curtis S. Fry, 59 1997 2000 Business Owner
Henry C. Kelly, 80 1986 2000 Retired
Joe G. Mullins, 58 1988 1998 President, Big Lake National Bank
Thomas A. Smith, 61 1997 2000 Agricultural/Citrus Owner
Bobby H. Tucker, 48 1993 1998 Real Estate Broker
Edwin E. Walpole, III, 62 1986 1999 Business Owner
</TABLE>
Executive Officers. BLF has four officers: Edwin E. Walpole, III
(Chairman, President and Chief Executive Officer), Joe G. Mullins (Executive
Vice President and Chief Administrative Officer), Mary Beth Cooper (Secretary),
and Anita DeWitt (Treasurer), of which only Messrs. Walpole and Mullins are
executive officers. The officers of BLF and Big Lake National Bank serve at
the pleasure of the Board of Directors of BLF and Big Lake National Bank,
respectively. The following sets forth information regarding the executive
officers of Big Lake National Bank.
44
<PAGE> 48
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND BUSINESS
EXPERIENCE DURING
NAME AND AGE PAST FIVE YEARS
- ------------ -------------------------------------------------------------------------------
<S> <C>
Joe G. Mullins, 58 President, Big Lake National Bank
Anita DeWitt, 36 Vice President/Operations Officer, Big Lake National Bank
Rick Justice, 36 Senior Lending Officer/Vice President of the Bank (September 1995 to present);
Vice President/Commercial Lender of SouthTrust Bank (February 1995 to
September 1995); Commercial Lender of Pikeville National Bank (July 1994 to
February 1995); Vice President/Loan Officer of Citizens Bank of Frostproof
(July 1993 to July 1994); and Assistant Vice President/Business Banker (June
1987 to July 1993) of Barnett Bank/First Florida Bank.
Brenda Mathews, 44 Vice President/Marketing Director of the Bank (January 1996 to present); Vice
President/Correspondent Relations of Independent Bankers' Bank of Florida
(December 1994 to January 1996); President and Chief Operating Officer of
Governors Bank (December 1991 to December 1994).
</TABLE>
ITEM 10. EXECUTIVE COMPENSATION
The table below sets forth certain information with respect to
compensation paid by Big Lake National Bank to Mr. Mullins (the Executive Vice
President and Chief Administrative Officer of BLF and the President and Chief
Executive Officer of Big Lake National Bank) during the years presented. No
executive officer of Big Lake National Bank received a total salary and bonus
in excess of $100,000 in 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION (1)
- ------------------ ---- --------- ------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Joe G. Mullins 1997 $105,000 $ - $ - $ 3,381
Executive Vice Presiden
and Chief Administrative 1996 $ 96,000 $ - $ - $ 1,419
Officer of BLF and the
President and Chief 1995 $ 91,500 $ 3,897 $ - $ 2,689
Executive Officer of Big
Lake National Bank
</TABLE>
- ------------------
(1) Represents amounts contributed by Big Lake National Bank to Mr. Mullins'
account pursuant to the Big Lake National Bank Profit Sharing Plan.
45
<PAGE> 49
Directors of BLF are not paid any fees for meetings of BLF. Directors of
Big Lake National Bank and Clewiston National Bank are paid monthly fees of
$350, with the Chairman of Big Lake National Bank receiving $450. Directors of
Big Lake National Bank are also paid $75 for each committee meeting.
Stock Option Plan. BLF has a stock option plan. The plan authorizes the
issuance of options for approximately 18,213 shares to certain BLF directors.
As of December 31, 1997, options exercisable for an aggregate of approximately
18,213 shares of BLF Common Stock were outstanding and held by certain Big Lake
National Bank directors at an exercise price of $10.00 per share. The options
terminate June 30, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FY-END (#) AT FY-END($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Joe G. Mullins --- --- 3,035/-0- $33,385/$-0-
</TABLE>
Profit Sharing Plan. Big Lake National Bank has adopted a 401(k) Profit
Sharing Plan. Employees are eligible to participate after meeting certain
length of service requirements. Each year, participants may elect to defer up
to 15% of compensation instead of receiving that amount in cash. Big Lake
National Bank may contribute a percentage amount provided that only salary
reductions up to 6% of compensation will be considered. Big Lake National Bank
also may contribute a discretionary amount. Amounts deferred by participants
are fully vested. Contributions by Big Lake National Bank vest based upon
percentage amounts of 20% to 100% over three to seven years of service.
Clewiston National Bank sponsors a defined contribution pension plan that
covers substantially all employees. Clewiston National Bank funds the annual
expense through contributions to the plan. A favorable determination letter
has been received from the Internal Revenue Service that the plan is qualified.
46
<PAGE> 50
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Directors and Executive Officers
The following table sets forth the beneficial ownership of outstanding
shares of BLF Common Stock as of December 31, 1997 by BLF's current directors,
and by current directors and executive officers as a group:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- -------------------- --------
<S> <C> <C>
John W. Abney, Sr. 9,983 (2) 2.02%
John B. Boy, Jr. 2,963 (9) .06%
Mary Beth Cooper 4,345 .09%
H. Gilbert Culbreth, Jr. 14,454 (3) 2.93%
Curtis S. Fry 50,023 (7) 10.14%
111 North San Benito Street
Clewiston, FL 33440
Henry C. Kelly 50,365 (4) 10.21%
P.O. Box 176
Okeechobee, FL 34973-0176
Joe G. Mullins 12,397 2.51%
Thomas A. Smith 13,579 (8) 2.75%
Bobby H. Tucker 920 (5) .02%
Edwin E. Walpole III 62,154 (6) 12.60%
P.O. Box 1177
Okeechobee, FL 34973-1177
All directors and executive
officers as a group (12 persons) 221,953 44.98%
</TABLE>
- --------------------
(1) Information related to beneficial ownership is based upon information
available to BLF and also includes as to each director the number of
shares listed below, which represents shares the individual has the
right to acquire pursuant to presently exercisable options:
47
<PAGE> 51
<TABLE>
<CAPTION>
Name of Individual Number of Shares
------------------ ----------------
<S> <C>
John W. Abney, Sr. 3,035.49
Mary Beth Cooper 3,035.49
H. Gilbert Culbreth, Jr. 3,035.49
Henry C. Kelly 3,035.49
Joe G. Mullins 3,035.49
Edwin E. Walpole, III 3,035.49
---------
18,212.94
=========
</TABLE>
(2) Includes 618 shares held in trust for his children, 563 shares held by a
company owned by him and 5,767 shares held as trustee
(3) Includes 110 shares held jointly with his son, 5,655 shares held by a
company owned by him, and 6,010 shares held jointly with his spouse
(4) Includes 13,451 shares held in trust
(5) Shares held jointly with spouse
(6) Includes 1,129 shares held by a company owned by him, 28,265 shares held
by his individual retirement account, and 1,102 shares held jointly with
his daughter
(7) Includes 1,200 shares held jointly with his daughter, 1,200 shares held
jointly with his daughter, 17,155 held by a company owned by him, and 355
shares held jointly with his spouse
(8) Includes 13,232 shares held jointly with his spouse, and 347 shares held
jointly with his son
(9) Includes 2,626 shares held jointly with his spouse
Other Principal Shareholders
In addition to Messrs. Walpole and Kelly, the following are the only
individuals beneficially owning more than 5% of BLF Common Stock on December
31, 1997:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT - NATURE OF
OF OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
--------------------- -------------------- ------------------
<S> <C> <C>
Robert L. Mace 39,028 7.909%
c/o Fijian RV Park
6500 Hwy 441 S.
Okeechobee, FL 34974
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BLF has had, and expects to have in the future, banking transactions
in the ordinary course of business with certain of its directors and executive
officers and their associates. As of December 31, 1997, the directors and
executive officers of BLF and their associates, as a group, were indebted to
BLF in the aggregate amount of approximately $2,372,000. All loans included in
such transactions were made in the ordinary course of business, on
substantially the same terms (including interest rate and collateral) as those
prevailing at the time for comparable transactions
48
<PAGE> 52
with other persons, and in the opinion of management of BLF did not involve more
than the normal risk of collectibility or present other unfavorable features.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the three years ended December 31, 1997
Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1997
Consolidated Statements of Cash Flows for the three years ended December 31, 1997
Notes to Consolidated Financial Statements
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. EXHIBITS
<TABLE>
<S> <C>
3.1 - Restated Articles of Incorporation of Big Lake Financial Corporation (Incorporated by reference
to Exhibit 3.1 to BLF's Registration Statement No. 333-30779 (the "Registration Statement"))
3.2 - Bylaws of Big Lake Financial Corporation (Incorporated by reference to Exhibit 3.2 to the
Registration Statement)
4.1 - Specimen Stock Certificate of Big Lake Financial Corporation (Incorporated by reference to Exhibit
4.1 to the Registration Statement)
10.1 - Big Lake Financial Corporation 1987 Stock Option Plan and amendment thereto (Incorporated by
reference to Exhibit 10.1 to the Registration Statement)*
10.2 - Lease dated December 11, 1989 between AAA Warehouse, Inc. and Clewiston National Bank and
Amendment thereto dated November 28, 1995 (Incorporated by reference to Exhibit 10.2 to the
Registration Statement)
</TABLE>
49
<PAGE> 53
<TABLE>
<S> <C>
10.3 - Lease dated April 1, 1981 between Earl R. Gamer and Clewiston National Bank and Modification
and Lease Extension Agreement thereto dated April 1, 1996 (Incorporated by reference to
Exhibit 10.3 to the Registration Statement)
23.1 - Consent of Stevens, Thomas, Schemer & Sparks, P.A.
21 - List of Subsidiaries of Big Lake Financial Corporation
27 - Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by BLF during the last
fiscal quarter covered by this report.
- ------------
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
50
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be duly signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Okeechobee, State of Florida, on the 17th day of March, 1998.
BIG LAKE FINANCIAL CORPORATION
/s/ Edwin E. Walpole, III
--------------------------------
Edwin E. Walpole, III
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of 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 March 17, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Edwin E. Walpole, III Chairman of the Board,
- --------------------------------------- President and Chief Executive
Edwin E. Walpole, III Officer and Director
/s/ Anita DeWitt Treasurer (Principal Financial Officer
- ---------------------------------------- and Principal Accounting Officer)
Anita DeWitt
/s/ Joe G. Mullins Executive Vice President
- --------------------------------------- and Chief Administrative
Joe G. Mullins Officer and Director
/s/ John W. Abney, Sr. Director
- ----------------------------------------
John W. Abney, Sr.
/s/ Mary Beth Cooper Director
- ----------------------------------------
Mary Beth Cooper
/s/ H. Gilbert Culbreth, Jr. Director
- ----------------------------------------
H. Gilbert Culbreth, Jr.
/s/ Henry C. Kelly Director
- ----------------------------------------
Henry C. Kelly
/s/ Bobby H. Tucker Director
- ----------------------------------------
Bobby H. Tucker
</TABLE>
51
<PAGE> 55
Big Lake Financial Corporation
Form 10-KSB
For Fiscal Year Ending December 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
- ------- ------------------------------------------------------ -----
<S> <C> <C>
13.1 Big Lake Financial Corporation 1997 Annual
Report
21.1 Subsidiaries of the Registrant
23.1 Consent of Stevens, Thomas, Schemer & Sparks, P.A.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 13.1
BIG LAKE FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 and 1996 .......... 2
Consolidated Statements of Operations
for the Three Years Ended December 31, 1997 ...................... 3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years Ended December 31, 1997 ...................... 4
Consolidated Statements of Cash Flows
for the Three Years Ended December 31, 1997 ...................... 5
Notes to Consolidated Financial Statements ............................ 6-25
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Big Lake Financial Corporation and Subsidiaries
Okeechobee, Florida
We have audited the consolidated balance sheets of Big Lake Financial
Corporation and Subsidiaries (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Big Lake Financial
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
STEVENS, THOMAS, SCHEMER & SPARKS, P.A.
January 29, 1998
<PAGE> 4
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
--------- --------
(Dollars In Thousands, Except Per Share Data)
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 6,492 $ 3,410
Federal funds sold 3,296 992
--------- --------
9,788 4,402
Securities available-for-sale 21,958 15,214
Securities to be held-to-maturity (estimated fair value
of $823 for 1997 and 1996) 801 801
Loans 73,972 36,262
Facilities 2,626 1,450
Accrued interest receivable 813 440
Deferred income taxes 424 3
Other assets 1,410 946
--------- --------
Total assets $ 111,792 $ 59,518
========= ========
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 19,793 $ 10,083
Demand deposits 13,807 6,860
Money market accounts 6,891 4,297
Savings accounts 11,301 6,492
Time, $100,000 and over 6,252 3,902
Other time deposits 43,288 22,611
--------- --------
Total deposits 101,332 54,245
Accounts payable and accrued liabilities 1,037 419
--------- --------
Total liabilities 102,369 54,664
--------- --------
Commitments and contingencies -- -
--------- --------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 1,000,000 shares,
issued 475,223 shares in 1997 and 313,435 shares in 1996 5 3
Additional paid-in capital 6,855 3,070
Retained earnings 2,569 1,911
Treasury stock (4,724 shares, at cost) -- (59)
Net unrealized holding losses on securities (6) (71)
--------- --------
Total stockholders' equity 9,423 4,854
--------- --------
Total liabilities and stockholders' equity $ 111,792 $ 59,518
========= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE> 5
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,332 $ 3,087 $ 2,521
Interest and dividend income from investment securities 981 1,042 464
Income on Federal funds sold 177 100 210
Interest on deposits with other banks 1 -- --
-------- -------- --------
Total interest income 5,491 4,229 3,195
-------- -------- --------
INTEREST EXPENSE
Interest on deposits 2,203 1,721 1,210
Other 1 15 --
-------- -------- --------
Total interest expense 2,204 1,736 1,210
-------- -------- --------
Net interest income 3,287 2,493 1,985
-------- -------- --------
PROVISION FOR LOAN LOSSES 280 132 70
-------- -------- --------
Net interest income after provision for loan losses 3,007 2,361 1,915
-------- -------- --------
OTHER INCOME
Service charges on deposit accounts 718 549 441
Other fees for customer service and other income 96 40 77
-------- -------- --------
Total other income 814 589 518
-------- -------- --------
OTHER EXPENSES
Salaries and employee benefits 1,375 1,063 789
Occupancy expense 166 136 107
Furniture and equipment expense 201 142 161
Miscellaneous expenses 1,105 771 517
-------- -------- --------
Total other expenses 2,847 2,112 1,574
-------- -------- --------
INCOME BEFORE INCOME TAXES 974 838 859
INCOME TAXES 316 287 308
-------- -------- --------
NET INCOME $ 658 $ 551 $ 551
======== ======== ========
AVERAGE SHARES OUTSTANDING 336,463 308,711 308,711
======== ======== ========
PER SHARE INFORMATION
Income per share $ 1.96 $ 1.79 $ 1.78
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE> 6
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized Holding
Common Stock Additional Gains Total
------------------- Paid-in Retained Treasury (Losses) on Stockholders'
Shares Amount Capital Earnings Stock Securities Equity
-------- ------ ---------- -------- -------- ----------- ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $298,808 $ 3 $ 2,925 $ 958 $ (59) $ (83) $ 3,744
Stock dividend declared 7,227 -- 71 (71) -- -- --
Cash paid in lieu of
fractional shares -- -- -- (2) -- -- (2)
Net income -- -- -- 551 -- -- 551
Net change in net unrealized
holding gains on securities -- -- -- -- -- 93 93
-------- ------ ---------- -------- -------- ----------- ------------
Balance, December 31, 1995 306,035 3 2,996 1,436 (59) 10 4,386
Stock dividend declared 7,400 -- 74 (74) -- -- --
Cash paid in lieu of
fractional shares -- -- -- (2) -- -- (2)
Net income -- -- -- 551 -- -- 551
Net change in net unrealized
holding losses on securities -- -- -- -- -- (81) (81)
-------- ------ ---------- -------- -------- ----------- ------------
Balance, December 31, 1996 313,435 3 3,070 1,911 (59) (71) 4,854
Stock issued to acquire
CNB Financial Corporation 166,512 2 3,785 -- -- 2 3,789
Treasury stock cancelled (4,724) -- -- -- 59 -- 59
Net income -- -- -- 658 -- -- 658
Net change in net unrealized
holding gains on securities -- -- -- -- -- 63 63
-------- ------ ---------- -------- -------- ----------- ------------
Balance, December 31, 1997 475,223 $ 5 $ 6,855 $ 2,569 $ -- $ (6) $ 9,423
======= ====== ========== ======== ======== =========== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE> 7
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- -------- --------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 658 $ 551 $ 551
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 280 132 70
Depreciation and amortization 225 190 117
Deferred income tax (30) (2) (27)
Gain (loss) on sale of other real estate -- 8 (18)
Net premium amortization and discount accretion (13) -- 14
(Increase) decrease in assets:
Accrued interest receivable (51) (111) (89)
Other assets (3) (90) (8)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 268 (237) 484
-------- -------- --------
Net cash provided by operating activities 1,334 441 1,094
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchases (3,729) (12,235) (8,256)
Proceeds from maturities 3,249 8,012 2,975
Proceeds from sale of other real estate 34 143 130
Increase in loans (6,756) (7,732) (4,152)
Purchases of facilities (544) (142) (361)
Increase in other real estate -- (55) (200)
Premium paid on acquisition of Lake Placid Branch -- -- (784)
-------- -------- --------
Net cash used in investing activities (7,746) (12,009) (10,648)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits:
Non-interest bearing 3,059 2,740 3,828
Interest bearing 1,377 712 13,666
Cash paid in lieu of fractional shares -- (2) (2)
-------- -------- --------
Net cash provided by financing activities 4,436 3,450 17,492
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,976) (8,118) 7,938
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 11,764 12,520 4,582
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,788 $ 4,402 $ 12,520
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash received during the year for interest and dividends $ 5,426 $ 4,118 $ 3,120
======== ======== ========
Cash paid during the year for interest $ 1,986 $ 1,792 $ 911
======== ======== ========
Cash paid during the year for income taxes $ 234 $ 528 $ 169
======== ======== ========
Net unrealized holding gains (losses) on securities $ 109 $ (130) $ 148
======== ======== ========
Cash and cash equivalents acquired in the acquisition
of CNB Financial Corporation's common stock $ 5,386 $ -- $ --
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-5-
<PAGE> 8
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
General:
The consolidated financial statements include the accounts and transactions of
Big Lake Financial Corporation (the "Company") and its wholly-owned
subsidiaries, Big Lake National Bank and Clewiston National Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Big Lake National Bank ("BLNB"), which opened in July, 1986, is a national
banking association with its main office at 1409 South Parrott Avenue,
Okeechobee, Florida. In addition, BLNB has one branch located in Okeechobee,
Florida, which opened in November, 1992. On December 15, 1995, BLNB purchased
certain assets and assumed deposit liabilities and related accrued interest of
the Lake Placid Branch of First America Bank - Florida, FSB. At December 31,
1997, BLNB's primary trade area encompassed Okeechobee and Highlands Counties.
The majority of BLNB's loans are currently to customers located in Okeechobee
County.
Clewiston National Bank ("CNB") is a national banking association with its main
office at 300 S. Berner Road, Clewiston, Florida. In addition, CNB has one
branch each located in Clewiston, LaBelle, and Moore Haven, Florida. At December
31, 1997, CNB's primary trade area encompassed Hendry and Glades Counties. The
majority of CNB's loans are currently to customers located in these counties.
BLNB and CNB (collectively referred to as the "Banks") and the Company are
subject to regulations issued by certain regulatory agencies and undergo
periodic examinations by those agencies.
Basis of Financial Statement Presentation:
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practices within the banking
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, the fair value of
financial instruments, and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans ("Other Real Estate Owned"). In
connection with the determination of the allowances for credit losses on loans
and foreclosed real estate, management obtains independent appraisals for
significant properties.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, including
independent appraisals for significant properties, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowance based on their judgments about information
available to them at the time of their examination.
- 6 -
<PAGE> 9
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Investments:
Statement of Financial Accounting Standards No. 115 ("FAS No. 115"), Accounting
for Certain Investments in Debt and Equity Securities, sets the standard for
classification of and accounting for investments in equity securities that have
readily determinable fair values, and all investments in debt securities which
are to be classified as held-to-maturity securities, available-for-sale
securities, or trading securities.
Debt securities that an enterprise has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity.
The Banks classify their investments at the purchase date in accordance with the
above-described guidelines. Premiums or discounts on securities at the date of
purchase are being amortized or accreted, respectively, over the estimated life
of the security using a method which approximates the level yield method. Gains
and losses realized on the disposition of securities are based on the specific
identification method and are reflected in other income.
Loans:
Loans receivable 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.
Interest income on loans is accounted for on the accrual basis. Generally, the
Company's policy is to discontinue the accrual of interest on loans delinquent
over ninety days unless fully secured and in the process of collection. The
accrued and unpaid interest is reversed from current income and thereafter
interest is recognized only to the extent payments are received. A non-accrual
loan may be restored to accrual basis when interest and principal payments are
current and prospects for future recovery are no longer in doubt.
In 1995, the Company adopted Statement of Financial Accounting Standards No. 114
("FAS No. 114"), Accounting by Creditors for Impairment of a Loan, which sets
the standard for recognition of loan impairment and the measurement methods for
certain impaired loans and loans whose terms are modified in troubled debt
restructurings.
- 7 -
<PAGE> 10
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Under FAS No. 114, a loan is impaired when it is probable that a creditor will
be unable to collect the full amount of principal and interest due according to
the contractual terms of the loan agreement. When a loan is impaired, a creditor
has a choice of ways to measure the impairment. The measurement of impairment
may be based on (1) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (2) the
observable market price of the impaired loan, or (3) the fair value of the
collateral of a collateral-dependent loan. Creditors may select the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for which
foreclosure is probable must be measured at the fair value of the collateral. A
creditor in a troubled debt restructuring involving a restructured loan should
measure impairment by discounting the total expected future cash flows at the
loan's original effective rate of interest. If the value of the loan is less
than the recorded investment in the loan, a loss should be recognized by
recording a valuation allowance and a corresponding increase to the provision
for credit losses charged to operating expenses.
Allowance for Loan Losses:
The provision for loan losses charged to operating expenses is based upon
management's judgment of the adequacy of the allowance giving consideration to
its loan loss experience and an evaluation of the current loan portfolio.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Facilities:
Facilities are stated at cost, less accumulated depreciation and amortization.
Charges to income for depreciation and amortization are computed on the
straight-line method over the assets' estimated useful lives.
When properties are sold or otherwise disposed of, the gain or loss resulting
from the disposition is credited or charged to income. Expenditures for
maintenance and repairs are charged against income and renewals and betterments
are capitalized.
Other Real Estate Owned:
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in loss on foreclosed real
estate.
- 8 -
<PAGE> 11
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING 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.
Off-Balance Sheet Instruments:
In the ordinary course of business, the Banks have entered into off-balance
sheet financial instruments consisting of commitments to extend credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
Employee Benefits:
Profit-sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
Income Taxes:
Provisions for income taxes are based on amounts reported in the statements of
operations, after exclusion of non-taxable income such as interest on state and
municipal securities, and include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial statement purposes. The
principal temporary differences are depreciation and amortization, loan loss
provision, the use of cash basis accounting for income tax purposes, and
unrealized holding gains (losses) on securities. Deferred taxes are computed on
the liability method as prescribed in FAS No. 109, Accounting for Income Taxes.
Earnings Per Share:
Earnings per share of common stock is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the period.
For purposes of computing earnings per share, the shares of common stock issued
for stock dividends have been treated as outstanding from January 1, 1995. The
weighted-average number of shares outstanding for both 1996 and 1995 used in the
computation was 308,711, net of treasury stock of 4,724 shares. For 1997, the
weighted-average number of shares totaling 336,463 reflect the 166,512 shares of
common stock issued October 31, 1997, for the acquisition of 100% of the
outstanding common stock of CNB Financial Corporation. The dilutive effect of
the exercisable stock options discussed at Note 15 has not been considered in
the computation of earnings per share. Management considers the potential
dilution to be immaterial.
Statement of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts on deposit in non-interest bearing accounts with other commercial
banks, and Federal funds sold.
Reclassification of Accounts:
Certain items in the financial statements for 1996 and 1995 have been
reclassified to conform to the classifications used for the current year.
- 9 -
<PAGE> 12
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government agencies $ 21,484 $ 11 $ 21 $ 21,474
Mortgage-backed securities 250 1 -- 251
State and municipal 95 -- -- 95
Other 138 -- -- 138
---------- ---------- ---------- ----------
$ 21,967 $ 12 $ 21 $ 21,958
========== ========== ========== ==========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Securities to be held-to-maturity:
State and municipal $ 801 $ 22 $ -- $ 823
=========== ========= ========= ==========
</TABLE>
The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government agencies $ 15,237 $ 5 $ 120 $ 15,122
Other securities 92 -- -- 92
--------- --------- -------- ---------
$ 15,329 $ 5 $ 120 $ 15,214
========= ========= ======== =========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Securities to be held-to-maturity:
State and municipal $ 801 $ 25 $ 3 $ 823
========= ========= ========= ==========
</TABLE>
- 10 -
<PAGE> 13
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2- INVESTMENT SECURITIES (CONTINUED)
The fair value of securities fluctuates during the investment period. No
provision for loss has been made in connection with the decline of fair value
below book value, because the securities are purchased for investment purposes
and the decline is not deemed to be other than temporary. Temporary declines in
fair value of securities available-for-sale at December 31, 1997, of $6,000 (net
of deferred income taxes of $4,000) are regarded as an adjustment to
stockholders' equity. The estimated fair value of securities is determined on
the basis of market quotations. At December 31, 1997, securities with carrying
value of approximately $5,773,000, and market values of approximately
$5,787,000, were pledged to secure deposits and for other operating purposes.
At December 31, 1997, the carrying value of collateralized mortgage obligations
included in securities available-for-sale was approximately $251,000.
There were no gross realized gains or losses in 1997, 1996, or 1995.
The cost and estimated fair value of debt and equity securities at December 31,
1997, by contractual maturities, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES SECURITIES TO BE
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 9,116 $ 9,122 $ 150 $ 152
Due from one to five years 12,495 12,480 450 454
Due from five to ten years -- -- 50 52
Due after ten years 218 218 151 165
Other 138 138 -- --
---------- ---------- ---------- ----------
$ 21,967 $ 21,958 $ 801 $ 823
========== ========== ========== ==========
</TABLE>
- 11 -
<PAGE> 14
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - LOANS
The loan portfolio is classified as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Commercial and agricultural $ 6,671 $ 2,187
Real estate 58,455 29,149
Installment and other loans 10,546 5,457
-------- --------
Total loans 75,672 36,793
Less, unearned income and deferred fees and credits (517) (61)
Less, allowance for loan losses (1,183) (470)
-------- --------
$ 73,972 $ 36,262
======== ========
</TABLE>
The following is a summary of the transactions in the allowance for loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 470 $ 363 $ 323
Allowance for loan losses acquired from CNB 424 -- --
Provisions charged to operating expenses 280 132 70
Loans charged-off (54) (47) (36)
Recoveries 63 22 6
------- ------- -------
Balance, end of year $ 1,183 $ 470 $ 363
======= ======= =======
</TABLE>
Loans on which interest was not being accrued (nonaccrual loans) are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Big Lake National Bank $ 366 $ 111
Clewiston National Bank 1,163 --
------ ------
$1,529 $ 111
====== ======
</TABLE>
Impairment of loans having recorded investments of $1,163,000 in 1997, and $-0-
in 1996, has been recognized in conformity with FAS No. 114. The average
recorded investment in such impaired loans during 1997 and 1996 was $220,000 and
$-0-, respectively. The total allowance for loan losses related to these loans
was $192,000 and $-0- in 1997 and 1996, respectively, and the amount of recorded
investment for which there is no related allowance for loan losses totaled
$938,000 and $-0-, respectively.
- 12 -
<PAGE> 15
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - LOANS (CONTINUED)
The impaired loans for 1997 were also classified as nonaccrual loans. The
interest income earned but not recorded by the Banks pursuant to their
nonaccrual policies totaled $34,000 in 1997. Interest income received on
impaired and nonaccrual loans during 1997 and included in income on a cash basis
totaled $6,000. Interest income on impaired loans resulting from the passage of
time was not considered material and no such amount was recognized in 1997.
There were no impaired loans in 1996 or 1995, and the reduction in income
associated with nonaccrual loans was not material in 1996 or 1995.
Loans having carrying values of $77,000 and $-0- were transferred to foreclosed
real estate in 1997 and 1996, respectively.
NOTE 4 - FACILITIES
Facilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Land $ 688 $ 438
Buildings 2,030 1,014
Furniture, fixtures, and equipment 1,949 863
Other fixed assets 171 16
---------- ----------
Total 4,838 2,331
Less accumulated depreciation (2,212) (881)
---------- ----------
Premises and equipment - net $ 2,626 $ 1,450
========== ==========
</TABLE>
Depreciation expense amounted to $140,000, $106,000, and $117,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
The Company did not have any material noncancellable leases at December 31, 1997
or 1996.
- 13 -
<PAGE> 16
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 5 - OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Other real estate owned $ 261 $ --
Capital lease receivable 153 --
Prepaid expenses 304 182
Income tax receivable 43 60
Core deposit premium (net of accumulated
amortization of $119) 294 354
Goodwill (net of accumulated amortization of $50) 322 347
Miscellaneous 33 3
------ ------
$1,410 $ 946
====== ======
</TABLE>
The amortization for core deposit premium and goodwill began in 1996 and totaled
$85,000 in 1997 and $84,000 in 1996.
NOTE 6 - TIME DEPOSITS
Included in interest bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their remaining maturities
at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Three months or less $2,639 $1,835
Over three through twelve months 2,840 1,767
Over twelve months through three years 515 300
Over three years 258 --
------ ------
$6,252 $3,902
====== ======
</TABLE>
- 14 -
<PAGE> 17
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Accrued interest payable $ 755 $ 305
Accounts payable and other accrued expenses 250 106
Income taxes payable 18 --
Miscellaneous 14 8
------ ------
$1,037 $ 419
====== ======
</TABLE>
NOTE 8- INCOME TAXES
The provision (credit) for income taxes on income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 391 $ 234 $ 284
State 67 40 49
----- ----- -----
458 274 333
----- ----- -----
Deferred:
Federal (122) 11 (21)
State (20) 2 (4)
----- ----- -----
(142) 13 (25)
----- ----- -----
Total income tax provision (credit) $ 316 $ 287 $ 308
===== ===== =====
</TABLE>
A reconciliation of the income tax computed at the Federal statutory rate of 34%
and the income tax provision shown on the statements of operations, follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
(In Percent)
<S> <C> <C> <C>
Tax computed at statutory rate 34.0 34.0 34.0
Increase (decrease) resulting from:
Effect of tax-exempt income (2.0) (2.0) (1.3)
State tax - net of federal benefit 2.4 3.5 3.5
Other (net) (2.0) (1.3) (.3)
---- ---- ----
Income tax provision 32.4 34.2 35.9
==== ==== ====
</TABLE>
- 15 -
<PAGE> 18
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 - INCOME TAXES (CONTINUED)
The components of the deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Deferred tax asset:
Federal $ 667 $ 87
State 113 15
----- -----
780 102
----- -----
Deferred tax liability:
Federal 304 (85)
State 52 (14)
----- -----
356 (99)
----- -----
Net deferred income tax asset $ 424 $ 3
===== =====
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Net unrealized gains (losses) on securities
available-for-sale $ 5 $ 43
Depreciation (115) (43)
Cash versus accrual for tax 9 (56)
Allowance for loan losses 379 48
Other 146 11
----- -----
Net deferred income tax asset $ 424 $ 3
===== =====
</TABLE>
The Company has adopted an income tax allocation agreement, which calls for
allocating income tax expense between members of the consolidated group as if
each member filed a separate income tax return. In 1996 and 1995, no allocation
of income tax expense was made to the parent company since the amounts were
immaterial. In 1997, the parent company recorded a current tax benefit of
$78,000.
At December 31, 1997, CNB had an alternative minimum tax credit carryover of
approximately $27,000 available to offset regular income tax in a year(s) when
regular tax exceeds the alternative minimum tax. The carryover period is
indefinite.
- 16 -
<PAGE> 19
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 9 - EMPLOYEE BENEFIT PLAN
BLNB sponsors a 401(k) Profit Sharing Plan that covers substantially all
employees. BLNB contributions under this plan are made at the discretion of the
Board of Directors. During 1997, 1996, and 1995, the employer contribution
approved by the Board of Directors amounted to 50% of a participant's
contributions, subject to a maximum of 3% of the participant's salary. The
401(k) Profit Sharing Plan is a prototype plan and has been approved by the
Internal Revenue Service.
CNB sponsors a defined contribution pension plan that covers substantially all
employees of CNB. CNB funds the annual expense through contributions to the
plan. A favorable determination letter has been received from the Internal
Revenue Service that the plan is qualified.
The amounts included in salaries and employee benefits as pension expense for
1997, 1996, and 1995 totaled $22,000, $7,000, and $7,000, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Banks have entered into transactions with its directors, executive officers,
significant stockholders, and their affiliates (Related Parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features.
The aggregate extensions of credit to such related parties at December 31, 1997
and 1996, were $2,372,000 and $2,683,000, respectively. During 1997, extensions
of credit to such parties amounted to $732,000 and repayments amounted to
$1,043,000. Unfunded commitments to the same parties totaled $539,000 at
December 31, 1997.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities that arise in the normal course of
business and involve elements of credit risk, interest rate risk, and liquidity
risk. These commitments and contingent liabilities of the Banks, which include
unfunded commitments to related parties, are commitments to extend credit and
commercial and standby letters of credit. A summary of the Banks' commitments
and contingent liabilities at December 31, 1997, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(Dollars In Thousands)
<S> <C> <C>
Commitments to extend credit
Secured by real estate $1,824 $1,574
Other 2,845 840
Commercial and standby letters of credit 103 74
------ ------
$4,772 $2,488
====== ======
</TABLE>
- 17 -
<PAGE> 20
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Commitments to extend credit and commercial letters of credit all include
exposure to some credit loss in the event of non-performance of the customer.
The Banks' credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit instruments that are
recorded in the consolidated financial statements. In the opinion of management,
these instruments do not generally present any significant liquidity risk to the
Banks. The Banks' experience has been that approximately 70% to 80% of loan
commitments are drawn upon by customers. The Banks did not incur any losses on
its commitments in either 1997, 1996, or 1995.
The Company is a party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position of the Company.
BLNB has entered into a purchase/resale agreement with Independent Bankers' Bank
of Florida that allows BLNB to sell certain types of securities, in lieu of
borrowing, on the condition that those securities be resold to BLNB at an agreed
upon future time and price. At December 31, 1997, no such securities had been
sold by BLNB under the purchase/resale agreement.
NOTE 12 - CONCENTRATIONS OF CREDIT
Substantially all of the Banks' loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Banks' market area.
Substantially all such customers are depositors of the Banks. The concentrations
of credit by type of loan are set forth in Note 3. The distribution of
commitments to extend credit approximates the distribution of loans outstanding.
Letters of credit were granted to commercial borrowers. The Banks, as a matter
of policy, do not extend credit to any single borrower or group of related
borrowers in excess of its legal lending limit.
NOTE 13 - REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval. At December 31, 1997,
approximately $1,809,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
The Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -and possibly additional discretionary- actions by
regulators that, if undertaken, could have a direct material effect on the
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involve quantitative measures of the Banks' assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
- 18 -
<PAGE> 21
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 13 - REGULATORY MATTERS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency ("OCC") categorized the Banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Banks' category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
AMOUNT RATIO > AMOUNT > RATIO > AMOUNT > RATIO
------ ----- - ------ - ----- - ------ - -----
<S> <C> <C> <C> <C> <C> <C>
Big Lake National Bank
As of December 31, 1997:
Total Risk-Based Capital
(To Risk-Weighted Assets) $4,860 12.81% >$3,035 >8.0% >$3,793 >10.0%
Tier I Capital - - - -
(To Risk-Weighted Assets) $4,384 11.56% >$1,517 >4.0% >$2,276 >6.0%
Tier I Capital - - - -
(To Adjusted Total Assets) $4,384 7.85% >$2,235 >4.0% >$2,794 >5.0%
- - - -
As of December 31, 1996:
Total Risk-Based Capital
(To Risk-Weighted Assets) $3,952 12.12% >$2,609 >8.0% >$3,262 >10.0%
Tier I Capital - - - -
(To Risk-Weighted Assets) $3,544 10.87% >$1,305 >4.0% >$1,957 >6.0%
Tier I Capital - - - -
(To Adjusted Total Assets) $3,544 7.37% >$1,442 >4.0% >$2,403 >5.0%
- - - -
Clewiston National Bank
As of December 31, 1997:
Total Risk-Based Capital
(To Risk-Weighted Assets) $4,519 15.57% >$2,321 >8.0% >$2,902 >10.0%
Tier I Capital - - - -
(To Risk-Weighted Assets) $4,154 14.32% >$1,161 >4.0% >$1,741 >6.0%
Tier I Capital - - - -
(To Adjusted Total Assets) $4,154 8.81% >$1,886 >4.0% >$2,358 >5.0%
- - - -
As of December 31, 1996:
Total Risk-Based Capital
(To Risk-Weighted Assets) $4,517 14.49% >$2,494 >8.0% >$3,117 >10.0%
Tier I Capital - - - -
(To Risk-Weighted Assets) $4,126 13.24% >$1,287 >4.0% >$1,870 >6.0%
Tier I Capital - - - -
(To Adjusted Total Assets) $4,126 8.85% >$1,865 >4.0% >$2,331 >5.0%
- - - -
</TABLE>
- 19 -
<PAGE> 22
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 14 - STOCK DIVIDEND
There was no stock dividend declared for 1997.
On February 21, 1996, 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 29, 1996, payable on or before March 21, 1996. Cash in lieu
of fractional shares was paid at the rate of $14.56 per share, which was the
estimated fair market value at that time. The total cash paid in lieu of
fractional shares amounted to $2,000.
On February 15, 1995, 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 16, 1995, payable on or before March 16, 1995. Cash in lieu
of fractional shares was paid at the rate of $12.73 per share, which was the
estimated fair market value at that time. The total cash paid in lieu of
fractional shares amounted to $2,000.
NOTE 15 - STOCK OPTION PLAN
The Company has adopted a Stock Option Plan (as amended) that permits certain
directors to purchase additional shares of the Company's common stock at a
purchase price of $10.00 per share. The number of shares permitted for purchase
by each participant originated at 2,750 shares, and has been adjusted for
subsequent stock dividends according to the terms of the plan. At December 31,
1997, the approximate number of shares under this plan totaled 3,035 shares per
participant. Options totaling approximately 18,213 shares are outstanding and
exercisable until the expiration date, which has been extended until June 30,
1998.
For the year ended December 31, 1996, Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("FAS No. 123"),
became effective. FAS No. 123 permits application of the accounting requirements
of an earlier issued APB Opinion No. 25 and, accordingly, no compensation cost
has been recognized in 1997, 1996, or 1995. However, the Company must comply
with certain additional disclosures under FAS No. 123. A summary of the
disclosures follows:
<TABLE>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding at December 31, 1994 17,335 $ 10.00
========
Increase due to stock dividend, 1995 431 $ 10.00
-------- ========
Outstanding at December 31, 1995 17,766 $ 10.00
========
Increase due to stock dividend, 1996 447 $ 10.00
-------- ========
Outstanding at December 31, 1996, and 1997 18,213 $ 10.00
======== ========
</TABLE>
All outstanding options were fully vested and exercisable at December 31, 1997,
1996, and 1995, with a weighted average remaining contractual life of six months
at December 31, 1997. Since no additional options have been granted or exercised
in 1997, 1996, or 1995, net income and earnings per share would not differ from
reported results had the Company adopted the accounting treatment under FAS No.
123.
- 20 -
<PAGE> 23
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 16 - PREFERRED STOCK
In addition to the 1,000,000 shares of authorized common stock, the Company's
articles of incorporation authorize up to 500,000 shares of non-voting preferred
stock at $1.00 par value. The Board of Directors are further authorized to
establish designations, powers, preferences, rights, and other terms for
preferred stock by resolution.
On March 26, 1986, the Board of Directors, designated 2,000 shares as Redeemable
Preferred Stock, Series 1 ("Series 1"). Series 1 shares have no voting or
conversion rights and pay no dividends. However, Series 1 shares have preference
on liquidation at the rate of $10 per share after January 1, 1987.
No shares of preferred stock, including Series 1 shares, have been issued.
NOTE 17 - TREASURY STOCK
Treasury stock is shown at cost, and as of December 31, 1996, consisted of 4,724
shares of common stock at a recorded cost of $12.50 per share. During 1997, the
treasury stock was canceled.
NOTE 18 - NON-INTEREST OPERATING EXPENSES
Other expenses for 1997, 1996, and 1995, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Advertising and public relations $ 64 $ 72 $ 57
Data processing fees and service charges 194 160 109
Telephone 43 26 13
Postage 73 61 38
Stationary, printing, and supplies 113 85 50
FDIC and OCC assessments 50 50 59
Director fees 80 37 53
Amortization 85 84 --
Merger-related expenses 149 -- --
Other 254 196 138
------ ------ ------
$1,105 $ 771 $ 517
====== ====== ======
</TABLE>
- 21 -
<PAGE> 24
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 19 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investment Securities:
For securities held as investments, fair value equals quoted market
price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans Receivable:
For loans subject to repricing and loans intended for sale within six
months, fair value is estimated at the carrying amount plus accrued
interest.
The fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposit Liabilities:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of long-term fixed maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
Short-term Debt:
For short-term debt, including accounts and demand notes payable, the
carrying amount is a reasonable estimate of fair value.
The estimated fair values of the Banks' financial instruments at December 31,
1997, are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(Dollars In Thousands)
<S> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 9,788 $ 9,788
Investment securities 22,759 22,781
Loans 73,972 74,020
-------- --------
Total assets valued $106,519 $106,589
======== ========
FINANCIAL LIABILITIES
Deposits $101,332 $101,544
-------- --------
Total liabilities valued $101,332 $101,544
======== ========
</TABLE>
- 22 -
<PAGE> 25
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are condensed financial statements for Big Lake Financial
Corporation (parent only):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS AS OF DECEMBER 31: 1997 1996
-------- --------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 76 $ 105
Investment in subsidiary banks, net 9,148 4,174
Facilities 556 575
Other assets 333 --
-------- --------
Total $ 10,113 $ 4,854
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities and deferred credits $ 690 $ --
Stockholders' equity 9,423 4,854
-------- --------
Total $ 10,113 $ 4,854
======== ========
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31: 1997 1996 1995
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Equity in net income of subsidiary banks $ 721 $ 540 $ 549
Other income 70 48 42
Other expenses (133) (37) (40)
-------- -------- --------
NET INCOME 658 551 551
STOCKHOLDERS' EQUITY:
Beginning of year 4,854 4,386 3,744
Cash paid in lieu of fractional shares -- (2) (2)
Stock issued to acquire CNB Financial Corporation 3,789 -- --
Treasury stock canceled 59 -- --
Net change in unrealized holding gains (losses) on
securities in subsidiary banks 63 (81) 93
-------- -------- --------
End of year $ 9,423 $ 4,854 $ 4,386
======== ======== ========
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31: 1997 1996 1995
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Net income $ 658 $ 551 $ 551
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary banks (721) (540) (549)
Other 34 19 19
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (29) 30 21
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Cash paid in lieu of fractional shares -- (2) (2)
-------- -------- --------
CASH AND CASH EQUIVALENTS:
Beginning of year 105 77 58
-------- -------- --------
End of year $ 76 $ 105 $ 77
======== ======== ========
</TABLE>
- 23 -
<PAGE> 26
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 21 - ACQUISITION OF CNB FINANCIAL CORPORATION
The Company consummated its merger with CNB Financial Corporation on October 31,
1997. The merger was accounted for as a purchase by the Company. The purchase
was based on the fair market values of the Company and CNB Financial Corporation
determined by independent experts, which resulted in a cost of $3.8 million. The
Company acquired from CNB Financial Corporation total assets valued at $46.9
million, total net loans valued at $31.3 million, and total deposits valued at
$42.6 million.
The purchase method of accounting, which requires (1) no restatement of the
Company's historical financial statements, and (2) the inclusion of the acquired
company's historical financial information on a fair value basis only from the
date of consummation, was used in this transaction. With respect to this
transaction, the Company issued 166,512 shares of its common stock in exchange
for the common stock of CNB Financial Corporation. This transaction resulted in
an increase to stockholders' equity of $3.8 million. The net book value of CNB
Financial Corporation exceeded the fair value of the net assets acquired by $.4
million (net of deferred income tax asset of $.3 million); therefore, no
goodwill was recorded as a result of this transaction. All adjustments to fair
value of loans and deposits will be amortized over the estimated remaining
maturities of the underlying loans and deposits on a straight-line basis, which
is not materially different from the interest method.
Total acquired assets related to the Company's purchase accounting acquisition
of CNB Financial Corporation amounted to 79% of the Company's total assets at
December 31, 1996. The pro forma income per common share amount was slightly
dilutive. The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Net interest income $ 5,104 $ 4,607 $3,938
======== ======== ======
Net income $ 1,004 $ 811 $ 873
======== ======== ======
Earnings per share $ 2.11 $ 1.71 $ 1.84
======== ======== ======
</TABLE>
NOTE 22 - OCC AGREEMENT
On July 23, 1997, CNB entered into an agreement with the OCC that imposes
certain restrictions and requirements on CNB's operations. Among other things,
this agreement calls for improvement in the areas of compliance, executive
management, loan administration, strategic planning, liquidity management,
independent loan review, and loan quality. CNB also must maintain certain
capital ratios, develop a three-year capital plan, and develop a dividend policy
that permits the payment of dividends only with the prior approval of the OCC.
Management believes that the OCC agreement was prompted in part by the failure
of CNB's former management to address concerns raised by the OCC in prior
examination reports and the additional loan loss reserves mandated by the OCC
for two loans. In response to the OCC agreement, CNB appointed a new President
and Chief Executive Officer. Management believes CNB has substantially complied
with all requirements of the OCC agreement, including the maintenance of the
required minimum capital levels. Management does not anticipate any significant
impact on the results of operations and financial condition of CNB as a result
of the OCC agreement.
Subsequent to December 31, 1997, the OCC completed an examination of CNB's
allowance for loan losses. All OCC adjustments have been reflected in the
consolidated financial statements of the Company as of December 31, 1997. In
1998, the Company anticipates that CNB will be merged with and into BLNB. At
that time, management anticipates the OCC agreement will terminate.
- 24 -
<PAGE> 27
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 23 - SEGMENT INFORMATION
The principal assets of the Company are BLNB and CNB. A summary of the results
of operations included in the consolidated financial statements for each BLNB
and CNB follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1997: BLNB CNB
-------- --------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,718 $ 4,070
Securities 13,126 9,633
Loans 43,452 30,520
Other assets 2,644 2,073
-------- --------
Total $ 64,940 $ 46,296
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits $ 59,944 $ 42,566
Stockholder's equity 4,996 3,730
-------- --------
Total $ 64,940 $ 46,296
======== ========
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS AND STOCKHOLDER'S EQUITY
YEAR ENDED AND TWO MONTHS ENDED DECEMBER 31, 1997, FOR
BLNB AND CNB, RESPECTIVELY: BLNB CNB
-------- --------
(Dollars In Thousands)
<S> <C> <C>
Net interest income $ 2,944 $ 342
Provision for loan losses (132) (148)
-------- --------
Net interest income after provision for loan losses 2,812 194
Other income 735 79
Other expenses (2,792) (293)
-------- --------
NET INCOME (LOSS) 755 (20)
STOCKHOLDERS' EQUITY:
Beginning of period 4,174 3,752
Net change in unrealized holding gains (losses) on securities 67 (2)
-------- --------
End of year $ 4,996 $ 3,730
======== ========
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED AND TWO MONTHS ENDED DECEMBER 31, 1997, FOR
BLNB AND CNB, RESPECTIVELY: BLNB CNB
-------- --------
(Dollars In Thousands)
<S> <C> <C>
Net income (loss) $ 755 $ (20)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 189 17
Other 463 (98)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,407 (101)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,895) (2,823)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,804 (368)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,402 7,362
-------- --------
End of period $ 5,718 $ 4,070
======== ========
</TABLE>
- 25 -
<PAGE> 1
Exhibit 21.1
Big Lake Financial Corporation
Form 10-KSB
For Fiscal Year Ended December 31, 1997
Subsidiaries of Registrant
Big Lake National Bank, incorporated under the laws
of the United States
Clewiston National Bank, incorporated under
the laws of the United States
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We agree to the inclusion in this Form 10-KSB of our report, dated January 29,
1998, on our audit of the consolidated financial statements of Big Lake
Financial Corporation and Subsidiaries.
STEVENS, THOMAS, SCHEMER & SPARKS, P.A.
Jacksonville, Florida
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,492
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,296
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,958
<INVESTMENTS-CARRYING> 801
<INVESTMENTS-MARKET> 823
<LOANS> 75,155
<ALLOWANCE> 1,183
<TOTAL-ASSETS> 111,792
<DEPOSITS> 101,332
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,037
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 9,418
<TOTAL-LIABILITIES-AND-EQUITY> 111,792
<INTEREST-LOAN> 4,332
<INTEREST-INVEST> 981
<INTEREST-OTHER> 178
<INTEREST-TOTAL> 5,491
<INTEREST-DEPOSIT> 2,203
<INTEREST-EXPENSE> 2,204
<INTEREST-INCOME-NET> 3,287
<LOAN-LOSSES> 280
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,847
<INCOME-PRETAX> 974
<INCOME-PRE-EXTRAORDINARY> 974
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 658
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.90
<YIELD-ACTUAL> 8.45
<LOANS-NON> 1,529
<LOANS-PAST> 7
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,163
<ALLOWANCE-OPEN> 894
<CHARGE-OFFS> 54
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 1,183
<ALLOWANCE-DOMESTIC> 1,183
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,183
</TABLE>
