<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 333-30779
----------------------
BIG LAKE FINANCIAL CORPORATION
------------------------------------------------------
(Exact Name of registrant as specified in its charter)
Florida 59-2613321
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1409 S. Parrott Avenue
Okeechobee, Florida 34974
------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(863) 467-4663
--------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares of outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Class Outstanding as of May 10, 2000
-------------- ------------------------------
Common Stock 524,201
Par Value $0.01 per share
<PAGE> 2
BIG LAKE FINANCIAL CORPORATION
FORM 10-QSB - FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999 4
Consolidated Statements of Operations and Comprehensive Income
for the Three Months Ended March 31, 2000 and 1999 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 6
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12
PART II: OTHER INFORMATION 19
SIGNATURES 20
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Big Lake Financial Corporation and Subsidiary
Okeechobee, Florida
We have reviewed the accompanying consolidated condensed balance sheets of Big
Lake Financial Corporation (the "Company") and its wholly-owned subsidiary, Big
Lake National Bank (the "Bank"), as of March 31, 2000, and the related
consolidated statements of operations and comprehensive income and consolidated
condensed statements of cash flows for the three month periods ended March 31,
2000 and 1999, and the related consolidated statement of stockholders' equity
for the three month period ended March 31, 2000. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations and comprehensive income, cash
flows, and changes in stockholders' equity for the year then ended (not
presented herein); and in our report dated January 14, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
STEVENS, SPARKS & COMPANY, P.A.
Jacksonville, Florida
May 10, 2000
- 3 -
<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, 2000
(Unaudited) December 31, 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,998 $ 9,521
Federal funds sold 524 --
--------- ---------
Total cash and cash equivalents 10,522 9,521
Securities available-for-sale at fair value 54,619 54,537
Securities held-to-maturity (market value
of $1,427 for 2000 and $1,469 for 1999) 1,522 1,573
Loans receivable less allowance for credit losses 93,425 87,134
Facilities 3,147 3,068
Deferred income taxes 1,558 1,528
Intangible assets 2,082 2,151
Other assets 2,317 2,403
--------- ---------
TOTAL $ 169,192 $ 161,915
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 38,071 $ 32,643
Interest-bearing 118,438 115,810
--------- ---------
Total deposits 156,509 148,453
Other borrowings 1,092 2,157
Accounts payable and other liabilities 1,046 1,118
--------- ---------
Total liabilities 158,647 151,728
--------- ---------
Commitments and contingencies -- --
--------- ---------
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 7,974 7,499
Retained earnings 3,839 4,007
Accumulated other comprehensive income:
Net unrealized holding losses on securities (1,273) (1,324)
--------- ---------
Total stockholders' equity 10,545 10,187
--------- ---------
TOTAL $ 169,192 $ 161,915
========= =========
Book value per common share $ 20.12 $ 20.16
========= =========
Common shares outstanding, adjusted for stock dividends 524,201 505,199
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
- 4 -
<PAGE> 5
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Interest and fees on loans $ 2,054 $ 1,746
Interest and dividend income from investment securities 833 833
Other interest income 40 71
--------- ---------
Total interest income 2,927 2,650
Interest expense on deposits and other 1,221 1,070
--------- ---------
Net interest income before provision for credit losses 1,706 1,580
Provision for credit losses 60 40
--------- ---------
Net interest income 1,646 1,540
--------- ---------
Service charges on deposit accounts 360 301
Other fees for customer service and other income 4 117
--------- ---------
Total other income 364 418
--------- ---------
Other expenses:
Salaries and employee benefits 824 750
Expenses of bank premises and fixed assets 233 218
Other operating expenses 679 566
--------- ---------
Total other expenses 1,736 1,534
--------- ---------
Income before provision for income taxes 274 424
Provision for income taxes 122 151
--------- ---------
Net income 152 273
Other comprehensive income, net of tax:
Unrealized holding losses arising during period (1,645) (284)
--------- ---------
Comprehensive income $ (1,493) $ (11)
========= =========
Earnings per share
Basic $ 0.29 $ 0.53
========= =========
Diluted $ 0.29 $ 0.52
========= =========
Weighted average common shares outstanding during period
Basic 522,515 514,406
========= =========
Diluted 527,173 523,931
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
- 5 -
<PAGE> 6
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 401 $ (819)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Investment securities (31) (515)
Loans (6,291) (2,334)
Other real estate 24 78
Purchases of premises and equipment, net (132) (31)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (6,430) (2,802)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,056 7,123
Proceeds from and (repayment) of other borrowings (1,065) 275
Proceeds from exercise of stock options 47 --
Cash paid in lieu of fractional shares (8) (6)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,030 7,392
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,001 3,771
CASH AND CASH EQUIVALENTS AT JANUARY 1 9,521 7,776
-------- --------
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 10,522 $ 11,547
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
- 6 -
<PAGE> 7
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Holding Total
Common Stock Paid-in Retained Losses on Stockholders'
Shares Amount Capital Earnings Securities Equity
------- ------ ---------- -------- ----------- -------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 505,199 $5 $7,499 $ 4,007 $(1,324) $ 10,187
Stock dividend declared 12,472 - 312 (312) -- --
Options exercised 6,530 - 163 -- -- 163
Cash paid in lieu of fractional shares -- - -- (8) -- (8)
Comprehensive income:
Net income -- - -- 152 --
Net change in net unrealized
holding gains on securities -- - -- -- 51
Total comprehensive income -- - -- -- -- 203
------- -- ------ ------- ------- --------
Balance, March 31, 2000 524,201 $5 $7,974 $ 3,839 $(1,273) $ 10,545
======= == ====== ======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
- 7 -
<PAGE> 8
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Big Lake
Financial Corporation (the "Company") and its wholly-owned subsidiary Big Lake
National Bank (the "Bank"). The consolidated financial statements for the three
months ended March 31, 2000 and 1999, have not been audited and do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of management, the
accompanying consolidated financial statements contain all adjustments, which
are of a normal recurring nature, necessary for a fair presentation. The
results of operations for the interim period of 2000 are not necessarily
indicative of the results that may be expected for an entire year. The
accounting policies followed by the Company are set forth in Note 1 to the
Company's consolidated financial statements contained in the 1999 Annual Report
to Stockholders and are incorporated herein by reference.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate 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.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, due from banks, federal
funds sold, investment securities, loans receivable, accrued interest
receivable, deposits, federal funds purchased, accrued interest payable, and
off-balance sheet commitments such as commitments to extend credit and standby
letters of credit. On an interim basis, management considers the cost of
providing estimated fair values by each class of financial instrument to exceed
the benefits derived. In management's opinion, the carrying amount of financial
instruments approximates fair value.
- 8 -
<PAGE> 9
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 2 - STOCK DIVIDEND
On February 16, 2000, 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 18, 2000, payable on or before March 1,
2000. Cash in lieu of fractional shares was paid at the rate of $25.00 per
share, which was the estimated fair market value at that time. The total cash
paid in lieu of fractional shares amounted to approximately $8,000.
NOTE 3 - COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share amounts are computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are computed by dividing net earnings by the weighted
average number of shares and all dilutive potential shares outstanding during
the period. As discussed in Note 2 above, the Company declared a 2.5% stock
dividend. The average number of shares and dilutive potential shares have been
restated for the stock dividend. The following information was used in the
computation of earnings per share on both a basic and diluted basis for the
three months ended March 31, 2000 and 1999 (in thousands except per share
data).
For the Three Months Ended
March 31,
2000 1999
----- -----
Basic EPS computation:
Numerator - Net income $ 152 $ 273
Denominator - Weighted average shares outstanding 523 514
----- -----
Basic EPS $0.29 $0.53
===== =====
Diluted EPS computation:
Numerator - Net income $ 152 $ 273
----- -----
Denominator - Weighted average shares outstanding 523 514
Stock options 4 10
----- -----
527 524
----- -----
Diluted EPS $0.29 $0.52
===== =====
- 9 -
<PAGE> 10
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 4 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of instruments in debt and equity
securities were as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------ ------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government agencies $56,543 $54,501 $56,542 $54,419
Other 118 118 118 118
------- ------- ------- -------
$56,661 $54,619 $56,660 $54,537
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Securities to be held-to-maturity:
State and municipal $ 1,522 $ 1,427 $ 1,573 $ 1,469
======= ======= ======= =======
</TABLE>
NOTE 5 - LOANS
Loans consisted of (dollars in thousands):
March 31, December 31,
2000 1999
-------- --------
Real estate $ 77,299 $ 72,365
Consumer and other loans 9,300 8,869
Commercial and agricultural 8,300 7,414
-------- --------
Total loans, gross 94,899 88,648
Unearned income and deferred fees and credits (269) (300)
Allowance for credit losses (1,205) (1,214)
-------- --------
Net loans $ 93,425 $ 87,134
======== ========
- 10 -
<PAGE> 11
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 6 - ALLOWANCE FOR CREDIT LOSSES
The Company's Board of Directors monitors the loan portfolio quarterly in order
to enable it to evaluate the adequacy of the allowance for credit losses.
Management has implemented a risk system that identifies potential problem
credits as early as possible, categorizes the credits as to risk, and puts a
reporting process in place to monitor the progress of the credits. Activity in
the allowance for credit losses follows (dollars in thousands):
For the Three Months For the Twelve Months
Ended March 31, Ended December 31,
2000 1999
----------------- ------------------
Balance, beginning of period $1,214 $1,277
Recoveries 3 35
Charge offs (72) (318)
Provision charged to expense 60 220
------ ------
Balance, end of period $1,205 $1,214
====== ======
NOTE 7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit, and interest rate
risk in excess of the amounts recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Financial instruments at March 31, 2000, consisted of commitments to extend
credit approximating $6.2 million and letters of credit of $74,000.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
- 11 -
<PAGE> 12
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's principal asset is its ownership of Big Lake National Bank.
Accordingly, the Company's results of operations are primarily dependent upon
the results of operations of the Bank. The Bank conducts a commercial banking
business consisting of attracting deposits from the general public and applying
those funds to the origination of commercial, consumer, and real estate loans
(including commercial loans collateralized by real estate). The Bank's
profitability depends primarily on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected
by the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate earned and paid on these balances. Net
interest income is dependent upon the Bank's interest-rate spread which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The interest
rate spread is impacted by interest rates, deposit flows, and loan demand.
Additionally, and to a lesser extent, the Bank's profitability is affected by
such factors as the level of noninterest income and expenses, the provision for
credit losses, and the effective tax rate. Noninterest income consists
primarily of service fees on deposit accounts. Noninterest expense consists of
compensation and employee benefits, occupancy and equipment expenses, and other
operating expenses.
The Company is a bank holding company with consolidated assets of $169.2
million at March 31, 2000. Since December 31, 1999, the Company's total assets
have grown $7.3 million from $161.9 million, an increase of 4.5%. During the
same period, net loans have grown by $6.3 million from $87.1 million to $93.4
million, an increase of 7.2%.
Net income was $152,000 for the three months ended March 31, 2000, compared
with $273,000 for the same period in 1999, a decrease of $121,000, or 44.3%.
The decrease in net income was primarily due to increased operating expenses
associated with the Company's growth and lower other income.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties including
changes in economic conditions in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as to
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements. The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions, which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
- 12 -
<PAGE> 13
RESULTS OF OPERATIONS
General
Net earnings for the three months ended March 31, 2000, were $152,000 or $0.29
per share, compared to net earnings of $273,000, or $0.53 per share, for the
three months ended March 31, 1999. The decrease in net earnings was primarily
due to an increase in other operating expenses of 13.2%, a decrease in other
income of 12.9%, and a decline in net interest margin of .10%.
Net Interest Income
Interest income increased by $277,000 from $2,650,000 for the three months
ended March 31, 1999, to $2,927,000 for the three months ended March 31, 2000.
Interest income on loans increased $308,000 due to an increase in the average
loan portfolio balance from $76.5 million for the three months ended March 31,
1999, to $90.1 million for the comparable 2000 period. Average yields on loans
declined slightly to 9.17% in 2000 versus 9.25% in 1999. Interest on investment
securities remained stable at $833,000 with a slight increase in the average
balance of the portfolio from $56.3 million in 1999 to $58.1 million in 2000.
The average yield on the investment securities portfolio decreased to 5.73% at
March 31, 2000, from 5.91% in the same period in 1999. Interest on other
interest-earning assets decreased $31,000 due to a decrease of $3.2 million in
average other interest-earning assets for the quarter ended March 31, 2000, as
compared with the same period in 1999. The increase in lower yielding
investment securities offset by strong loan growth during the first three
months of 2000, contributed to the overall rise in the average yield on total
interest-earning assets from 7.74% in 1999 to 7.79% in 2000.
Interest expense increased to $1,221,000 for the three months ended March 31,
2000, from $1,070,000 for the three months ended March 31, 1999. This increase
was primarily due to growth in average interest-bearing deposits from $110.5
million for the three months ended March 31, 1999, to $117.8 million for the
comparable 2000 period. The majority of growth is related to selling
innovative, competitive products, an emphasis on cross-selling products and
limited periodic rate specials on certificates of deposits to attract new
clients. The average rate paid on interest-bearing deposits increased 22 basis
points. This rise was primarily attributed to rising interest rates in the
market for rates paid on deposits.
The net interest margin for the three months ended March 31, 2000, was 4.54% as
compared with 4.64% for the same period in 1999. This decline was primarily
attributable to a rising rate environment and increased competition for loans
and funds in the market.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management. This level is based upon
historical experience, the volume and type of lending conducted by the Company,
the amounts of nonperforming loans, general economic conditions, as they relate
to the Company's market area, as well as other factors relating to the
collectibility of the Company's loan portfolio. For the three months ended
March 31, 2000, loan charge-offs increased $52,000 from $20,000 for the same
period in 1999. For the three months ended March 31, 2000, recoveries rose to
$3,000 from $2,000 for the same period in 1999. The provision for the three
months ended March 31, 2000, was $60,000 as compared with $40,000 for the three
months ended March 31, 1999.
Other Income
Total other income decreased $54,000, or 12.9%, for the three months ended
March 31, 2000, compared to 1999. Recoveries of previously expensed amounts
contributed to the higher first quarter 1999 other income. Deposit service
charges increased $59,000 or 19.6% compared to the same period in 1999. This
increase is attributable to an increased deposit base and management's efforts
to sell products that are competitive and innovative to expand, as the
customers' needs change.
- 13 -
<PAGE> 14
Other Expense
Total other expense increased $202,000, or 13.2%, for the three months ended
March 31, 2000, compared to 1999, reflecting the overall growth of the Bank.
Operating expenses were 4.24% of average assets for the three months ended
March 31, 2000, versus 3.94% for the comparable period in 1999. The increase is
related to increased staffing cost over 1999 and infrastructure improvements as
the Company grows beyond the year 2000.
FINANCIAL CONDITION
Average total loans for the three months ended March 31, 2000, were $90.1
million versus $76.5 million for the same period in 1999, an increase of $13.6
million, or 17.8%. Total average interest-bearing deposits for the three months
ended March 31, 2000, were $117.8 million versus $110.5 million for the same
period in 1999, an increase of $7.3 million, or 6.6%. The increase in average
interest-bearing deposits reflects the sales effort of the Company and
increased market rates.
Since December 31, 1999, total loans have grown $6.3 million, or 7.2%, and
investment securities decreased by $31,000, or 0.06%. Total deposits increased
$8.1 million, or 5.4%, from December 31, 1999, to March 31, 2000. The excess
funds generated from the deposit growth have been invested in loans and federal
funds sold, which have grown from $0 at December 31, 1999, to $524,000 at March
31, 2000. Total interest-bearing deposits have grown $2.6 million, or 2.3%.
Noninterest-bearing deposits have grown $5.4 million, or 16.6%, since December
31, 1999.
Average Balances, Income and Expenses, and Rates. The following table depicts,
for the periods indicated, certain information related to the Company's average
balance sheet and its average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.
- 14 -
<PAGE> 15
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
($ IN THOUSANDS) Balance Dividends Rate Mix Balance Dividends Rate Mix
------- --------- ---- --- ------- --------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 90,055 $ 2,054 9.17% 60% $ 76,514 $ 1,746 9.25% 55%
Investment and mortgage-
backed securities 58,184 833 5.73% 38% 56,278 833 5.91% 41%
Other interest-earning
assets 2,873 40 5.60% 2% 6,113 71 4.71% 4%
-------- ------- ---- --------- ------- ----
Total interest-earning
assets 151,112 2,927 7.79% 100% 138,905 2,650 7.74% 100%
------- ==== ------- ====
Noninterest-earning assets 13,471 18,891
--------- ---------
Total Assets $ 164,583 $ 157,796
========= =========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 35,328 281 3.20% 30% $ 30,308 194 2.60% 27%
Savings 16,510 87 2.12% 14% 16,533 100 2.45% 15%
Certificates of deposit 65,954 836 5.10% 56% 63,613 766 4.88% 58%
Other borrowings 1,130 17 6.05% 0% -- -- 0.00% 0%
--------- ------- ---- --------- ------- ----
Total interest-bearing
liabilities $ 118,922 1,221 4.13% 100% $ 110,454 1,060 3.89% 100%
========= ------- ==== ========= ------- ====
Interest rate spread 3.66% 3.85%
Net interest margin $ 1,706 4.54% $ 1,590 4.64%
======= =======
Interest-bearing deposits $ 117,792 $ 1,204 4.11% 77% $ 110,454 $ 1,060 3.89% 79%
Noninterest-bearing deposits 34,988 -- 0.00% 23% 29,921 -- 0.00% 21%
--------- ------- ---- --------- ----
Total deposits $ 152,780 $ 1,204 3.17% 100% $ 140,375 $ 1,060 3.06% 100%
========= ======= ==== ========= ======= ====
Demand, money market and
NOW deposits $ 35,328 $ 281 3.20% 50% $ 30,308 $ 194 2.60% 50%
Noninterest-bearing deposits 34,988 -- 0.00% 50% 29,921 -- 0.00% 50%
--------- ------- ---- --------- ------- ----
Total transaction
deposit accounts $ 70,316 $ 281 1.61% 100% $ 60,229 $ 194 1.31% 100%
========= ======= ==== ========= ======= ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 127.07% 125.76%
========= =========
</TABLE>
- 15 -
<PAGE> 16
Loan Portfolio
The Company has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem loans. Management's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events, which it believes to be
reasonable, but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for credit
losses or that additional increases in the credit loss allowance will not be
required.
Asset Classification. Commercial banks are required to review and, when
appropriate, classify their assets on a regular basis. The OCC has the
authority to identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, condition, and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible
and of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes a specific reserve for the full amount of the portion
of the asset classified as loss. All or a portion of general credit loss
allowances established to cover possible losses related to assets classified as
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for credit losses
generally do not qualify as regulatory capital. Assets that do not warrant
classification in the aforementioned categories, but possess weaknesses, are
classified as special mention and are monitored by the Company.
At March 31, 2000, the Company had 41 loans classified as substandard,
doubtful, or loss totaling $1.371 million compared to $2.424 million at March
31, 1999.
Allowance for Credit Losses. The allowance for credit losses is established
through a provision for credit losses charged against income. Loans are charged
against the provision when management believes that the collectibility of the
principal is unlikely. The provision is an estimated amount that management
believes will be adequate to absorb losses inherent in the loan portfolio based
on evaluations of its collectibility. The evaluations take into consideration
such factors as changes in the nature and volume of the portfolio, overall
portfolio quality, specific problem loans and commitments, current anticipated
economic conditions that may affect the borrower's ability to pay and other
information. While management uses the best information available to recognize
losses on loans, future additions to the provision may be necessary based on
changes in economic conditions.
At March 31, 2000, the allowance for credit losses amounted to $1,205,000, or
1.27% of outstanding loans. At December 31, 1999, the allowance for credit
losses amounted to $1,214,000, or 1.37% of outstanding loans. Other real estate
owned decreased $24,000 to $283,000 at March 31, 2000, as compared to $307,000
at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Management. Liquidity management involves monitoring the Company's
sources and uses of funds in order to meet its day-to-day cash flow
requirements while maximizing profits. Liquidity represents the ability of a
company to convert assets into cash or cash equivalents without significant
loss and to raise additional funds by increasing liabilities. Liquidity
management is made more complicated because different balance sheet components
are subject to varying degrees of management control. For example, the timing
of maturities of the investment portfolio is very predictable and subject to a
high degree of control at the time investment decisions are made. However, net
deposit inflows and outflows are far less predictable and are not subject to
the same degree of control. Asset liquidity is provided by cash and assets
which are readily marketable, which can be pledged, or which will mature in the
near future. Liability liquidity is provided by access to core funding sources,
principally the ability to generate customer deposits in the Company's market
area. In addition, liability liquidity is provided through the ability to
borrow against approved lines of credit (federal funds purchased) from
correspondent banks and to borrow on a secured basis through securities sold
under agreements to repurchase.
- 16 -
<PAGE> 17
Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. To this end,
management reviews, on a monthly basis, the maturity and repricing of assets
and liabilities. The Company's cumulative one-year gap at March 31, 2000, was a
negative .30% of assets. This falls outside the Company's policy of a
cumulative one-year gap range of negative 25% to positive 25%. Management does
not believe any action is required at this time.
Short-Term Investments. Short-term investments, which consist of federal funds
sold and securities purchased under agreements to resell and interest-bearing
deposits, averaged $2.9 million in the first three months of 2000 as compared
to $6.1 million in the same period of 1999. At March 31, 2000, and December 31,
1999, short-term investments totaled $524,000 and $0, respectively. These funds
are used as a source of the Company's liquidity and are generally invested in
an earning capacity on an overnight basis. The Company also has borrowing lines
in place in order to meet funding requirements as necessary.
Management regularly reviews the liquidity position of the Company and has
implemented internal policies that establish guidelines for sources of
asset-based liquidity and limit the total amount of purchased funds used to
support the balance sheet and funding from non-core sources.
Deposits and Other Sources of Funds In addition to deposits, the sources of
funds available for lending and other business purposes include loan
repayments, loan sales, and securities sold under agreements to repurchase.
Loan repayments are a relatively stable source of funds, while deposit inflows
and outflows are influenced significantly by general interest rates and money
market conditions. Borrowings may be used on a short-term basis to compensate
for reductions in other sources, such as deposits at less than projected levels
and are also used to fund the origination of mortgage loans designated to be
sold in the secondary markets.
Deposits. Deposits, which exclude all certificates of deposit of $100,000 or
more and public fund certificates of deposit of under $100,000, can serve as a
relatively stable funding source for the Company's loan portfolio and other
earning assets. Such deposits were $148.3 million at March 31, 2000, and $138.0
million at December 31, 1999. Management anticipates that a stable base of
deposits will be the Company's primary source of funding to meet both its
short-term and long-term liquidity needs in the future. This base includes
noninterest-bearing deposits of $38.1 million at March 31, 2000 compared to
$32.6 million at March 31, 1999.
Customers with large certificates of deposit tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits. Some financial institutions
fund their balance sheets in part through large certificates of deposit
obtained through brokers. These brokered deposits are generally expensive and
are unreliable as long-term funding sources. Accordingly, the Company does not
accept brokered deposits at this time.
The Company uses its resources principally to fund existing and continuing loan
commitments and to purchase investment securities. At March 31, 2000, the
Company had commitments to originate loans totaling $6.2 million, and had
issued but unused letters of credit of $74,000 for the same period. In
addition, scheduled maturities of certificates of deposit during the twelve
months following March 31, 2000, totaled $50.3 million. Management believes
commitments will be funded within twelve months. The Company can adjust the
rates and terms on certificates of deposit and other deposit accounts to retain
deposits in a changing interest rate environment, if desired.
Capital. The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures,
adjusted for risk weights ranging from 0% to 100% (the Federal Reserve grants
an exemption from these requirements for bank holding companies with less than
$150 million in consolidated assets, and therefore the Company's capital is
currently measured only at the Bank level). Under the risk-based standard,
capital is classified into two tiers. Tier 1 capital consists of common
stockholders' equity, excluding the unrealized gain (loss) on
available-for-sale securities, minus certain intangible assets. Tier 2 capital
consists of the general allowance for credit losses subject to certain
limitations. An institution's qualifying capital base for purposes of its
risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital.
The regulatory minimum requirements are 4% for Tier 1 and 8% for total
risk-based capital.
- 17 -
<PAGE> 18
Bank holding companies and banks are also required to maintain capital at a
minimum level based on total assets, which is known as the leverage ratio. The
minimum requirement for the leverage ratio is 3%, but all but the highest rated
institutions are required to maintain ratios 100 to 200 basis points above the
minimum. The Company and the Bank exceeded their minimum regulatory capital
ratios as of March 31, 2000, as reflected in the following table.
The following table sets forth the Company's regulatory capital position
(dollars in thousands):
<TABLE>
<CAPTION>
Actual Minimum Well-Capitalized
Amount % Amount % Amount %
------- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets) $10,824 12.44% $6,964 8.00% $8,704 10.00%
Tier I Capital (to Risk-Weighted Assets) $ 9,736 11.19% $3,481 4.00% $5,221 6.00%
Tier I Capital (to Average Assets) $ 9,736 5.93% $6,576 4.00% $8,211 5.00%
</TABLE>
The following table sets forth Big Lake National Bank's regulatory capital
position (dollars in thousands):
<TABLE>
<CAPTION>
Actual Minimum Well-Capitalized
Amount % Amount % Amount %
------- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets) $10,083 11.60% $6,953 8.00% $8,693 10.00%
Tier I Capital (to Risk-Weighted Assets) $ 8,997 10.35% $3,477 4.00% $5,217 6.00%
Tier I Capital (to Average Assets) $ 8,997 5.54% $6,497 4.00% $8,132 5.00%
</TABLE>
- 18 -
<PAGE> 19
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security
Holders. An Annual Meeting of Shareholders was
held on March 16, 2000. At that meeting, a
majority of the shareholders of record voted
to elect Robert Coker, for 371,367, against
71, abstained 8,694, Curtis Fry, for 369,998,
against 9,950, abstained 184 and Thomas Smith,
for 379,764, against 70, abstained 328 to
serve until the Annual Meeting of Shareholders
in 2003 and Joe Mullins, for 379,616, against
188 and abstained 328 to serve until the
Annual Meeting of Shareholders in 2001, and to
transact such other or further business as may
properly come before the 2000 Annual Meeting
and any adjournment or postponement thereof.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K.
None.
- 19 -
<PAGE> 20
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Big Lake Financial Corporation
Date: May 10, 2000 /s/ Joe G. Mullins
------------- ------------------------------
Joe G. Mullins
Executive Vice President and
Chief Administrative Officer
Date: May 10, 2000 /s/ Anita DeWitt
------------- ------------------------------
Anita DeWitt
Treasurer
- 20 -
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,998
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 524
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,619
<INVESTMENTS-CARRYING> 1,522
<INVESTMENTS-MARKET> 1,427
<LOANS> 93,425
<ALLOWANCE> 1,205
<TOTAL-ASSETS> 169,192
<DEPOSITS> 156,509
<SHORT-TERM> 1,092
<LIABILITIES-OTHER> 1,046
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 10,540
<TOTAL-LIABILITIES-AND-EQUITY> 169,192
<INTEREST-LOAN> 2,054
<INTEREST-INVEST> 833
<INTEREST-OTHER> 40
<INTEREST-TOTAL> 2,927
<INTEREST-DEPOSIT> 1,204
<INTEREST-EXPENSE> 1,221
<INTEREST-INCOME-NET> 1,706
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,736
<INCOME-PRETAX> 274
<INCOME-PRE-EXTRAORDINARY> 274
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152
<EPS-BASIC> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.54
<LOANS-NON> 427
<LOANS-PAST> 18
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 427
<ALLOWANCE-OPEN> 1,214
<CHARGE-OFFS> 72
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,205
<ALLOWANCE-DOMESTIC> 1,205
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
