<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 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 NOVEMBER 6, 2000
-------------- ----------------------------------
Common Stock 524,201
Par Value $0.01 per share
<PAGE> 2
BIG LAKE FINANCIAL CORPORATION
FORM 10-QSB - FOR THE QUARTER ENDED SEPTEMBER 30, 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 September 30, 2000
(Unaudited) and December 31, 1999 4
Consolidated Statements of Operations and Comprehensive Income
for the Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the Three and Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 6
Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2000 (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>
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<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 sheet of Big
Lake Financial Corporation (the "Company") and its wholly-owned subsidiary, Big
Lake National Bank (the "Bank"), as of September 30, 2000, and the related
consolidated statements of operations and comprehensive income and consolidated
condensed statements of cash flows for the three and nine months ended September
30, 2000 and 1999, and the related consolidated statement of changes in
stockholders' equity for the nine months ended September 30, 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 condensed 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
November 6, 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>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,774 $ 9,521
Federal funds sold -- --
------------ ------------
Total cash and cash equivalents 7,774 9,521
Securities available-for-sale at fair value 55,320 54,537
Securities held-to-maturity (market value
of $1,479 for 2000 and $1,469 for 1999) 1,522 1,573
Loans receivable less allowance for credit losses 104,266 87,134
Facilities 3,076 3,068
Deferred income taxes 1,326 1,528
Intangible assets 1,945 2,151
Other assets 1,902 2,403
------------ ------------
TOTAL $ 177,131 $ 161,915
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 32,573 $ 32,643
Interest-bearing 119,847 115,810
------------ ------------
Total deposits 152,420 148,453
Other borrowings 11,582 2,157
Accounts payable and other liabilities 1,470 1,118
------------ ------------
Total liabilities 165,472 151,728
------------ ------------
Commitments and contingencies -- --
------------ ------------
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 7,974 7,499
Retained earnings 4,517 4,007
Accumulated other comprehensive income:
Net unrealized holding losses on securities (837) (1,324)
------------ ------------
Total stockholders' equity 11,659 10,187
------------ ------------
TOTAL $ 177,131 $ 161,915
============ ============
Book value per common share $ 22.24 $ 20.16
============ ============
Common shares outstanding, adjusted for stock dividends 524,201 505,199
============ ============
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
-4-
<PAGE> 5
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,478 $ 1,869 $ 6,812 $ 5,372
Interest and dividend income from investment securities 833 832 2,499 2,517
Other interest income 1 36 49 182
--------- --------- --------- ---------
Total interest income 3,312 2,737 9,360 8,071
Interest expense on deposits and other 1,499 1,093 3,995 3,226
--------- --------- --------- ---------
Net interest income before provision for credit losses 1,813 1,644 5,365 4,845
Provision for credit losses 90 60 240 160
--------- --------- --------- ---------
Net interest income 1,723 1,584 5,125 4,685
--------- --------- --------- ---------
Service charges on deposit accounts 349 335 1,019 942
Other fees for customer service and other income 49 56 137 250
--------- --------- --------- ---------
Total other income 398 391 1,156 1,192
--------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 826 762 2,472 2,260
Expenses of bank premises and fixed assets 243 245 716 675
Other operating expenses 532 568 1,772 1,750
--------- --------- --------- ---------
Total other expenses 1,601 1,575 4,960 4,685
--------- --------- --------- ---------
Income before provision for income taxes 520 400 1,321 1,192
Provision for income taxes 181 147 492 429
--------- --------- --------- ---------
Net income 339 253 829 763
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period 425 (118) 487 (868)
--------- --------- --------- ---------
Comprehensive income $ 764 $ 135 $ 1,316 $ (105)
========= ========= ========= =========
Earnings per share
Basic $ 0.65 $ 0.49 $ 1.58 $ 1.48
========= ========= ========= =========
Diluted $ 0.64 $ 0.48 $ 1.57 $ 1.45
========= ========= ========= =========
Weighted average common shares outstanding during period
Basic 524,201 514,406 523,640 514,406
========= ========= ========= =========
Diluted 528,859 526,064 528,298 526,064
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated condensed 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 FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 452 $ 715 $ 2,441 $ (157)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Investment securities (681) 241 (732) 2,608
Loans (3,835) (3,176) (17,132) (7,368)
Other real estate (20) 28 252 47
Purchases of premises and equipment, net 70 (27) (8) 64
-------- -------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (4,466) (2,934) (17,620) (4,649)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (4,136) (154) 3,967 5,201
Proceeds from and (repayment) of other borrowings 6,806 -- 9,425 (113)
Stock options exercised -- -- 47 --
Cash paid in lieu of fractional shares -- -- (7) (13)
-------- -------- -------- --------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 2,670 (154) 13,432 5,075
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,344) (2,373) (1,747) 269
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 9,118 10,418 9,521 7,776
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,774 $ 8,045 $ 7,774 $ 8,045
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated condensed 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
COMMON STOCK ADDITIONAL HOLDING GAINS TOTAL
-------------------- 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 -- -- -- (7) -- (7)
Comprehensive income:
Net income -- -- -- 829 --
Net change in net unrealized
holding gains on securities -- -- -- -- 487
Total comprehensive income -- -- -- -- -- 1,316
-------- -------- -------- -------- -------- --------
Balance, September 30, 2000 524,201 $ 5 $ 7,974 $ 4,517 $ (837) $ 11,659
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated condensed 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)
SEPTEMBER 30, 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 and nine
months ended September 30, 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 periods 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 Company 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)
SEPTEMBER 30, 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 $7,000.
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 and nine months ended September 30, 2000 and 1999 (in thousands except per
share data).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Basic EPS computation:
Numerator - Net income $ 339 $ 253 $ 829 $ 763
Denominator - Weighted average shares outstanding 524 514 524 514
------ ------ ------ ------
Basic EPS $ 0.65 $ 0.49 $ 1.58 $ 1.48
====== ====== ====== ======
Diluted EPS computation:
Numerator - Net income $ 339 $ 253 $ 829 $ 763
------ ------ ------ ------
Denominator - Weighted average shares outstanding 524 514 524 514
Stock options 5 12 4 12
------ ------ ------ ------
529 526 528 526
------ ------ ------ ------
Diluted EPS $ 0.64 $ 0.48 $ 1.57 $ 1.45
====== ====== ====== ======
</TABLE>
-9-
<PAGE> 10
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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>
SEPTEMBER 30, 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 $ 56,544 $ 55,202 $ 56,542 $ 54,419
Other 118 118 118 118
--------- --------- --------- ---------
$ 56,662 $ 55,320 $ 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 $ 1,479 $ 1,573 $ 1,469
========== ========== =========== ==========
</TABLE>
NOTE 5 - LOANS
Loans consisted of (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Real estate $ 85,824 $ 72,365
Consumer and other loans 10,816 8,869
Commercial and agricultural 9,120 7,414
--------- ---------
Total loans, gross 105,760 88,648
Unearned income and deferred fees and credits (215) (300)
Allowance for credit losses (1,279) (1,214)
--------- ---------
Net loans $ 104,266 $ 87,134
========= =========
</TABLE>
-10-
<PAGE> 11
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
2000 1999
------------------- --------------------
<S> <C> <C>
Balance, beginning of period $ 1,214 $ 1,277
Recoveries 34 35
Charge offs (209) (318)
Provision charged to expense 240 220
---------- ----------
Balance, end of period $ 1,279 $ 1,214
========== ==========
</TABLE>
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 September 30, 2000, consisted of commitments to extend
credit approximating $9.9 million and letters of credit of $69,000.
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 $177.1 million
at September 30, 2000. Since December 31, 1999, the Company's total assets have
grown $15.2 million from $161.9 million, an increase of 9.4%. During the same
period, net loans have grown by $17.2 million from $87.1 million to $104.3
million, an increase of 19.7%.
Net income was $339,000 and $829,000 for the three and nine months ended
September 30, 2000, respectively, compared with $253,000 and $763,000 for the
same periods in 1999, an increase of $86,000, or 34.0%, for the three months
ended and an increase of $66,000 or 8.7% for the nine months ended September 30,
2000. The increases in net income for the three- and nine-month periods are due
to increased loan volume and associated loan fee 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 September 30, 2000, were $339,000 or
$0.65 per share, compared to net earnings of $253,000, or $0.49 per share, for
the three months ended September 30, 1999. The increase in net earnings was
primarily due to increases in net interest income of 8.8% and loan fee income of
51.3% offset by modest increases in operating expenses.
NET INTEREST INCOME
Interest income increased by $575,000 from $2,737,000 and $1,289,000 from
$8,071,000 for the three and nine months ended September 30, 1999, respectively,
to $3,312,000 and $9,360,000 for the three and nine months ended September 30,
2000, respectively. Interest and fee income on loans increased $1,440,000 due to
an increase in the average loan portfolio balance from $79.9 million for the
nine months ended September 30, 1999, to $97.3 million for the comparable 2000
period. Average yields on loans improved to 9.35% in 2000 versus 8.99% in 1999.
Interest on investment securities decreased $18,000 to $2,499,000 with a slight
decrease in the average balance of the portfolio from $58.8 million in 1999 to
$58.1 million in 2000. The average yield on the investment securities portfolio
increased slightly to 5.73% at September 30, 2000, from 5.72% in the same period
in 1999. Interest on other interest-earning assets decreased $133,000 due to a
decrease of $3.9 million in average other interest-earning assets for the nine
months ended September 30, 2000, as compared with the same period in 1999.
Strong loan growth during the first nine months of 2000 and interest rate
increases by the Federal Reserve Bank, contributed to the overall rise in the
average yield on total interest-earning assets from 7.51% in 1999 to 7.98% in
2000.
Interest expense increased to $1,499,000 and 3,995,000 for the three and nine
months ended September 30, 2000, respectively, from $1,093,000 and $3,226,000
for the three and nine months ended September 30, 1999, respectively. This
increase was primarily due to growth in average interest-bearing liabilities
from $113.4 million for the nine months ended September 30, 1999, to $122.8
million for the comparable 2000 period. The majority of growth is related to
selling 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 liabilities increased 54 basis points.
This rise was primarily attributed to rising interest rates in the market for
rates paid on deposits and other borrowings.
The net interest margin for the nine months ended September 30, 2000, was 4.58%
as compared with 4.51% for the same period in 1999. This rise was primarily
attributable to a rising rate environment, increased loan volume, and
asset/liability management by the Bank's management team.
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 nine months ended
September 30, 2000, loan charge-offs were $209,000 compared to $272,000 for the
same period in 1999. As economic conditions change in the various markets
charge-offs will occur. During 1999 the bank had more loans charged-off from the
Clewiston National Bank merger of 1998. For the nine months ended September 30,
2000, loan recoveries were $34,000 compared to $32,000 for the same period in
1999. The provision for the three and nine months ended September 30, 2000, was
$90,000 and $240,000, respectively, as compared with $60,000 and $160,000 for
the three and nine months ended September 30, 1999, respectively.
OTHER INCOME
Total other income increased $7,000, or 1.8% and declined $36,000 or 3.0% for
the three and nine months ended
-13-
<PAGE> 14
September 30, 2000, respectively, compared to 1999. This is due to reimbursement
of expenses in 1999 that were charged in the prior period. Deposit service
charges increased $14,000 or 4.2% and $77,000 or 8.2% for the three and nine
months ended September 30, 2000, respectively, 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.
OTHER EXPENSES
Total other expenses increased $26,000, or 1.7%, and $275,000 or 5.9%, for the
three and nine months ended September 30, 2000, respectively, compared to 1999,
reflecting the overall growth of the Bank. Annualized operating expenses were
3.80% and 3.93% of average assets for the three and nine months ended September
30, 2000, respectively, versus 4.07% and 4.03%, respectively, for the comparable
period in 1999. The improvement is related to increased average assets combined
with ongoing control of operating expenses and infrastructure improvements as
the Company grows beyond the year 2000.
FINANCIAL CONDITION
Average total loans for the nine months ended September 30, 2000, were $97.3
million versus $79.9 million for the same period in 1999, an increase of $17.4
million, or 21.8%. Total average interest-bearing liabilities for the nine
months ended September 30, 2000, were $122.8 million versus $113.4 million for
the same period in 1999, an increase of $9.4 million, or 8.3%. The increase in
average interest-bearing liabilities reflects the sales effort of the Company
and increased market rates.
Since December 31, 1999, total loans have grown $17.2 million, or 19.5%, and
investment securities increased by $732,000, or 1.3%. Total deposits increased
$3.9 million, or 2.7%, from December 31, 1999, to September 30, 2000. The excess
funds generated from the deposit growth have been invested in loans. Total
interest-bearing deposits have grown $4.0 million, or 3.5%, during the first
nine months of 2000. Noninterest-bearing deposits have declined $70,000, or .2%,
since December 31, 1999.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES. The following table depicts,
for the periods indicated, certain information related to the Company's average
balance sheet and its average yields on assets and average costs of liabilities.
Such yields are derived by dividing income or expense by the average balance of
the corresponding assets or liabilities. Average balances have been derived from
daily averages.
-14-
<PAGE> 15
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------
2000 1999
--------------------------------------- -----------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
($ in thousands) BALANCE DIVIDENDS RATE MIX BALANCE DIVIDENDS RATE MIX
------- --------- ---- --- ------- --------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 97,303 $ 6,812 9.35% 62% $ 79,875 $ 5,372 8.99% 56%
Investment and mortgage-
backed securities 58,184 2,499 5.73% 37% 58,782 2,517 5.72% 41%
Other interest-earning
assets 1,139 49 5.75% 1% 5,082 182 4.79% 3%
-------- ------- -- -------- ------- ---
Total interest-earning
assets 156,626 9,360 7.98% 100% 143,739 8,071 7.51% 100%
-------- ------- === -------- ------- ===
Noninterest-earning assets 11,723 11,008
-------- --------
Total assets $ 168,349 $ 154,747
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 37,085 944 3.40% 30% $ 31,487 629 2.67% 28%
Savings 16,482 269 2.18% 13% 17,646 296 2.24% 16%
Certificates of deposit 65,558 2,604 5.31% 54% 63,649 2,272 4.77% 56%
Other borrowings 3,656 178 6.50% 3% 573 29 6.77% 0%
-------- ------- -- -------- ------- ---
Total interest-bearing
liabilities $ 122,781 3,995 4.35% 100% $ 113,355 3,226 3.81% 100%
-------- ------- === -------- ------- ===
Interest rate spread 3.64% 3.70%
Net interest margin $ 5,365 4.58% $ 4,845 4.51%
======= =======
Interest-bearing deposits $ 119,125 $ 3,817 4.28% 78% $ 112,782 $ 3,197 3.79% 79%
Noninterest-bearing deposits 34,490 -- 0.00% 22% 30,613 -- 0.00% 21%
-------- ------- -- -------- ------- ---
Total deposits $ 153,615 $ 3,817 3.32% 100% $ 143,395 $ 3,197 2.98% 100%
======== ======= === ======== ======= ===
Demand, money market and
NOW deposits $ 37,085 $ 944 3.40% 52% $ 31,487 $ 629 2.67% 51%
Noninterest-bearing deposits 34,490 -- 0.00% 48% 30,613 -- 0.00% 49%
-------- ------- -- -------- ------- ---
Total transaction
deposit accounts $ 71,575 $ 944 1.76% 100% $ 62,100 $ 629 1.35% 100%
======== ======= === ======== ======= ===
Ratio of average interest-earning
assets to average interest-bearing
liabilities 127.57% 126.80%
======== ========
</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 factors, including 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 September 30, 2000, the Company had 39 loans classified as substandard,
doubtful, or loss totaling $1.5million compared to $2.4 million at September 30,
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 September 30, 2000, the allowance for credit losses amounted to $1,279,000,
or 1.21% 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 $252,000 to $55,000 at September 30, 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 September 30, 2000, was a
negative 34% 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 was required as of September 30, 2000.
SHORT-TERM INVESTMENTS. Short-term investments, which consist of federal funds
sold and securities purchased under agreements to resell and interest-bearing
deposits, averaged $1.1 million in the first nine months of 2000 as compared to
$5.1 million in the same period of 1999. 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. At September 30, 2000, and December 31, 1999,
the Bank had borrowed $13.6 million and 1 million, respectively, in the form of
overnight Federal Funds purchased.
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 $138.7 million at September 30, 2000, and
$138.0 million at December 31, 1999. This includes noninterest-bearing deposits
of $32.6 million at September 30, 2000, and December 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 can be generally expensive and
unreliable as long-term funding sources. 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 September 30, 2000, the
Company had commitments to originate loans totaling $9.9 million, and had issued
but unused letters of credit of $69,000 for the same period. In addition,
scheduled maturities of certificates of deposit during the twelve months
following September 30, 2000, totaled $54.1 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 September 30, 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) $ 11,737 12.37% $ 7,587 8.00% $ 9,487 10.00%
Tier 1 Capital (to Risk-Weighted Assets) $ 10,551 11.12% $ 3,796 4.00% $ 5,696 6.00%
Tier 1 Capital (to Average Assets) $ 10,551 6.16% $ 6,851 4.00% $ 8,571 5.00%
</TABLE>
The following table sets forth the 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) $ 10,993 11.61% $ 7,583 8.00% $ 9,493 10.00%
Tier 1 Capital (to Risk-Weighted Assets) $ 9,809 10.36% $ 3,789 4.00% $ 5,689 6.00%
Tier 1 Capital (to Average Assets) $ 9,809 5.72% $ 6,839 4.00% $ 8,559 5.00%
</TABLE>
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<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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) EXHIBITS.
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
b) REPORTS ON FORM 8-K.
NONE.
-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: NOVEMBER 6, 2000 /s/ JOE G. MULLINS
--------------------- -------------------------------
Joe G. Mullins
Executive Vice President and
Chief Administrative Officer
Date: NOVEMBER 6, 2000 /s/ ANITA DEWITT
--------------------- -------------------------------
Anita DeWitt
Treasurer
-20-
