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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-30779
BIG LAKE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-2613321
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1409 SOUTH PARROTT AVENUE, OKEECHOBEE, FLORIDA 34974
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (863) 467-4663
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Check whether the issuer has (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $12,457,000.
The aggregate market value of the Common Stock of the issuer held by
non-affiliates of the issuer (217,756 shares) on February 18, 2000, was
approximately $5,879,000. As of such date, no organized trading market existed
for the Common Stock of the issuer. The aggregate market value was computed by
reference the last sale of the Common Stock of the issuer at $27.00 per share on
November 2, 1999. For the purposes of this response, directors, officers and
holders of 5% or more of the issuer's Common Stock are considered the affiliates
of the issuer at that date.
As of February 18, 2000, there were issued and outstanding 511,729
shares of the issuer's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on March 16, 2000 to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the issuer's fiscal
year end are incorporated into Part III, Items 10 through 13 of this Annual
Report on Form 10-KSB
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TABLE OF CONTENTS
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PART I........................................................................................................1
Item 1. Business............................................................................................1
General.............................................................................................1
Lending Activities..................................................................................2
Deposit Activities..................................................................................3
Investments.........................................................................................3
Correspondent Banking...............................................................................4
Data Processing.....................................................................................4
Effect of Governmental Policies.....................................................................4
Interest and Usury..................................................................................5
Supervision and Regulation..........................................................................5
Competition........................................................................................12
Employees..........................................................................................13
Statistical Profile and Other Financial Data.......................................................13
Item 2. Properties.........................................................................................14
Item 3. Legal Proceedings..................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders................................................14
PART II......................................................................................................15
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..........................15
Dividends..........................................................................................15
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations..............16
General............................................................................................17
Liquidity and Capital Resources....................................................................17
Results of Operations..............................................................................18
Comparison of Years Ended December 31, 1999 and 1998...............................................21
Asset/Liability Management.........................................................................23
Financial Condition................................................................................26
Other Borrowings...................................................................................38
Impact of Inflation and Changing Prices............................................................38
Future Accounting Requirements.....................................................................38
Item 7. Financial Statements...............................................................................38
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Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............38
PART III ...................................................................................................39
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act..........................................................39
Item 10. Executive Compensation.............................................................................39
Item 11. Security Ownership of Certain Beneficial Owners and Management.....................................39
Item 12. Certain Relationships and Related Transactions.....................................................39
Item 13. Exhibits, Financial Statement Schedules, and Reports of Form 8-K...................................40
SIGNATURES...................................................................................................42
EXHIBIT INDEX................................................................................................44
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PART I
ITEM 1. BUSINESS
GENERAL
Big Lake Financial Corporation ("BLF") was incorporated under the laws
of the State of Florida on August 8, 1985. BLF is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act")
and owns all of the voting shares of Big Lake National Bank.
BLF has no significant operations other than owning the stock of Big
Lake National Bank. Big Lake National Bank is a national banking association and
is the only source of revenue for BLF.
BLF provides a range of consumer and commercial banking services to
individuals, businesses and industries. The basic services offered by BLF
include: demand interest-bearing and noninterest-bearing accounts, sweep
investment accounts, money market deposit accounts, NOW accounts, time deposits,
safe deposit services, credit cards, cash management, direct deposits, notary
services, money orders, night depository, travelers' checks, cashier's checks,
domestic collections, savings bonds, bank drafts, automated teller services,
drive-in tellers, and banking by mail. In addition, BLF makes secured and
unsecured commercial and real estate loans and issues stand-by letters of
credit. BLF provides automated teller machine (ATM) cards, as a part of the
HONOR ATM Network, thereby permitting customers to utilize the convenience of
larger ATM networks. In addition to the HONOR ATM Network, the Bank also
provides the Presto and Cirrus systems for ATM use. BLF offers Visa Debit Cards
as a new convenient way for its clients to have access to their funds. In
addition to the foregoing services, the offices of BLF provide customers with
extended banking hours. BLF does not have trust powers and, accordingly, no
trust services are provided.
The revenues of BLF are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest and
dividends from investment and mortgage-backed securities, and short-term
investments. The principal sources of funds for BLF's lending activities are its
deposits, repayment of loans, and the sale and maturity of investment
securities. The principal expenses of BLF are the interest paid on deposits, and
operating and general administrative expenses.
As is the case with banking institutions generally, BLF's operations
are materially and significantly influenced by general economic conditions and
by related monetary and fiscal policies of financial institution regulatory
agencies, including the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and the Office of the Comptroller of the Currency ("OCC").
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand
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and availability of funds. BLF faces strong competition in the attraction of
deposits (its primary source of lendable funds) and in the origination of loans.
See "Competition."
LENDING ACTIVITIES
BLF offers a range of lending services, including real estate, consumer
and commercial loans, to individuals and small businesses and other
organizations that are located in, or conduct a substantial portion of their
business in, BLF's market area. BLF's consolidated total loans at December 31,
1999 were $88.6 million, or 54.7% of total BLF consolidated assets. The interest
rates charged on loans vary with the degree of risk, maturity, and amount of the
loan, and are further subject to competitive pressures, money market rates,
availability of funds, and government regulations. BLF has no foreign loans or
loans for highly leveraged transactions.
BLF's loans are concentrated in three major areas: commercial loans,
real estate loans, and consumer loans. A majority of BLF's loans are made on a
secured basis. As of December 31, 1999, approximately 81.6% of BLF's
consolidated loan portfolio consisted of loans secured by mortgages on real
estate, of which approximately 50.5% of the total loan portfolio is secured by
1-4 family residential properties.
BLF's commercial loan portfolio includes loans to individuals and
small-to-medium-sized businesses located primarily in Okeechobee, Highlands,
Hardee, DeSoto, Glades, and Hendry counties for working capital, equipment
purchases, and various other business purposes. A majority of commercial loans
are secured by real estate, equipment, or similar assets, but these loans may
also be made on an unsecured basis. Commercial loans may be made at variable or
fixed rates of interest. Commercial lines of credit are typically granted on a
one-year basis, with loan covenants and monetary thresholds. Other commercial
loans with terms or amortization schedules of longer than one year will normally
carry interest rates which vary with the prime lending rate and will become
payable in full and are generally refinanced in three to five years. Commercial
and agricultural loans not secured by real estate amounted to approximately 8.4%
of BLF's total loan portfolio as of December 31, 1999.
BLF's real estate loans are secured by mortgages and consist primarily
of loans to individuals and businesses for the purchase, improvement of or
investment in real estate and for the construction of single-family residential
units or the development of single-family residential building lots. These real
estate loans may be made at fixed or variable interest rates. BLF generally does
not make fixed-rate commercial real estate loans for terms exceeding three
years. Loans in excess of three years are generally adjustable. BLF's
residential real estate loans generally are repayable in monthly installments
based on up to a 30-year amortization schedule with variable interest rates.
BLF's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, but includes some business purpose
loans which are payable on an installment basis. The majority of these loans are
for terms of less than five years and are secured by liens on various personal
assets of the borrowers, but consumer loans may also be made on an unsecured
basis. Consumer loans are made at fixed and variable interest rates, and are
often based on up to a five-year amortization schedule.
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For additional information regarding BLF's loan portfolio, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition."
Loan originations are derived from a number of sources. Loan
originations can be attributed to direct solicitation by BLF's loan officers,
existing customers and borrowers, advertising, walk-in customers and, in some
instances, referrals from brokers.
Certain credit risks are inherent in making loans. These include
prepayment risks, risks resulting from uncertainties in the future value of
collateral, risks resulting from changes in economic and industry conditions,
and risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility. BLF attempts to minimize credit losses through various
means. In particular, on larger credits, BLF generally relies on the cash flow
of a debtor as the source of repayment and secondarily on the value of the
underlying collateral. In addition, BLF attempts to utilize shorter loan terms
in order to reduce the risk of a decline in the value of such collateral.
DEPOSIT ACTIVITIES
Deposits are the major source of BLF's funds for lending and other
investment activities. BLF considers the majority of its regular savings,
demand, NOW and money market deposit accounts to be core deposits. These
accounts comprised approximately 56.3% of BLF's consolidated total deposits at
December 31, 1999. Approximately 43.7% of BLF's consolidated deposits at
December 31, 1999 were certificates of deposit. Generally, BLF attempts to
maintain the rates paid on its deposits at a competitive level. Time deposits of
$100,000 and over made up approximately 6.7% of BLF's consolidated total
deposits at December 31, 1999. The majority of the deposits of BLF are generated
from Okeechobee, DeSoto, Glades, Hardee, Highlands, and Hendry counties. BLF
does not currently accept brokered deposits. For additional information
regarding BLF's deposit accounts, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition."
INVESTMENTS
BLF invests a portion of its assets in U.S. Treasury and U.S.
Government agency obligations, certificates of deposit, collateralized mortgage
obligations ("CMO's"), and federal funds sold. BLF's investments are managed in
relation to loan demand and deposit growth, and are generally used to provide
for the investment of excess funds at minimal risks while providing liquidity to
fund increases in loan demand or to offset fluctuations in deposits.
With respect to BLF's investment portfolio, BLF's total portfolio may
be invested in U.S. Treasury and general obligations of its agencies because
such securities generally represent a minimal investment risk. Occasionally, BLF
purchases certificates of deposits of national and state banks. These
investments may exceed $100,000 in any one institution (the limit of FDIC
insurance for deposit accounts). CMO's are secured with Federal National
Mortgage Association ("FNMA") mortgage-backed securities and generally have a
shorter life than the
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stated maturity. Federal funds sold is the excess cash BLF has available over
and above daily cash needs. This money is invested on an overnight basis with
approved correspondent banks.
BLF monitors changes in financial markets. In addition to investments
for its portfolio, BLF monitors its daily cash position to ensure that all
available funds earn interest at the earliest possible date. A portion of the
investment account is designated as secondary reserves and invested in liquid
securities that can be readily converted to cash with minimum risk of market
loss. These investments usually consist of U.S. Treasury obligations, U.S.
government agencies and federal funds. The remainder of the investment account
may be placed in investment securities of different type and longer maturity.
Daily surplus funds are sold in the federal funds market for one business day.
BLF attempts to stagger the maturities of its securities so as to produce a
steady cash flow in the event BLF needs cash, or economic conditions change to a
more favorable rate environment.
CORRESPONDENT BANKING
Correspondent banking involves one bank providing services to another
bank which cannot provide that service for itself from an economic or practical
standpoint. BLF is required to purchase correspondent services offered by larger
banks, including check collections, purchase of federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participation with
correspondent banks.
BLF sells loan participations to correspondent banks with respect to
loans which exceed BLF's lending limit. Management of BLF has established
correspondent relationships with Independent Bankers' Bank of Florida and
Compass Bank. BLF pays for such services.
DATA PROCESSING
BLF has a data processing department which provides a full range of
data processing services, including an automated general ledger, deposit
accounting, and commercial, mortgage and installment lending data processing.
EFFECT OF GOVERNMENTAL POLICIES
The earnings and business of BLF are and will be affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply
of credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for these
purposes influence in various ways the overall level of investments, loans,
other extensions of credit and deposits, and the interest rates paid on
liabilities and received on assets.
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INTEREST AND USURY
BLF is subject to numerous state and federal statutes that affect the
interest rates that may be charged on loans. These laws do not, under present
market conditions, deter BLF from continuing the process of originating loans.
SUPERVISION AND REGULATION
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules, and regulations affecting BLF and Big Lake
National Bank. This summary is qualified in its entirety by reference to the
particular statutory and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of BLF and Big Lake National Bank. Supervision,
regulation, and examination of banks by regulatory agencies are intended
primarily for the protection of depositors, rather than shareholders.
Bank Holding Company Regulation. BLF is a bank holding company,
registered with the Federal Reserve under the BHC Act. As such, BLF is subject
to the supervision, examination and reporting requirements of the BHC Act and
the regulations of the Federal Reserve. The BHC Act requires that a bank holding
company obtain the prior approval of the Federal Reserve before (i) acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank, (ii) taking any action that causes a bank to become a subsidiary of
the bank holding company, or (iii) merging or consolidating with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience, and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required of
any bank which has applied to:
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- - charter a national bank,
- - obtain deposit insurance coverage for a newly chartered institution,
- - establish a new branch office that will accept deposits,
- - relocate an office, or
- - merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution
In the case of a bank holding company applying for approval to acquire
a bank or other bank holding company, the Federal Reserve will assess the record
of each subsidiary bank of the applicant bank holding company, and such records
may be the basis for denying the application.
The BHC Act generally prohibits a bank holding company from engaging in
activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity can reasonably be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency that outweigh possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest, or unsound banking practices. For example, factoring accounts
receivable, acquiring or servicing loans, leasing personal property, conducting
securities brokerage activities, performing certain data processing services,
acting as agent or broker in selling credit life insurance and certain other
types of insurance in connection with credit transactions, and certain insurance
underwriting activities have all been determined by regulations of the Federal
Reserve to be permissible activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity or terminate its ownership or control of
any subsidiary, when it has reasonable cause to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed
into law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas
of financial services regulation. The law permits the creation of new financial
services holding companies that can offer a full range of financial products
under a regulatory structure based on the principle of functional regulation.
The legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
The law also provides financial organizations with the opportunity to structure
these new financial affiliations through a holding company structure or a
financial subsidiary. The new law reserves the role of the Federal Reserve Board
as the supervisor for bank holding companies. At the same time, the law also
provides a system of functional regulation which is designed to utilize the
various existing federal and state regulatory bodies. The law also sets up a
process for coordination between the Federal Reserve Board and the Secretary of
the Treasury regarding the approval of
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new financial activities for both bank holding companies and national bank
financial subsidiaries.
The law also includes a minimum federal standard of financial privacy.
Financial institutions are required to have written privacy policies that must
be disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act also
provides for the functional regulation of bank securities activities. The law
repeals the exemption that banks were afforded from the definition of "broker,"
and replaces it with a set of limited exemptions that allow the continuation of
some historical activities performed by banks. In addition, the act amends the
securities laws to include banks within the general definition of dealer.
Regarding new bank products, the law provides a procedure for handling products
sold by banks that have securities elements. In the area of CRA activities, the
law generally requires that financial institutions address the credit needs of
low-to-moderate income individuals and neighborhoods in the communities in which
they operate. Bank regulators are required to take the CRA ratings of a bank or
of the bank subsidiaries of a holding company into account when acting upon
certain branch and bank merger and acquisition applications filed by the
institution. Under the law, financial holding companies and banks that desire to
engage in new financial activities are required to have satisfactory or better
CRA ratings when they commence the new activity.
Most of the provisions of the law take effect on November 12, 1999,
with other provisions being phased in over a one to two year period thereafter.
It is anticipated that the effects of the law, while providing additional
flexibility to bank holding companies and banks, may result in additional
affiliation of different financial services providers, as well as increased
competition, resulting in lower prices, more convenience, and greater financial
products and services available to consumers.
Bank Regulation. Big Lake National Bank is chartered under the national
banking laws and its deposits are insured by the FDIC to the extent provided by
law. Big Lake National Bank is subject to comprehensive regulation, examination
and supervision by the OCC and to other laws and regulations applicable to
banks. Such regulations include limitations on loans to a single borrower and to
its directors, officers and employees; restrictions on the opening and closing
of branch offices; the maintenance of required capital and liquidity ratios; the
granting of credit under equal and fair conditions; and the disclosure of the
costs and terms of such credit. Big Lake National Bank is examined periodically
by the OCC, to whom it submits periodic reports regarding its financial
condition and other matters. The OCC has a broad range of powers to enforce
regulations under its jurisdiction, and to take discretionary actions determined
to be for the protection and safety and soundness of banks, including the
institution of cease and desist orders and the removal of directors and
officers. The OCC also has the authority to approve or disapprove mergers,
consolidations, and similar corporate actions.
There are various statutory limitations on the ability of BLF to pay
dividends. The OCC also has the general authority to limit the dividend payment
by banks if such payment may be deemed to constitute an unsafe and unsound
practice. For information on the restrictions on the
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right of Big Lake National Bank to pay dividends to BLF, see Part II - Item 5
"Market for the Registrant's Common Equity and Related Stockholder Matters."
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, banks are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or the
providing of any property or service.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposed major regulatory reforms, stronger capital standards for
savings and loan associations and stronger civil and criminal enforcement
provisions. FIRREA also provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with:
- - the default of a commonly controlled FDIC insured depository
institution; or
- - any assistance provided by the FDIC to a commonly controlled FDIC
insured institution in danger of default.
The FDIC Improvement Act of 1993 ("FDICIA") made a number of reforms
addressing the safety and soundness of deposit insurance funds, supervision,
accounting, and prompt regulatory action, and also implemented other regulatory
improvements. Annual full-scope, on-site examinations are required of all
insured depository institutions. The cost for conducting an examination of an
institution may be assessed to that institution, with special consideration
given to affiliates and any penalties imposed for failure to provide information
requested. Insured state banks also are precluded from engaging as principal in
any type of activity that is impermissible for a national bank, including
activities relating to insurance and equity investments. The Act also recodified
current law restricting extensions of credit to insiders under the Federal
Reserve Act.
Also important in terms of its effect on banks has been the
deregulation of interest rates paid by banks on deposits and the types of
deposit accounts that may be offered by banks. Most regulatory limits on
permissible deposit interest rates and minimum deposit amounts expired several
years ago. The effect of the deregulation of deposit interest rates generally
has been to increase the costs of funds to banks and to make their costs of
funds more sensitive to fluctuations in money market rates. A result of the
pressure on bank's interest margins due to deregulation has been a trend toward
expansion of services offered by banks and an increase in the emphasis placed on
fee or noninterest income.
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%. Under the risk-based standard, capital
is classified into two tiers. Tier 1 capital consists of common shareholders'
equity, excluding the unrealized gain (loss) on available-for-sale
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securities, minus certain intangible assets. Tier 2 capital consists of the
general allowance for credit losses except for 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. At
December 31, 1999, Big Lake National Bank's Tier 1 and total risk-based capital
ratios were 10.99% and 12.24%, respectively, and BLF's Tier 1 and total
risk-based capital ratios were 11.32% and 12.57%, respectively.
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. At December 31, 1999, BLF's and Big Lake National Bank's leverage
ratios were 5.99% and 5.79%, respectively.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized."
The OCC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows:
- - an institution is "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio
of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain
a specific capital level for any capital measures;
- - an institution is "adequately capitalized" if it has a total risk-based
capital ratio of 8% or greater, has a Tier 1 risk-based capital ratio
of 4% or greater, and has a leverage ratio of 4% or greater;
- - an institution is "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, has a Tier 1 risk-based capital ratio
that is less than 4% or has a leverage ratio that is less than 4%;
- - an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3% or a leverage ratio that is less
than 3%; and
- - an institution is "critically undercapitalized" if its "tangible
equity" is equal to or less than 2% of its total assets.
The OCC also, after an opportunity for a hearing, has authority to
downgrade an institution from "well capitalized" to "adequately capitalized" or
to subject an "adequately
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capitalized" or "undercapitalized" institution to the supervisory actions
applicable to the next lower category, for supervisory concerns.
Generally, FDICIA requires that an "undercapitalized" institution must
submit an acceptable capital restoration plan to the appropriate federal banking
agency within 45 days after the institution becomes "undercapitalized" and the
agency must take action on the plan within 60 days. The appropriate federal
banking agency may not accept a capital restoration plan unless, among other
requirements, each company having control of the institution has guaranteed that
the institution will comply with the plan until the institution has been
adequately capitalized on average during each of the three consecutive calendar
quarters and has provided adequate assurances of performance. The aggregate
liability under this provision of all companies having control of an institution
is limited to the lesser of:
- - 5% of the institution's total assets at the time the institution
becomes "undercapitalized" or
- - the amount which is necessary, or would have been necessary, to bring
the institution into compliance with all capital standards applicable
to the institution as of the time the institution fails to comply with
the plan filed pursuant to FDICIA.
An "undercapitalized" institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the appropriate
federal banking agency has accepted its capital restoration plan, the
institution is implementing the plan, and the agency determines that the
proposed action is consistent with and will further the achievement of the plan,
or the appropriate Federal banking agency determines the proposed action will
further the purpose of the "prompt corrective action" sections of FDICIA.
If an institution is "critically undercapitalized," it must comply with
the restrictions described above. In addition, the appropriate Federal banking
agency is authorized to restrict the activities of any "critically
undercapitalized" institution and to prohibit such an institution, without the
appropriate Federal banking agency's prior written approval, from:
- - entering into any material transaction other than in the usual course
of business;
- - engaging in any covered transaction with affiliates (as defined in
Section 23A(b) of the Federal Reserve Act);
- - paying excessive compensation or bonuses; and
- - paying interest on new or renewed liabilities at a rate that would
increase the institution's weighted average costs of funds to a level
significantly exceeding the prevailing rates of interest on insured
deposits in the institution's normal market areas.
The "prompt corrective action" provisions of FDICIA also provide that
in general no institution may make a capital distribution if it would cause the
institution to become
10
<PAGE> 14
"undercapitalized." Capital distributions include cash (but not stock)
dividends, stock purchases, redemptions, and other distributions of capital to
the owners of an institution.
Additionally, FDICIA requires, among other things, that:
- - only a "well capitalized" depository institution may accept brokered
deposits without prior regulatory approval and
- - the appropriate federal banking agency annually examine all insured
depository institutions, with some exceptions for small, "well
capitalized" institutions and state-chartered institutions examined by
state regulators.
FDICIA also contains a number of consumer banking provisions, including
disclosure requirements and substantive contractual limitations with respect to
deposit accounts.
As of December 31, 1999, BLF and Big Lake National Bank met the capital
requirements of a "well capitalized" institution.
The OCC has proposed revising its risk-based capital requirements to
ensure that such requirements provide for explicit consideration by commercial
banks of interest rate risk. Under the proposed rule, a bank's interest rate
risk exposure would be quantified using either the measurement system set forth
in the proposal or the bank's internal model for measuring such exposure, if
such model is determined to be adequate by the bank's examiner. If the dollar
amount of a bank's interest rate risk exposure, as measured by either
measurement system, exceeds 1% of the bank's total assets, the bank would be
required under the proposed rule to hold additional capital equal to the dollar
amount of the excess. It is anticipated that the regulatory agencies will issue
a revised proposed rule for further public comment. Pending issuance of such
revised proposal, BLF's management cannot determine what effect, if any, an
interest rate risk component would have on the capital of its subsidiary bank.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and orders.
Among other things, the agencies may require that institutions cease and desist
from certain activities, may preclude persons from participating in the affairs
of insured depository institutions, may suspend or remove deposit insurance, and
may impose civil money penalties against institution-affiliated parties for
certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of Big Lake National Bank
will vary from time to time, depending on a number of factors, including
conditions in the money markets, the costs and availability of funds, and
prevailing interest rates.
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking, however, is subject to prior approval by the OCC. Any such
approval would take into
11
<PAGE> 15
consideration several factors, including the bank's level of capital, the
prospects and economics of the proposed branch office, and other conditions
deemed relevant by the OCC for purposes of determining whether approval should
be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of
a bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of BLF may be less likely to benefit
from the rapid increases in stock prices that may result from tender offers or
similar efforts to acquire control of other companies. Federal law also imposes
restrictions on acquisitions of stock in a bank holding company and a state
bank. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve
before acquiring control of any bank holding company and the OCC before
acquiring control of any national bank (such as Big Lake National Bank). Upon
receipt of such notice, the OCC may approve or disapprove the acquisition. The
Change in Bank Control Act creates a rebuttable presumption of control if a
member or group acquires a certain percentage or more of a bank holding
company's or state bank's voting stock, or if one or more other control factors
set forth in the Act are present.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1996, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state will be
permissible one year after enactment. Interstate branching and consolidation of
existing bank subsidiaries in different states is permissible. Florida has a law
that allows out-of-state bank holding companies (located in states that allow
Florida bank holding companies to acquire banks and bank holding companies in
that state) to acquire Florida banks and Florida bank holding companies. The law
essentially provides for out-of-state entry by acquisition only (and not by
interstate branching) and requires the acquired Florida bank to have been in
existence for at least two years.
Effect of Governmental Policies. The earnings and businesses of BLF and
Big Lake National Bank are affected by the policies of various regulatory
authorities of the United States, especially the Federal Reserve. The Federal
Reserve, among other things, regulates the supply of credit and deals with
general economic conditions within the United States. The instruments of
monetary policy employed by the Federal Reserve for those purposes influence in
various ways the overall level of investments, loans, other extensions of
credit, and deposits, and the interest rates paid on liabilities and received on
assets.
COMPETITION
BLF encounters strong competition both in making loans and in
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking. In one or more aspects of its business, BLF
competes with other commercial banks, savings and loan associations, credit
unions,
12
<PAGE> 16
finance companies, mutual funds, insurance companies, brokerage and investment
banking companies, and other financial intermediaries. Most of these
competitors, some of which are affiliated with bank holding companies, have
substantially greater resources and lending limits, and may offer certain
services that BLF does not currently provide. In addition, many of BLF's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and federally insured banks. Recent federal
and state legislation has heightened the competitive environment in which
financial institutions must conduct their business, and the potential for
competition among financial institutions of all types has increased
significantly.
To compete, BLF relies upon specialized services, responsive handling
of customer needs, and personal contacts by its officers, directors, and staff.
Large multi-branch banking competitors tend to compete primarily by rate and the
number and location of branches while smaller, independent financial
institutions tend to compete primarily by rate and personal service.
EMPLOYEES
As of December 31, 1999, BLF and Big Lake National Bank collectively
had 98 full-time employees (including executive officers) and 3 part-time
employees. The employees are not represented by a collective bargaining unit.
BLF and Big Lake National Bank consider relations with employees to be good.
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
Reference is hereby made to the statistical and financial data
contained in the section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations," for statistical and financial
data providing a review of BLF's business activities.
13
<PAGE> 17
ITEM 2. PROPERTIES
The main office of BLF and Big Lake National Bank is located at 1409 S.
Parrott Avenue, Okeechobee, Florida 34974, in a two-story building of
approximately 8,010 square feet, which is owned by BLF. Big Lake National Bank
also has banking offices located at 1801 Highway 441 SE, Okeechobee, Florida
34974, in a one-story building of approximately 1,196 square feet, which is
owned by Big Lake National Bank; a branch at 199 N. U.S. Highway 27, Lake
Placid, Florida 33852, in a one-story building of approximately 2,000 square
feet, which is owned by Big Lake National Bank; a branch at 300 South Berner
Road, Clewiston, Florida 33440, in a one-story building of approximately 5,700
square feet, which is owned by Big Lake National Bank; a branch at 401 E.
Sugarland Highway, Clewiston, Florida 33440, in a one-story building of
approximately 1,600 square feet, which is leased by Big Lake National Bank
(under a lease which, with renewal options, expires in 2001); a branch at 6th
Street and Highway 27, Moore Haven, Florida 33471, in a one-story building of
approximately 2,800 square feet, which is leased by Big Lake National Bank
(under a lease which, with renewal options, expires in 2000); a branch at 17 N.
Lee Street, LaBelle, Florida 33935, in a one-story building of approximately
1,960 square feet, which is owned by Big Lake National Bank; a branch in a
one-story building of approximately 1,491 square feet located at 1601 East Oak
Street, Arcadia, Florida 34266, which is owned by Big Lake National Bank; a
branch at 202 North 6th Avenue, Wauchula, Florida 33874 in a one-story building
of approximately 6,878 square feet, which is leased by Big Lake National Bank
(under a lease which, with renewal options, expires in 2013); and a branch
located at 3180 Highway 441 S.E., Okeechobee, Florida 34974, which is leased by
Big Lake National Bank (under a lease which, with renewal options, expires in
2014). Big Lake National Bank also has an operations center adjacent to the
branch office at 1801 Highway 441 S.E., Okeechobee, Florida 34974. This facility
is a one-story building of approximately 3,600 square feet, which is owned by
Big Lake National Bank. Big Lake National Bank operates a human resource and
training facility at 107 S.W 17th Street, Suite B, Okeechobee, Florida 34974.
This facility is leased by Big Lake National Bank (under a lease which, with
renewal options, expires in 2002).
ITEM 3. LEGAL PROCEEDINGS
BLF and Big Lake National Bank are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to their respective businesses.
Management does not believe that there is any pending or threatened proceeding
against BLF or Big Lake National Bank which, if determined adversely, would have
a material adverse effect on BLF's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of BLF security holders during the
fourth quarter of the year ended December 31, 1999.
14
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The shares of BLF Common Stock are not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions. There is no established public trading market for the shares of
BLF Common Stock. Management of BLF is aware of certain transactions in its
shares that have occurred since January 1, 1998, although the trading prices of
all stock transactions are not known. The following sets forth the high and low
trading prices for certain trades of BLF Common Stock that occurred in
transactions known to BLF management in the respective periods during 1998 and
1999:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
High Low Shares High Low Shares
------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C> <C>
1st Quarter $25.00 $24.00 713 $21.00 $21.00 972
2nd Quarter $27.00 $24.00 10,668 $23.00 $22.00 15,271
3rd Quarter $26.50 $25.00 2,520 $24.00 $22.00 10,669
4th Quarter $27.00 $27.00 1,339 $24.00 $23.00 883
</TABLE>
BLF had approximately 555 shareholders of record as of December 31,
1999.
DIVIDENDS
BLF has not paid any cash dividends in the past. BLF intends that, for
the foreseeable future, it will retain earnings to finance continued growth
rather than pay cash dividends on BLF Common Stock. If at any time BLF's Board
determines to pay dividends on the BLF Common Stock, the timing and the extent
to which dividends are paid by BLF will be determined by such Board in light of
then-existing circumstances, including BLF's rate of growth, profitability,
financial condition, existing and anticipated capital requirements, the amount
of funds legally available for the payment of cash dividends, regulatory
constraints and such other factors as the Board determines relevant. The source
of funds for payment of dividends by BLF will be dividends received from Big
Lake National Bank. Payments by Big Lake National Bank to BLF are limited by law
and regulations of the bank regulatory authorities. There are various statutory
and contractual limitations on the ability of Big Lake National Bank to pay
dividends to BLF. The OCC also has the general authority to limit the dividends
paid by national banks if such payment may be deemed to constitute an unsafe and
unsound practice. As a national bank, Big Lake National Bank may not pay
dividends from their paid-in surplus. All dividends must be paid out of
undivided profits then on hand, after deducting expenses, including reserves for
losses and bad debts. In addition, a national bank is prohibited from declaring
a dividend on its shares of common stock until its surplus equals its stated
capital, unless there has been transferred to surplus no less than one/tenth of
the bank's net profits of the preceding two consecutive half-year periods (in
the case of an annual dividend). The approval of the OCC is required if the
total of all dividends declared by a national bank in any calendar year exceeds
the total of its net profits for that year combined with its retained net
profits for the preceding two years, less any required transfers to surplus.
15
<PAGE> 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition of BLF at, and results of operations of BLF for the years ended,
December 31, 1999 and 1998. This discussion should be read in conjunction with
the consolidated financial statements and related footnotes of BLF presented
elsewhere herein.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 10,867 $ 9,094 $ 5,491 $ 4,229 $ 3,195
Interest expense 4,343 3,464 2,204 1,736 1,211
-------- -------- -------- -------- --------
Net interest income before provision for
credit losses 6,524 5,630 3,287 2,493 1,984
Provision for credit losses 220 144 280 132 70
-------- -------- -------- -------- --------
Net interest income after provision for
credit losses 6,304 5,486 3,007 2,361 1,914
Noninterest income 1,590 1,205 814 589 518
Noninterest expenses 6,357 5,043 2,847 2,112 1,574
-------- -------- -------- -------- --------
Earnings before income taxes 1,537 1,648 974 838 858
Provision for income taxes 553 574 316 287 308
-------- -------- -------- -------- --------
Net earnings $ 984 $ 1,074 $ 658 $ 551 $ 550
======== ======== ======== ======== ========
Per share data (1):
Earnings per share $ 1.95 $ 2.14 $ 1.86 $ 1.70 $ 1.70
Cash dividends declared $ -- $ -- $ -- $ -- $ --
Book value at end of period $ 20.16 $ 20.66 $ 18.80 $ 14.63 $ 13.18
Common shares outstanding at end of period (1) 505,199 501,934 495,437 324,340 324,340
Weighted average common shares outstanding
during period (1) 505,181 500,712 353,497 324,340 324,340
Total assets at end of period (2) $161,915 $150,442 $111,682 $ 59,408 $ 55,714
Cash and cash equivalents $ 9,521 $ 7,776 $ 9,788 $ 4,402 $ 12,520
Investment securities $ 56,110 $ 59,560 $ 22,759 $ 16,015 $ 11,922
Loans, net $ 87,134 $ 75,103 $ 73,972 $ 36,262 $ 28,663
Deposits $148,453 $138,608 $101,332 $ 54,245 $ 50,793
Other borrowings $ 2,157 $ 500 $ -- $ -- $ --
Stockholders' equity (2) $ 10,187 $ 10,370 $ 9,313 $ 4,744 $ 4,276
Total loans before allowance for credit losses $ 88,348 $ 76,380 $ 75,155 $ 36,732 $ 29,026
Allowance for credit losses $ 1,214 $ 1,277 $ 1,183 $ 470 $ 363
Nonperforming loans $ 353 $ 1,049 $ 1,536 $ 111 $ 30
Nonperforming loans and other assets $ 660 $ 1,221 $ 1,797 $ 111 $ 126
Allowance for credit losses as a percentage
of period-end total loans 1.37% 1.67% 1.57% 1.28% 1.25%
Allowance for credit losses as a percentage
of nonperforming loans 343.91% 121.73% 77.02% 423.42% 1210.00%
Total nonperforming loans as a percentage
of total loans .40% 1.37% 2.04% 0.30% 0.10%
Total nonperforming loans as a percentage
of total assets .22% 0.70% 1.37% 0.19% 0.05%
Total nonperforming loans and real estate
owned as a percentage of total assets .41% 0.81% 1.61% 0.19% 0.23%
</TABLE>
- -----------------------
(1)Adjusted for the stock dividends in shares of BLF Common Stock.
(2)Adjusted for prior period adjustment.
16
<PAGE> 20
GENERAL
BLF's principal asset is its ownership of Big Lake National Bank.
Accordingly, BLF's results of operations are primarily dependent upon the
results of operations of Big Lake National Bank. BLF conducts commercial banking
business consisting of attracting deposits from the general public and applying
those funds to the origination of commercial, consumer and real estate loans
(including commercial loans collateralized by real estate). BLF's profitability
depends primarily on net interest income, which is the difference between
interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate earned and paid on these balances. Net
interest income is dependent upon BLF's interest-rate spread which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income. The interest rate spread is
impacted by interest rates, deposit flows, and loan demand. Additionally, and to
a lesser extent, BLF's profitability is affected by such factors as the level of
noninterest income and expenses, the provision for credit losses, and the
effective tax rate. Noninterest income consists primarily of service fees on
deposit accounts. Noninterest expense consists of compensation and employee
benefits, occupancy and equipment expenses, deposit insurance premiums paid to
the FDIC, and other operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
A national bank is required to maintain a liquidity reserve of at least
3% of its net transaction deposit accounts in excess of $4.4 million. Where net
transaction deposit accounts exceed $49.3 million, the reserve requirements are
$1,347,000 plus 10% of the amount over $49.3 million. The liquidity reserve may
consist of cash on hand, cash on demand deposit with other correspondent banks,
and other investments and short-term marketable securities as determined by the
rules of the OCC, such as federal funds sold and United States securities or
securities guaranteed by the United States. As of December 31, 1999 and 1998,
Big Lake National Bank had liquidity ratios of 15.9% and 38.0%, respectively.
BLF's principal sources of funds are those generated by Big Lake
National Bank, including net increases in deposits, principal and interest
payments on loans, and proceeds from sales and maturities of investment
securities.
BLF uses its capital resources principally to fund existing and
continuing loan commitments and to purchase investment securities. At December
31, 1999 and 1998, BLF had commitments to originate loans totaling $6.5 million
and $6.8 million, respectively, and had issued but unused letters of credit of
$129,000 for each year. In addition, scheduled maturities of certificates of
deposit during the 12 months following December 31, 1999 and 1998 totaled $51.3
million and $47.1 million, respectively. Management believes that BLF has
adequate resources to fund all its commitments, that substantially all of its
existing commitments will be funded within 12 months and, if so desired, that
BLF can adjust the rates and terms on
17
<PAGE> 21
certificates of deposit and other deposit accounts to retain deposits in a
changing interest rate environment.
In accordance with risk capital guidelines issued by the OCC and
Federal Reserve, Big Lake National Bank and BLF are required to maintain a
minimum standard of total capital to risk-weighted assets of 8.0%. Additionally,
regulatory agencies require banks and holding companies to maintain a minimum
leverage-capital ratio of Tier 1 capital (as defined) to average assets. The
leverage-capital ratio ranges from 3.0% to 5.0% based on the bank's and bank
holding company's rating under the regulatory rating system.
During 1998, BLF entered into a line of credit agreement with
Independent Bankers' Bank of Florida that enables BLF to borrow up to $1.0
million. The purpose of this loan was to provide additional capital to Big Lake
National Bank in connection with its acquisition of two branches from First
Union National Bank ("First Union"). Advances of $500,000 were used during 1998
and $250,000 during 1999 by BLF to increase the capital of Big Lake National
Bank in order to maintain Big Lake National Bank's capital ratios at levels
requested by the OCC's approval of the acquisition of the First Union branches.
As of December 31, 1999, the outstanding amount owed by BLF under this line of
credit was $388,500. BLF repaid $361,500 of the principal outstanding in 1999.
The following table summarizes the regulatory capital levels and ratios
for Big Lake National Bank and BLF:
<TABLE>
<CAPTION>
ACTUAL RATIOS
-------------
BIG LAKE
NATIONAL REGULATORY
BANK BLF REQUIREMENT
----- ----- -----------
<S> <C> <C> <C>
At December 31, 1999
Total capital to risk-weighted assets 12.24% 12.57% 8.00%
Tier I capital to risk-weighted assets 10.99% 11.32% 4.00%
Tier I capital to average assets - leverage assets 5.79% 5.99% 4.00%
</TABLE>
RESULTS OF OPERATIONS
Net interest income before provision for credit losses, which constitutes
the principal source of income for BLF, represents the difference between
interest income on interest-earning assets and interest expense on
interest-bearing liabilities. The principal interest-earning assets are
investment securities and loans made to businesses and individuals.
Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), retail savings deposits and
money market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest-earning assets. Accordingly, net interest income depends
upon the volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
Net interest income before provision for credit losses was $6,524,000 for
BLF for the year ended December 31, 1999, compared with $5,630,000 for the year
ended December 31, 1998.
18
<PAGE> 22
This improvement in net interest income was a result of a higher volume of net
interest-earning assets, offset in part by a lower interest-rate spread.
The following table shows selected ratios for the periods ended or at the
dates indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Average equity as a percentage of average assets 6.62% 8.38%
Equity to total assets at end of period 6.29% 6.89%
Return on average assets 0.64% 0.91%
Return on average equity 9.60% 10.79%
Noninterest expense to average assets 4.10% 4.25%
</TABLE>
The rates and yields at the dates indicated were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
YIELD OR RATE AT
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Loans 9.04% 9.48%
Investment securities 5.80% 5.80%
Other interest-earning assets 4.80% 5.49%
All interest-earning assets 7.62% 8.24%
Money market deposits 2.11% 2.45%
NOW accounts 2.95% 2.87%
Savings deposits 2.22% 2.27%
Certificates of deposit 4.76% 5.16%
All interest-bearing liabilities 3.82% 4.10%
Interest-rate spread 3.80% 4.14%
</TABLE>
19
<PAGE> 23
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of BLF
from interest-earning assets and the resultant average yield; (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) net interest margin. Average balances were based on average daily
balances.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
------------------------------------ --------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
-------- -------- ---- -------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $ 81,096 $ 7,333 9.04% $ 74,223 $ 7,033 9.48%
Investment and
mortgage-backed securities 57,722 3,348 5.80% 24,520 1,422 5.80%
Other interest-earning assets(2) 3,879 186 4.80% 11,630 639 5.49%
-------- -------- -------- --------
Total interest-earning assets 142,697 10,867 7.62% 110,373 9,094 8.24%
-------- -------
Noninterest-earning assets 12,199 8,294
-------- --------
Total assets $154,896 $118,667
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 31,955 $ 875 2.74% $ 24,291 $ 665 2.74%
Savings 17,379 386 2.22% 10,730 244 2.27%
Certificates of deposit 63,598 3,028 4.76% 49,421 2,551 5.16%
Other 907 54 5.95% 90 4 4.44%
-------- -------- -------- --------
Total interest-bearing
liabilities 113,839 4,343 3.82% 84,532 3,464 4.10%
-------- --------
Noninterest-bearing liabilities 30,806 24,185
Stockholders' equity 10,251 9,950
-------- --------
Total liabilities and
stockholders' equity $154,896 $118,667
======== ========
Net interest income before provision
for credit losses $ 6,524 $ 5,630
======== ========
Interest-rate spread(3) 3.80% 4.14%
==== ====
Net interest margin(4) 4.57% 5.10%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 125.35% 130.57%
======== ========
</TABLE>
- ------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits due from other banks and federal funds
sold.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
20
<PAGE> 24
The following table sets forth certain information regarding changes in
interest income and interest expense of BLF for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in interest rate
(change in rate multiplied by prior volume), (2) changes in the volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 VS. 1998
INCREASE (DECREASE) DUE TO
--------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------- ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $(321) $ 651 $(30) $ 300
Investment and mortgage-backed securities -- 1,926 -- 1,926
Other interest-earning assets (81) (426) 54 (453)
----- ------- ---- -------
Total interest-earning assets (402) 2,151 24 1,773
----- ------- ---- -------
Interest-bearing liabilities:
Demand, money market and NOW deposits -- 210 -- 210
Savings (6) 151 (3) 142
Certificates of deposit (198) 732 (57) 477
Other 1 36 13 50
----- ------- ---- -------
Total interest-bearing liabilities (203) 1,129 (47) 879
----- ------- ---- -------
Net interest income before provision for credit losses $(199) $ 1,022 $ 71 $ 894
===== ======= ==== =======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
General
Net earnings for the year ended December 31, 1999, were $984,000, or
$1.95 per share, compared to net earnings of $1,074,000, or $2.14 per share, for
the year ended December 31, 1998. Net earnings for 1999 versus 1998 decreased
$90,000, or 8.38%. Increases in the level of provision for credit losses in 1999
versus 1998, and the lower average net interest margin contributed to decreased
earnings in 1999 over 1998. The acquisition of the First Union branches in
late-1998 contributed to the higher levels of operating expenses in 1999 as
compared with 1998.
Interest Income and Expense
Interest income increased by $1,773,000 from $9,094,000 for the year
ended December 31, 1998, to $10,867,000 for the year ended December 31, 1999.
Interest income on loans increased $300,000 due to an increase in the average
loan portfolio balance from $74.2 million for the year ended December 31, 1998,
to $81.1 million for the year ended 1999, partially offset by a decrease of 44
basis points in the weighted average yield of loans.
21
<PAGE> 25
Interest on investment securities increased $1,926,000 due to an
increase in the average investment securities portfolio to $57.7 million in 1999
from $24.5 million in 1998. There was no change in the average yield earned from
1998, of 5.80%. Interest on other interest-earning assets decreased $453,000 due
to a decrease from $11.6 million in average other interest-earning assets in
1998 to $3.9 million in 1999, and a decrease in the weighted average yield of 69
basis points. The increase in investment securities was attributable to the
excess in funds available for investment as a result of the acquisition of two
First Union branches in late 1998. The decrease in other interest-earning assets
was created due to a delay in the usual seasonal deposits in 1999.
Interest expense increased to $4,343,000 for the year ended December
31, 1999, from $3,464,000 for the year ended December 31, 1998. Interest expense
on deposit accounts increased because of an increase in the average balance from
$84.4 million in 1998 to $112.9 million in 1999, partially offset by a decrease
in the average rates paid on interest-bearing liabilities of 28 basis points.
The increase in average deposits resulted primarily from the acquisition of the
First Union branches. The improvement in average rates paid on deposits is due
in part to replacing higher cost deposits from the First Union branches with the
lower rates paid by Big Lake National Bank.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the
total allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by BLF, the
amounts of nonperforming loans, general economic conditions, particularly as
they relate to BLF's market area, and other factors related to the
collectibility of BLF's loan portfolio. For 1999, BLF recorded provisions for
credit losses totaling $220,000 to strengthen its allowance for credit losses
and address potential exposure from an aging, growing loan portfolio.
Other Income
Total noninterest income increased in 1999 versus 1998 by $385,000
primarily as a result of increased transactional deposit accounts. Deposit
service charges and other fees related to transactional deposit accounts
accounted for a majority of the increase.
Other Expense
Total noninterest expense increased in 1999 versus 1998 by $1,314,000
to $6,357,000 for the year ended December 31, 1999, from $5,043,000 for the year
ended December 31, 1998, primarily due to increases in compensation and employee
benefits of $678,000, occupancy expenses of bank premises and fixed assets of
$164,000, and other operating expenses of $472,000. The largest categories of
noninterest expense contributing to the overall growth of Big Lake National Bank
were increases in professional fees, advertising fees, data processing cost, ATM
cost, courier fees and postage. These expenses have grown in relation to the
growth of Big Lake National Bank since 1998. Additionally, Big Lake National
Bank continues to introduce new products and services which elevate the cost of
noninterest expense and have offsetting fee income in noninterest income.
22
<PAGE> 26
ASSET/LIABILITY MANAGEMENT
A principal objective of BLF's asset/liability management strategy is
to minimize its exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is overseen in part through the direction of an Asset
and Liability Committee (the "ALCO Committee") which establishes policies and
monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the ALCO
Committee. The ALCO Committee uses internally generated reports to measure the
Bank's interest rate sensitivity. From these reports, the ALCO Committee can
estimate the net income effect of various interest rate scenarios.
As a part of BLF's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate sensitive" and monitors the bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate sensitivity gap is the difference between interest-earning assets
and interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If the repricing of each bank's assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or period of
repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment (on loans) and early withdrawal (of deposit accounts)
levels also could deviate significantly from
23
<PAGE> 27
those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debts also may decrease in the event of an interest
rate increase.
Management's strategy is to maintain a balanced interest rate risk
position to protect its net interest margin from market fluctuations. To this
end, the ALCO Committee reviews, on a monthly basis, the maturity and repricing
of assets and liabilities. BLF's cumulative one-year gap at December 31, 1999,
was a negative 33.3% of assets.
Management generally attempts to maintain a one-year gap range of
negative 25% to positive 25%; however, due to the current economic rate
environment, the call feature of the security portfolio used to offset the
one-year gap has been extended to over one-year in duration. This classification
will change in a declining rate environment.
Principal among BLF's asset/liability management strategies has been
the emphasis on managing its interest rate sensitive liabilities in a manner
designed to attempt to reduce BLF's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of BLF's interest
rate sensitive liabilities may reduce the potential impact that a rise in
interest rates might have on BLF's net interest income. BLF seeks to maintain a
core deposit base by providing quality services to its customers without
significantly increasing its cost of funds or operating expenses. BLF's demand,
money market, and NOW deposit accounts approximated 45.4% and 41.0% of total
deposits at December 31, 1999 and 1998, respectively. These accounts bore a
weighted average cost of deposits of 1.43% and 1.39% during the years ended
December 31, 1999 and 1998, respectively. Management anticipates that these
accounts will continue to comprise a significant portion of BLF's total deposit
base. BLF also maintains a portfolio of liquid assets in order to reduce its
overall exposure to changes in market interest rates. At December 31, 1999 and
1998, approximately 5.9% and 12.7%, respectively, of BLF's total assets
consisted of cash and due from banks, federal funds sold, and short-term
investment securities. In addition, at December 31, 1999 and 1998, Big Lake
National Bank's liquidity ratio was approximately 15.88% and 38.0%,
respectively. BLF also maintains a "floor," or minimum rate, on certain of its
floating or prime based loans. These floors allow BLF to continue to earn a
higher rate when the floating rate falls below the established floor rate.
24
<PAGE> 28
The following table sets forth certain information relating to BLF's
interest-earning assets and interest-bearing liabilities at December 31, 1999,
that are estimated to mature or are scheduled to reprice within the period
shown:
<TABLE>
<CAPTION>
UNDER 3 TO 12 OVER
3 MONTHS MONTHS 1-5 YEARS 5 YEARS TOTALS
-------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal funds sold $ -- $ -- $ -- $ -- $ --
Loans (1) 15,589 34,423 31,432 6,851 88,295
Securities (2) 51 50 53,693 2,316 56,110
-------- -------- ------- ------- --------
Total rate-sensitive assets (earning assets) $ 15,640 $ 34,473 $85,125 $ 9,167 $144,405
======== ======== ======= ======= ========
Money market and NOW deposits (2) $ 34,804 $ -- $ -- $ -- $ 34,804
Savings deposits (2) 16,136 -- -- -- 16,136
Certificates of deposit (2) 22,145 29,108 13,617 -- 64,870
Other borrowings and fed funds purchased 1,769 -- 388 -- 2,157
-------- -------- ------- ------- --------
Total rate-sensitive liabilities $ 74,854 $ 29,108 $14,005 $ -- $117,967
======== ======== ======= ======= ========
Gap (repricing differences) $(59,214) $ 5,365 $71,120 $ 9,167 $ 26,438
======== ======== ======= ======= ========
Cumulative Gap $(59,214) $(53,849) $17,271 $26,438
======== ======== ======= =======
Cumulative GAP/total assets (36.57)% (33.26)% 10.67% 16.33%
======== ======== ======= =======
Cumulative GAP/total earning assets (41.01)% (37.29)% 11.96% 18.31%
======== ======== ======= =======
Total Assets $161,915
========
</TABLE>
- ----------------------
(1) In preparing the table above, adjustable-rate loans were included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans were
scheduled according to their contractual maturities.
(2) Excludes noninterest-bearing deposit accounts. Money market, NOW, and
savings deposits were regarded as maturing immediately. All other time
deposits were scheduled through the maturity dates. Investments were
scheduled based on their remaining maturity or repricing frequency.
25
<PAGE> 29
FINANCIAL CONDITION
Lending Activities
A significant source of income for BLF is the interest earned on loans.
At December 31, 1999, BLF's total assets were $161.9 million and its net loans
were $87.1 million or 53.8% of total assets. At December 31, 1998, BLF's total
assets were $150.6 million and its net loans were $75.1 million or 49.9% of
total assets. The increase in the percentage of net loans to total assets is a
result of increased new loan production less loan repayments of $12.0 million,
or 7.4% of total assets.
Big Lake National Bank's primary market area consists of Okeechobee,
Clewiston, Moore Haven, LaBelle, Arcadia, Wauchula, and Lake Placid, Florida.
This region's economy is primarily dependent upon agriculture, light industry,
and tourism. Okeechobee is located on the northern end of Lake Okeechobee in
South Central Florida and is the seat of government for Okeechobee County.
Okeechobee County has a diverse group of employers. Lake Okeechobee, located in
the southern portion of the County, is a 750 square mile lake bordered by four
other counties. The lake serves as a tourist attraction. Big Lake National
Bank's primary market area also includes Lake Placid, Florida, which is located
approximately 70 miles east of Fort Myers in Highlands County. Agriculture is
the main income producing industry around the city. The area also supports the
citrus and cattle industries. In the early 1980s, Hendry County was essentially
a rural community, dependent on several seasonal or cyclical industries. As the
Fort Myers and West Palm Beach business markets have experienced expansion over
the past ten years, Hendry County's location between these two metropolitan
areas has afforded relocation and business opportunities for industries desiring
a proximate location to two of Florida's major growth regions.
There is no assurance that the Bank's market area will continue to
experience economic growth. Adverse conditions in any one or more of the
industries operating in such markets or slow-down in general economic conditions
could have an adverse effect on BLF.
Lending activities are conducted pursuant to a written policy which has
been adopted by BLF. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of Big Lake National Bank.
26
<PAGE> 30
The following table sets forth information concerning BLF's loan
portfolio by type of loan at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
---- ----
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate secured loans $72,365 81.6% $61,710 80.2%
Consumer and credit card loans 8,869 10.0 8,828 11.5
Commercial and all other loans 7,414 8.4 6,399 8.3
------- ----- ------- -----
Total loans 88,648 100.0% 76,937 100.0%
===== =====
Less:
Deferred loan and unearned fees 300 557
Allowance for credit losses 1,214 1,277
------- -------
Loans, net $87,134 $75,103
======= =======
</TABLE>
The following table reflects the contractual principal repayments by
period of BLF's loan portfolio at December 31, 1999 based on BLF's internal loan
classifications (excluding nonaccrual loans):
<TABLE>
<CAPTION>
1 YEAR 1 THROUGH AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loan systems $ 9,687 $20,986 $41,069 $71,742
Installment loan system 1,885 6,702 323 8,910
Commercial loan system 4,002 3,121 520 7,643
------- ------- ------- -------
Total loans $15,574 $30,809 $41,912 $88,295
======= ======= ======= =======
Loans with maturities over one year:
Fixed rate $34,127
Variable rate 38,594
-------
Total maturities greater than one year $72,721
=======
</TABLE>
27
<PAGE> 31
The following table sets forth total loans originated and repaid during
the periods indicated based on BLF's internal loan classifications:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Originations:
Mortgage loan systems $ 20,271 $ 8,908
Installment loan system 6,308 4,975
Commercial loan system 3,140 14,602
-------- --------
Total loans originated 29,719 28,485
Principal reductions (18,008) (27,220)
-------- --------
Increase in total loans $ 11,711 $ 1,265
======== ========
</TABLE>
Asset Quality
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. The majority of the loans
in BLF's loan portfolio are collateralized by residential and commercial real
estate mortgages. As of December 31, 1999 and 1998, approximately 81.6% and
80.2%, respectively, of the total loan portfolio was collateralized by real
estate of which 27.1% and 22.3% of the total loan portfolio was secured by
commercial real estate as of December 31, 1999 and 1998, respectively. The level
of delinquent loans and real estate owned also is relevant to the credit quality
of a loan portfolio. As of December 31, 1999, total nonperforming assets were
$660,000 or 0.4% of total assets, compared to $1,221,000 or 0.8% of total assets
at December 31, 1998.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on BLF's profitability. However, as part of
its loan portfolio management strategy, BLF generally limits its loans to a
maximum of 80% of the value of the underlying real estate as determined by
appraisal. In addition, knowledgeable members of management make physical
inspections of properties being considered for mortgage loans.
Commercial loans also entail risks since repayment is usually dependent
upon the successful operation of the commercial enterprise. They also are
subject to adverse conditions in the economy. Commercial loans are generally
riskier than mortgage loans because they are typically underwritten on the basis
of the ability to repay from the cash flow of a business rather than on the
ability of the borrower or guarantor to repay. Further, the collateral
underlying a commercial loan may depreciate over time, cannot be appraised with
as much precision as real estate, and may fluctuate in value based on the
success of the business.
The repayment of consumer installment loans and other loans to
individuals is closely linked to the economic conditions of the communities in
which BLF operates (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Lending
Activities"). For the most part, these local economies enjoy
28
<PAGE> 32
diverse labor forces. The majority of these consumer installment loans are
secured by collateral which limits, to a degree, any loss BLF would suffer upon
default.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities which would cause them to be similarly
impacted by economic or other conditions. BLF, on a routine basis, monitors
these concentrations in order to consider adjustments in its lending practices
to reflect economic conditions, loan to deposit ratios, and industry trends.
Concentrations of loans in the following categories constituted the total loan
portfolio as of December 31, 1999:
<TABLE>
<S> <C>
Real estate secured loans 81.6%
Consumer and credit card loans 10.0
Commercial and all other loans 8.4
-----
100.0%
=====
</TABLE>
The Loan Committee of the Board of Directors of Big Lake National Bank
concentrates its efforts and resources, and that of its senior management and
lending officers, on loan review and underwriting procedures. Internal controls
include ongoing reviews of loans made to monitor documentation and the existence
and valuations of collateral. In addition, management of BLF has established a
review process with the objective of identifying, evaluating, and initiating
necessary corrective action for marginal loans. The goal of the loan review
process is to address classified and nonperforming loans as early as possible.
Classification of Assets
Generally, interest on loans accrues and is credited to income based
upon the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan as nonaccrual when principal
or interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans are generally charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by BLF as a result of foreclosure or by deed in
lieu of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further allowances for
losses in OREO are recorded at the time management believes additional
deterioration in value has occurred.
Management has adopted Statement of Financial Accounting Standards No.
114 ("SFAS No. 114"), Accounting by Creditors for Impairment of a Loan, which
considers a loan to be impaired if it is probable that BLF will be unable to
collect all amounts due under the contractual
29
<PAGE> 33
terms of the loan agreement. If a loan is considered impaired, its value
generally should be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate. As a practical expedient,
however, the loan's value may be based on:
- - the loan's market price; or
- - the fair value of the loan's collateral, less discounted estimated
costs to sell, if the collateral is expected to be the sole source of
repayment.
If the value of the loan is less than the recorded investment in the
loan, a loss should be recognized by recording a valuation allowance and a
corresponding increase to the provision for credit losses charged to operating
expenses.
Situations may occur where:
- - BLF receives physical possession of a debtor's assets regardless of
whether formal foreclosure proceedings have been initiated or
completed; or
- - the debtor has effectively surrendered control of the underlying
collateral in contemplation of foreclosure.
These situations are referred to as "in-substance foreclosures." SFAS
No. 114 recognizes the practical problems of accounting for the operation of an
asset the creditor does not possess, and states that a loan for which
foreclosure is probable should continue to be accounted for as a loan.
At December 31, 1999 and 1998, loans considered by management to be
impaired or in-substance foreclosed totaled $353,000 and $1,049,000,
respectively. The impaired loans for 1999 and 1998 were also classified as
nonaccrual loans.
30
<PAGE> 34
The following tables sets forth certain information on nonaccrual loans
and other real estate owned, the ratio of such loans and other real estate owned
to total assets as of the dates indicated, and certain other related information
(as classified for regulatory reporting purposes):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
---- -----
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Real estate $175 $ 573
Installment loans 17 2
Commercial and all other loans 161 474
---- ------
Total nonaccrual loans 353 1,049
---- ------
Accruing loans over 90 days delinquent
Real estate loans -- --
Installment loans -- --
Commercial and all other loans -- --
---- ------
Total accrual loans over 90 days delinquent -- --
---- ------
Troubled debt restructurings not included above -- --
---- ------
Total nonperforming loans 353 1,049
---- ------
Other real estate owned:
Real estate acquired by foreclosure or
deed in lieu of foreclosure 307 172
---- ------
Total nonperforming loans and other real
estate owned $660 $1,221
==== ======
Total nonperforming loans as a percentage
of total loans .40% 1.37%
==== ======
Total nonperforming loans as a percentage
of total assets .22% .70%
==== ======
Total nonperforming loans and real estate
owned as a percentage of total assets .41% .81%
==== ======
</TABLE>
Allowance for Credit Losses
In originating loans, BLF recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. It is
management's policy to attempt to maintain an adequate allowance for credit
losses based on, among other things, BLF's historical loan loss experience,
evaluation of economic conditions and regular reviews of any delinquencies and
loan portfolio quality. Specific allowances are provided for individual loans
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the collateral for the loan. Management
recognizes the greater inherent risks in connection with commercial and consumer
lending. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Provision for Credit Losses."
31
<PAGE> 35
Management continues to actively monitor BLF's asset quality and to
charge-off loans against the allowance for credit losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the initial determinations. BLF's allowance for credit losses at December 31,
1998, was $1,277,000. BLF's allowance decreased to $1,214,000 as of December 31,
1999, consistent with the decline in the level of nonperforming loans as a
percentage of total assets. The decrease reflects the excess in loans charged
off over the provision added and the recoveries collected during 1999.
Management considers several factors in determining the reserves, including the
favorable charge off history, the relatively low level of nonperforming assets,
and the value of the underlying collateral. Furthermore, nonperforming loans at
December 31, 1999, have declined to .40% of total loans. Management believes
that the allowance for credit losses was adequate at December 31, 1999.
BLF reports charge-offs and recoveries following regulatory
classification guidelines. The following table sets forth information with
respect to activity in BLF's allowance for credit losses during the periods
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
---- -----
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period $1,277 $1,183
------ ------
Charge-offs:
Real estate loans 54 59
Installment loans 30 58
Commercial and all other loans 234 11
------ ------
Total charge-offs 318 128
------ ------
Recoveries:
Real estate loans 25 40
Installment loans 7 25
Commercial and all other loan 3 13
------ ------
Total recoveries 35 78
------ ------
Provision for credit losses charged to operations 220 144
------ ------
Allowance at end of period $1,214 $1,277
====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the period .35% 0.07%
====== ======
Allowance for credit losses as a percentage
of total period-end loans 1.37% 1.67%
====== ======
Allowance for credit losses as a percentage
of nonperforming loans 343.91% 121.73%
====== ======
</TABLE>
32
<PAGE> 36
BLF classifies its loan portfolio for internal purposes as mortgage loans,
installment loans and commercial loans. BLF prepares its quarterly computation
of allowance for losses in this manner. The following table presents information
regarding the BLF's total allowance for losses as well as the allocation of such
amounts to the various categories of loans (dollars in thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
---- ----
% OF % OF
LOANS TO LOANS TO
TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ------ ------ ------
<S> <C> <C> <C> <C>
Mortgage loan system $ 432 44.9% $ 453 50.4%
Installment loan system 395 10.0 416 10.7
Commercial loan system 387 45.1 408 38.9
------ ------ ------ ------
Total allowance for credit losses $1,214 100.0% $1,277 100.0%
====== ====== ====== ======
</TABLE>
The allowance for credit losses represented 1.37% of the total loans
outstanding as of December 31, 1999, compared with 1.67% of the total loans
outstanding as of December 31, 1998, which reflects the growth in the loan
portfolio and the reduction in of nonperforming loans.
Investment Securities
BLF's investment securities portfolio at December 31, 1999, primarily
consisted of United States Government agency obligations. The following table
sets forth the amortized cost of the BLF's investment portfolio at the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
------- -------
(dollars in thousands)
<S> <C> <C>
Investment securities:
Available-for-sale:
U.S. Government agency obligations $56,542 $58,486
Mortgage-backed securities -- 179
Obligations of states and municipalities -- --
Other securities 118 138
------- -------
Total available-for-sale 56,660 58,803
Held-to-maturity:
Obligations of states and municipalities 1,573 898
------- -------
Total investment securities, at amortized cost $58,233 $59,701
======= =======
</TABLE>
33
<PAGE> 37
The following table sets forth, by maturity distribution, certain information
pertaining to the investment securities portfolio as follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
---------------- ------------- ------------ --------------- -----
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999:
U.S. Government and
agency securities $ 50 5.42% $53,444 5.76% $ 925 6.75% $ -- 0.00% $54,419 5.76%
Obligations of states
and municipalities 51 4.80% 249 6.06% 50 4.80% 1,223 5.02% 1,573 5.07%
Other securities -- 0.00% -- 0.00% -- 0.00% 118 6.00% 118 6.00%
------- ------- ------- ------- -------
Total $ 101 6.12% $53,693 5.75% $ 975 6.65% $ 1,341 5.51% $56,110 5.61%
======= ======= ======= ======= =======
December 31, 1998:
U.S. Government and
agency securities $11,318 5.47% $43,707 5.67% $ 3,499 6.00% $ -- 0.00% $58,524 5.67%
Obligations of states
and municipalities 50 4.25% 300 6.20% 50 4.80% 498 5.18% 898 5.45%
Other securities -- 0.00% -- 0.00% -- 0.00% 138 5.42% 138 5.42%
------- ------- ------- ------- -------
Total $11,368 5.47% $44,007 5.70% $ 3,549 5.98% $ 636 5.23% $59,560 5.67%
======= ======= ======= ======= =======
</TABLE>
34
<PAGE> 38
Deposit Activities
Deposits are the major source of BLF's funds for lending and other
investment purposes. Deposits are attracted principally from within BLF's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established
by BLF on a periodic basis. The determination of rates and terms is predicated
on funds acquisition and liquidity requirements, rates paid by competitors,
growth goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institutions' normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew, or
rollover deposits at such rates without restriction, "adequately capitalized"
depository institutions may accept, renew or rollover deposits at such rates
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), and "undercapitalized" depository institutions may not accept, renew or
rollover deposits at such rates. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Business - Supervision, Regulation Capital Requirements." As of December 31,
1999, Big Lake National Bank met the definition of a "well capitalized"
depository institution.
35
<PAGE> 39
The following table shows the distribution of, and certain other
information relating to, BLF's deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
--------------------- ---------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposits $ 32,643 22.0% $ 28,802 20.8%
NOW deposits 27,617 18.6 20,991 15.1
Money market deposits 7,187 4.8 7,070 5.1
Savings deposits 16,136 10.9 17,399 12.6
-------- -------- -------- --------
Subtotal 83,583 56.3 74,262 53.6
-------- -------- -------- --------
Certificates of deposit:
Under 4.00% 143 .1 1,670 1.2
4.00%-4.99% 39,227 26.4 21,371 15.4
5.00%-5.99% 16,898 11.4 35,481 25.6
6.00%-6.99% 8,289 5.6 5,132 3.7
7.00% and over 313 0.2 692 0.5
-------- -------- -------- --------
Total certificates of deposit (1) 64,870 43.7 64,346 46.4
-------- -------- -------- --------
Total deposits $148,453 100.0% $138,608 100.0%
======== ======== ======== ========
</TABLE>
(1) Includes individual retirement accounts ("IRAs") totaling $6,092 and
$6,169 at December 31, 1999 and 1998, respectively, all of which are in
the form of certificates of deposit.
The following tables show the average amount outstanding and the
average rate paid on each of the following deposit account categories during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
-------------------- -----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand, money market
and NOW $ 62,507 1.40% $ 47,781 1.39%
Savings deposits 17,379 1.98% 10,730 2.27%
Certificates of deposit 63,598 4.85% 49,421 5.16%
-------- --------
Total deposits $143,484 3.02% $107,932 3.21%
======== ========
</TABLE>
BLF does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect on BLF. Management believes
that substantially all of BLF's depositors are residents in its primary market
areas. BLF currently does not accept brokered deposits. As shown in the tables
below, a significant amount of BLF's certificates of deposit will mature during
the year ending December 31, 2000. The high volume of maturities during this
period is primarily due to customer demand for certificates of deposit having
original maturities of 12 months or less. Based upon current and anticipated
levels of interest rates and past practice, BLF management anticipates that
substantially all of BLF's certificates of deposit maturing during this time
period will be renewed or replaced by certificates of deposit issued to
36
<PAGE> 40
other customers at competitive market rates, which may be higher or lower than
the rates currently being paid. Consequently, BLF management does not believe
that the maturity of BLF's certificates of deposit during the year ending
December 31, 2000, will have a material adverse effect on BLF's liquidity.
However, if BLF is required to pay substantially higher rates to obtain the
renewal of these or other certificates of deposit or alternative sources of
funds, the higher net interest expense could have a material adverse effect on
BLF's net income.
The following tables present by various interest rate categories the
amounts of certificates of deposit at December 31, 1999 which mature during the
periods indicated:
<TABLE>
<CAPTION>
DUE DUE DUE DUE
UNDER THREE 3 MONTHS TO 1 YEAR TO OVER
MONTHS 12 MONTHS 3 YEARS 3 YEARS TOTAL
------- ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
At December 31, 1999:
Under 4.00% $ 10 $ 94 $ 39 $ -- $ 143
4.00% - 4.99% 16,296 17,203 4,868 860 39,227
5.00% - 5.99% 4,757 5,585 4,469 2,087 16,898
6.00% - 6.99% 823 6,194 1,258 14 8,289
7.00% and over 259 32 22 -- 313
------- ------- ------- ------ -------
Total certificates of deposit $22,145 $29,108 $10,656 $2,961 $64,870
======= ======= ======= ====== =======
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
------ ------
(Dollars in thousands)
<S> <C> <C>
Due in three months or less $5,689 $2,873
Due from three months to one year 3,365 3,698
Due from twelve months to three years 552 1,539
Due over three years 296 275
------ ------
$9,902 $8,385
====== ======
</TABLE>
The following table sets forth the net deposit flows of BLF during the periods
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
------ ------
(Dollars in thousands)
<S> <C> <C>
Net increase before interest credited $5,573 $33,818
Net interest credited and paid 4,272 3,458
------ -------
Net deposit increase $9,845 $37,276
====== =======
</TABLE>
37
<PAGE> 41
OTHER BORROWINGS
BLF has a line of credit agreement with Independent Bankers' Bank of
Florida that enables BLF to borrow up to $1,000,000. This credit facility
matures on November 25, 2003, and requires annual principal repayments of up to
$200,000, plus annual interest payments at 6.5% per year. The purpose of this
loan was to provide additional capital to Big Lake National Bank in connection
with its acquisition of two branches from First Union. All of the outstanding
common stock of Big Lake National Bank has been pledged as collateral for this
loan. As of December 31, 1999 the principal amount outstanding on this line of
credit was $388,500.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning BLF
presented in this Proxy Statement have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of BLF is reflected
in increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, changes in interest rates have a more significant impact on the
performance of a financial institution than do the effects of changes in the
general rate of inflation and changes in prices. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services.
FUTURE ACCOUNTING REQUIREMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which addresses the accounting
for derivative instruments and provides for matching the timing of gain or loss
recognition on the hedging instrument. Guidance on identifying derivative
instruments is also provided as well as additional disclosures. SFAS 133 becomes
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Earlier application is permitted with certain exceptions. Management does
not anticipate that adoption of SFAS 133 will have a material impact on the
financial condition or results of operations of BLF.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of BLF as of and for the years ended December
31, 1999 and 1998 are set forth in this Form 10-KSB as Exhibit 13.1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
38
<PAGE> 42
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information contained under the sections captioned "Directors" and
"Executive Officers" under "Election of Directors" in the registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
March 16, 2000, to be filed with the SEC pursuant to Regulation 14A within 120
days of their registrant's fiscal year end (the "Proxy Statement"), as
incorporated herein by reference.
SECTION 16(A) REPORTING REQUIREMENTS
Under Section 16(a) of the Securities Exchange Act of 1934, directors
and executive officers of BLF, and persons who beneficially own more than 10% of
BLF Common Stock, are required to make certain filings on a timely basis with
the Securities and Exchange Commission. Reporting persons are required by SEC
regulations to furnish the BLF with copies of all Section 16(a) forms filed by
them. Based on its review of the copies of Section 16(a) forms received by it,
and on written representations from reporting persons concerning the necessity
of filing a Form 5 - Annual Statement of Changes in Beneficial Ownership, BLF
believes that, during 1999, all filing requirements applicable to reporting
persons were met.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the sections captioned "Information About
the Board of Directors and Its Committees," "Executive Compensation and
Benefits" and "Information on Benefit Plans and Policies" under "Election of
Directors" in the Proxy Statement, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the sections captioned "Directors" and
"Management and Principal Stock Ownership" under "Election of Directors," in the
Proxy Statement, is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section entitled "Certain
Transactions" under "Election of Directors" in the Proxy Statement is
incorporated herein by reference.
39
<PAGE> 43
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. EXHIBITS
3.1 - Restated Articles of Incorporation of Big Lake
Financial Corporation (Incorporated by reference to
Exhibit 3.1 to BLF's Registration Statement No.
333-30779 (the "Registration Statement"))
3.2 - Bylaws of Big Lake Financial Corporation
(Incorporated by reference to Exhibit 3.2 to the
Registration Statement)
4.1 - Specimen Stock Certificate of Big Lake Financial
Corporation (Incorporated by reference to
Exhibit 4.1 to the Registration Statement)
10.1 - Big Lake Financial Corporation 1987 Stock Option
Plan and amendment thereto (Incorporated by
reference to Exhibit 10.1 to the Registration
Statement) *
10.2 - Lease dated December 11, 1989 between AAA
Warehouse, Inc. and Clewiston National Bank and
Amendment thereto dated November 28, 1995
(Incorporated by reference to Exhibit 10.2 to the
Registration Statement)
40
<PAGE> 44
10.3 - Lease dated April 1, 1981 between Earl R. Gamer and
Clewiston National Bank and Modification and Lease
Extension Agreement thereto dated April 1, 1996
(Incorporated by reference to Exhibit 10.3 to the
Registration Statement)
10.4 - Employment agreement dated July 15, 1998 between
Big Lake National Bank, Big Lake Financial
Corporation, and Joe G. Mullins
21.1 - List of Subsidiaries of Big Lake Financial
Corporation
23.1 - Consent of Stevens, Sparks & Company, P.A.
(formerly Stevens, Thomas, Schemer & Sparks, P.A.)
27 - Financial Data Schedule
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
(a) REPORTS ON FORM 8-K
No current reports on Form 8-K were filed by BLF during the
last fiscal quarter covered by this report.
41
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be duly signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Okeechobee, State of Florida, on the 25th day of February, 2000.
BIG LAKE FINANCIAL CORPORATION
/s/ Edwin E. Walpole, III
-----------------------------------------
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on February 25, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Edwin E. Walpole, III Chairman of the Board, President and Chief Executive
- ------------------------------------------------ Officer and Director
Edwin E. Walpole, III
/s/ Anita DeWitt Treasurer (Principal Financial Officer and Principal
- ------------------------------------------------ Accounting Officer)
Anita DeWitt
/s/ Joe G. Mullins Executive Vice President and Chief Administrative
- ------------------------------------------------ Officer and Director
Joe G. Mullins
/s/ John W. Abney, Sr. Director
- ------------------------------------------------
John W. Abney, Sr.
/s/ Mary Beth Cooper Director
- ------------------------------------------------
Mary Beth Cooper
/s/ H. Gilbert Culbreth, Jr. Director
- ------------------------------------------------
H. Gilbert Culbreth, Jr.
/s/ Bobby H. Tucker Director
- ------------------------------------------------
Bobby H. Tucker
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C>
/s/ John B. Boy Director
- ------------------------------------------------
John B. Boy
/s/ Thomas A. Smith Director
- ------------------------------------------------
Thomas A. Smith
/s/ Curtis S. Fry Director
- ------------------------------------------------
Curtis S. Fry
/s/ Robert Coker Director
- ------------------------------------------------
Robert Coker
</TABLE>
43
<PAGE> 47
BIG LAKE FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE> 48
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT..................................................................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................ 2
Consolidated Statements of Operations and Comprehensive Income
for the Years Ended December 31, 1999 and 1998..................................................... 3
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1999 and 1998..................................................... 4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998..................................................... 5
Notes to Consolidated Financial Statements........................................................... 6-23
</TABLE>
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Big Lake Financial Corporation and Subsidiary
Okeechobee, Florida
We have audited the consolidated balance sheets of Big Lake Financial
Corporation and Subsidiary (the "Company") as of December 31, 1999 and 1998, and
the related consolidated statements of operations and comprehensive income, cash
flows, and changes in stockholders' equity for each of the two years in the
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Big Lake Financial
Corporation and Subsidiary as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
As discussed in Note 22 to the consolidated financial statements, an accounting
method utilized by the Company since inception resulted in an overstatement of
previously reported prepaid expenses and stockholders' equity as of December 31,
1997, which was corrected by the Company during 1999. Accordingly, the 1998
consolidated financial statements have been restated by a prior period
adjustment to retained earnings as of December 31, 1997.
STEVENS, SPARKS & COMPANY, P.A.
January 14, 2000
<PAGE> 50
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
(Dollars In Thousands,
Except Per Share Data)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 9,521 $ 6,626
Federal funds sold -- 1,150
--------- ---------
Total cash and cash equivalents 9,521 7,776
Securities available-for-sale 54,537 58,662
Securities held-to-maturity (market value
of $1,469 for 1999 and $926 for 1998) 1,573 898
Loans 87,134 75,103
Facilities 3,068 3,174
Accrued interest receivable 1,229 1,125
Deferred income taxes 1,528 582
Intangible assets 2,151 2,458
Other assets 1,174 664
--------- ---------
Total assets $ 161,915 $ 150,442
========= =========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 32,643 $ 28,802
Demand deposits 27,617 20,991
Money market accounts 7,187 7,070
Savings accounts 16,136 17,399
Time, $100,000 and over 9,902 8,385
Other time deposits 54,968 55,961
--------- ---------
Total deposits 148,453 138,608
Other borrowings and federal funds purchased 2,157 500
Accrued interest payable on deposits 774 757
Accounts payable and accrued liabilities 344 207
--------- ---------
Total liabilities 151,728 140,072
--------- ---------
Commitments and contingencies -- --
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 1,000,000 shares,
issued 505,199 shares in 1999 and 490,001 shares in 1998 5 5
Additional paid-in capital 7,499 7,168
Retained earnings 4,007 3,285
Net unrealized holding losses on securities (1,324) (88)
--------- ---------
Total stockholders' equity 10,187 10,370
--------- ---------
Total liabilities and stockholders' equity $ 161,915 $ 150,442
========= =========
Book value per common share $ 20.16 $ 20.66
========= =========
Common shares outstanding, adjusted for stock dividends 505,199 501,934
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-2-
<PAGE> 51
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998
--------- ---------
(Dollars In Thousands,
Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,333 $ 7,033
Interest and dividend income from investment securities 3,348 1,422
Income on federal funds sold 186 639
--------- ---------
Total interest income 10,867 9,094
--------- ---------
INTEREST EXPENSE
Interest on deposits 4,289 3,460
Other 54 4
--------- ---------
Total interest expense 4,343 3,464
--------- ---------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES 6,524 5,630
PROVISION FOR CREDIT LOSSES 220 144
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 6,304 5,486
--------- ---------
OTHER INCOME
Service charges on deposit accounts 1,321 1,067
Other fees for customer service and other income 269 138
--------- ---------
Total other income 1,590 1,205
--------- ---------
OTHER EXPENSES
Salaries and employee benefits 3,013 2,335
Expenses of bank premises and fixed assets 900 736
Other operating expenses 2,444 1,972
--------- ---------
Total other expenses 6,357 5,043
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,537 1,648
PROVISION FOR INCOME TAXES 553 574
--------- ---------
NET INCOME 984 1,074
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:
Unrealized holding gains (losses) on securities arising during period
(net of deferred income taxes of $746 in 1999 and $48 in 1998) (1,236) (82)
--------- ---------
COMPREHENSIVE INCOME $ (252) $ 992
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DURING PERIOD:
Basic 505,181 500,712
========= =========
Fully diluted 513,841 510,913
========= =========
EARNINGS PER SHARE:
Basic $ 1.95 $ 2.14
========= =========
Fully diluted $ 1.91 $ 2.10
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-3-
<PAGE> 52
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------
1999 1998
-------- --------
(Dollars In Thousands,
Except Per Share Data)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 984 $ 1,074
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for credit losses 220 144
Depreciation and amortization 618 386
Deferred income tax 98 (105)
Net premium amortization and discount accretion 7 (16)
Compensation recorded on stock options exercised 54 38
(Increase) decrease in assets:
Accrued interest receivable (104) (312)
Other assets (673) (69)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 154 (73)
-------- --------
Net cash provided by operating activities 1,358 1,067
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchases (20,063) (59,826)
Proceeds from maturities 22,198 23,000
Securities held-to-maturity:
Purchases (724) (398)
Proceeds from maturities 50 304
Proceeds from sale of other real estate 590 563
Increase in loans (12,976) (1,749)
Purchases of facilities (237) (834)
Premium refunded (paid) on acquisition of branch deposits 32 (1,942)
-------- --------
Net cash used in investing activities (11,130) (40,882)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits:
Noninterest-bearing 3,841 9,009
Interest-bearing 6,004 28,267
Net proceeds from other borrowings and federal funds purchased 1,769 500
Repayments of other borrowings (112) --
Proceeds from stock options exercised 22 32
Cash paid in lieu of fractional shares (7) (5)
-------- --------
Net cash provided by financing activities 11,517 37,803
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,745 (2,012)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,776 9,788
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,521 $ 7,776
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash received during the year for interest and dividends $ 10,763 $ 8,782
======== ========
Cash paid during the year for interest $ 4,326 $ 3,462
======== ========
Cash paid during the year for income taxes $ 1,008 $ 897
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-4-
<PAGE> 53
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
NET
UNREALIZED
HOLDING
COMMON STOCK ADDITIONAL 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, 1997 475,223 5 6,855 2,569 (6) 9,423
Prior period adjustment - prepaid
expenses (see Note 22) -- - -- (110) -- (110)
Stock dividend declared 11,592 - 243 (243) -- --
Cash paid in lieu of fractional shares -- - -- (5) -- (5)
Stock options exercised 3,186 - 70 -- -- 70
Comprehensive income:
Net income -- - -- 1,074 --
Net change in net unrealized
holding gains (losses) on securities (82)
Total comprehensive income -- - -- -- -- 992
-------- -- ------ ------- ------- --------
BALANCE, DECEMBER 31, 1998 490,001 5 7,168 3,285 (88) 10,370
Stock dividend declared 11,933 - 255 (255) -- --
Cash paid in lieu of fractional shares -- - -- (7) -- (7)
Stock options exercised 3,265 - 76 -- -- 76
Comprehensive income:
Net income -- - -- 984 --
Net change in net unrealized
holding gains (losses) on securities (1,236)
Total comprehensive income -- - -- -- -- (252)
-------- -- ------ ------- ------- --------
BALANCE, DECEMBER 31, 1999 505,199 $5 $7,499 $ 4,007 $(1,324) $ 10,187
======== == ====== ======= ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-5-
<PAGE> 54
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
General:
The consolidated financial statements include the accounts and transactions of
Big Lake Financial Corporation (the "Company") and its wholly-owned subsidiary,
Big Lake National Bank ("BLNB"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The accounting and reporting
policies of BLNB and the Company conform with generally accepted accounting
principles and with general practices within the banking industry.
On May 1, 1998, Clewiston National Bank ("CNB") was merged with and into BLNB
and the transaction was accounted for as a pooling-of-interests. CNB was
acquired by the Company through its acquisition of CNB Financial Corporation on
October 31, 1997.
On November 19, 1998, BLNB purchased certain assets and assumed certain
liabilities from two branches owned by First Union National Bank ("First
Union"). See Note 21 to the Consolidated Financial Statements.
BLNB, a national banking association, and the Company are subject to regulations
issued by certain regulatory agencies and undergo periodic examinations by those
agencies. BLNB provides a wide range of banking services to individual and
corporate customers through its branch network, which includes:
- Its main office, which opened in July 1986, at 1409 South
Parrott Avenue, Okeechobee, Florida,
- Taylor Creek Branch, also located in Okeechobee, Florida,
which opened in November 1992,
- Lake Placid Branch, which was acquired from First America
Bank - Florida, FSB in December 1995,
- Former CNB branches located in Clewiston, LaBelle, and Moore
Haven, Florida,
- Former First Union branches located in Wauchula and Arcadia,
Florida, and
- Treasure Island Branch, also located in Okeechobee, Florida,
which opened in August 1999.
At December 31, 1999, BLNB's primary trade area encompassed Okeechobee,
Highlands, Hendry, Glades, Hardee, and DeSoto Counties. The majority of BLNB's
loans are currently to customers located in these counties.
Use of Estimates:
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses, the fair value
of financial instruments, and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans ("Other Real Estate
Owned"). In connection with the determination of the allowances for credit
losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
Management believes that the allowance for credit losses is adequate. While
management uses available information to recognize losses on loans, including
independent appraisals for significant properties, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowance based on their judgments about information
available to them at the time of their examination.
-6-
<PAGE> 55
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Investments:
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), Accounting
for Certain Investments in Debt and Equity Securities, sets the standard for
classification of and accounting for investments in equity securities that have
readily determinable fair values, and all investments in debt securities which
are to be classified as held-to-maturity securities, available-for-sale
securities, or trading securities.
Debt securities that an enterprise has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity.
BLNB classifies its investments at the purchase date in accordance with the
above-described guidelines. Premiums or discounts on securities at the date of
purchase are being amortized or accreted, respectively, over the estimated life
of the security using a method that approximates the level yield method. Gains
and losses realized on the disposition of securities are based on the specific
identification method and are reflected in other income.
Loans:
Loans receivable are stated at unpaid principal balances, less the allowance for
credit losses and net deferred loan fees and unearned discounts. Unearned
discounts on installment loans are recognized as income over the term of the
loans using a method that approximates the interest method. Nonrefundable loan
fees and certain direct loan origination costs are deferred and the net amount
is recognized into income over the life of the loans as a yield adjustment.
Interest income on loans is accounted for on the accrual basis. Generally,
BLNB's policy is to discontinue the accrual of interest on loans delinquent over
ninety days unless fully secured and in the process of collection. The accrued
and unpaid interest is reversed from current income and thereafter interest is
recognized only to the extent payments are received. A nonaccrual loan may be
restored to accrual basis when interest and principal payments are current and
prospects for future recovery are no longer in doubt.
In 1995, the Company adopted Statement of Financial Accounting Standards No. 114
("SFAS No. 114"), Accounting by Creditors for Impairment of a Loan, which sets
the standard for recognition of loan impairment and the measurement methods for
certain impaired loans and loans whose terms are modified in troubled debt
restructurings.
Under SFAS No. 114, a loan is impaired when it is probable that a creditor will
be unable to collect the full amount of principal and interest due according to
the contractual terms of the loan agreement. When a loan is impaired, a creditor
has a choice of ways to measure the impairment. The measurement of impairment
may be based on (1) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (2) the
observable market price of the impaired loan, or (3) the fair value of the
collateral of a collateral-dependent loan. Creditors may select the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for which
foreclosure is probable must be measured at the fair value of the collateral. A
creditor in a troubled debt restructuring involving a restructured loan should
measure impairment by discounting the total expected future cash flows at the
loan's original effective rate of interest. If the value of the loan is less
than the recorded investment in the loan, a loss should be recognized by
recording a valuation allowance and a corresponding increase to the provision
for credit losses charged to operating expenses.
-7-
<PAGE> 56
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Allowance for Credit Losses:
The provision for credit losses charged to operating expenses is based upon
management's judgment of the adequacy of the allowance giving consideration to
its credit loss experience and an evaluation of the current loan portfolio.
The allowance for credit losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for credit losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Facilities:
Facilities are stated at cost, less accumulated depreciation and amortization.
Charges to income for depreciation and amortization are computed on the
straight-line method over the assets' estimated useful lives.
When properties are sold or otherwise disposed of, the gain or loss resulting
from the disposition is credited or charged to income. Expenditures for
maintenance and repairs are charged against income and renewals and betterments
are capitalized.
Other Real Estate Owned:
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in loss on foreclosed real
estate.
Intangible Assets:
Intangible assets (consisting of core deposit premium and goodwill) are
amortized on a straight-line basis over a period of seven to fifteen years. For
income tax purposes, intangibles are amortized over fifteen years on a
straight-line basis.
The amortization for core deposit premium and goodwill totaled $275,000 in 1999
and $100,000 in 1998.
Off-Balance Sheet Instruments:
In the ordinary course of business, BLNB has entered into off-balance sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
Employee Benefits:
Profit-sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
Income Taxes:
Provisions for income taxes are based on amounts reported in the statements of
operations, after exclusion of non-taxable income such as interest on state and
municipal securities, and include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial statement purposes. The
principal temporary differences are depreciation and amortization, credit loss
provision, CNB merger expenses and purchase accounting adjustments, and
unrealized holding gains (losses) on securities. Deferred taxes are computed on
the liability method as prescribed in SFAS No. 109, Accounting for Income Taxes.
-8-
<PAGE> 57
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
Computation of Per Share Earnings:
Basic earnings per share ("EPS") 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 15 to the consolidated financial statements,
the Company declared 2.5% stock dividends in 1999 and 1998. The average number
of shares and dilutive potential shares have been restated for the stock
dividends. The following information was used in the computation of earnings per
share on both a basic and diluted basis for the years ended December 31, 1999
and 1998.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1999 1998
---- ----
(In thousands except per share data)
<S> <C> <C>
Basic EPS computation:
Numerator - Net income $ 984 $1,074
----- ------
Denominator - Weighted average shares outstanding 505 501
----- ------
Basic EPS $1.95 $ 2.14
===== ======
Diluted EPS computation:
Numerator - Net income $ 984 $1,074
----- ------
Denominator - Weighted average shares outstanding 505 501
Stock options 9 10
----- ------
514 511
----- ------
Diluted EPS $1.91 $ 2.10
===== ======
</TABLE>
Statements of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts on deposit in noninterest-bearing accounts with other commercial
banks, and federal funds sold.
Advertising and Public Relations:
The Company expenses advertising and public relations costs as incurred.
Advertising and public relations costs for 1999 and 1998 as included in other
operating expenses were $165,000 and $105,000, respectively.
Reclassification of Accounts:
Certain items in the financial statements for 1998 have been reclassified to
conform to the classifications used for the current year.
-9-
<PAGE> 58
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of instruments in debt and equity
securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------------- -------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
------- --- ------- ------- ------- --- ----- -------
(Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Government agencies $56,542 $-- $(2,123) $54,419 $58,486 $10 $(151) $58,345
Mortgage-backed securities -- -- -- -- 179 -- -- 179
Other 118 -- -- 118 138 -- -- 138
------- --- ------- ------- ------- --- ----- -------
Total available-for-sale 56,660 -- (2,123) 54,537 58,803 10 (151) 58,662
------- --- ------- ------- ------- --- ----- -------
Held-to-Maturity
State and municipal 1,573 15 (119) 1,469 898 28 -- 926
------- --- ------- ------- ------- --- ----- -------
Total investment
securities $58,233 $15 $(2,242) $56,006 $59,701 $38 $(151) $59,588
======= === ======= ======= ======= === ===== =======
</TABLE>
The fair value of securities fluctuates during the investment period. No
provision for loss has been made in connection with the decline of fair value
below book value, because the securities are purchased for investment purposes
and the decline is not deemed to be other than temporary. Temporary declines in
fair value of securities available-for-sale at December 31, 1999, of $1,324,000
(net of deferred income taxes of $799,000) are regarded as an adjustment to
stockholders' equity. The estimated fair value of securities is determined on
the basis of market quotations. At December 31, 1999, securities with carrying
value of approximately $16,019,000, and market values of approximately
$15,206,000, were pledged to secure deposits and for other operating purposes.
There were no significant gross realized gains or losses in 1999 or 1998.
The cost and estimated fair value of debt and equity securities at December 31,
1999, by contractual maturities, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------- ------- ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 50 $ 50 $ 51 $ 51
Due from one to five years 55,492 53,444 250 247
Due from five to ten years 1,000 925 50 50
Due after ten years -- -- 1,222 1,121
Other 118 118 -- --
------- ------- ------ ------
$56,660 $54,537 $1,573 $1,469
======= ======= ====== ======
</TABLE>
-10-
<PAGE> 59
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 3 - LOANS
The loan portfolio is classified as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------- --------
(Dollars In Thousands)
<S> <C> <C>
Real estate secured loans $ 72,365 $ 61,710
Consumer and credit card loans 8,869 8,333
Commercial and all other loans 7,414 6,894
-------- --------
Total loans 88,648 76,937
Less, unearned income and deferred fees and credits (300) (557)
Less, allowance for credit losses (1,214) (1,277)
-------- --------
$ 87,134 $ 75,103
======== ========
</TABLE>
The following is a summary of the transactions in the allowance for credit
losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------- -------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of year $ 1,277 $ 1,183
Provisions charged to operating expenses 220 144
Loans charged-off (318) (128)
Recoveries 35 78
------- -------
Balance, end of year $ 1,214 $ 1,277
======= =======
</TABLE>
Loans on which interest was not being accrued (nonaccrual loans) were also
classified by management as impaired. The following table sets forth the
recorded investment in impaired and nonaccrual loans and the related valuation
allowance for each loan category as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------------- ------------------------------------------
TOTAL IMPAIRED AMOUNT OF AMOUNT TOTAL IMPAIRED AMOUNT OF AMOUNT
AND NONACCRUAL VALUATION WITHOUT ANY AND NONACCRUAL VALUATION WITHOUT ANY
LOANS ALLOWANCE ALLOWANCE LOANS ALLOWANCE ALLOWANCE
----- --------- --------- ----- --------- ---------
(Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate secured loans $175 $27 $148 $ 573 $ 87 $486
Consumer and credit card loans 17 5 12 2 2 --
Commercial and all other loans 161 25 136 474 74 400
---- --- ---- ------ ---- ----
Totals $353 $57 $296 $1,049 $163 $886
==== === ==== ====== ==== ====
</TABLE>
All of the impaired and nonaccrual loans for December 31, 1999 and 1998, were
measured using management's current estimate of fair value of the collateral.
The average loans classified as impaired and nonaccrual totaled $697,000 in 1999
and $1,018,000 in 1998.
-11-
<PAGE> 60
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 3 - LOANS (CONTINUED)
The interest income earned but not recorded by BLNB pursuant to its nonaccrual
policy totaled $47,000 and $82,000 in 1999 and 1998, respectively. Interest
income received on impaired and nonaccrual loans during 1999 and 1998 and
included in income on a cash basis totaled $22,000 and $54,000, respectively.
Interest income on impaired and nonaccrual loans resulting from the passage of
time was not considered material and no such amount was recognized in 1999 or
1998.
Loans having carrying values of $725,000 and $474,000 were transferred to
foreclosed real estate in 1999 and 1998, respectively.
NOTE 4 - FACILITIES
Facilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
(Dollars In Thousands)
<S> <C> <C>
Land $ 943 $ 943
Buildings 2,175 2,163
Furniture, fixtures, and equipment 2,522 2,297
Other fixed assets 274 270
------- -------
Total 5,914 5,673
Less accumulated depreciation (2,846) (2,499)
------- -------
Premises and equipment - net $ 3,068 $ 3,174
======= =======
</TABLE>
Depreciation expense amounted to $326,000 and $286,000 for the years ended
December 31, 1999 and 1998, respectively. Estimated useful lives typically range
from two to twenty years.
BLNB leases property at five branch locations under noncancelable operating
leases expiring in 2000 through 2008. Minimum future rental payments under these
leases as of December 31, 1999, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000 $ 111
2001 98
2002 94
2003 94
2004 88
Thereafter 276
-----
$ 761
=====
</TABLE>
Lease payments including sales tax expense charged to operations for the above
leases were approximately $103,000 and $55,000 for the years ended December 31,
1999 and 1998, respectively.
-12-
<PAGE> 61
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 5 - OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Other real estate owned $ 307 $ 172
Prepaid expenses 289 188
Income tax receivable 548 292
Miscellaneous 30 12
------ ------
$1,174 $ 664
====== ======
</TABLE>
NOTE 6 - TIME DEPOSITS
Included in interest-bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their remaining maturities
at December 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Three months or less $5,689 $2,873
Over three through twelve months 3,365 3,698
Over twelve months through three years 552 1,539
Over three years 296 275
------ ------
$9,902 $8,385
====== ======
</TABLE>
NOTE 7 - OTHER BORROWINGS AND FEDERAL FUNDS PURCHASED
A summary follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Line of credit $ 388 $ 500
Federal funds purchased 1,000 --
Securities sold under agreements to repurchase 270 --
Other overnight repurchase agreements 499 --
------ ------
$2,157 $ 500
====== ======
</TABLE>
The Company has a line of credit agreement with Independent Bankers' Bank of
Florida dated November 25, 1998, that enables the Company to borrow up to
$1,000,000. This credit facility matures on November 25, 2003, and requires
annual principal repayments of up to $200,000, plus annual interest payments at
6.5% per year. The purpose of this loan was to provide additional capital to
BLNB in connection with its acquisition of two branches from First Union. All of
the outstanding common stock of BLNB has been pledged as collateral for this
loan.
BLNB has sold securities under agreements to repurchase with a par value of
$289,000 and a fair value of $275,000 to secure overnight borrowings totaling
$270,000. The interest rate on this overnight borrowing was 5.54%.
-13-
<PAGE> 62
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 7 - OTHER BORROWINGS AND FEDERAL FUNDS PURCHASED (CONTINUED)
None of the federal funds transactions and repurchase agreements have maturities
exceeding one business day. At December 31, 1999, the combined weighted average
interest rate related to these short-term borrowings was 5.09%.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Accounts payable and other accrued expenses $ 330 $ 160
Miscellaneous 14 47
------ ------
$ 344 $ 207
====== ======
</TABLE>
NOTE 9 - INCOME TAXES
The provision (credit) for income taxes on income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Current:
Federal $ 389 $ 581
State 66 99
------ ------
455 680
------ ------
Deferred:
Federal 84 (91)
State 14 (15)
------ ------
98 (106)
------ ------
Total income tax provision $ 553 $ 574
====== ======
</TABLE>
A reconciliation of the income tax computed at the federal statutory rate of 34%
and the income tax provision shown on the statements of operations follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---- ----
AMOUNT % AMOUNT %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Tax computed at statutory rate $ 523 34.0 $ 560 34.0
Increase (decrease) resulting from:
Effect of tax-exempt income (24) (1.5) (33) (2.0)
State tax - net of federal benefit 46 3.0 40 2.4
Other (net) 8 0.5 7 0.4
----- ----- ----- -----
Income tax provision $ 553 36.0 $ 574 34.8
===== ===== ===== =====
</TABLE>
-14-
<PAGE> 63
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 9 - INCOME TAXES (CONTINUED)
The components of the deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Deferred tax asset:
Federal $1,354 $ 694
State 232 119
------ ------
1,586 813
------ ------
Deferred tax liability:
Federal 50 197
State 8 34
------ ------
58 231
------ ------
Net deferred income tax asset $1,528 $ 582
====== ======
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Net unrealized gains on securities
available-for-sale $ 799 $ 53
Depreciation and amortization 85 (46)
Allowance for credit losses 409 405
CNB merger 223 258
Other 12 (88)
------ ------
Net deferred income tax asset $1,528 $ 582
====== ======
</TABLE>
NOTE 10 - EMPLOYEE BENEFIT PLAN
BLNB sponsors a 401(k) Profit Sharing Plan that covers substantially all
employees. BLNB contributions under this plan are made at the discretion of the
Board of Directors. During 1999 and 1998, the employer contribution approved by
the Board of Directors amounted to 50% of a participant's contributions, subject
to a maximum of 3% of the participant's salary. The 401(k) Profit Sharing Plan
is a prototype plan and has been approved by the Internal Revenue Service.
CNB sponsored a defined contribution pension plan that covered substantially all
employees of CNB. A favorable determination letter had been received from the
Internal Revenue Service that the plan was qualified. In 1998, this plan was
terminated and all former CNB employees were included in BLNB's 401(k) Profit
Sharing Plan.
The amounts included in salaries and employee benefits as pension expense for
1999 and 1998 totaled $35,000 and $27,000, respectively.
-15-
<PAGE> 64
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 11 - RELATED PARTY TRANSACTIONS
BLNB has entered into transactions with its directors, executive officers,
significant stockholders, and their affiliates (Related Parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features.
The aggregate extensions of credit to such related parties at December 31, 1999
and 1998, were $3,050,000 and $2,263,000, respectively. Unfunded commitments to
the same parties totaled $235,000 at December 31, 1999.
Following is a summary of activity for 1998 and 1999 for such loans:
<TABLE>
<CAPTION>
Beginning End of
Of Year Year
Balance Additions Reductions Balance
------- --------- ---------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
1998 $2,372 $ 990 $1,099 $2,263
1999 $2,263 $1,447 $ 660 $3,050
</TABLE>
BLNB held related party deposits totaling $2,738,000 at December 31, 1999.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities that arise in the normal course of
business and involve elements of credit risk, interest rate risk, and liquidity
risk. These commitments and contingent liabilities of BLNB, which include
unfunded commitments to related parties, are commitments to extend credit and
commercial and standby letters of credit. A summary of BLNB's commitments and
contingent liabilities at December 31, 1999 and 1998, follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
(Dollars In Thousands)
<S> <C> <C>
Commitments to extend credit
Secured by real estate $3,248 $3,516
Other 3,288 3,291
Commercial and standby letters of credit 129 129
------ ------
$6,665 $6,936
====== ======
</TABLE>
Commitments to extend credit and commercial letters of credit all include
exposure to some credit loss in the event of non-performance of the customer.
BLNB's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit instruments that are
recorded in the consolidated financial statements. In the opinion of management,
these instruments do not generally present any significant liquidity risk to
BLNB. BLNB's experience has been that substantially all loan commitments are
drawn upon by customers. BLNB did not incur any losses on its commitments in
either 1999 or 1998.
-16-
<PAGE> 65
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position of the Company.
At December 31, 1999, BLNB had $500,000 unfunded lines of credit from other
banks for the purchase of overnight federal funds.
NOTE 13 - CONCENTRATIONS OF CREDIT
Substantially all of BLNB's loans, commitments, and commercial and standby
letters of credit have been granted to customers in BLNB's market area.
Substantially all such customers are depositors of BLNB. The concentrations of
credit by type of loan are set forth in Note 3. The distribution of commitments
to extend credit approximates the distribution of loans outstanding. Letters of
credit were granted to commercial borrowers. BLNB, as a matter of policy, does
not extend credit to any single borrower or group of related borrowers in excess
of its legal lending limit.
NOTE 14 - REGULATORY CAPITAL
BLNB is subject to certain restrictions on the amount of dividends that it may
declare without prior regulatory approval. At December 31, 1999, approximately
$2.5 million of BLNB's retained earnings were available for dividend declaration
without prior regulatory approval (provided that BLNB's capital ratios do not
cause it to be categorized as an undercapitalized institution as discussed
below).
BLNB is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -and possibly additional discretionary- actions by
regulators that, if undertaken, could have a direct material effect on BLNB's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, BLNB must meet specific capital
guidelines that involve quantitative measures of BLNB's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. BLNB's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require BLNB to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that BLNB
meets all capital adequacy requirements applicable to BLNB.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of the Currency ("OCC") categorized BLNB as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, BLNB must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed BLNB's
category.
-17-
<PAGE> 66
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 14 - REGULATORY CAPITAL (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
AMOUNT RATIO > AMOUNT > RATIO > AMOUNT > RATIO
------- ----- ------ --- ------ ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Big Lake National Bank
As of December 31, 1999:
Total Risk-Based Capital
(To Risk-Weighted Assets) $10,079 12.24% > $6,587 > 8.0% > $8,234 > 10.0%
- - - -
Tier I Capital
(To Risk-Weighted Assets) $ 9,050 10.99% > $3,294 > 4.0% > $4,940 > 6.0%
- - - -
Tier I Capital
(To Adjusted Total Assets) $ 9,050 5.79% > $6,256 > 4.0% > $7,819 > 5.0%
- - - -
As of December 31, 1998:
Total Risk-Based Capital
(To Risk-Weighted Assets) $ 8,872 11.89% > $5,941 > 8.0% > $7,463 > 10.0%
- - - -
Tier I Capital
(To Risk-Weighted Assets) $ 7,904 10.59% > $2,985 > 4.0% > $4,478 > 6.0%
- - - -
Tier I Capital
(To Adjusted Total Assets) $ 7,904 6.23% > $5,079 > 4.0% > $6,348 > 5.0%
- - - -
Big Lake Financial Corporation:
As of December 31, 1999:
Total Risk-Based Capital
(To Risk-Weighted Assets) $10,394 12.57% > $6,616 > 8.0% > $8,270 > 10.0%
- - - -
Tier I Capital
(To Risk-Weighted Assets) $ 9,360 11.32% > $3,308 > 4.0% > $4,962 > 6.0%
- - - -
Tier I Capital
(To Adjusted Total Assets) $ 9,360 5.99% > $6,256 > 4.0% > $7,819 > 5.0%
- - - -
As of December 31, 1998:
Total Risk-Based Capital
(To Risk-Weighted Assets) $ 9,084 12.08% > $6,014 > 8.0% > $7,517 > 10.0%
- - - -
Tier I Capital
(To Risk-Weighted Assets) $ 8,110 10.79% > $3,007 > 4.0% > $4,510 > 6.0%
- - - -
Tier I Capital
(To Adjusted Total Assets) $ 8,110 6.36% > $5,100 > 4.0% > $6,375 > 5.0%
- - - -
</TABLE>
NOTE 15 - STOCK DIVIDENDS
On February 17, 1999, 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 19, 1999, payable on or before March 18, 1999. Cash in lieu
of fractional shares was paid at the rate of $21.39 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.
On January 21, 1998, the Company's Board of Directors declared a stock dividend
payable at a rate of 2.5% of shares issued and outstanding to stockholders of
record on February 27, 1998, payable on or before March 19, 1998. Cash in lieu
of fractional shares was paid at the rate of $19.83 per share, which was the
estimated fair market value at that time. The total cash paid in lieu of
fractional shares amounted to approximately $5,000.
-18-
<PAGE> 67
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 16 - STOCK OPTION PLAN
The Company has adopted a Stock Option Plan (as amended) that permits certain
directors to purchase additional shares of the Company's common stock at a
purchase price of $8.42 (rounded) per share. The number of shares permitted for
purchase by each participant originated at 2,750 shares, and has been adjusted
for subsequent stock dividends according to the terms of the plan. At December
31, 1999, the number of shares under this plan totaled 3,265 shares per
participant. Options totaling approximately 13,060 shares are outstanding and
exercisable until the expiration date, which has been extended until June 30,
2001.
For the year ended December 31, 1996, Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
became effective. SFAS No. 123 permits application of the accounting
requirements of an earlier issued APB Opinion No. 25, which the Company
continues to follow.
On May 20, 1998, a former director exercised all of his outstanding stock
options and purchased 3,186 shares of common stock at the exercise price of
$10.00 per share. The estimated fair market value of the Company's stock based
on recent trades was $22.00 per share. A charge to earnings of approximately
$24,000 (net of income taxes of $14,000) was recorded to recognize services
provided by this director under the terms of the Stock Option Plan.
In 1999, the Company corrected the amounts recorded in 1998 for this former
director's exercise to properly reflect the adjusted exercise price of $8.63
(rounded) according to the terms of the plan. Also, a current director exercised
all of his outstanding stock options and purchased 3,265 shares of common stock
at the exercise price of $8.42 (rounded) per share. The estimated fair market
value of the Company's stock based on recent trades and market conditions was
$25.00 per share. A charge to earnings of approximately $34,000 (net of income
taxes of $20,000) was recorded to recognize services provided by this director
under the terms of the Stock Option Plan.
The Company must comply with certain additional disclosures under SFAS No. 123.
A summary of the disclosures follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1997 18,654 $ 8.85
=======
Increase due to stock dividend, 1998 462 $ 8.63
=======
Stock options exercised, 1998 (3,186) $ 8.63
------- =======
Outstanding at December 31, 1998 15,930 $ 8.63
=======
Increase due to stock dividend, 1999 395 $ 8.42
=======
Stock options exercised, 1999 (3,265) $ 8.42
------- =======
Outstanding at December 31, 1999 13,060 $ 8.42
======= =======
</TABLE>
All outstanding options were fully vested and exercisable at December 31, 1999
and 1998, with a weighted average remaining contractual life of eighteen months
at December 31, 1999. Since no additional options have been granted in 1999 or
1998, and the compensation recorded in 1999 and 1998 for the stock options
exercised amounted to approximately 3.5% and 2.2% of net income, respectively,
net income and earnings per share would not materially differ from reported
results had the Company adopted the accounting treatment under SFAS No. 123.
-19-
<PAGE> 68
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 17 - PREFERRED STOCK
In addition to the 1,000,000 shares of authorized common stock, the Company's
articles of incorporation authorize up to 500,000 shares of non-voting preferred
stock at $1.00 par value. The Board of Directors are further authorized to
establish designations, powers, preferences, rights, and other terms for
preferred stock by resolution.
On March 26, 1986, the Board of Directors, designated 2,000 shares as Redeemable
Preferred Stock, Series 1 ("Series 1"). Series 1 shares have no voting or
conversion rights and pay no dividends. However, Series 1 shares have preference
on liquidation at the rate of $10 per share after January 1, 1987.
No shares of preferred stock, including Series 1 shares, have been issued.
NOTE 18 - NONINTEREST OPERATING EXPENSES
Other expenses for 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Advertising and public relations $ 165 $ 105
Data processing fees and service charges 247 197
Telephone 153 120
Postage and courier 252 186
Stationary, printing, and supplies 264 243
FDIC and OCC assessments 71 117
Director fees 136 116
Professional and legal expenses 313 170
Amortization 305 100
Merger-related expenses -- 45
Other 538 573
------ ------
$2,444 $1,972
====== ======
</TABLE>
NOTE 19 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investment Securities:
For securities held as investments, fair value equals quoted market
price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
-20-
<PAGE> 69
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 19 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans Receivable:
For loans subject to repricing and loans intended for sale within six
months, fair value is estimated at the carrying amount plus accrued
interest.
The fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposit Liabilities:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of long-term fixed maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
Short-term Debt:
For short-term debt, including accounts and demand notes payable, the
carrying amount is a reasonable estimate of fair value.
Other Borrowings:
Since this borrowing is at a recent market interest rate, the carrying
amount is a reasonable estimate of fair value.
The estimated fair values of the Company's financial instruments at December 31,
1999, are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(Dollars In Thousands)
<S> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 9,521 $ 9,521
Investment securities 56,110 56,006
Loans 87,134 87,008
-------- --------
Total assets valued $152,765 $152,535
======== ========
FINANCIAL LIABILITIES
Deposits $148,453 $148,581
Other borrowings and federal funds purchased 2,157 2,157
-------- --------
Total liabilities valued $150,610 $150,738
======== ========
</TABLE>
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that, were the Company to have
disposed of such items at December 31, 1999, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1999, should not necessarily be considered to apply at subsequent dates.
-21-
<PAGE> 70
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are condensed financial statements for Big Lake Financial
Corporation (dollars in thousands):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS (PARENT ONLY)
AS OF DECEMBER 31: 1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 146 $ 68
Investment in subsidiary bank, net 9,877 10,164
Facilities 517 536
Other assets 49 116
-------- --------
Total $ 10,589 $ 10,884
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 402 $ 514
Stockholders' equity 10,187 10,370
-------- --------
Total $ 10,589 $ 10,884
======== ========
CONDENSED STATEMENTS OF OPERATIONS AND STOCKHOLDERS'
EQUITY (PARENT ONLY)
YEARS ENDED DECEMBER 31: 1999 1998
-------- --------
Equity in net income of subsidiary bank $ 1,061 $ 1,129
Other income 55 51
Other expenses (132) (106)
-------- --------
NET INCOME 984 1,074
STOCKHOLDERS' EQUITY:
Beginning of year 10,370 9,423
Prior period adjustment - prepaid expenses -- (110)
Cash paid in lieu of fractional shares (7) (5)
Stock options exercised 76 70
Net change in unrealized holding gains (losses) on
securities in subsidiary bank (1,236) (82)
-------- --------
End of year $ 10,187 $ 10,370
======== ========
CONDENSED STATEMENTS OF CASH FLOWS (PARENT ONLY)
YEARS ENDED DECEMBER 31: 1999 1998
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income $ 984 $ 1,074
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary bank (1,061) (1,129)
Other 198 6
-------- --------
Total 121 (49)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital contribution to subsidiary bank -- (500)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from (payments of) other borrowings (112) 500
Proceeds from stock options exercised 76 46
Cash paid in lieu of fractional shares (7) (5)
-------- --------
Total (43) 541
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78 (8)
CASH AND CASH EQUIVALENTS:
Beginning of year 68 76
-------- --------
End of year $ 146 $ 68
======== ========
</TABLE>
-22-
<PAGE> 71
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 21 - BRANCH ACQUISITIONS
During 1998, BLNB entered into negotiations with First Union to acquire certain
assets and assume deposit liabilities and related accrued interest of First
Union's Wauchula and Arcadia Branches ("Branch"). The Branch acquisitions were
approved by the OCC and the Company's Board of Directors, and consummated on
November 19, 1998. A summary of the transaction follows (dollars in thousands):
<TABLE>
<S> <C>
Liabilities assumed $ 30,957
--------
Less assets purchased and other adjustments:
Core deposit premium 1,942
All other assets 1,092
Other adjustments, net (8)
--------
3,026
--------
Cash received at closing $ 27,931
========
</TABLE>
The proceeds received at closing were invested in federal funds sold and U. S.
Government securities. During 1999, BLNB received a refund from First Union,
which decreased the purchase price and core deposit premium by $33,000.
NOTE 22 - PRIOR PERIOD ADJUSTMENT - PREPAID EXPENSES
During 1999, the OCC directed BLNB to change its method of accounting for
certain costs previously treated as prepaid expenses. BLNB had consistently
followed the prior accounting method since its inception. Prior to 1999, the
amounts were not considered material by management of BLNB nor cited by the OCC
in previous examinations.
A summary of the effect of the prior period adjustment follows:
<TABLE>
<CAPTION>
Balances Prior Restated Balances
Previously Reported Period as of
as of December 31, 1998 Adjustment December 31, 1998
----------------------- ---------- -----------------
(Dollars In Thousands)
<S> <C> <C> <C>
Prepaid expenses $ 364 $(176) $ 188
====== ===== ======
Income tax receivable $ 226 $ 66 $ 292
====== ===== ======
Beginning retained earnings $2,569 $(110) $2,459
====== ===== ======
</TABLE>
The opening 1998 balance of retained earnings, as previously reported, was
restated as a result of adopting the correct accounting method in 1999.
-23-
<PAGE> 72
Big Lake Financial Corporation
Form 10-KSB
For Fiscal Year Ending December 31, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
--- ------- ---
<S> <C>
10.4 Employment agreement dated July 15, 1998 between Big Lake
National Bank, Big Lake Financial Corporation, and Joe G.
Mullins
21.1 Subsidiaries of the Registrant
23.1 Consent of Stevens, Sparks & Company, P.A. (formerly Stevens,
Thomas, Schemer & Sparks, P.A.)
27 Financial Data Summary
</TABLE>
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
**
This agreement made and entered into this 15th day of July, 1998,
between BIG LAKE NATIONAL BANK (hereinafter referred to as "the Bank") and BIG
LAKE FINANCIAL CORPORATION (hereinafter referred to as "the Holding Company")
and JOE G. MULLINS, (hereinafter referred to as "the Employee");
WHEREAS, the bank is a national bank, regulated by the Office of the
Comptroller of the Currency, insured by the Federal Deposit Insurance
Corporation, and located in Okeechobee, Florida; and
WHEREAS, the Holding Company is a Florida corporation which owns the
Bank; and
WHEREAS, the Bank and the Holding Company want to employ the Employee
as President and Chief Executive Officer of the Bank; and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Bank and the
Holding Company and the Employee.
NOW, THEREFORE, it is agreed as follows:
1. RELATIONSHIP ESTABLISHED AND DUTIES
A. The Bank and the Holding Company hereby will employ the Employee as
President and Chief Executive Officer, to hold the title of President and Chief
Executive Officer, and to perform such services and duties as the Board of
Directors of the Bank and the Holding Company may, from time to time, designate
during the term hereof. Subject to the terms and conditions hereof, Employee
will perform such duties and exercise such authority as are customarily
performed and exercised by persons holding such office, subject to the general
direction of the Board of Directors of the Bank and the Holding Company,
exercised in good faith in accordance with standards of reasonable business
judgement. Without limiting the generality of the foregoing, to the extent
permitted by law and the governing instruments of the Bank, the Employee shall
have the ultimate responsibility and authority for the hiring and firing of any
and all employees and/or officers of the Bank.
B. Employee shall serve on the Board of Directors of Big Lake National
Bank ("The Bank") and Big Lake Financial Corporation ("the Holding Company").
C. Employee accepts such employment and shall devote his full time,
attention, and efforts to the diligent performance of his duties herein
specified and as an officer and director of the Bank and Holding Company and
will not accept employment with any other individual, corporation, partnership,
governmental authority, or any other entity, or engage in any other venture for
profit which the Bank and/or the Holding Company may consider to be in conflict
-1-
<PAGE> 2
with his or its best interest or to be in competition with the Bank's or the
Holding Company's business, or which may interfere in any way with the
Employee's performance of his duties hereunder. Any exception to this must be
upon the prior written consent of the Board of Directors of the Bank and the
Company (hereinafter referred to as "the Board").
H. TERMS OF EMPLOYMENT
A. The initial term of employment under this Agreement shall commence
upon execution of this Agreement by all parties and shall continue until
December 31, 1999 unless such is terminated pursuant to the terms hereof or by
the first to occur of the conditions to be stated hereinafter. This Agreement
will be automatically extended each year after the initial term unless either
party give ninety (90) days contrary written notice to the other. The term
previously stated notwithstanding this contract shall be terminated by the
earlier to occur of any of the following:
1. Termination on Death or Disability: The employment period
shall automatically terminate upon the death of the Employee
or his disability as defined in this contract.
2. Benefits Payable to Employee Upon Disability: In the event of
the Employee's disability during the employment period, the
Bank shall have the obligation to provide the Employee, by
disability insurance or other mutually agreed-upon plan,
sixty-percent (60%) of the aggregate amount of the Base
Salary as in effect at the time such disability commences.
For purposes of this Agreement, "disability" shall mean the
employee's substantial inability, by reason of physical or
mental incapacity, to perform his services hereunder, which
shall continue for a period of six (6) months.
3. Termination for Cause: The employment period may be
terminated by the Bank for "cause" at any time during the
employment period upon fifteen (15) days' prior written
notice to the Employee, which notice shall state the facts
constituting such "cause", provided, however, the employee
shall have fifteen (15) days after receipt by him of such
notice to cure such state of affairs or facts constituting
"cause". Following notice by the Bank, the Employee may be
placed on paid administrative leave pending resolution as
described in this paragraph. For purposes of this section,
the term "cause" shall be limited to:
(a). Gross neglect or gross misconduct by the Employee in
carrying out his duties resulting in material harm to
the Bank or the Holding Company;
(b). The failure by the Employee to substantially perform
his
-2-
<PAGE> 3
duties hereunder (other than any such failure resulting
from the Employee's incapacity physical or mental
illness), after a demand for substantial performance is
delivered to the Employee by the Board which
specifically identifies the manner in which the Board
believes that the Employee has not substantially
performed his duties; or
(c). The order of a federal bank regulatory agency or a
court of competent jurisdiction requiring the
Employee's termination; or
(d). Conviction of a felony or fraud on the part of the
Employee, or;
(e). Conduct of such moral turpitude that the Employee's
reputation is impugned to such extent as to render him
ineffective in his position. The Employee may be
temporarily suspended with full pay, from duty if there
is substantial evidence of probable "cause" as
described herein, until "cause" is either proved or
cured; if cured, full reinstatement will immediately be
effected.
B. Termination of Employee's employment shall constitute a tender by
Employee of his resignation as an officer and director of the Bank and the
Holding Company. In the event the Bank terminates the Employee for other than
"cause", the Employee is entitled to severance pay equal to two (2) weeks'
salary at the rate in effect on the date of termination for each year of
service commencing September 16, 1988, or portion thereof, not to exceed an
amount equal to 12 months salary.
III. COMPENSATION
For all services which Employee may render to the Bank during the term
hereof, the Bank shall pay to employee, subject to such deductions as may be
required by law:
A. Base Salary. An annual salary of $127,000.00 until January 1, 1999.
Starting January, 1999 and in each January thereafter, annual increase reviews
will be done for a January 1 effective increase date during the term of this
Agreement so that for each calendar year starting January 1, 1999, the
Employee's salary increase will take effect. The Board has sole discretion as
to the amount of the Employee's compensation.
B. Payment of Base Salary. The Bank shall pay the Base Salary due to
the Employee in accordance with the policy of the Bank as in effect from time
to time for the payment of salary to senior executive personnel.
-3-
<PAGE> 4
C. Stock Option Plan. (ROAA in this section refers to Big Lake
National Bank only). Each year, a Stock Option ranging from 1,000 shares to
7,000 shares will be awarded in January of each year starting with January 1,
1999, based upon mutually agreed upon goals such as the Return on Average
Assets achieved after the application of taxes based upon the following
formula. Option will be issued at Book Value as of the immediate preceding
December 31 to be exercised within five (5) years. In the event of the
Employee's death or disability, his estate or representative can exercise
options during the six-month period following the Employee's death or
disability.
a. ROAA greater than 1.0% but less than 1.10% Shares 1,000
b. ROAA greater than 1.10% but less than 1.20% Shares 2,000
c. ROAA equal to 1.20% but less than 1.30% Shares 3,000
d. ROAA equal to 1.30% but less than 1.40% Shares 4,000
e. ROAA equal to 1.40% but less than 1.60% Shares 5,000
f. ROAA equal to 1.60% but less than 1.75% Shares 6,000
g. ROAA equal to 1.75% but less than 2.00% Shares 7,000
D. The Board of Directors may, at its sole discretion, reduce the
Stock Options to be issued under the preceding section in the event the Bank
does not achieve the following annual (JANUARY 1 - DECEMBER 31) growth targets
with respect to average Total Loans and Total Deposits.
Average Total Loans 10%
Average Total Deposits 10%
IV. DIRECTOR'S FEES
In addition to any other benefits or compensation provided for
hereunder, in return for his services as a member of the Board, the Bank and
Holding Company shall pay the Employee such Director's fees as it customarily
pays to corporate directors.
V. OTHER BENEFITS
A. The Employee shall be entitled to participate in any plan of the
Bank relating to stock options, stock purchased, profit sharing, thrift, group
life insurance, medical coverage, education, or other retirement or employee
benefits that the Bank may adopt for the benefit of
-4-
<PAGE> 5
its employees.
B. The Employee shall be eligible to participate in any other benefits
which may be or become applicable to the Bank's executive employees, shall be
furnished a vehicle (including all expenses of maintenance), a reasonable
expense account, the payment of reasonable expenses for attending annual and
periodic meetings of trade associations, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee hereunder.
C. At such reasonable times as the Board of Directors shall in its
discretion permit, the Employee shall be entitled, without loss of pay, to
absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided
that:
1. The Employee shall be entitled to an annual vacation of four
(4) weeks per year. The employee shall schedule at least two
(2) consecutive weeks of vacation each year.
2. The timing of vacations shall be scheduled in a reasonable
manner by the Employee. The Employee shall not be entitled to
receive any additional compensation from the Bank on account
of his failure to take a vacation; nor shall he be entitled
to accumulate unused vacation time from one calendar year to
the next.
VI. CHANGE OF OWNERSHIP
A. For purposes of this Agreement, a Change in Ownership shall be
deemed to have occurred if any person or entity becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated pursuant to the Securities Exchange Act
of 1934), directly or indirectly, of 505 or more of the common stock of Big
Lake Financial Corporation or Big Lake National Bank after the date of this
agreement.
B. In the event a Change in Ownership occurs, Stock Options as
described in Section III-C, shall be declared accomplished and earned based
upon performance up to date of the Change in Ownership.
C. In the event a Change in Ownership occurs, then the Employee shall
have the right within 365 days following such Change in Ownership, to resign
and elect to receive the following severance package upon the delivery of
written notice (the "Notice of Election") by the Employee to the Bank and the
Holding Company.
1. A lump sum payment equal to one year's salary at the rate in
effect at the time the Change in Ownership occurs. Said
amount to be paid to the
- 5 -
<PAGE> 6
Employee in within thirty (30) business days following the
delivery by the Employee to the Bank and the Holding Company
of the Notice of Election.
2. Title to the automobile provided by the Bank to the
Employee, within thirty (30) business days following the
delivery by the Employee to the Bank of the Notice of
Election such title to be delivered by the Bank to the
Employee free and clear of all liens and encumbrances.
3. Provided Employee is insurable at standard rates, a paid-up
life insurance policy with a face amount equal to one year's
salary in effect on the date of the Notice of Election
insuring the life of the Employee (and payable to such
beneficiaries of as the Employee shall designate from time to
time). Said life insurance policy to be delivered by the Bank
to the Employee within thirty (30) business days following
the delivery by the Employee to the Bank of the Notice of
Election.
VII. EFFECT OF TERMINATION OF EMPLOYMENT
A. The parties intend that the Employee shall have the right to issue
the Notice of Election contemplated by this Agreement within 365 days following
a Change in Ownership. Accordingly, if the employment of the Employee is
terminated by either the Bank or the Holding Company, following a Change in
Ownership, then this termination of employment shall not affect the right of
the Employee to elect within the 365-day period following a Change in Ownership
to receive the benefits set forth in Section VI of this Agreement. Further, the
Employee shall be entitled to resign and elect the benefits set forth in
Section VI of this Agreement if any of the following occurs within 12 months
preceding a Change in Ownership (i) the Employee's employment is terminated by
the Bank or the Holding Company for any reason other than for "cause", or
(ii) the Employee's duties with Big Lake or the Bank are significantly reduced,
or (iii) if the Employee's title is changed to one other than President and
Chief Executive Officer. In this event, the 12-month period contemplated by
Section VI for the measurement of the Employee's salary shall be deemed to be
the 12-month period prior to the termination of employment or reduction in
responsibility or title of Employee, as the case may be, rather than the
12-month period prior to the Change in Ownership.
B. In no event shall the severance paid under Section VI be cumulative
with the severance provided for in Section II-A. An election under Section VI
shall be deemed to be a waiver of severance under Section II-A of this
agreement. Should Section II-A severance have been paid prior to an election
under this Section, such payment made shall be deducted from the Section VI
payments due.
VIII. POST TERMINATION COVENANTS
A. If, during the term hereof, Employee shall cease employment
hereunder by
- 6 -
<PAGE> 7
Employee' resignation (except following a Change in Ownership) or termination
for cause, then Employee agrees that for two (2) years following such
termination he will not be employed in the banking business in Okeechobee,
Florida or Okeechobee County, Florida and will not do the following during such
two-year period, without the prior written consent of the Bank and the Holding
Company.
1. furnish to anyone the name of, or any list or lists of
customers of the Bank or utilize such list or information
himself for banking purposes; or
2. furnish, use, or divulge to anyone any information acquired
by him for the Bank relating to the Bank's methods of doing
business or the Holding Company's method of doing business;
or
3. contact directly or indirectly any customer of the Bank for
banking solicitation purposes; or
4. hire for any other Bank or employer (including himself) any
employee of the Bank or Holding Company, or directly or
indirectly cause such employee to leave his or her employment
to work for another.
B. It is understood and agreed by the parties hereto that the
provisions of this section are independent of each other, and the invalidity of
any such provision or portion thereof shall not affect the validity or
enforceability of any other provisions of this agreement.
IX. WAIVER OF PROVISIONS
Failure of any of the parties to insist, in one or more instances, on
performance by the other in strict accordance with the terms and conditions of
this agreement shall not be deemed a waiver or relinquishment of any right
granted hereunder of the future performance of any such term or condition of
any other term or condition of this agreement, unless such waiver is contained
in a writing signed by or on behalf of all the parties.
X. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida. This Agreement is being
entered into in Okeechobee County, Florida, which shall be the venue of any
action brought pursuant to the terms of this Agreement.
XI. SEVERABILITY
If, for any reason, any provision of this Agreement shall be held by a
court of competent jurisdiction to be void or unenforceable, the same shall not
affect the remaining provisions thereof.
- 7 -
<PAGE> 8
XII. MODIFICATION AND AMENDMENT
This Agreement contains the sole and entire agreement among the
parties hereto and supersedes all prior discussions and agreements among the
parties, and any such prior agreements shall, from and after the date hereof,
be null and void. This Agreement shall not be modified or amended except by an
instrument in writing signed by on behalf of the parties hereto.
XIII. COUNTERPARTS AND HEADINGS
This agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this agreement.
XIV. CONTRACT NONASSIGNABLE
This agreement may not be assigned or transferred by any party hereto,
in whole or in part, without prior written consent of the other. This Agreement
shall be binding upon the successors of the parties hereto.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the year and date first above written.
Employee:
/s/ Eileen P. Casian /s/ Joe G. Mullins
- ---------------------------------- ------------------------------
Eileen P. Casian JOE G. MULLINS
Witness as to Employee
Date: June 2, 1999
- ---------------------------------- ------------------------
Witness as to Employee
BANK AND HOLDING COMPANY
/s/ Eileen P. Casian BY: Edwin E. Walpole III
- ---------------------------------- ------------------------------
Eileen P. Casian Chairman of the Board of
Witness as to Bank/Holding Company Big Lake Financial Corporation
And Big Lake National Bank
/s/ [ILLEGIBLE]
- ----------------------------------
Witness as to Bank/Holding Company
- 9 -
<PAGE> 1
Exhibit 21.1
Big Lake Financial Corporation
Form 10-KSB
For Fiscal Year Ended December 31, 1999
Subsidiaries of Registrant
--------------------------
Big Lake National Bank, incorporated under the laws
of the United States
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We agree to the inclusion in this Form 10-KSB of our report, dated January 14,
2000, on our audit of the consolidated financial statements of Big Lake
Financial Corporation and Subsidiary.
/s/ STEVENS, SPARKS & COMPANY, P. A.
- ------------------------------------
STEVENS, SPARKS & COMPANY, P. A.
Jacksonville, Florida
February 25, 2000
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<INT-BEARING-DEPOSITS> 0
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0
0
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