<PAGE> 1
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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 June 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)
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(863) 467-4663
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(Registrant's telephone number including area code)
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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 August 10, 2000
-------------- ---------------------------------
Common Stock 524,201
Par Value $0.01 per share
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<PAGE> 2
BIG LAKE FINANCIAL CORPORATION
FORM 10-QSB - FOR THE QUARTER ENDED JUNE 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 June 30, 2000
(Unaudited) and December 31, 1999 4
Consolidated Statements of Operations and Comprehensive Income
for the Three and Six Months Ended June 30, 2000 and 1999 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the Three and Six Months
Ended June 30, 2000 and 1999 (Unaudited) 6
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 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>
<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 June 30 2000, and the related
consolidated statements of operations and comprehensive income and consolidated
condensed statements of cash flows for the three and six months periods ended
June 30, 2000 and 1999 and the related consolidated statement of changes in
stockholders' equity for the six month period ended June 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
August 10, 2000
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<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>
June 30, 2000
(Unaudited) December 31, 1999*
--------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,058 $ 9,521
Federal funds sold 60 --
--------- ---------
Total cash and cash equivalents 9,118 9,521
Securities available-for-sale at fair value 54,638 54,537
Securities held-to-maturity (market value
of $1,448 for 2000 and $1,469 for 1999) 1,523 1,573
Loans receivable less allowance for credit losses 100,431 87,134
Facilities 3,146 3,068
Deferred income taxes 1,599 1,528
Intangible assets 2,014 2,151
Other assets 1,636 2,403
--------- ---------
TOTAL $ 174,105 $ 161,915
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 35,343 $ 32,643
Interest-bearing 121,213 115,810
--------- ---------
Total deposits 156,556 148,453
Other borrowings 5,164 2,157
Accounts payable and other liabilities 1,490 1,118
--------- ---------
Total liabilities 163,210 151,728
--------- ---------
Commitments and contingencies -- --
--------- ---------
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 7,974 7,499
Retained earnings 4,178 4,007
Accumulated other comprehensive income:
Net unrealized holding losses on securities (1,262) (1,324)
--------- ---------
Total stockholders' equity 10,895 10,187
--------- ---------
TOTAL $ 174,105 $ 161,915
========= =========
Book value per common share $ 20.78 $ 20.16
========= =========
Common shares outstanding, adjusted for stock dividends 524,201 505,199
========= =========
</TABLE>
* Condensed from December 31, 1999, audited balance sheet
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
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<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 Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,280 $ 1,757 $ 4,334 $ 3,503
Interest and dividend income from investment securities 833 852 1,666 1,685
Other interest income 8 75 48 146
-------- --------- -------- ---------
Total interest income 3,121 2,684 6,048 5,334
Interest expense on deposits and other 1,275 1,063 2,496 2,133
-------- --------- -------- ---------
Net interest income before provision for credit losses 1,846 1,621 3,552 3,201
Provision for credit losses 90 60 150 100
-------- --------- -------- ---------
Net interest income 1,756 1,561 3,402 3,101
-------- --------- -------- ---------
Service charges on deposit accounts 310 306 670 607
Other fees for customer service and other income 84 77 88 194
-------- --------- -------- ---------
Total other income 394 383 758 801
-------- --------- -------- ---------
Other expenses:
Salaries and employee benefits 822 748 1,646 1,498
Expenses of bank premises and fixed assets 240 212 473 430
Other operating expenses 561 616 1,240 1,182
-------- --------- -------- ---------
Total other expenses 1,623 1,576 3,359 3,110
-------- --------- -------- ---------
Income before provision for income taxes 527 368 801 792
Provision for income taxes 189 131 311 282
-------- --------- -------- ---------
Net income 338 237 490 510
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period 11 (466) 62 (750)
-------- --------- -------- ---------
Comprehensive income $ 349 $ (229) $ 552 $ (240)
======== ========= ======== =========
Earnings per share
Basic $ 0.64 $ 0.46 $ 0.94 $ 0.99
======== ========= ======== =========
Diluted $ 0.64 $ 0.45 $ 0.93 $ 0.97
======== ========= ======== =========
Weighted average common shares outstanding during period
Basic 524,201 514,406 523,358 514,406
======== ========= ======== =========
Diluted 528,859 523,931 528,016 523,931
======== ========= ======== =========
</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 Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 1,761 $ 271 $ 2,162 $ (548)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Investment securities (20) 2,675 (51) 2,160
Loans (7,006) (1,801) (13,297) (4,135)
Other real estate 248 (59) 272 19
Purchases of premises and equipment, net (119) (52) (251) (83)
-------- -------- -------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (6,897) 763 (13,327) (2,039)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 47 (1,768) 8,103 5,355
Proceeds from and (repayment) of other borrowings 3,684 (388) 2,619 (113)
Stock options exercised -- -- 47 --
Cash paid in lieu of fractional shares 1 (7) (7) (13)
-------- -------- -------- --------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 3,732 (2,163) 10,762 5,229
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,404) (1,129) (403) 2,642
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 10,522 11,547 9,521 7,776
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,118 $ 10,418 $ 9,118 $ 10,418
======== ======== ======== ========
</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
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 -- - -- (7) -- (7)
Comprehensive income:
Net income -- - -- 490 --
Net change in net unrealized
holding gains on securities -- - -- -- 62
Total comprehensive income -- - -- -- -- 552
------- -- ------ ------- ------- --------
Balance, June 30, 2000 524,201 $5 $7,974 $ 4,178 $(1,262) $ 10,895
======= == ====== ======= ======= ========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
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<PAGE> 8
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 six months ended June 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.
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<PAGE> 9
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 six months ended June 30, 2000 and 1999 (in thousands except per
share data).
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C>
Basic EPS computation:
Numerator - Net income $ 338 $ 237 $ 490 $ 510
Denominator - Weighted average shares outstanding 524 514 524 514
----- ----- ----- -----
Basic EPS $0.64 $0.46 $0.94 $0.99
===== ===== ===== =====
Diluted EPS computation:
Numerator - Net income $ 338 $ 237 $ 490 $ 510
----- ----- ----- -----
Denominator - Weighted average shares outstanding 524 514 524 514
Stock options 5 10 4 10
----- ----- ----- -----
529 524 528 524
----- ----- ----- -----
Diluted EPS $0.64 $0.45 $0.93 $0.97
===== ===== ===== =====
</TABLE>
- 9 -
<PAGE> 10
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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>
June 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 $56,543 $54,520 $56,542 $54,419
Other 118 118 118 118
------- ------- ------- -------
$56,661 $54,638 $56,660 $54,537
======= ======= ======= =======
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------- ------- -------
Securities to be held-to-maturity:
State and municipal $ 1,523 $ 1,448 $ 1,573 $ 1,469
======= ======= ======= =======
</TABLE>
NOTE 5 - LOANS
Loans consisted of (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- --------
<S> <C> <C>
Real estate $ 81,828 $ 72,365
Consumer and other loans 10,286 8,869
Commercial and agricultural 9,742 7,414
--------- --------
Total loans, gross 101,856 88,648
Unearned income and deferred fees and credits (240) (300)
Allowance for credit losses (1,185) (1,214)
--------- --------
Net loans $ 100,431 $ 87,134
========= ========
</TABLE>
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<PAGE> 11
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 Six Months For the Twelve Months
Ended June 30, Ended December 31,
2000 1999
------- -------
<S> <C> <C>
Balance, beginning of period $ 1,214 $ 1,277
Recoveries 19 35
Charge offs (198) (318)
Provision charged to expense 150 220
------- -------
Balance, end of period $ 1,185 $ 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 June 30, 2000, consisted of commitments to extend
credit approximating $8.6 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.
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<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 $174.1
million at June 30, 2000. Since December 31, 1999, the Company's total assets
have grown $12.2 million from $161.9 million, an increase of 7.5%. During the
same period, net loans have grown by $13.3 million from $87.1 million to $100.4
million, an increase of 15.3%.
Net income was $338,000 and $490,000 for the three and six months ended June 30,
2000, respectively, compared with $237,000 and $510,000 for the same periods in
1999, an increase of $101,000, or 42.6%, for the three months ended and a
decrease of $20,000 or 3.9% for the six months ended June 30, 2000. The increase
in net income for the three month period is due to increased loan volume and
associated loan fee income. The decrease for the six month period is primarily
due to increased cost of funding the loan growth and a nonrecurring
reimbursement of expenses during the six-month period of 1999.
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.
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<PAGE> 13
RESULTS OF OPERATIONS
General
Net earnings for the three months ended June 30, 2000, were $338,000 or $0.64
per share, compared to net earnings of $237,000, or $0.46 per share, for the
three months ended June 30, 1999. The increase in net earnings was primarily
due to an increase in loan fees and interest of 29.8%, while interest expense
on deposits and other borrowings increased only 19.9%.
Net Interest Income
Interest income increased by $437,000 from $2,684,000 and $714,000 from
$5,334,000 for the three and six months ended June 30, 1999, respectively, to
$3,121,000 and $6,048,000 for the three and six months ended June 30, 2000,
respectively. Interest and fee income on loans increased $831,000 due to an
increase in the average loan portfolio balance from $78.7 million for the six
months ended June 30, 1999, to $94.2 million for the comparable 2000 period.
Average yields on loans improved to 9.25% in 2000 versus 8.68% in 1999.
Interest on investment securities remained stable at $1.7 million with a slight
decrease in the average balance of the portfolio from $58.9 million in 1999 to
$58.2 million in 2000. The average yield on the investment securities portfolio
decreased slightly to 5.73% at June 30, 2000, from 5.77% in the same period in
1999. Interest on other interest-earning assets decreased $98,000 due to a
decrease of $4.6 million in average other interest-earning assets for the
quarter ended June 30, 2000, as compared with the same period in 1999. Strong
loan growth during the first six 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 7.32% in 1999 to 7.89% in 2000.
Interest expense increased to $1,275,000 and 2,496,000 for the three and six
months ended June 30, 2000, respectively, from $1,063,000 and $2,133,000 for the
three and six months ended June 30, 1999, respectively. This increase was
primarily due to growth in average interest-bearing liabilities from $112.4
million for the six months ended June 30, 1999, to $120.1 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 39 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 six months ended June 30, 2000, was 4.64% as
compared with 4.36% for the same period in 1999. This rise was primarily
attributable to a rising rate environment, increased loan volume, increased
competition for loans and funds in the market, 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 six months ended June
30, 2000, loan charge-offs were $198,000 compared to $177,000 for the same
period in 1999. This is due to seasoning of the loan portfolio and changing
economic conditions. For the six months ended June 30, 2000, loan recoveries
were $19,000 compared to $20,000 for the same period in 1999. The provision for
the three and six months ended June 30, 2000, was $90,000 and $150,000,
respectively, as compared with $60,000 and $100,000 for the three and six months
ended June 30, 1999, respectively.
Other Income
Total other income increased $11,000, or 2.9% and declined $43,000 or 5.4% for
the three and six months ended June 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 $4,000 or 1.3% and $63,000 or 10.4%
for the three and six months ended June 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.
- 13 -
<PAGE> 14
Other Expense
Total other expense increased $47,000, or 3.0% and $249,000 or 8.0%, for the
three and six months ended June 30, 2000, respectively, compared to 1999,
reflecting the overall growth of the Bank. Annualized operating expenses were
3.90% and 4.03% of average assets for the three and six months ended June 30,
2000, respectively, versus 4.09% and 4.06%, 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 six months ended June 30, 2000, were $94.2 million
versus $78.7 million for the same period in 1999, an increase of $15.5 million,
or 19.7%. Total average interest-bearing liabilities for the six months ended
June 30, 2000, were $120.1 million versus $112.4 million for the same period in
1999, an increase of $7.7 million, or 6.9%. 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 $13.3 million, or 15.3%, and
investment securities increased by $51,000, or 0.09%. Total deposits increased
$8.1 million, or 5.5%, from December 31, 1999, to June 30, 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 $60,000 at June
30, 2000. Total interest-bearing deposits have grown $5.4 million, or 4.7%
during the first six months of 2000. Noninterest-bearing deposits have grown
$2.7 million, or 8.3%, since December 31, 1999.
Average Balances, Income and Expenses, and Rates. The following table depicts,
for the periods indicated, certain information related to the Company's average
balance sheet and its average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.
- 14 -
<PAGE> 15
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------
2000 1999
-------------------------------------- ----------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
($ in thousands) BALANCE DIVIDENDS RATE MIX BALANCE DIVIDENDS RATE MIX
-------- ------ ------- ---- -------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 94,206 $4,334 9.25% 61% $ 78,732 $3,390 8.68% 55%
Investment and mortgage-
backed securities 58,184 1,666 5.73% 38% 58,932 1,685 5.77% 41%
Other interest-earning
assets 1,679 48 5.75% 1% 6,229 146 4.73% 4%
-------- ------ --- -------- ------ ---
Total interest-earning
assets 154,069 6,048 7.89% 100% 143,893 5,221 7.32% 100%
====== === ====== ===
Noninterest -earning assets 12,402 10,559
-------- --------
Total assets $166,471 $154,452
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 36,222 577 3.20% 30% $ 31,130 403 2.61% 28%
Savings 16,719 176 2.12% 14% 17,890 202 2.28% 16%
Certificates of deposit 65,368 1,691 5.20% 55% 63,376 1,508 4.80% 56%
Other borrowings 1,761 52 5.94% 1% -- -- 0.00% 0%
-------- ------ --- -------- ------ ---
Total interest-bearing
liabilities $120,070 2,496 4.18% 100% $112,396 2,113 3.79% 100%
======== ====== === ======== ====== ===
Interest rate spread 3.71% 3.53%
Net interest margin $3,552 4.64% $3,108 4.36%
====== ======
Interest-bearing deposits $118,309 $2,444 4.15% 78% $112,396 $2,113 3.79% 78%
Noninterest-bearing deposits 33,930 -- 0.00% 22% 31,364 -- 0.00% 22%
-------- ------ --- -------- ------ ---
Total deposits $152,239 $2,444 3.23% 100% $143,760 $2,113 2.96% 100%
======== ====== === ======== ====== ===
Demand, money market and
NOW deposits $ 36,222 $ 577 3.20% 52% $ 31,130 $ 403 2.61% 50%
Noninterest-bearing deposits 33,930 -- 0.00% 48% 31,364 -- 0.00% 50%
-------- ------ --- -------- ------ ---
Total transaction
deposit accounts $ 70,152 $ 577 1.65% 100% $ 62,494 $ 403 1.30% 100%
======== ====== === ======== ====== ===
Ratio of average interest-earning
assets to average interest-
bearing liabilities 128.32% 128.02%
======== ========
</TABLE>
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<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 June 30, 2000, the Company had 41 loans classified as substandard, doubtful,
or loss totaling $1.4 million compared to $2.4 million at June 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 June 30, 2000, the allowance for credit losses amounted to $1,185,000, or
1.17% 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 $272,000 to $35,000 at June 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.
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<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 June 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 June 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 $1.7 million in the first six months of 2000 as compared to
$6.2 million in the same period of 1999. At June 30, 2000, and December 31,
1999, short-term investments totaled $60,000 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 $146.4 million at June 30, 2000, and $138.0
million at December 31, 1999. This includes noninterest-bearing deposits of
$35.3 million at June 30, 2000, compared to $32.6 million at June 30, 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 June 30, 2000, the
Company had commitments to originate loans totaling $8.6 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 June 30, 2000, totaled $54.0 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 June 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) $ 11,307 12.14% $ 7,447 8.00% $ 9,307 10.00%
Tier I Capital (to Risk-Weighted Assets) $ 10,143 10.89% $ 3,733 4.00% $ 5,593 6.00%
Tier I Capital (to Average Assets) $ 10,143 6.09% $ 6,653 4.00% $ 8,343 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) $ 10,570 11.36% $ 7,445 8.00% $ 9,305 10.00%
Tier I Capital (to Risk-Weighted Assets) $ 9,407 10.11% $ 3,722 4.00% $ 5,587 6.00%
Tier I Capital (to Average Assets) $ 9,407 5.72% $ 6,577 4.00% $ 8,227 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.
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: August 10, 2000 /s/ Joe G. Mullins
------------------------------- ------------------------------
Joe G. Mullins
Executive Vice President and
Chief Administrative Officer
Date: August 10, 2000 /s/ Anita DeWitt
------------------------------ ------------------------------
Anita DeWitt
Treasurer
- 20 -
