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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required) FOR THE TRANSITION PERIOD FROM TO
Commission File No. 2-82233
CITI-BANCSHARES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 59-2298309
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
incorporation or organization)
1211 North Boulevard West, Leesburg, FLORIDA 34748
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(904) 787-5111
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE Act:
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NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Common Stock, Par Value $.01 Name of each exchange on which registered
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(Title of Class) None
Indicate by check mark whether the registrant (I) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part m of this Form 10-K or any amendment to this
Form 10-K. ( )
As of March 19,1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $64,453,177.
As of March 19,1996, the number of shares outstanding of the Registrant's $ 01
par value common stock was 4,047,643.
DOCUMENTS INCORPORATED BY REFERENCE:
I. Portions of the registrant's 1995 Armual Report to Shareholders for the
fiscal year ended December 31, 1995 ("1995 Annual Report"), are incorporated
by reference into Parts II and IV.
2. Portions of the registrant's 1996 Proxy Statement for the Annual Meeting of
Shareholders to be held April 23, 1996 (" 1996 Proxy Statement"), are
incorporated by reference into Part III.
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FORM 10-K CROSS-REFERENCE INDEX
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Page Page(s) of 1995
of 10-K Annual Report
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Part I
Item 1. Business................................1.................N/A
Item 2. Properties.............................11.................N/A
Item 3 . Legal Proceedings .....................12.................N/A
Item 4. Submission of Matters to a
Vote of Security Holders ...........12.................N/A
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters......12..................22
Item 6. Selected Financial Data................12.................. 5
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations............13................... 6-19
Item 8. Financial Statements and
Supplementary Data...................13...................20-45
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures ...........13...................N/A
</TABLE>
<TABLE>
<CAPTION>
Page Page(s) of 1996
of 10-K Proxy Statement
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Part III
Item 10. Directors and Executive
Officers of the Registrant............13.................3-8 and 18
Item 11. Executive Compensation....................13.................8-17
Item 12. Security Ownership of Certain
Beneficial Owners and
Management ...........................13.................3-8 and 18
Item 13. Certain Relationships and
</TABLE>
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<TABLE>
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Page Page(s) of 1995
of 10-K Annual Report
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Part IV
Item 14. Exhibits, Financial Statement ..14................... 23-45
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a) (2) Financial Statements Schedules ..14................. N/A
(a) (3) Exhibits ........................14................. N/A
(b) Reports on Form 8-K .................15................. N/A
(c) Exhibits.............................15................. N/A
(d) Financial Statement Schedules........15................. N/A
</TABLE>
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
GENERAL
Citi-Bancshares, Inc. ("Citi-Bancshares" or the "Company") is a bank
holding company whose sole subsidiary, Citizens National Bank of Leesburg
("Citizens" or the "Bank"), is engaged in bank and bank-related activities.
Citi-Bancshares is a legal entity separate and distinct from the Bank.
Citi-Bancshares derives substantially all of its revenue from dividends and
service fees charged to the Bank for various services. The Bank is managed as a
separate entity. Herein, unless the text otherwise requires, "Citi-Bancshares"
and the "Company" include its subsidiaries.
The Bank commenced operation as national bank on April 11, 1953. It is
a member of the Federal Reserve System, FedeMI Deposit Insurance Corporation's
("FDIC") Bank Insurance Fund ("BIF").
The Company is a Florida corporation that is registered with the
Federal Reserve as a "bank holding company" under the BHC Act. Through the
Bank, the Company provides a wide range of commercial and retail banking
services, trust services and various other financial services in central
Florida. The Bank currently operates six full service banking offices in Lake
County, Florida, one in Sumter County, Florida, and one in Marion County,
Florida.
On November 1, 1995, the Company entered into an agreement (the
"Acquisition Agreement") to acquire in exchange for 425,000 shares of Company
common stock (the "Acquisition"), Citizens First Bancshares, Inc. ("CBI"), and
its wholly-owned subsidiary, Citizens First Bank of Ocala ("CFBO"), both of
Ocala, Marion County, Florida. The Acquisition Agreement provides for the
merger of CFB and CFBO with and into the Company and the Bank, respectively.
The Acquisition has been approved by the Federal Reserve and the OCC, but
remains subject to approval by CFB's shareholders at a shareholders' meeting to
be held on April 11, 1996. Subject to the approval of CFB's shareholders and
other conditions contained in the Acquisition Agreement, including the
treatment of the Acquisition as a pooling of interests by the Company, the
Acquisition is expected to be consummated on or about April 19, 1996. At
year-end 1995, CFB had total consolidated assets of $39.5 million and
consolidated shareholders' equity of $4.2 million.
The Company has evaluated other acquisition opportunities from time to
time. As a result, acquisition discussions and, in some cases, negotiations may
take place. Future acquisitions involving cash, debt or equity securities may
arise. Acquisitions may involve the payment of a premium over book and market
values and, therefore, some dilution of Citi-Bancshares's book value and/or net
income per common share may occur in connection with any such future
acquisitions. In addition, the Company has been approached from time to time by
entities seeking to discuss a possible acquisition of the Company, but to date,
the Company has not entered into any negotiations with any such entities.
Citi-Bancshares believes it is likely that because if its size, market position
and location, it may continue to receive such inquiries. Citi-Bancshares's
long-term strategic plan is to remain an independent institution, but CBI will
continue to evaluate proposals consistent with the CBI Board's fiduciary
duties. The results of any such discussions and evaluations cannot be
predicted.
The Bank serves Lake, Sumter and Marion Counties in central Florida.
The Company's primary market area, Lake County, had a 45% growth in population
from 104,870 in 1980 to 152,104 in 1990. Lake County's population
increased a further 12.5% from 1990 to 1994 to 171,168.
As of February 16, 1996, Citi-Bancshares had 169 full-time employees
and 16 part-time employees. Subject to certain initial vesting periods, all
full-time employees were eligible to participate in the Bank's health and
welfare plans, and the profit sharing plan and pension plan. Citi-Bancshares
believes that relations between CBI and its employees are generally good.
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The Bank offers a variety of banking services, including checking
accounts, money market and super NOW deposit accounts, other savings accounts,
certificates of deposit, money orders, travelers cheques, safe deposit boxes,
night depository facilities, installment loans, commercial loans, mortgage
loans, collection and trust services. In addition, the Bank offers agricultural
loans for equipment and crops and real estate loans.
All of the banking offices have an automatic teller machine ("ATM") to
provide customers 24-hour access to their deposit accounts. The Bank is a
member of the following electronic funds transfer networks through Mellon
Network Services: Honor, Cirrus and Presto. Membership in these networks allows
customers access to their accounts statewide and in most parts of the country.
In addition, Citi-Bancshares' proprietary ATMs can accommodate card holders on
the Plus/Visa, American Express and Discover networks. Citi-Bancshares also
offers Debit Card services to its deposit customers. Citi-Bancshares deposit
customers can use their debit card at any merchant that accepts Visa or at any
ATM that is on the Honor, Cirrus or Presto Networks.
The Company's' and the Bank's main offices are located at 1211 North
Boulevard West, Leesburg, Florida. The Bank's eight branch offices are located
at (i) U. S. Highway 27, 441 and Palm Street, Fruitland Park, Florida, (ii)
7000 U.S. Highway 441, Leesburg, Florida in front of the Lake Square Mall
Shopping Center, (iii) North U.S. Highway 441, Lady Lake, Florida at The
Villages, (iv) 200 Orange Avenue, Eustis, Florida, (v) 359 East Burleigh
Boulevard, Tavares, Florida, (vi) 300 South Main Street, Wildwood, Florida,
(vii) 1701 S.E. 109th Avenue, Summerfield, Florida, and (viii) 1515 East Silver
Springs Boulevard, Suite E-170, Ocala, Florida.
SERVICES AND MARKETS
CBI has grown from the third largest bank in Lake County in 1990 with
12.99% of individual, partnership and corporate ("IPC") to the largest bank
with 18.30% of the county's IPC deposits by the end of 1994. At that time, the
second and third largest banks had market shares of 18.13% and 17.14%,
respectively. CBI attributes this growth in market share to superior customer
service and product compatibility with its customers needs.
The economy for Lake County has been stable over the last decade due
mostly to the influx of retirement aged residents. Industry has been in a
transition from primarily an agricultural base, including citrus production, to
various other industries, including aluminum extrusion manufacturing, fruit
packaging products, thermometer manufacturing and food products processing. The
Lake County unemployment rate has decreased from 8.7% in 1992 to 5.8% in 1995.
The reduction in the unemployment rate for those periods is mostly attributable
to the transition of seasonal agrarian help to the manufacturing and services
industries. Compared to the region, Lake County now has relatively high
resident concentrations of blue-collar skills, which include precision
production, machine operators, and general laborers.
Household effective buying income increased 92.5% from $15,790 in 1980
to $30,397 in 1990, and grew a further $1,087 to $31,484 by 1993. The medium
single-family home in Lake County increased in value from $67,789 in 1990 to
$72,248 in 1992.
COMPETITION
Factors affecting competition in the Bank's service area include office
location, customer convenience and banking services that are provided. The Bank
competes with eight other commercial banks and three savings and loan
associations within its service area.
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SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. This discussion 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 status or
regulations applicable to the Company's and the Bank's business. Supervision,
regulation, and examination of the Company and the Bank and their respective
subsidiaries by the bank regulatory agencies are intended primarily for the
protection of depositors rather than holders of Company capital stock. Any
change in applicable law or regulation may have a material effect on the
Company's business.
BANK HOLDING COMPANY REGULATIONS
Citi-Bancshares is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the BHC
Act. As such, Citi-Bancshares and its subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
The Company is a legal entity separate and distinct from the Bank and
its other Subsidiaries. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company or its non-bank
subsidiaries. The Company and the Bank also are subject to Section 23A of the
Federal Reserve Act. Section 23A defines "covered transactions", which include
extensions of credit, and limits a bank's covered transactions with any
affiliate to 10% of such bank's capital and surplus. All covered and exempt
transactions between a bank and its affiliates must be on terms and conditions
consistent with safe and sound banking practices, and banks and their
subsidiaries are prohibited from purchasing low-quality assets from the bank's
affiliates. Finally, Section 23A requires that all of a bank's extensions of
credit to an affiliate be appropriately secured by acceptable collateral,
generally United States government or agency securities. The Company and the
Bank also are subject to Section 23B of the Federal Reserve Act, which
generally limits covered and other transactions among affiliates to terms and
under circumstances, including credit standards, that are substantially the
same or at least as favorable to the bank or its subsidiary as prevailing at
the time for transactions with unaffiliated companies.
The BHC Act requires prior approval of the Federal Reserve for, among
other things, a bank holding company to acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than 5% of the
voting shares of the bank; it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of any bank; or for any
merger or consolidation 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 which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that Citi-Bancshares and any other bank holding
company located in Florida may now acquire a bank located in any other state,
and any bank holding company located outside Florida may lawfully acquire any
bank based in another state, regardless of state law to the contrary, in either
case subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting
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legislation prior to that date, a state has the ability either to "opt in"
and accelerate the date after which interstate branching is permissible or "opt
out" and prohibit interstate branching altogether. As of March 1, 1995, Florida
had not adopted legislation opting in or out of interstate branching, but
option legislation is expected to be introduced for consideration by the
Florida Legislature in Spring 1996.
The BHC Act generally prohibits bank holding companies 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 reasonably can 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 discount 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 performing certain insurance underwriting activities all have
been determined by the Federal Reserve to be permissible activities of bank
holding companies. The BHC Act does not place territorial limitations on
permissible non-banking 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 to 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.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measure to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding
company has more than one bank or thrift subsidiary, each of the bank holding
company's subsidiary depository institutions are responsible for any losses to
the Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated
depository institution's failure. As a result, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or
other instruments which qualify as capital under regulatory rules. However, any
loans from the holding company to such subsidiary banks likely will be
unsecured and subordinated to such bank's depositors and perhaps to other
creditors of the bank.
The Bank is subject to supervision, regulation, and examination by the
Office of the Comptroller of the Currency (the "OCC"), which monitors all areas
of the operations of the Bank, including reserves, loans, mortgages, issuances
of securities, payment of dividends, establishment of branches, and capital.
The Bank is a member of the Federal Reserve System and of the FDIC's Bank
Insurance Fund ("BIF"), and its deposits are insured by the FDIC to the maximum
extent provided by law.
Under present Florida law, the Bank currently may establish and operate
branches throughout the State of Florida, subject to the maintenance of
adequate capital for each branch and the receipt of OCC approval.
PAYMENT OF DIVIDENDS
Citi-Bancshares is a legal entity separate and distinct from its banking
and other subsidiaries. The principal sources of cash flow of Citi-Bancshares,
including cash flow to pay dividends to their respective stockholders, are
dividends from its banking subsidiary. There are statutory and regulatory
limitations on the payment of dividends by these depository institution
subsidiaries to Citi-Bancshares, as well as by Citi-Bancshares to its
stockholders.
National banks, including the Bank, are required to obtain prior OCC approval
for the payment of
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dividends if the total of all dividends declared by the bank in any year
would exceed the total of (i) such bank's net profits (as defined and
interpreted by regulation) for that year, plus (ii) the retained net profits
(as defined and interpreted by regulation) for the proceeding two years, less
any required transfers to surplus. In addition, national banks may only pay
dividends to the extent that their retained net profits (including the portion
transferred to surplus) exceed statutory bad debts (as defined by regulation).
If, in the opinion of the federal banking regulator, a bank or thrih under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, aher notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings.
At December 31, 1995, the Bank, without obtaining prior OCC approval,
could declare aggregate dividends to Citi-Bancshares of approximately
$15,631,901.
The payment of dividends by Citi-Bancshares and its banking subsidiary may
also be affected or limited by other factors, including, without limitation,
the need to maintain adequate capital and liquidity.
CAPITAL ADEQUACY
Citi-Bancshares and the Bank are required to comply with the capital
adequacy standards established by the Federal Reserve in the case of
Citi-Bancshares and the OCC, respectively. There are two basic measures of
capital adequacy for bank holding companies that have been promulgated by the
Federal Reserve: a risk-based measure and a leverage measure. The OCC has
established similar capital standards applicable to the Bank.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum required ratio ("Risk-Based Capital Ratio") of total capital
("Total Capital") to riskweighted assets (including certain off-balance-sheet
items, such as standby letters of credit) is 8.0%. At least half of Total
Capital must comprise common stock, minority interests in the equity accounts
of consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist
of subordinated debt, other preferred stock, and a limited amount of loan loss
reserves ("Tier 2 Capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for bank holding companies that
meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a "tangible" Tier 1 Capital Leverage Ratio
(Tier 1 Capital less all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
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<TABLE>
<CAPTION>
MINIMUM EXCESS MINIMUM
ACTUAL REQUIRED ABOVE ACTUAL REQUIRED
CAPITAL CAPITAL MINIMUM PERCENT PERCENT
----------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Leverage......... $42,584,000 $14,210,000 $28,374,000 8.99% 3%
Risk-based:
Tier 1.......... $42,584,000 $ 9,128,000 $33,456,000 18.66% 4%
Total .......... $45,444,000 $18,259,000 $27,185,000 19.91% 8%
</TABLE>
The Bank is subject to similar risk-based and leverage capital
requirements of the OCC. The Bank was in compliance with applicable minimum
capital requirements as of December 31, 1995. Neither Citi-Bancshares nor the
Bank has been advised by any federal banking agency of any specific minimum
capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, bank holding companies are expected to act
as sources of financial strength for, and to commit resources to support, its
banking subsidiary. This support may be required at times when, absent such
Federal Reserve policy, a bank holding company may not be inclined to provide
it. In addition, any capital loans by a bank holding company to its banking
subsidiaries are subordinate in right of payment to deposits and to certain
other indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly-controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled
FDIC-insured depository institution "in danger of default." "Default" is
defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of stockholders
of the insured depository institution or its holding company, but is
subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. As a result, if the Company had more than one
depository institution affiliate, any loss suffered by the FDIC in respect of
any of these subsidiaries would likely result in assertion of the
cross-guarantee provision, the assessment of such estimated losses against the
Company's depository institution affiliates and a potential loss of the
Company's investment in such subsidiaries.
PROMPT CORRECTIVE ACTION
FDICIA established a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital
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level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Risk-Based Capital Ratio of 10% or
greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a Risk-Based Capital Ratio of 8.0% or greater, a Tier I
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be adequately capitalized. A depository institution
that has a Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based
Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be undercapitalized. A depository institution that has a
Risk-Based Capital Ratio of less than 6.0%, a Tier I Risk-Based Capital Ratio
of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier I Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
assets with certain exceptions. A depository institution may be deemed to be in
a capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meet its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region;" (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer.
At December 31, 1995, the Bank had the requisite capital levels to
qualify as well capitalized.
-7-
<PAGE> 11
FDIC INSURANCE ASSESSMENTS
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had utilized for the 1993 calendar year, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied. Assessment rates for members of both
the Bank Insurance Fund ("BIF") for the first half of 1995, as they had been
during 1994, ranged from 23 basis points (0.23% of deposits) for an institution
in the highest category (i.e., "well capitalized" and "healthy") to 31 basis
points (0.31% of deposits) for an institution in the lowest category (i.e.,
"undercapitalized" and "substantial supervisory concern"). These rates were
established for both funds to achieve a designated ratio of reserves to insured
deposits (i.e., 1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached, which appears to have
occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted final regulations reducing
the assessment rates for BIF-member banks. Under the revised schedule,
BIF-member banks, starting with the second half of 1995, will pay assessments
ranging from four basis points to 31 basis points, with an average assessment
rate of 4.5 basis points. Refunds, with interest, were paid for BIF assessments
on September 30, 1995. On November 14,1995, the FDIC announced that, beginning
in 1996, it would further reduce the deposit insurance premiums for BIF members
in the highest capital and supervisory categories to $2,000 per year,
regardless of deposit size.
<TABLE>
<CAPTION>
Citi-Bancshares
---------------
<S> <C>
BIF Premium Paid $701,497
BIF Refund Received (249.792)
--------
Net Paid in 1995 $451.705
========
</TABLE>
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and intemal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stod; valuation and compensation, fees and benefits
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective
August 9, 1995, a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees, and benefits. In general, the guidelines require, among
other
- 8 -
<PAGE> 12
things, appropriate systems and practices to identify and manage the risks
and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or principal
stockholders. The federal banking agencies determined that stock valuation
standards were not appropriate. In addition, the agencies adopted regulations
that authorize, but do not require, an agency to order an institution that has
been given notice by an agency that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan or fails in any
material respect to implement an accepted compliance plan, the agency must
issue an order directing action to correct the deficiency and may issue an
order directing other actions of the types to which an undercapitalized
association is subject under the "prompt correction action" provisions of
FDICIA. If an institution fails to comply with such an order, the agency may
seek to enforce such order in judicial proceedings and to impose civil money
penalties. The federal bank regulatory agencies also proposed guidelines for
asset quality and earnings standards. See "--Prompt Corrective Action. "
COMMUNITY REINVESTMENT ACT
Citi-Bancshares and the Bank are subject to the provisions of the
Community Reinvestment Act of 1977, as amended (the "CRA") and the federal
banking agencies' regulations thereunder. Under the CRA, all banks and thrifts
have a continuing and affirmative obligation, consistent with its safe and
sound operation to help meet the credit needs for their entire communities,
including low- and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor does
it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's primary
federal regulator, in connection with its examination of the institution, to
assess the institution's record in assessing and meeting the credit needs of
the community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record
is made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly-chartered institution; (iii) establish a
new branch office that accepts deposits; (iv) relocate an office; or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application. Following their most recent CRA
examinations, the Bank received a "satisfactory" CRA rating.
Under new CRA regulations, effective January 1, 1996, the process-based
CRA assessment factors have been replaced with a new evaluation system that
rates institutions based on their actual performance in meeting community
credit needs. The evaluation system used to judge an institution's CRA
performance consists of three tests: a lending test; an investment test; and a
service test. Each of these tests will be applied by the institution's primaly
federal regulator taking into account such factors as: (i) demographic data
about the community; (ii) the institution's capacity and constraints; (iii) the
institution's product offerings and business strategy; and (iv) data on the
prior performance of the institution and similarly-situated lenders. The new
lending test--the most important of the three tests for all institutions other
than wholesale and limited purpose (e.g., credit card) banks--will evaluate an
institution's lending activities as measured by its home mortgage loans, small
business and farm loans, community development loans, and, at the option of the
institution, its consumer loans.
Each of these lending categories will be weighed to reflect its relative
importance to the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's service
area and the opportunities available for this type of lending. Assessment
criteria for the lending test will include: (i) geographic distribution of the
institution's lending; (ii) distribution of the institution's home mortgage and
consumer loans among different economic segments of the community; (iii) the
number and amount of small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding; and (v) the institution's use of innovative or flexible lending
practices to meet the needs of lowto-moderate income individuals and
neighborhoods. At the election of an institution, or if particular
circumstances
-9-
<PAGE> 13
so warrant, the banking agencies will take into account in making their
assessments lending by the institution's affiliates as well as community
development loans made by the lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions will be required to report data on their small business and small
farm loans as well as their home mortgage loans, which are currently required
to be reported under the Home Mortgage Disclosure Act.
The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low-to-moderate income individuals and
small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's qualified
investments, its use of innovative or complex techniques to support community
development initiatives, and its responsiveness to credit and community
development needs.
The service test evaluates an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs, (ii) the
institution's record of opening and closing branch offices and ATMs, and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test will be applied
to wholesale or limited purpose financial institutions.
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. However, Citi-Bancshares is not
subject to these criteria. In addition, a financial institution will have the
option of having its CRA performance evaluated based on a strategic plan of up
to five years in length that it had developed in cooperation with local
community groups. In order to be rated under a strategic plan, the institution
will be required to obtain the prior approval of its federal regulator.
The interagency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for that test: outstanding,
high satisfactory, low satisfactory, needs to improve, or substantial
noncompliance. An institution will receive a certain number of points for its
rating on each test, and the points are combined to produce an overall
composite rating of either outstanding, satisfactory, needs to improve, or
substantial noncompliance. Under the agencies' rating guidelines, an
institution that receives an "outstanding" rating on the lending test will
receive an overall rating of at least "satisfactory", and no institution can
receive an overall rating of "satisfactory" unless it receives a rating of at
least "low satisfactory" on its lending test. In addition, evidence of
discriminatory or other illegal credit practices would adversely affect an
institution's overall rating. Under the new regulations, an institution's CRA
rating would continue to be taken into account by its primary federal regulator
in considering various types of applications.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
ENFORCEMENT POLICIES AND ACTIONS
FIRREA and subsequent federal legislation significantly increased the
enforcement authorities of the FDIC and other federal depository institution
regulators, and authorizes the imposition of civil money penalties of up to $1
million per day. Persons who are affiliated with depository institutions can be
removed from any office held in such institution and banned for life from
participating in the affairs of any such institution. The banking regulators
have not hesitated to use the new enforcement authorities provided under
FIRREA. See "FINANCIAL STATEMENTS. "
- 10-
<PAGE> 14
LEGISLATIVE AND REGULATORY CHANGES
Various changes have been proposed with respect to restructuring and
changing the regulation of the financial services industry. FIRREA required a
study of the deposit insurance system. On February 5, 1991, the Department of
the Treasury released "Modernizing the Financial System; Recommendations for
Safer, More Competitive Banks." Among other matters, this study analyzed and
made recommendations regarding reduced bank competitiveness and financial
strength, over extension of deposit insurance, the fragmented regulatory system
and the under capitalized deposit insurance fund. It proposed restoring
competitiveness by allowing banking organizations to participate in a full
range of financial services outside of insured commercial banks. Deposit
insurance coverage would be narrowed to promote market discipline. Risk based
deposit insurance premiums were proposed with feasibility tested through an
FDIC demonstration project using private reinsurers to provide market pricing
for risk based premiums.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and bank
and bank holding company powers are being considered by the executive branch of
the Federal government, Congress and various state governments, including
Florida. Among other items under consideration are recapitalization of the
FDIC's Savings Insurance Fund ("SAIF") and a possible combination of the BIF
and SAIF deposit insurance funds, changes in or repeal of the Glass-Steagall
Act which separates commercial banking from investment banking, and changes in
the BHC Act to broaden the powers of "financial services" companies to own and
control depository institutions and engage in activities not closely related to
banking. The United States House of Representatives has passed a bill freezing
the adoption of new regulations. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. It cannot be predicted whether any of these be adopted, and, if
adopted, how these proposals will affect Citi-Bancshares and the Bank. The
United States Supreme Court also is considering a case involving the powers of
banking affiliates to conduct insurance business in the State of Florida.
FISCAL AND MONETARY POLICY
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of CitiBancshares are subject to the influence of
economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the supply of
money through various means, including open market dealings in United States
government securities, the discount rate at which banks may borrow from the
Federal Reserve, and the reserve requirements on deposits. The nature and
timing of any changes in such policies and their effect on CitiBancshares
cannot be predicted.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the costs of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on
such assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' increased cost of goods and services purchased, the
cost of salaries and benefits, occupancy expense, and similar items. Inflation
and related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings, and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase, and likely will reduce the Company's earnings from
such activities and the income from the sale of residential mortgage loans in
the secondary market.
-11-
<PAGE> 15
Statistical Information
Certain statistical information (as required by Guide 3) is included in
response to Item 7 hereof. Certain statistical information is included in
response to Item 6 and Item 8 hereof.
Item 2. Properties
The Bank's main office is located in an approximately 26,400 square foot
building owned by the Bank located at 1211 North Boulevard West, Leesburg,
Florida. The building is a two-story modern building, having six drive-in
windows and two walk-up banking windows. Across the street is a 1,000 square
foot building which accommodates eight drive-ins, one of which is an ATM, and
one walk-up window. Citi-Bancshares maintains its operations, including all
executive offices and loans and trust facilities, in an adjacent three-story
building of approximately 43,600 square feet, which is connected to the Bank's
main offlce building by a walk through at the second story level.
As of December 31, 1995, the net carrying value of all offices was
approximately $7,371,327. The Bank's branch offices are described as follows:
Fruitland Park Branch, located at the corner of U.S. 27, 441 and Palm
Street, Fruitland Park, Florida, consists of a one story building with
approximately 3,000 square feet. Four drive-in windows are at this location,
one of which is an ATM.
Lake Square Mall Branch, located at 7000 South U.S. Highway 441, is a one
story building with approximately 3,600 square feet located on a land lease.
Six drive-in windows are at this location, one of which is an ATM.
The Villaves Branch, located at North U.S. Highway 441, Lady Lake,
Florida, is a one story building with approximately 5,000 square feet. Six
drive-in windows are at this location, one of which is an ATM.
Eustis Branch, located at 200 Orange Avenue, Eustis, Florida, is a leased
building with approximately 2,600 square feet. There is one drive-in window,
and one walk-up ATM at this location.
Tavares Branch, located at 359 East Burleigh Boulevard, Tavares, Florida,
is a leased building with approximately 1,250 square feet. There are no
drive-in windows at this location, however, there is one free standing ATM
located in the front parking lot.
Wildwood Branch, located at 300 South Main Street, Wildwood, Florida, is a
one story building with 6,298 square feet. There are four drive-in windows, and
one walk-up ATM at this location.
Spruce Creek Branch, located at 17801 S.E. 109th Avenue, Summerfield,
Florida 34491. This office was opened in October 1995 and has approximately
4,600 square feet with five drive-in windows and one drive-up ATM.
Ocala Branch, located at 1515 East Silver Springs Boulevard, Suite E-170,
is an office located in a strip shopping complex with 1,000 square feet.
Item 3. Legal Proceedings
Neither the Registrant nor the Bank is a party to, nor is any of their property
the subject of, any material pending legal proceedings, other than ordinary
routine proceedings incidental to the business of banking. The Bank is involved
in legal proceedings primarily involving the recovery of loans previously
charged-off or adequately provided for in the allowance for loan losses. After
a review of all litigation with CBI's and the Bank's legal counsel, management
believes that the resolution of these matters will not have a material effect
on the Bank's
- 12-
<PAGE> 16
financial position, liquidity or operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITV HOLDERS
No matters were submitted to shareholders during the fourth quarter of the
Registrant's fiscal year ended December 31, 1995, through the solicitation of
proxies or otherwise. The annual meeting of the shareholders of CitiBancshares
was held on March 28, 1995. Voted upon were the election of Directors and
matters of a routine nature. The annual meeting for 1996 will be held on April
23, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITV AND RELATED STOCKHOLDER MATTERS
Effective as of March 1, 1994, the Registrant's Common Stock is traded on
the over-the-counter market and quotations are supplied by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") -
National Market under the symbol "CNBL." As of December 31, 1995, there were
1,098 holders of record of Common Stock.
Information on the range of market prices for, and the dividends declared
on, the Registrant's Common Stock for each of the last two fiscal years is
contained under the caption "Selected Ouarterly Information - Per Share Data"
on page 22 of the 1995 Annual Report, and is incorporated herein by reference.
Prior to the listing of the Common Stock on the Nasdaq National Market, there
was no established trading market for the Common Stock. The information on
market prices incorporated by reference from page 22 of the 1995 Annual Report
for all periods prior to March 1, 1994, was derived from information made
available to the Registrant by certain buyers and sellers of the Common Stock.
Dividends from the Bank are Citi-Bancshares primary source of funds to pay
dividends on CitiBancshares capital stock. The OCC and Federal Reserve have the
general authority to limit the dividends paid by insured banks and bank holding
companies, respectively, if such payment may be deemed to constitute an unsafe
or unsound practice. If, in the particular circumstances, the OCC determines
that the payment of dividends would constitute an unsafe or unsound banking
practice, the OCC may, among other things, issue a cease and desist order
prohibiting the payment of dividends. This rule is not expected to adversely
affect the Bank's ability to pay dividends to Citi-Bancshares. See "Business -
Supervision and Regulation - Dividends."
ITEM 6. SELECTED FINANCIAL DATA
Information called for by this Item is contained under the caption
"Financial Highlights" on page 5 of the 1995 Annual Report, and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALVSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operation is contained under the caption "Financial Review - 1995 Management's
Discussion and Analysis," on pages 6 through 19 of the 1995 Annual Report, and
is incorporated herein by reference.
ACCOUNTING FOR INCOME TAXES
No deferred taxes are included for purposes of calculating regulatory
capital.
-13-
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of Purvis Gray & Company, independent certified public
accountants, contained on page 23 of the 1995 Annual Report, and the
consolidated financial statements, included on pages 24 through 45 of the
Annual Report, are incorporated herein by reference. Quarterly results of
operations are contained under the caption "Selected Quarterly Information -
Consolidated Quarterly Average Balances, Yields and Rates" and "Selected
Quarterly Information - Quarterly Consolidated Income Statement" on pages 20
through 22 of the 1995 Annual Report, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information called for by this Item concerning the directors and executive
officers of Citi-Bancshares is set forth under the headings "Proposal One -
Election of Directors - Information about Nominees for Director and Executive
Officers Who Are Not Also Nominees or Directors" on pages 3 through 8, and
"Section 16(a) Reporting" on page 18 of the 1996 Proxy Statement, and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the headings "Proposal One - Election of
Directors - Information About the Board of Directors and its Committees" on
page 8, and "Compensation of Executive Officers,--Compensation Committee
Report,--Summary Compensation Table, Option/SAR Grants in 1995,--Aggregated
Option/SAR Exercises in 1995 and 1995 Year-End Option/SAR Values,--Pension
Plan,--Performance Graph" on pages 9 through 16, and "Compensation Committee
Interlocks and Insider Participation" on pages 16 and 17 of the 1996 Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANA~EMENT
Information relating to the number of shares of Common Stock beneficially
owned by the directors of Citi-Bancshares, all such directors and officers as a
group and certain beneficial owners is set forth under the headings "Proposal
One -Election of Directors - Information About Nominees for Director and
Executive Officers Who Are Not Also Nominees or Directors" on pages 3 through
8, and "Voting Securities and Principal Shareholders" on page 18 of the 1996
Proxy Statement, and such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information called for by this Item is set forth under the headings
"Compensation Committee Interlocks and Insider Participation," on pages 16 and
17 and "Certain Transactions and Business Relationships" on page 17 of the 1996
Proxy Statement, and is incorporated herein by reference.
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<PAGE> 18
PART IV
ITEM 14. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) FINANCIAL STATEMENTS
The financial statements and notes thereto required on Form 10-K are
included in the financial statements and notes thereto contained in the
Registrant's 1995 Annual Report, which are incorporated by reference in
Part II, Item 8 of this Report and include:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
Not applicable. Schedules to the consolidated financial statements under
Article 9 of Regulation S-X are not required and therefore have been
omitted.
(a)(3) EXHIBITS
The following Exhibits are filed as part of this Report in Item 14(c):
Exhibit 2 Agreement and Plan of Merger between Citi-Bancshares, Inc. and
Citizens First Bancshares, Inc., dated as of October 20, 1995 (1)
Exhibit 3(i) Articles of Incorporation, as amended (2)
Exhibit 3(ii) By-Laws (2)
Exhibit 4.1 Specimen Common Stock Certificate (2)
Exhibit 10.1 Stock Option Agreement between Citi-Bancshares, Inc. and
Kenneth W. Mullis (3)
Exhibit 10.2 Citi-Bancshares, Inc. 1994 Stock Option and Stock
Appreciation Rights Plan (3)
Exhibit 13
Citi-Bancshares 1995 Annual Report for the Fiscal year ended December
31, 1995. With the exception of information expressly incorporated
by reference herein, the 1995 Annual Report is not deemed to be
filed as part of this Annual Report on Form 10-K.
Exhibit 21 Subsidiary of the Registrant
Exhibit 23 Consent of Independent Auditors
Exhibit 24 Power of Attorney
(Included on the signature page of this Report on Form 10-K.)
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<PAGE> 19
Exhibit 27 Financial Data Schedule
Exhibit 99
Citi-Bancshares Proxy Statement for the 1996 Annual Meeting of
Shareholders. With the exception of information expressly
incorporated by reference herein, the 1996 Proxy Statement is
not deemed to be filed as part of this Annual Report on
Form 10-K. (4)
____________
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-4, dated March 20, 1996 (File No. 333-00008).
(2) Incorporated herein by reference from the Registrant's Registration
Statement on Form 8-A, dated April 26, 1990 (File No. 2-82233).
(3) Incorporated herein by reference from the Registrant's 1994 Annual
Report on Form 10-K (File No. 2-82233)
(4) Incorporated herein by reference from Citi-Bancshares Proxy
Statement for the 1996 Annual Meeting of Shareholders filed with
the Commission on March 27, 1996 (File No. 2-82233).
(b) REPORTS ON FORM 8-K
Citi-Bancshares' filing of Current Report on Form 8-K dated
November 1, 1995.
(c) EXHIBITS - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) FINANCIAL STATEMENT SCHEDULES - None
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CITI-BANCSHARES, INC.
(Registrant)
By: /s/ KEN W. MULLIS
--------------------------
Ken W. Mullis
President and Chief Executive Officer
Date: 3/26/96
----------------------------
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Kenneth W. Mullis and T. Michael
Killingsworth, or either of them, his attorney-in-fact, each with power of
substitution, for him in any and all capacities, to sign any amendments to
this Report on Form 10-K, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby satisfying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
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 the dates indicated.
Date:
3/26/96 By: /s/ CLIFFORD BRIDGES. M.D.
- ------------ ----------------------------------------
Clifford Bridges, M.D., Chairman of the
Board and Director
3/26/96 By: /s/ KENNETH W. MULLIS
- ------------ ----------------------------------------
Kenneth W. Mullis, President, Chief
Executive Officer and Director
(Principal executive officer)
3/26/96 By: /s/ T. MICHAEL KILLINGSWORTH
- ------------ -------------------------------------------
T. Michael Killingsworth, Senior
Vice President, Chief Financial Off1cer
and Secretary
(Principal financial and accounting
officer)
3/26/96 By: /s/ DOUGLAS W. BRAUN
- ------------ -------------------------------------------
Douglas W. Braun, Director
-17-
<PAGE> 21
3/26/96 By: /s/ W. THOMAS BROOKS
- ------------ -----------------------------------
W. Thomas Brooks, Director
3/26/96 By: /s/ THOMAS N GRIZZARD
- ------------ -----------------------------------
Thomas N. Grizzard, Director
3/26/96 By: /s/ W. F. HERLONG JR.
- ------------ -----------------------------------
W. F. Herlong, Jr., Director
3/26/96 By: /s/ WENDELL F. HUSEBO
- ------------ -----------------------------------
Wendell F. Husebo, Director
By:
-----------------------------------
Walter S. McLin, III, Director
By:
------------------------------------
Linda S. Spradlin, Director
3/26/96 By: /s/ BOBBY A. SULLIVAN
- ------------ ------------------------------------
Bobby A. Sullivan, Director
3/26/96 By: /s/ FERRELL D. YOUNG
- ------------ ------------------------------------
Ferrell D. Young, Director
-18-
<PAGE> 1
EXHIBIT 13
Portions of 1995 Annual Report to Shareholders Incorporated by Reference into
the Annual Report on Form 10-K for the year ended December 31, 1995
<PAGE> 2
<TABLE>
(Dollars in thousands except per share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 17,516 $ 17,139 $ 15,714 $14,351 $11,582
Provision for loan losses 255 600 1,075 1,400 1,004
Noninterest income:
Investment securities gains
(losses) (74) (168) 445 1,117 696
Other 2,292 2,173 2,128 1,968 1,562
Noninterest expenses 10,533 10,457 9,897 9,326 8,254
Income before income taxes 8,946 8,087 7,315 6,710 4,582
Income taxes 2,376 2,082 1,842 1,777 1,079
Income before cumulative
effect of accounting change 6,570 6,005 5,473 4,933 3,503
Change in accounting principle 255
Net income 6,570 6,005 5,728 4,933 3,503
Core earnings (3) 9,258 8,865 8,015 7,015 4,901
FINANCIAL HIGHLIGHTS
Per share data (1):
Net income $ 1.62 $ 1.48 $ 1.41 $ 1.22 $ 0.86
Cash dividends
declared: Common $ 0.44 $ 0.35 $ 0.31 $ 0.28 $ 0.20
Book value before
adjustment for
unrealized gains
(losses)
on certain
securities 10.51 9.34 8.20 7.10 6.14
Adjustment for
unrealized gains
(losses) on certain
securities .94 (.95) .89
Book value 11.45 8.39 9.09 7.10 6.14
Dividends to net income 27.1% 23.7% 21.9% 23.0% 23.3%
AT YEAR END
Assets $479,959 $432,828 $410,908 $ 377,247 $ 346,079
Investment securities 220,278 206,547 206,527 182,836 173,527
Net loans 223,570 195,958 176,110 158,704 144,553
Deposits 416,884 388,867 364,275 342,864 309,583
Shareholders' equity
before adjustment for
unrealized gains
(losses) on certain
securities 42,586 37,796 33,208 28,784 24,986
Adjustment for
unrealized gains
(losses) on certain
securities (4) 3,826 (3,820) 3,586 0 0
Shareholders' equity $ 46,412 $ 33,976 $36,794 $28,784 $ 24,986
Performance Ratios:
Return on
average assets 1.44% 1.42% 1.47% 1.36% 1.09%
Return on
average equity 15.26% 17.08% 18.52% 18.40% 15.17%
Net interest margin (2) 4.36% 4.64% 4.58% 4.51% 4.10%
Average equity to
average assets 9.44% 8.32% 7.92% 7.38% 7.16%
</TABLE>
(1) Per share data has been restated for stock splits and stock dividends.
(2) On a tax equivalent basis.
(3) Income before income taxes excluding the provision for loan losses,
securities gains or losses, expenses associated with acquisition and
disposition of foreclosed properties, and cumulative effect of change in
accounting principles.
(4) The adjustment for unrealized gains on certain securities results from the
application of FASB No. 115, as described in Notes 1 and 2 to the
consolidated financial statements.
5
<PAGE> 3
Financial Review
1995 MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to the Company's results of
operations and financial condition. Such discussion and analysis should be read
in conjunction with the Consolidated Financial Statements of the Company and
the notes thereto, and the Financial Highlights provided on page 5 of this
report.
Overview of Operations
Net income for 1995 totalled $6,570,000 or $1.62 per share compared with
$6,005,000 or $1.48 per share in 1994 and $5,728,000 or $1.41 per share in
1993. Earnings were aided by continued strong asset quality, growth in net
earning assets, good overhead control and reduced FDIC insurance premiums.
Return on average assets was 1.44 percent and return on average shareholders'
equity was 15.26 percent for 1995, compared to the prior year's results of 1.42
percent and 17.08 percent, respectively, and 1993's results of 1.47 percent and
18.52 percent, respectively.
Core earnings (income before income taxes, excluding the provision for loan
losses, securities gains and losses, expenses associated with acquisition and
disposition of foreclosed properties and cumulative effect of change in
accounting principles) also showed strong improvement with a return on average
assets from core earnings of 1.99 percent and a return on average equity (net
of FASB No. 115 capital) from core earnings of 20.86 percent.
TABLE 1
CONDENSED INCOME STATEMENT
AS A PERCENT OF AVERAGE ASSETS
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income 4.16% 4.39% 4.33%
Provision for loan losses (.06) (.14) (.28)
Noninterest income:
Investment securities gains (losses) (.02) (.04) .11
Service charges on deposit accounts .26 .26 .30
Other income .24 .26 .25
Noninterest expenses (2.30) (2.48) (2.53)
----- ----- -----
Income before income taxes 2.28 2.25 2.18
Provision for income taxes including
tax equivalent adjustment (.84) (.83) (.78)
Cumulative effect of change in method
of accounting for income taxes .00 .00 .07
----- ----- -----
NET INCOME 1.44% 1.42% 1.47%
===== ===== =====
</TABLE>
Results of Operations
Net Interest Income
Net interest income, on a fully tax equivalent basis (TEB), totalled
$18,976,000 for 1995, an increase of $416,000 or 2.24 percent from the
Company's year-earlier performance. The net interest spread decreased during
1995. The average cost of interest-bearing liabilities increased from 3.55
percent during 1994 to 4.41 percent during 1995, while the average yield on
earning assets increased from 7.75 percent during 1994 to 8.16 percent during
1995. The increase in average interest cost outweighted the increase in
interest earned on earning assets in 1995. This scenario resulted in a decrease
in the net interest income/yield from 4.64 percent in 1994 to 4.36 percent
during 1995. Current forecasts indicate an easing in margins during 1996 from
these levels.
As a percent of average earning assets, net interest margin (TEB) was 3.90
percent in the fourth quarter, compared to 3.90 percent in the third quarter,
3.96 percent in the second quarter and 3.85 percent for the first quarter of
this year and 4.64 percent for the fourth quarter in 1994.
Average earning assets for 1995 increased $34,925,000 or 8.72 percent
compared to prior year as a result of increased loans and investment securities
with the increase in deposits during 1995. Average loan balances have increased
$25,965,000 or 13.89 percent from the prior year to $212,933,000, while average
investment securities increased $4,145,000 or 2.00 percent to $211,570,000.
For the year ended December 31, 1995, average loans represented 48.92 percent
of average earning assets compared to 46.70 percent for 1994. While loan yields
increased 75 basis points, investment security yields increased only 2 basis
points, resulting in an overall yield increase of 41 basis points from 7.75
percent in 1994 to 8.16 percent. During 1995, the Bank changed its prime rate
three times beginning and ending at 8.5%. In 1994, the prime rate changed five
times from 6% to 8.5%. The Bank did not change its prime rate during 1993.
TABLE 2
CHANGES IN AVERAGE EARNING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
------------------- -------------------
1995 vs. 1994 1994 vs. 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
Taxable ........... $556 .3% $8,899 5.8%
Nontaxable ........ 3,589 8.1 11,822 36.4
Federal funds sold
and other short-
term investments .. 4,815 80.9 (5,614) (48.5)
Loans, net ........... 25,965 13.9 16,391 9.6
------- -------
TOTAL .......... $34,925 8.7% $31,498 8.5%
======= =======
</TABLE>
6
<PAGE> 4
TABLE 3
<TABLE>
<CAPTION>
RATE / VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS)
Amount of Increase (Decrease) (Dollars in thousands)
1995 vs. 1994 1994 vs. 1993
-------------------------- ----------------------------
Due to Change in: Due to Change in:
Volume Rate Total Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investment securities:
Taxable ............................................ $ 26 $ 187 $ 213 $ 647 $(705) $ (58)
Nontaxable ......................................... 338 (198) 140 1,265 (565) 700
Federal funds sold and other short-term investments .. 193 205 398 (168) 59 (109)
Loans ................................................ 2,145 1,586 3,731 1,311 489 1,800
------ ------ ------ ------ ----- ------
TOTAL INTEREST INCOME ............................ 2,702 1,780 4,482 3,055 (722) 2,333
------ ------ ------ ------ ----- ------
INTEREST EXPENSE
Interest-bearing demand .............................. (45) 95 50 128 (72) 56
Savings and money market ............................. (513) 208 (305) (6) (136) (142)
Money market accounts ................................ 2,055 2,047 4,102 684 10 694
Federal funds purchased and securities sold
under agreement to repurchase ...................... 94 125 219 21 40 61
------ ------ ------ ------ ----- ------
TOTAL INTEREST EXPENSE ........................... 1,591 2,475 4,066 827 (158) 669
------ ------ ------ ------ ----- ------
NET INTEREST INCOME .............................. $1,111 $ (695) $ 416 $2,228 $(564) $1,664
====== ====== ====== ====== ===== ======
</TABLE>
TABLE 4
<TABLE>
<CAPTION>
CHANGES IN AVERAGE
INTEREST-BEARING LIABILITIES
(Dollars in thousands)
- -----------------------------------------------------------------------------
Increase/(Decrease) Increase/(Decrease)
1995 vs. 1994 1994 vs. 1993
------------------ -----------------
<S> <C> <C> <C> <C>
Interest-bearing
demand ............ $ (2,230) (4.1)% $ 5,976 12.2%
Savings and money
market ............ (20,047) (17.5) 228 .2
Time deposits ........ 43,907 24.8 14,648 9.0
Securities sold under
agreements to
repurchase ........ 2,694 61.8 829 23.5
TOTAL ............. $24,324 12.2% $21,681 6.6%
</TABLE>
For the years ended December 31, 1995 and 1994, Table 3 discloses the increases
and decreases in net interest income attributable to changes in the volume and
rates of individual earning assets and interest-bearing liabilities. The
balances of nonaccruing loans are included in average loans outstanding.
Like earning asset yields, the interest rates paid on interest-bearing
liabilities increased. The 86 basis point climb from 3.55 percent one year ago
to 4.41 percent was primarily a result of a shift into higher rate time
deposits from interest-bearing demand and savings accounts and additional net
growth in time deposits. The average balance for interest-bearing liabilities
increased $24,324,000 or 6.94 percent to $375,005,000 in 1995 compared to 1994.
Table 4 shows the components comprising this increase.
Net interest income (TEB) totalled $18,976,000 for 1995, an increase of
$416,000 or 2.24 percent from the prior year. Net interest income (TEB) as a
percent of average earning assets was 4.36 percent in 1995 as compared to 4.64
percent for 1994.
Yields on earning assets declined in 1994 as a result of lower interest rates
generally. The yield on earning assets declined 3 basis points from 7.78
percent to 7.75 percent for the year 1994 compared to 1993. Approximately
$31,498,000 of earning assets were acquired primarily with cash received from
increased deposits.
The decline in yields on average earning assets in 1994 was offset by a 3 basis
point decrease in interest rates paid on average interest-bearing liabilities
from 3.58 percent in 1993 to 3.55 percent in 1994. Reduced loan
7
<PAGE> 5
TABLE 5
THREE-YEAR SUMMARY
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollar in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/
BALANCE INTEREST RATE Balance Interest Rate
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Investment securities
Taxable $ 163,645 $ 11,362 6.94% $ 163,089 $11,149 6.84%
Nontaxable (1) 47,925 4,320 9.01 44,336 4,180 9.43
----------- --------- ---------- -------
TOTAL INVESTMENT SECURITIES 211,570 15,682 7.41 207,425 15,329 7.39
Federal funds sold and other short-term
investments 10,767 636 5.91 5,952 238 4.00
Loans, net (2) 212,933 19,179 9.01 186,968 15,448 8.26
----------- --------- ---------- -------
TOTAL EARNINGS ASSETS 435,270 35,497 8.16 400,345 31,015 7.75
============ ==========
Allowance for loan losses (3,154) (2,749)
Cash and due from banks 11,093 11,254
Bank premises and equipment 6,849 6,990
Other assets 6,264 6,625
----------- ----------
TOTAL ASSETS 456,322 422,465
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand 52,829 1,158 2.19 55,059 1,108 2.01
Savings and money market 94,511 2,622 2.77 114,558 2,927 2.56
Time deposits 220,611 12,370 5.61 176,704 8,268 4.68
Federal funds purchased and securities
sold under agreement to repurchase 7,054 371 5.26 4,360 152 3.49
----------- --------- ---------- -------
TOTAL INTEREST-BEARING LIABILITIES 375,005 16,521 4.41 350,681 12,455 3.55
Demand deposits:
Noninterest-bearing 33,927 32,735
Other liabilities 4,330 3,894
----------- ----------
TOTAL LIABILITIES 413,262 387,310
Shareholders' Equity 43,060 35,155
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 456,322 $ 422,465
=========== ==========
Interest expense as % of earning assets 3.80 3.11
Net interest income/yield on earnings assets $ 18,976 4.36% $18,560 4.64%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollar in thousands) 1993
- ------------------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Earning assets:
Investment securities
Taxable $ 154,190 $11,886 7.71%
Nontaxable (1) 32,514 3,480 10.70
--------- -------
TOTAL INVESTMENT SECURITIES 186,704 15,366 8.23
Federal funds sold and other short-term
investments 11,566 347 3.00
Loans, net (2) 170,577 12,969 7.60
--------- -------
TOTAL EARNINGS ASSETS 368,847 28,682 7.78
Allowance for loan losses (2,118)
Cash and due from banks 10,760
Bank premises and equipment 6,889
Other assets 6,218
---------
TOTAL ASSETS 390,596
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand 49,083 1,052 2.14
Savings and money market 114,330 3,069 2.68
Time deposits 162,056 7,574 4.67
Federal funds purchased and securities
sold under agreement to repurchase 3,531 91 2.58
--------- -------
TOTAL INTEREST-BEARING LIABILITIES 329,000 11,786 3.58
Demand deposits:
Noninterest-bearing 28,093
Other liabilities 2,578
---------
TOTAL LIABILITIES 359,671
Shareholders' Equity 30,925
---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 390,596
=========
Interest expense as % of earning assets 3.20
Net interest income/yield on earnings assets 4.58%
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
8
<PAGE> 6
demand and declining market interest rates permitted bank management to
decrease the rates offered on demand accounts, savings, and money market
accounts. Rates paid for time deposits declined 1 basis point during 1994.
Average time deposits increased 9.04 percent to $176,704,000.
Provision for Loan Losses
Gross charge-offs in 1995 were $133,000 but this was offset by recoveries
totalling $279,000 creating a net recovery position in 1995 of $146,000. This
net recovery position, combined with good asset quality ratios, allowed
Management to lower its 1995 provision for loan losses to $255,000, a reduction
of $345,000 from the 1994 provision of $600,000. The net recoveries were
primarily attributed to one real estate loan previously written down. See
"Nonperforming Assets" and "Allowance for Loan Losses."
The Company's internal loan monitoring systems provide detailed monthly
analysis of delinquencies, nonperforming assets, and potential problem loans,
which are reviewed regularly by the Board of Directors.
Management and the Board determine the provision for loan losses which is
charged to operations by constantly analyzing and monitoring delinquencies,
nonperforming loans and the level of outstanding balances for each loan
category, as well as the amount of net charge-offs, and by estimating losses
inherent in its portfolio. While the Company's policies and procedures used to
estimate the monthly provision for loan losses charged to operations are
considered adequate by management and are reviewed from time to time by the
Office of the Comptroller of the Currency (OCC), there exist factors beyond the
control of the Company, such as general economic conditions both locally and
nationally, which make management's judgment as to the adequacy of the
provision necessarily approximate.
For the year ended December 31, 1994, the provision for loan losses was
$600,000 compared to $1,075,000 for 1993. The 1994 reduction in the provision
resulted from a decline in net charge-offs and delinquencies from the higher
levels encountered in 1993 and 1992.
Noninterest Income
Table 6 shows the Company's noninterest income for the years indicated.
TABLE 6
NONINTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in thousands)
Year Ended % Change
---------------------------- --------------------
1995 1994 1993 95/94 94/93
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $1,196 $ 1,107 $1,162 8.04% (4.73)%
Trust income ......... 842 716 588 17.60 21.77
Other income ......... 254 350 378 (27.43) (7.41)
Investment securities
gain (loss) ........ (74) (168) 445 (55.95) (137.75)
------ ------- ------
TOTAL ........... $2,218 $ 2,005 $2,573 10.62% (22.08)%
====== ======= ====== ====== ======
</TABLE>
Noninterest income, excluding securities gains, increased as a result of
increased income from trust income and service charges on deposit accounts,
partially offset by decreased fee income from secondary market mortgages. These
changes resulted from increased trust volume and increased pricing of certain
trust services and increased volume of service charge activity.
Securities transactions resulted in losses of $74,000 for the year ended
December 31, 1995, compared to losses of $168,000 in 1994, or a total change of
$94,000. Securities gains in 1993 were $445,000.
Noninterest Expenses
Table 7 shows the Company's noninterest expenses for the years indicated.
TABLE 7
NONINTEREST EXPENSES
<TABLE>
<CAPTION>
(Dollars in thousands)
Year Ended % Change
-------------------------------------------------
1995 1994 1993 95/94 94/93
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee
benefits ........... $ 5,528 $ 5,342 $ 5,045 3.5% 5.9%
Occupancy expense 1,148 1,078 1,166 6.5 (7.5)
Equipment expense 961 911 756 5.5 20.5
Stationery and supplies 351 356 273 (1.4) 30.4
Advertising .......... 348 285 275 22.1 3.6
Insurance, including
regulatory assessments 452 891 836 (49.3) 6.6
Postage .............. 229 195 170 17.4 14.7
Taxes (other than
payroll, real estate
and income taxes) 266 205 206 29.8 (0.5)
Directors' fees ...... 269 265 266 1.5 (0.4)
Trust Department expense 137 136 118 0.7 15.3
Other expense ........ 844 793 786 6.4 0.9
------- ------- -------
TOTALS .......... $10,533 $10,457 $ 9,897 0.7% 5.7%
======= ======= =======
</TABLE>
Noninterest expenses increased in 1995 by $76,000 or .7 percent over 1994. This
increase was primarily the result of an increase in salaries and employee
benefits from $5,342,000 in 1994 to $5,528,000 in 1995, or 3.48 percent.
Salaries and employee benefits increased due to general salary increases,
increased profit sharing payments that are related to bank performance and the
related payroll taxes.
Occupancy expense increased by $70,000 in 1995 compared to 1994, or 6.49
percent. This increase is primarily due to slight rate increases in rent,
utilities and property taxes, as well as the opening of the Spruce Creek Branch
and Ocala loan production office in late 1995.
9
<PAGE> 7
FDIC deposit insurance premiums decreased to .04 per $100 on deposits
from .23 per $100 deposits as a result of a change in the FDIC rate structure.
The FDIC also issued a recapitalization refund on assessments paid for the
second and third quarters of 1995. The Company received a $250,000 refund in
1995. The rate assessed on deposits depends on the capital adequacy and
examination ratings imposed by governing bank regulatory authorities on
individual financial institutions. Management anticipates that the rate its
subsidiary bank will be assessed will be among the lowest based on these
guidelines. At present, we anticipate our FDIC assessment in the first half of
1996 to be the regulatory minimum of $1,000.00.
The increase in noninterest expenses in 1994 was attributable in part to
a 5.89 percent growth in salaries and employee benefits, general salary
increases and increased profit sharing payments that are related to bank
performance and related increases in payroll taxes.
FDIC deposit insurance premiums increased $55,000 or 6.57 percent in
1994 due to increased deposit balances. Other noninterest expenses increased
slightly $7,000 or .9 percent in 1994.
Income Taxes
Income taxes for the year 1995 were $2,376,000 or 14.12 percent above
the $2,082,000 for 1994 which was 13.03 percent above the $1,842,000 in 1993.
The effective rate in 1995 was 26.56 percent and was 25.75 percent in 1994, and
was 25.18 percent in 1993. The increase in rate reflects the decreased amount of
tax-exempt interest income as a percent of total income in 1995 and 1994
compared to 1993.
Financial Condition
The Company increased its assets 10.88 percent between December 31,
1995, and December 31, 1994, from $432,828,000 to $479,959,000. In comparison,
the Company increased its assets 5.33 percent between December 31, 1993, and
December 31, 1994.
Capital Resources
Table 8 summarizes the Company's capital position and selected ratios.
TABLE 8
CAPITAL RESOURCES (1)
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
TIER 1 CAPITAL
Common stock .................. $ 42 $ 42 $ 42
Additional paid-in capital .... 11,208 11,208 11,208
Retained earnings ............. 32,128 27,338 22,750
Treasury stock ................ (792) (792) (792)
-------- -------- --------
Total Tier 1 capital .......... 42,586 37,796 33,208
-------- -------- --------
TIER 2 CAPITAL
Allowance for loan losses, as
limited ....................... 2,860 2,717 2,490
-------- -------- --------
Total Tier 2 capital .......... 2,860 2,717 2,490
-------- -------- --------
Total risk-based capital ........ 45,446 40,513 35,698
======== ======== ========
Risk-weighted assets ............ $228,275 $217,160 $202,706
======== ======== ========
Tier 1 risk-based capital ratio 18.66% 17.41% 16.38%
Total risk-based capital ratio .. 19.91 18.66 17.61
Shareholders' equity to assets 8.87 8.73 8.08
Average shareholders' equity to
average total assets .......... 9.52% 8.32% 7.92%
</TABLE>
(1) Amounts are exclusive of adjustments made to recognize fair value of
certain securities in accordance with FASB No. 115 (see Notes 1 and 2 to
consolidated financial statements).
The Company's capital increased by $12,436,000 at December 31, 1995 compared to
year end 1994. Of this increase, $7,646,000 was attributable to the change in
the adjustment to the unrealized (losses)/gains on certain securities required
by Statement No. 115 of the Financial Accounting Standards Board, Accounting
for Certain Investments in Debt and Equity Securities (see discussion of FASB
No. 115 in the section on investment securities following and notes 1 and 2 to
the consolidated statements following). Net income of $6,570,000 less dividends
declared totalling $1,781,000 comprises the remainder of increase.
The Company's ratio of stockholders' equity to period end assets was 9.67
percent after the adjustment for FASB No. 115 and 8.99 percent excluding assets
and capital attributed to FASB No. 115. The 8.99 percent at December 31, 1995
(net of FASB No. 115) compares to the year end 1994 ratio of 8.66 percent and
the year end 1993 ratio of 8.95 percent.
Book value per common share outstanding was $11.45 per share with the
adjustment for FASB No. 115 and $10.51 net of FASB No. 115 adjustment at
December 31, 1995. Again, this compares to the book value per share at year end
1994 of $8.39 including FASB 115 adjustment and $9.34 net of FASB 115
adjustment. At year end 1993, book value per common share
10
<PAGE> 8
outstanding was $9.09 with FASB 115 adjustment and $8.20 without FASB 115
adjustment.
Loan Portfolio
Table 9 shows total loans (net of unearned income) by category outstanding
at the indicated dates.
TABLE 9
LOANS OUTSTANDING
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate $185,394 $165,287 $145,461 $126,603 $109,766
Commercial, finan-
cial and
agriculture 20,203 13,447 13,141 14,130 18,630
Installment loans 21,368 20,218 19,998 19,658 17,827
-------- -------- -------- -------- --------
TOTAL $226,965 $198,952 $178,600 $160,391 $146,223
======== ======== ======== ======== ========
</TABLE>
The Company makes substantially all of its loans to customers located
within the three counties of Lake, Sumter and Marion. It has no foreign loans or
highly leveraged transaction (HLT) loans.
The increases in the Company's loan balances in 1995 are attributed to good
growth in residential and commercial real estate loans. The Company also sold
$780,000 in fixed rate mortgage loans in the secondary market this year.
At December 31, 1995, the Company's portfolio of mortgage loan balances
secured by residential properties amounted to $120,334,000 or 53 percent of
total loans. Loans secured by commercial real estate totalled $66,285,000 or 29
percent of total loans. Most of the commercial real estate loans were made to
local businesses and professionals secured by owner-occupied properties. Loans
and commitments for 1-4 family residential properties and commercial real
estate are generally secured with first mortgages on property, with the loan to
fair market value of the property normally not exceeding 80 percent on the date
the loan is made.
Between December 31, 1994, and December 31, 1995, residential real estate
mortgage loans increased $14,359,000 or 14 percent and commercial real estate
mortgage loans increased $6,768,000 or 11 percent.
Installment loans at December 31, 1995, showed an increase of
$1,150,000 from year end 1994 excluding installment real estate loans. The
Company's home equity line portfolio and consumer loan ARM's (included in real
estate loans above) increased at year end by $86,000 and $520,000,
respectively.
Our Company believes that the local demand for residential real estate
mortgages and service industry related loan demand will continue to be strong.
This assumption is based on the continued migration of retirees moving to this
market area to live.
TABLE 10
LOAN MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
Commercial,
Financial & Real
DECEMBER 31, 1995 Installment Agricultural Estate Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In one year or less ....... $ 5,978 $16,359 $138,180 $160,517
After one year but
within five years:
Interest rates are
floating or adjust-
able ................. 20 0 0 20
Interest rates are
fixed ................ 14,241 3,720 35,021 52,982
In five years or more:
Interest rates are
floating or adjustable 0 0 0 0
Interest rates are fixed 1,129 124 12,193 13,446
------- ------- -------- --------
TOTAL ................ $21,368 $20,203 $185,394 $226,965
======= ======= ======== ========
</TABLE>
The Company's market is primarily a residential area with relatively
little commercial activity other than professional retail and service
businesses serving local residents. Therefore, real estate mortgage lending
(particularly residential properties) is expected to remain an important
segment of the Company's lending activities. Exposure to market interest rate
volatility, with respect to mortgage loans, is managed by attempting to match
maturities and repricing opportunities for assets against liabilities, when
possible. At December 31, 1995, approximately $90,773,000 or 40 percent of the
Company's total real estate loans were adjustable rate 10-to 30-year
residential mortgage loans (ARMs) that reprice based upon the one-year constant
maturity United States Treasury Index plus a margin. Generally, the ARMs'
interest rate adjustments are limited to two percent per annual and six percent
over the life of the loan. Such ARMs may be originated at rates greater than
the index rate, but below the total of the index rate and the margin for an
initial period ending on the first adjustment date. All such loans are
generally made to borrowers upon terms and conditions that would make such
loans eligible for resale, after seasoning, under Federal National Mortgage
Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)
guidelines. ARM borrowers are qualified based upon the initial ARM loan
interest rate plus 200 basis points and upon various debt service ratios of the
borrower.
Commercial lending activities are directed principally towards
businesses whose demand for funds are within the Company's lending limits, such
as small-to medium-sized professional firms, retail and wholesale outlets, and
light industrial and manufacturing concerns. Most of such loans are secured by
real estate used by such businesses, although certain lines are unsecured.
The Company makes a variety of consumer loans for personal, family
11
<PAGE> 9
and household purposes including installment loans for automobiles, boats and
home improvements. The Company also extends loans to automobile purchasers
through dealers by the purchase of indirect loan contracts from the automobile
dealers. The Company's indirect automobile lending risks have been reduced
through screening and monitoring of a small number of dealers with whom the
Company does business. The bank also had approximately $1,496,000 of unsecured
credit card loans at December 31, 1995.
Second mortgage loans and home equity lines also are extended by the Company.
No negative amortization loans or lines are offered at the present time. Terms
of second mortgage loans include fixed rates for up to 10 years on smaller
loans of $25,000 or less. Such loans are sometimes made for larger amounts,
with a fixed rate, but with a balloon payment upon maturity not to exceed five
years. The Company offers variable-rate second mortgage loans with terms of up
to 15 years. Loan-to-value ratios for these loans generally do not exceed 80
percent of appraised value. Home equity lines are offered on a variable rate
basis only and the maximum loan-to-value ratio for such loans is normally 80
percent of the appraised value when the loan is extended.
The Company has commitments to make loans (excluding unused home equity
and credit card lines) of $10,727,000 at December 31, 1995. The Company
attempts to reduce its exposure to the risk of the local real estate market by
making commercial real estate loans primarily on owner-occupied properties. The
Company presently has 29 percent of its total loans in commercial real estate.
The remainder of the real estate loan portfolio is residential mortgages to
individuals, and home equity loans, which the Company considers less
susceptible to adverse effects from a downturn in the real estate market,
especially given the area's large percentage of retired persons. The Company's
historical charge-off rates for real estate loans have been relatively low,
with net recoveries of .09 percent for the year ended December 31, 1995.
Allowance for Loan Losses
Table 11 provides certain information concerning the Company's
allowances for loan losses for the years indicated.
The allowance for loan losses was $3,395,000 at December 31, 1995, $401,000
higher than one year earlier. The ratio of the allowance for loan losses to
total loans outstanding (net of unearned income) was 1.50 percent
TABLE 11
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
(Dollars in thousands)
Year Ended December 31 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Beginning balance ...................................... $ 2,994 $ 2,490 $ 1,687 $ 1,671 $ 1,412
-------- -------- -------- -------- --------
Provision for loan loss expense ........................ 255 600 1,075 1,400 1,004
-------- -------- -------- -------- --------
Gross loan charge-offs:
Commercial, financial and agricultural .............. 1 55 0 545 254
Installment ......................................... 122 78 60 97 138
Real estate ......................................... 10 78 321 790 456
-------- -------- -------- -------- --------
TOTAL CHARGE-OFFS ................................. (133) (211) (381) (1,432) (848)
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural .............. 28 59 33 0 2
Installment ......................................... 28 8 54 34 44
Real estate ......................................... 223 48 22 14 57
-------- -------- -------- -------- --------
TOTAL RECOVERIES .................................. 279 115 109 48 103
-------- -------- -------- -------- --------
ENDING BALANCE .................................... $ 3,395 $ 2,994 $ 2,490 $ 1,687 $ 1,671
======== ======== ======== ======== ========
Loans outstanding at end of year* ........................ $226,965 $198,952 $178,600 $160,391 $146,223
Ratio of allowance for loan losses to loans outstanding at
end of year ............................................ 1.50% 1.51% 1.39% 1.05% 1.14%
Daily average loans outstanding* ......................... $212,933 $186,968 $170,577 $154,347 $136,118
Ratio of net charge-offs to average loans outstanding .... (.07)% .05% .16% .90% .55%
</TABLE>
* Net of unearned income
12
<PAGE> 10
at December 31, 1995. The ratio was 1.51 percent at December 31, 1994. The
allowance for loan losses as a percent of nonaccrual loans was 423.32 percent
at December 31, 1995, compared to 595.23 percent at December 31, 1994. There
were no accruing loans past due 90 days or more at December 31, 1995 or 1994.
During 1995, the Company experienced net recoveries of $146,000,
compared to net charge-offs of $96,000 one year earlier. The net recoveries of
$145,000 were primarily attributable to the recovery of $200,000 on a loan
previously written down at the direction of the O.C.C. in 1992. Net (recoveries)
charge-offs as a percent of average loans outstanding were (.07) percent for
1995, the lowest percentage the Company has reported since 1988. Net installment
loan losses were $94,000 in 1995, versus $70,000 in 1994. Commercial, financial
and agricultural losses were $(27,000) (net recovery) and $(4,000) (net
recovery), respectively, for the same periods. Real estate loan net recoveries
were $213,000 in 1995. In 1994, real estate loan net charge-offs were $30,000.
Table 12 summarizes the Company's allocation of the allowance for loan
losses to each type of loan and information regarding the composition of the
loan portfolio at the dates indicated.
TABLE 12
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands)
Allowance Amount
December 31 1995 1994 1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and
financial loans $ 325 $ 683 $ 258 $ 268 $ 234
Real estate loans 2,954 2,201 1,897 1,214 1,253
Installment loans 116 110 335 205 184
------ ------ ------ ------ ------
TOTAL $3,395 $2,994 $2,490 $1,687 $1,671
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Percent of Loans in Each Category to Total Loans
December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and
financial loans 8.9% 6.8% 7.4% 8.8% 12.8%
Real estate loans 81.7 83.1 81.4 78.9 75.0
Installment loans 9.4 10.1 11.2 12.3 12.2
TOTAL ......... 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, the Company's loan loss experience,
the amount of past due and nonperforming loans, current and anticipated
economic conditions, concentrations of credit, and the values of certain loan
collateral, and other assets. The size of the allowance also reflects the large
amount of permanent residential loans held by the Company whose historical
charge-offs and delinquencies have been very satisfactory.
It is the Company's policy to charge off loans in the current period in
which a loss is considered probable. There are always risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of economy as well as
conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate. It is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses in comparison to peer group companies
identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses which must be charged off
and to assess the risk characteristics of the portfolio in the aggregate. This
review considers the judgments of management, and also those of bank regulatory
agencies that review the loan portfolio as part of their regular examination
process. An examination by the OCC during the year revealed no major differences
in judgments or methodology related to the allowance for loan losses.
On December 31, 1994, the allowance for loan losses was $2,994,000,
$504,000 higher than one year earlier. The ratio of the allowance for loan
losses to net loans outstanding was 1.51 percent at December 31, 1994, compared
to 1.39 percent at December 31, 1993.
For 1994, the Company had net charge-offs of $96,000 compared to
$272,000 for the same period in 1993. Total commercial, financial and
agricultural loan net (recoveries) were ($4,000) for 1994 versus ($33,000) for
the comparable period in 1993. Total real estate net charge-offs were $30,000 in
1994 and $299,000 in 1993.
13
<PAGE> 11
Nonperforming Assets
Table 13 summarizes nonperforming loans and other real estate owned at the
dates indicated.
TABLE 13
NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) $ 796 $ 503 $ 812 $ 4,092 $ 1,631
Renegotiated loans 0 0 0 0 0
Other real estate
owned............. 663 687 2,046 1,521 1,179
-------- -------- -------- -------- --------
TOTAL NONPER-
FORMING ASSETS $ 1,495 $ 1,190 $ 2,858 $ 5,613 $ 2,810
======== ======== ======== ======== ========
Amount of loans out-
standing at end of
year (2).......... $226,965 $198,952 $178,600 $160,391 $146,223
Ratio of total non-
performing assets to
loans outstanding
and other real estate
owned at end of
period............ .64% .60% 1.60% 3.50% 1.92%
Ratio of total non-
performing assets to
total average assets .32% .28% .73% 1.54% .87%
Accruing loans past
due 90 days or more 0 0 0 1 107
</TABLE>
(1) Interest income that could have been recorded during 1995 related to
nonaccrual loans was $32, none of which was included in interest income or
net income. All nonaccrual loans were secured.
(2) Net of unearned income.
Nonperforming assets (other real estate owned and nonaccrual loans) at
December 31, 1995, were $1,459,000an increase of $269,000 or 22.61 percent from
December 31, 1994. At December 31, 1995, the Company's ratio of nonperforming
assets to loans outstanding plus other real estate owned was .64 percent,
compared to .60 percent at December 31, 1994. The increase in nonperforming
assets from December 31, 1994 to December 31, 1995 included decreases in other
real estate owned of $24,000 and increased nonaccrual loans of $293,000.
At December 31, 1994, the Company's ratio of nonperforming assets to
loans outstanding plus other real estate owned was .60 percent, compared to
1.60 percent at December 31, 1993. The decrease in nonperforming assets from
December 31, 1993 to December 31, 1994 included decreases in other real estate
owned of $1,359,000 and decreased nonaccrual loans of $309,000.
Nonperforming assets are subject to changes in the economy, both
nationally and locally, changes in monetary and fiscal policies, and changes in
conditions affecting various borrowers from the Company's subsidiary bank. No
assurance can be given that nonperforming assets will not in fact increase or
otherwise change. A similar judgmental process is involved in the methodology
used to estimate and establish the Company's allowance for loan losses.
14
<PAGE> 12
Investment Securities
Information relating to yields, amortized cost, market values, and
unrealized gains (losses) of the Company's investment securities is set forth
in Table 14. The yield data is determined using the amortized cost of the
securities.
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 115 (FASB 115),
Accounting for Certain Investments in Debt and Equity Securities. Under FASB
115, the Company classifies its investment securities as either
available-for-sale or held-to-maturity or trading. Held-to-maturity investments
are carried at amortized cost. Securities available-for-sale and trading are
carried at market value.
In December 1995, the Company utilized the FASB guidance outlined in
"Special Report - A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," and reclassified all its
securities in held-to-maturity to available-for-sale. As of the transfer date,
the amortized cost was $77,481,000 and market value was $80,807,000.
Accordingly, there was an unrealized gross gain of $3,326,000 at transfer,
which is included net of $1,252,000 tax as part of the separate component of
shareholders' equity.
The Company has no securities classified as trading and currently has
no plans to hold or acquire any securities for trading. For 1994, the majority
of securities classified as held-to-maturity (71.76 percent) are obligations of
state and political subdivisions and are held for their after-tax yield. Other
securities are classified as held-to-maturity based on an individual analysis.
All other securities are classified as available-for-sale and represent 66.02%
of the total carrying value.
Average outstanding investment securities during the year increased by
$4,145,000 to $211,570,000. The increase in average outstanding investment
securities is related to an increase in deposits. The investment of these
proceeds into investment securities was done after considering future projected
liquidity needs and then current economic conditions. U.S. Treasury and
Government agency securities with maturities from two to ten years were
emphasized with the intent to hold these securities as available-for-sale.
Also, the Company continued to reduce its position in mortgage-backed
securities due to perceived market price sensitivity. The Company maintained
its tax-exempt securities to maximize long-term tax-equivalent yields. The
changes made to the investment securities portfolio increased the average yield
from 7.39 percent to 7.41 percent. This was primarily due to higher yield
reinvestment opportunities.
The above-described transactions changed the composition of the
investment securities portfolio during 1995. At December 31, 1995, 51.47
percent of the total carrying value of the $220,278,000 of the investment
portfolio is comprised of U.S. Treasury and Government agency securities. This
compares to 48.01 percent at December 31, 1994. In addition, 18.14 percent of
total investment securities are represented by mortgage-backed securities
compared to 22.16 percent at December 31, 1994.
The mortgage-backed securities consist of pass-through and
collateralized mortgage obligations issued by governmental agencies, primarily
the Governmental National Mortgage Association, and private issuers, primarily
Federal National Mortgage Association, Inc. Approximately twenty percent of the
mortgage-backed portfolio consisted of variable rate securities with the
balance invested in fixed rate securities. The primary risk associated with
these securities is an interest rate risk; that is, how a change in interest
rates influences the prepayments of the underlying mortgage obligations thereby
affecting the actual yield to maturity on the mortgage-backed security. The
investment policy of CBI states that mortgage-backed securities shall have a
maximum average expected maturity of fifteen years. A decreasing trend in
interest rates would increase the market value and shorten the expected
maturity of the portfolio due to the anticipated increase in prepayments of the
underlying mortgage obligations. Conversely, an increasing trend in interest
rates would have the opposite effect and tend to decrease the market value and
lengthen the expected maturity of the portfolio.
15
<PAGE> 13
TABLE 14
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
(DOLLARS IN THOUSANDS) U.S. Treasury
and U.S. Government Agencies Mortgage-Backed Securities
-----------------------------------------------------------------------
Market Carrying Weighted Market Carrying Weighted
December 31, 1995 Value Value Yield Value Value Yield
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturity
Within one year ............... $ 10,151 8.09% $ 0 0.00%
One to five years ............. 34,589 6.05 0 0.00
Five to ten years ............. 63,659 7.15 0 0.00
Over ten years and equity
securities .................. 4,989 7.77 0 0.00
Mortgage-backed securities .... 0 0.00 39,951 7.47
-------- -------
TOTAL VALUE ................. $113,388 6.92% $39,951 7.47%
======== =======
December 31, 1994
TOTAL VALUE ................. $ 98,607 $ 99,173 6.46% $45,604 $45,779 6.92%
========== ======== ==== ======= ======= =====
</TABLE>
(1) On a tax-equivalent basis
<TABLE>
<CAPTION>
Securities Available For Sale Securities Held to Maturity
-------------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies .................. $111,198 $2,501 $311 $113,388 $ 0 $ 0 $ 0 $ 0
Mortgage-backed securities .. 39,218 881 148 39,951 0 0 0 0
Obligations of state and political
subdivisions ................ 62,260 3,057 11 65,306 0 0 0 0
Other securities ............ 1,550 83 0 1,633 0 0 0 0
-------- ------ ---- -------- ------- -------- -------- --------
TOTAL ....................... $214,226 $6,522 $470 $220,278 $ 0 $ 0 $ 0 $ 0
======== ====== ==== ======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Grand Totals
--------------------------------------------
Total Total Average
Carrying Market Years to
December 31, 1995 Value Value Maturity
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies .................. $113,388 $113,388 5.97
Mortgage-backed securities .. 39,951 39,951 6.24
Obligations of state and political
subdivisions ................ 65,306 65,306 11.23
Other securities ............ 1,633 1,633 5.69
-------- -------- ----
TOTAL ....................... $220,728 $220,728 7.56
======== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale Securities Held to Maturity
----------------------------------------- --------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies ............... $ 91,685 $265 $4,015 $ 87,935 $11,238 $ 0 $ 566 $10,672
Mortgage-backed securities
Fixed .................. 36,448 105 1,830 34,723 1,893 0 70 1,823
Adjustable ............. 3,374 0 441 2,933 6,230 19 124 6,125
Obligations of state and political
subdivisions ........... 5,863 80 47 5,896 50,365 795 2,721 48,439
Other securities ......... 4,990 31 147 4,874 460 0 0 460
-------- ---- ------ -------- ------- -------- ------ -------
TOTAL .................. $142,360 $481 $6,480 $136,361 $70,186 $ 814 $3,481 $67,519
======== ==== ====== ======== ======= ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Grand Totals
----------------------------------------------
Total Total Average
Carrying Market Years to
December 31, 1995 Value Value Maturity
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies ............... $ 99,173 $ 98,607 4.83
Mortgage-backed securities
Fixed .................. 36,618 36,546 3.91
Adjustable ............. 9,161 9,058 8.43
Obligations of state and political
subdivisions ........... 56,261 54,335 10.36
Other securities ......... 5,334 5,334 2.44
-------- -------- ----
TOTAL .................. $206,547 $203,880 6.23
======== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale Securities Held to Maturity
----------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies ............... $ 88,228 $3,538 $ 68 $ 91,698 $ 2,019 $ 3 $ 2 $ 2,020
Mortgage-backed securities
Fixed .................. 41,896 1,401 45 43,252 708 6 0 714
Adjustable ............. 4,972 1 11 4,962 6,141 310 0 6,451
Obligations of state and political
subdivisions ........... 6,348 493 0 6,841 43,127 2,925 57 45,995
Other securities ......... 6,975 310 0 7,285 494 0 0 494
-------- ------ ---- -------- ------- ------ --- -------
TOTAL .................. $148,419 $5,743 $124 $154,038 $52,489 $3,244 $59 $55,674
======== ====== ==== ======== ======= ====== === =======
</TABLE>
<TABLE>
<CAPTION>
Grand Totals
----------------------------------
Total Total Average
Carrying Market Years to
December 31, 1995 Value Value Maturity
- ------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies ............... $ 93,717 $ 93,718 4.14
Mortgage-backed securities
Fixed .................. 43,960 43,966 5.73
Adjustable ............. 11,103 11,413 7.97
Obligations of state and political
subdivisions ........... 49,968 52,836 10.25
Other securities ......... 7,779 7,779 3.13
-------- -------- -----
TOTAL .................. $206,527 $209,712 6.12
======== ======== =====
</TABLE>
16
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Obligations of States and Political
Subdivisions Other Total
- -----------------------------------------------------------------------------------------------------------------------------
Market Carrying Weighted Market Carrying Weighted Market Carrying Weighted
Value Value Yield Value Value Yield Value Value Yield
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 258 17.53% $ 0 0.00% $ 10,409 0.00%
1,789 9.36 0 0.00 36,378 6.21
13,165 8.83 1,083 9.31 77,907 0.00
50,094 8.03 550 0.00 55,633 8.01
0 0.00 0 0.00 39,951 7.47
-------- ------- --------
$ 65,306 8.26% $ 1,633 9.31% $220,278 7.43%
======== ======= ========
$ 54,335 $ 56,261 6.40% $ 5,334 $ 5,334 7.15% $203,880 $206,547 7.01%
========== ======== ======= ======= ======== ========
</TABLE>
The unrealized net appreciation of the portfolio at December 31, 1995,
was $6,052,000. This represents 2.83 percent of amortized cost and 2.75 percent
of carrying value as compared unrealized net depreciation of 4.1 percent at
December 31, 1994. For investment securities, the largest segment of unrealized
loss at December 31, 1995, is represented by U.S. Treasury and Government
agency securities ($311,000 or .14 percent of the carrying value of the entire
portfolio). The largest segment of unrealized gain at December 31, 1995, is
represented by obligations of state and political subdivisions ($3.1 million or
1.39 percent of the carrying value of the entire portfolio).
At December 31, 1995, the investment portfolio included $9,153,000 in
structured note derivative financial instruments, which is 4.16% of the total
carrying value. The derivative instruments are classified as available-for-sale
and included as a component of investments securities on the balance sheet.
Recognition and measurement policies for derivatives are the same as all
investment securities. The Company maintains only one class of derivative
instruments, structured notes, which were originally purchased for investment
yield. Current objectives are to divest of any and all structured notes as the
market allows while minimizing any loss on the sales. In January 1996, the
Company sold two notes, reducing the total derivative instruments to
$6,653,000.
Deposits
Total deposits increased $28,017,000 or 7.20 percent to $416,884,000 at
December 31, 1995, compared to one year earlier. Although total deposits
increased, the composition of deposit type changed. As interest rates
increased, interest-bearing deposits and savings decreased while time deposits
increased by a greater amount. According to the Florida Bankers' Association's
Deposit Share Report as of September 30, 1995, our Company increased its market
share of total IPC deposits in Lake County from 18.30 percent on December 31,
1994, to 18.71 percent on September 30, 1995.
TABLE 15
MATURITY OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
<TABLE>
<CAPTION>
(Dollars in thousands)
% OF % OF
December 31 1995 TOTAL 1994 Total
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Group:
Under 3 months $ 7,903 24.8% $ 7,609 28.0%
3 to 6 months .. 3,650 11.5 2,954 10.9
6 to 12 months 9,108 28.6 5,067 18.6
Over 12 months 11,181 35.1 11,584 42.5
------- ----- ------- -----
TOTAL ........ $31,842 100.0% $27,214 100.0%
======= ===== ======= =====
</TABLE>
Time deposits increased $46,628,000 or 24.73 percent to $235,185,000 at
December 31, 1995. Jumbo CDs increased $4,628,000 or 17.01 percent to
$31,842,000.
Savings deposits (including money market deposit accounts) totalled
$89,121,000 at December 31, 1995, $22,527,000 or 20.18 percent less than at
December 31, 1994. An increase of $7,139,000 or 20.67 percent to $41,678,000
occurred in noninterest-bearing demand deposits. Interest-bearing demand and NOW
accounts decreased $3,223,000 or 5.95 percent to $50,899,000. The decline in
savings deposits is partly attributed to declining interest rates paid on
deposits. Total time deposits increased as interest-bearing deposits and savings
decreased, due in part to product repricing.
Average noninterest-bearing demand deposits comprised 8.44 percent of
average deposits for the year ended December 31, 1995, compared to 8.54 percent
for the same period one year earlier.
Total deposits grew $24,592,000 or 6.75 percent to $388,867,000 at
December 31, 1994, compared to one year earlier. Time deposits increased
$24,237,000 or 14.75 percent to $188,558,000 at December 31, 1994. Included in
this increase was an increase in jumbo CDs of $3,051,000 or 12.63 percent to
$27,214,000.
17
<PAGE> 15
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS (1)
(Dollars in thousands)
0-3 4-12 1-5 Over 5
DECEMBER 31, 1995 Months Months Years Years Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold and other short-term investments ... $ 6,156 $ 6,156
Investment securities (2) ............................. 6,270 $20,438 $41,440 $146,078 214,226
Loans ................................................. 60,752 96,880 55,887 13,446 226,965
-------- ------- ------ ------ -------
Earning assets ........................................ 73,178 117,318 97,327 159,524 447,347
-------- ------- ------ ------ -------
Savings deposits ...................................... 140,021 140,021
Certificates of deposit ............................... 53,809 107,391 73,469 516 235,185
Federal funds purchased and other short-term borrowings 8,498 8,498
-------- ------- ------ ------ -------
Interest-bearing liabilities .......................... 202,328 107,391 73,469 516 383,704
-------- ------- ------ ------ -------
Interest sensitivity gap .............................. (129,150) 9,927 23,858 57,836 63,643
Cumulative gap ........................................ (129,150) (119,223) (95,365) 63,643
======== ======== ====== ======= =======
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to repayment assumptions.
(2) Investment securities are stated at amortized cost.
Savings deposits totalled $111,648,000 at December 31, 1994, $5,193,000 or 4.44
percent less than at December 31, 1993. Noninterest-bearing demand deposits
increased $3,790,00 or 12.33 percent to $34,540,000 at December 31, 1994.
Interest-bearing demand and NOW accounts increased $1,758,000 or 3.36 percent
to $54,122,000 at December 31, 1994.
Interest Rate Sensitivity
Interest rate movements and deregulation of interest rates have made
managing the Company's interest rate sensitivity increasingly important. The
Company's Assets/Liability Management Committee is responsible for managing the
Company's exposure to changes in market interest rates. This committee attempts
to maintain stable net interest margins by generally matching the volume of
assets and liabilities maturing, or subject to repricing, and by adjusting rates
to market conditions and changing interest rates.
Interest rate exposure is managed by monitoring the relationship between
earning assets and interest-bearing liabilities, focusing primarily on those
that are rate-sensitive. Rate-sensitive assets and liabilities are those that
reprice at market interest rates within a relatively short period, defined here
as one year or less. The difference between rate-sensitive assets and
rate-sensitive liabilities represents the Company's interest sensitivity gap,
which may be either positive (assets exceed liabilities) or negative
(liabilities exceed assets).
On December 31, 1995, the Company had a negative gap position based on
contractual maturities and prepayment assumptions for the next twelve months
with a negative interest rate sensitivity gap as a percent of total earning
assets of 26.7 percent. This means that the Company's assets reprice more slowly
than its deposits. In a declining interest rate environment, the cost of the
Company's deposits and other liabilities may be expected to fall faster than the
interest received on its earnings assets, thus increasing the net interest
spread. If interest rates generally increase, the negative gap means that the
interest received on earning assets may be expected to increase more slowly than
the interest paid on the Company's liabilities, therefore decreasing the net
interest spread.
Management feels that an immediate increase in interest rates of 1
percent would negatively impact Net Interest Margins by 7 basis points (7
one-hundredths of one percent). Management monitors the gap position on an
ongoing basis to keep interest rate risk within levels acceptable to the
Company.
Liquidity Management
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the
Company's ability to meet deposit withdrawals either on demand or at contractual
maturity and to make new loans and investments as opportunities arise.
Contractual maturities for assets and liabilities are reviewed to meet
current and future liquidity requirements. Sources of liquidity, both
anticipated and unanticipated, are maintained through a portfolio of
high-quality marketable assets, such as residential mortgage loans, investment
securities, and federal funds sold. The Company has access to federal funds
lines of credit and is able to provide short-term financing of its activities by
18
<PAGE> 16
selling, under agreement to repurchase, U.S. Treasury and Government agency
securities (including certain mortgage-backed securities) not pledged to secure
public deposits or trust funds. At December 31, 1995, the Company had available
federal funds lines of credit of $8,500,000. At December 31, 1995, the Company
had $102,700,000 U.S. Treasury and Government agency securities not pledged and
available for sale under repurchase agreements. At December 31, 1994, the
amount of securities available and unpledged was $208,859,000.
Liquidity, as measured in the form of cash and cash equivalents,
totalled $21,887,000 at December 31, 1995. At December 31, 1994, cash and cash
equivalents totalled $14,322,000. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer, and
vary with the level of principal repayments occurring in the Company's
investment securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing
(primarily in loans and securities) and from financing (primarily through
deposit generation and short-term borrowings) are greatly in excess of cash
flows from operations. In 1995, the cash flow from operations of $8,607,000 was
24.52 percent higher than during the same period of 1994. Cash flows from
investing and financing activities reflect the increase in securities, loans and
deposit balances experienced in 1995. In 1994, cash flows from operations of
$6,912,000 were 17.09 percent higher than in 1993.
Contingencies and Legal Matters
The Company is involved in no litigation that can materially impact its
earnings or capital. A lawsuit filed against the Company involving the Bank's
Trust Department was settled in 1993 and all expenses related thereto were
accrued in 1992.
Two other suits involving the Trust Department were settled in 1992
resulting in increased legal fees and other expense in 1993 that did not recur
in 1994. Accordingly, these expenses decreased significantly in 1994.
Effects of Inflation and Changing Interest Rates
The financial statements presented herein were prepared in accordance with
generally accepted accounting principles and do not attempt to consider changes
in the relative value of money due to inflation over a period of time.
Changing property values, in an economy that is still struggling towards
recovery could have a negative impact on the value of real estate owned by the
Company acquired through foreclosure as well as real estate securing the
Company's loans. Accordingly, management conducts an ongoing review of the
property owned through foreclosure and the property values securing delinquent
loans and will write down or reserve for marginal equity positions as deemed
necessary.
Interest rates have a greater impact on a financial institution's
performance than the general levels of inflation and asset/liability analysis.
Management will continue to quantify and maintain interest rate risks within
levels acceptable to the Company.
FASB 107 Disclosures about Fair Values of Financial Instruments
The Company has calculated and reported the fair value of its financial
instruments in accordance with the Statement of Financial Accounting Standards
No. 107. While market value information has been reported for its investment
securities portfolio in prior years based on quoted market prices, this
statement also requires the estimating of fair values for financial instruments
with no quoted market prices. For most instruments with no quoted market values,
there are a variety of judgments which must be applied with a wide variation in
reported results. Management has followed the requirements of the statement and
used an acceptable method to estimate fair value for these instruments.
However, various other values could result if different assumptions were used.
Therefore, management believes it is not relevant and potentially misleading to
compare the amount of appreciation or depreciation of financial instruments with
no quoted values to any other financial institution.
Although the statement does not prohibit estimating and reporting the fair
value of deposits, management has elected not to estimate a value for its core
deposit portfolio because of reliability and comparability issues.
Current Developments:
Merger Commitments
An Agreement and Plan of Merger, dated October 19, 1995, was signed by the
Company in anticipation of acquiring a local financial institution. A due
diligence investigation has been completed and a Form S-4 Registration
Statement filed with the Securities and Exchange Commission on January 2, 1996.
Regulatory approval is pending.
Dividends
In January 1996, the Company changed its policy on dividend payments.
Dividends will be paid on a quarterly basis rather than annually. The Board
approved a $.12 dividend per share payable on April 1, 1996, to shareholders of
record on March 1, 1996. On an annualized basis, this represents a 9.09 percent
increase over the $.44 annual dividend declared in 1995 and paid on January 2,
1996.
Branch Openings
During 1995, the Company opened two new branches, bringing the total
number of locations to ten. Both branches are located in Marion County, Florida.
The Company constructed a building for the Spruce Creek Branch and is leasing
space in the Cascades Office Complex for the Ocala Branch.
19
<PAGE> 17
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
Consolidated Quarterly Average Balances, Yields and Rate(1)
(Dollars in thousands) 1995 Quarters
- ---------------------------------------------------------------------------------------------------------------------------------
FOURTH Third Second First
-------------------- ----------------- ----------------- -----------------
AVERAGE YIELD/ Average Yield/ Average Yield/ Average Yield/
BALANCE RATE Balance Rate Balance Rate Balance Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment securities:
Taxable $159,771 7.09% $162,337 7.13% $163,576 7.05% $160,067 7.13%
Nontaxable 50,970 8.78 46,082 9.02 46,767 9.12 47,866 9.09
-------- -------- -------- --------
TOTAL INVESTMENT SECURITIES 210,741 7.97 208,419 7.55 210,343 7.51 207,933 7.06
Federal funds sold and other short-
term investments 13,121 6.01 12,743 5.87 11,087 5.99 6,018 5.72
Loans, net (2) 224,430 9.06 216,070 9.13 209,052 9.05 201,896 8.62
-------- -------- -------- --------
TOTAL EARNINGS ASSETS 448,292 7.63 437,232 7.76 430,482 7.90 415,847 7.97
Allowance for loan losses (3,396) (3,151) (3,061) (3,004)
Cash and due from banks 11,474 10,780 10,643 11,481
Bank premises and equipment 7,105 6,815 6,717 6,758
Other assets 6,259 6,375 6,303 6,177
-------- -------- -------- --------
TOTAL ASSETS 469,734 458,051 451,084 437,259
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand 52,993 2.15 53,254 2.11 53,000 2.17 53,623 2.20
Savings and money market 90,527 2.80 90,832 2.80 93,436 2.77 103,433 2.73
Time deposits 232,535 5.67 228,384 5.73 220,589 5.71 200,499 5.30
Federal funds purchased and securities
sold under agreement to
repurchase 8,789 5.19 7,505 5.44 6,934 5.83 4,941 5.02
-------- -------- -------- --------
TOTAL INTEREST-BEARING LIABILITIES 384,844 4.50 379,975 4.52 373,959 4.40 362,496 4.10
Demand deposits:
Noninterest-bearing 35,636 33,524 33,533 32,988
Other liabilities 5,138 4,266 3,589 3,726
-------- -------- -------- --------
TOTAL LIABILITIES 425,618 417,765 411,081 399,210
Shareholders' equity 44,116 40,286 40,003 38,049
-------- -------- -------- --------
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY $469,734 $458,051 $451,084 $437,259
======== ======== ======== ========
Interest expense as % of earning assets 2.57 2.70 2.75 2.88
Net interest income/yield on earnings assets 3.90% 3.90% 3.96% 3.85%
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
20
<PAGE> 18
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
Consolidated Quarterly Average Balances, Yields and Rate(1)
(Dollars in thousands) 1994 Quarters
- -----------------------------------------------------------------------------------------------------------------------------------
FOURTH Third Second First
------------------- ------------------ ---------------- -----------------
AVERAGE YIELD/ Average Yield/ Average Yield/ Average Yield
BALANCE RATE Balance Rate Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earnings assets:
Investment securities:
Taxable $163,182 6.94% $164,047 6.80% $164,130 6.82% $160,963 6.78%
Nontaxable 46,325 9.29 44,878 9.97 44,196 9.07 41,890 9.62
-------- -------- ------- -------
TOTAL INVESTMENT SECURITIES 209,507 7.71 208,925 7.70 208,326 7.57 202,853 7.66
Federal funds sold and other short-
term investments 5,113 5.09 4,959 4.44 5,580 3.87 8,200 3.12
Loans, net (2) 195,849 8.59 189,166 8.30 182,887 8.50 179,766 7.63
-------- -------- ------- -------
TOTAL EARNINGS ASSETS 410,469 7.97 403,050 7.80 396,793 7.81 390,819 7.40
Allowance for loan losses (2,955) (2,821) (2,679) (2,534)
Cash and due from banks 11,223 10,512 11,675 11,820
Bank premises and equipment 6,853 7,003 7,154 6,950
Other assets 6,466 6,271 7,065 7,175
-------- -------- ------- -------
TOTAL ASSETS 432,056 424,015 420,008 414,230
======== ======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand 54,700 2.10 53,922 2.07 55,712 1.94 55,978 1.97
Savings and money market 111,287 2.68 114,958 2.61 117,121 2.47 116,990 2.42
Time deposits 187,376 4.99 179,840 4.78 172,268 4.50 167,076 4.42
Federal funds purchased and securities
sold under agreement to
repurchase 4,367 4.40 3,884 3.91 3,921 3.37 5,284 2.50
-------- -------- ------- -------
TOTAL INTEREST-BEARING LIABILITIES357,730 3.82 352,604 4.07 349,022 3.39 345,328 3.32
Demand deposits:
Noninterest-bearing 33,554 32,230 33,217 31,927
Other liabilities 3,474 2,611 2,669 3,280
-------- -------- ------- -------
TOTAL LIABILITIES 394,758 387,445 384,908 380,535
-------- -------- ------- -------
Shareholders' equity 37,298 36,570 35,100 33,695
-------- -------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $432,056 $424,015 $420,008 $414,230
======== ======== ======== ========
Interest expense as % of earning assets 3.33 3.19 2.98 2.93
Net interest income/yield on earnings assets 4.64% 4.61% 4.82% 4.47%
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been
included in interest on loans.
21
<PAGE> 19
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
Quarterly Consolidated Income Statement (1)
1995 Quarters 1994 Quarters
--------------------------------- ----------------------------------
(Dollars in thousands except per share data) FOURTH Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income:
Interest income ........................... $9,226 $9,051 $8,844 $8,376 $8,182 $7,862 $7,744 $7,228
Interest expense .......................... (4,328) (4,289) (4,175) (3,720) (3,418) (3,215) (2,959) (2,863)
------ ------ ------ ------ ------ ------ ------ ------
Net interest income ....................... 4,898 4,762 4,669 4,656 4,764 4,647 4,785 4,365
------ ------ ------ ------ ------ ------ ------ ------
Provision for loan losses .................... 0 (130) (95) (30) (77) (201) (172) (150)
------ ------ ------ ------ ------ ------ ------ ------
Noninterest income:
Service charges on deposit accounts ....... 364 299 269 264 272 282 269 284
Trust income .............................. 213 212 202 215 177 174 156 209
Other income .............................. (42) 57 69 170 100 88 68 95
Investment securities gains (losses) ...... (103) 26 18 (15) (44) 0 (178) 54
------ ------ ------ ------ ------ ------ ------ ------
Total noninterest income .................. 432 594 558 634 505 544 315 642
------ ------ ------ ------ ------ ------ ------ ------
Noninterest expenses:
Salaries and employee benefits ............ 1,228 1,458 1,432 1,410 1,348 1,334 1,342 1,318
Occupancy expense ......................... 283 169 397 296 312 269 184 313
Equipment expense ......................... 270 221 232 238 229 220 252 210
Stationery and supplies ................... 106 89 83 73 121 72 98 65
Advertising ............................... 93 89 82 84 97 60 66 62
Insurance, including regulatory assessments 40 (24) 218 218 228 228 218 217
Postage ................................... 57 56 54 62 47 48 51 49
Taxes (2) ................................. 63 66 74 63 51 18 70 66
Directors' fees ........................... 67 69 67 66 63 66 69 67
Trust department expense .................. 31 42 28 36 31 44 26 35
Other expense ............................. 322 259 29 237 220 177 117 279
------ ------ ------ ------ ------ ------ ------ ------
Total noninterest expenses ................ (2,560) (2,494) (2,696) (2,783) (2,747) (2,536) (2,493) (2,681)
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes ................... 2,770 2,732 2,436 2,477 2,445 2,454 2,435 2,176
Provision for income taxes ................... (968) (1,005) (900) (972) (901) (904) (896) (803)
------ ------ ------ ------ ------ ------ ------ ------
Net income ................................... $1,802 $1,727 $1,536 $1,505 $1,544 $1,550 $1,539 $1,373
====== ====== ====== ====== ====== ====== ====== ======
PER SHARE DATA
Net income before cumulative effect of a change
in accounting principle.................. .44 .43 .38 .37 .38 .38 .38 .34
====== ====== ====== ====== ====== ====== ====== ======
Cash dividends declared on common stock...... 0.44 $ .00 $ .00 $ .00 $ .35 $ .00 $ .00 $ .00
Market price of common stock at end of period $19.00 $19.50 $18.00 $16.00 $16.00 $15.25 $14.00 $12.88
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Taxes other than payroll, real estate and income taxes.
22
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
Board of Directors
Citi-Bancshares, Inc. and Subsidiary
Leesburg, Florida
We have audited the accompanying consolidated balance sheets of
Citi-Bancshares, Inc. (the Company) and Subsidiary (the Bank) as of December
31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1995,
1994 and 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 audits to
obtain reasonable assurance about whether the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Citi-Bancshares, Inc. and Subsidiary at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1995, 1994 and 1993, in conformity with generally accepted
accounting principles.
/s/ Purvis, Gray and Company
February 1, 1996
Gainesville, Florida
PURVIS,
GRAY &
COMPANY
- --------------------------------------------------------------------------------
23
<PAGE> 21
CONSOLIDATED
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 - CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG,
FLORIDA
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Cash and Demand Deposits Due From Banks . . . . . . . . . . . . . . . . . . . $ 15,731,206 $ 14,321,737
Investment Securities (Market Value 1995 - $220,278,179; 1994 - $203,880,893) 220,278,179 206,546,777
Federal Funds Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,156,000 0
Loans Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,767,954 199,976,206
Less:
Unearned Income . . . . . . . . . . . . . . . . . . . . . . . . . . . (802,466) (1,024,096)
Allowance For Loan Losses . . . . . . . . . . . . . . . . . . . . . . (3,395,496) (2,994,255)
------------- ------------
Loans Receivable, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,569,992 195,957,855
Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662,822 686,735
Premises and Equipment, Net . . . . . . . . . . . . . . . . . . . . . . . . . 7,371,327 6,806,835
Accrued Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . 4,253,708 3,973,722
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,936,023 4,534,679
------------- ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479,959,257 432,828,340
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing . . . . . . . . . . . . . . . . . . . . . . . . . 41,678,244 34,539,616
Interest-Bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,205,562 354,327,506
------------- ------------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,883,806 388,867,122
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase . . . . . . . . . . . . . . . . . . . . 8,497,780 5,633,216
Accrued Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . 3,978,340 2,392,673
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,187,225 1,959,073
------------- ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433,547,151 398,852,084
------------- ------------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $.01 Per Share -
Authorized: 10,000,000 Shares; Issued
4,184,631 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,846 41,846
Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,207,783 11,207,783
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,127,992 27,339,017
Less: Treasury Stock at Cost (136,988 Shares
in 1995; and 136,988 Shares in 1994) . . . . . . . . . . . . . . . . . (791,924) (791,924)
Unrealized Gains (Losses) on Certain Securities . . . . . . . . . . . . . 3,826,409 (3,820,466)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . 46,412,106 33,976,256
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . $ 479,959,257 $432,828,340
============= ============
</TABLE>
See accompanying notes.
24
<PAGE> 22
CONSOLIDATED STATEMENTS OF
INCOME
DECEMBER 31, 1995, 1994 AND 1993 - CITI-BANCSHARES, INC. AND SUBSIDIARY -
LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees . . . . . . . . . . . . . . . . $ 19,178,892 $ 14,891,243 $12,968,947
-------------- ------------- -----------
Investment Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . 11,361,959 11,705,226 11,885,845
Exempt From Federal Income Taxes . . . . . . . . . 2,851,226 2,759,492 2,296,789
-------------- ------------- -----------
14,213,185 14,464,718 14,182,634
Federal Funds Sold . . . . . . . . . . . . . . . . . 635,953 237,931 347,456
-------------- ------------- -----------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . . 34,028,030 29,593,892 27,499,037
-------------- ------------- -----------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . 16,140,406 12,299,939 11,694,799
Securities Sold Under Repurchase Agreements . . . . . 371,143 154,648 90,720
-------------- ------------- -----------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . 16,511,549 12,454,587 11,785,519
-------------- ------------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . 17,516,481 17,139,305 15,713,518
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . 255,000 600,000 1,075,000
-------------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . 17,261,481 16,539,305 14,638,518
-------------- ------------- -----------
NONINTEREST INCOME
Investment Securities (Losses) Gains . . . . . . . . (73,997) (167,875) 445,454
Service Charges on Deposit Accounts . . . . . . . . . 1,196,488 1,106,506 1,162,074
Trust Income . . . . . . . . . . . . . . . . . . . . 841,847 715,607 587,912
Other Income . . . . . . . . . . . . . . . . . . . . 253,377 351,264 378,297
-------------- ------------- -----------
TOTAL NONINTEREST INCOME . . . . . . . . . . . . . . . . 2,217,715 2,005,502 2,573,737
-------------- ------------- -----------
NONINTEREST EXPENSE
Salaries and Employee Benefits . . . . . . . . . . . 5,528,417 5,342,043 5,045,330
Occupancy Expense . . . . . . . . . . . . . . . . . . 1,145,438 1,078,052 1,166,059
Equipment Expense . . . . . . . . . . . . . . . . . . 961,028 911,493 756,187
Other Expenses . . . . . . . . . . . . . . . . . . . 2,898,148 3,125,617 2,929,694
-------------- ------------- -----------
TOTAL NONINTEREST EXPENSE . . . . . . . . . . . . . . . . 10,533,031 10,457,205 9,897,270
-------------- ------------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE . . . . . . 8,946,165 8,087,602 7,314,985
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . 2,376,227 2,082,284 1,841,962
-------------- ------------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . 6,569,938 6,005,318 5,473,023
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING
METHOD OF ACCOUNTING FOR INCOME TAXES . . . . . . . . 0 0 255,072
-------------- ------------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 6,569,938 $ 6,005,318 $ 5,728,095
============== ============= ===========
EARNINGS PER SHARE:
Income Before Cumulative Effect of Change
in Accounting Principle . . . . . . . . . . . . . $ 1.62 $ 1.48 $ 1.35
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes . . . . . . . . . . . . . . . . . . . .00 .00 .06
-------------- ------------- -----------
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . $ 1.62 $ 1.48 $ 1.41
============== ============= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING . . . . . . . . . . . 4,052,326 4,047,643 4,050,051
============== ============= ===========
</TABLE>
See accompanying notes.
25
<PAGE> 23
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
DECEMBER 31, 1995, 1994 AND 1993 - CITI-BANCSHARES, INC. AND SUBSIDIARY -
LEESBURG, FLORIDA
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
COMMON CAPITAL RETAINED TREASURY CERTAIN
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
------ ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1992 . . . . . . $41,846 $11,207,783 $18,277,054 $(742,676) $ 0 $28,784,007
Net Income . . . . . . . . . . . . 5,728,095 5,728,095
Cash Dividends Declared ($.31 Per Share) (1,254,771) (1,254,771)
Purchase of Treasury Stock, 2,205 Shares (49,248) (49,248)
Unrealized Gain on Certain Securities 3,586,368 3,586,368
------- ----------- ----------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1993 . . . . . . 41,846 11,207,783 22,750,378 (791,924) 3,586,368 36,794,451
Net Income . . . . . . . . . . . . 6,005,318 6,005,318
Cash Dividends Declared ($.35 Per Share) (1,416,679) (1,416,679)
Unrealized (Loss) on Certain Securities (7,406,834) (7,406,834)
------- ----------- ----------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1994 . . . . . . 41,846 11,207,783 27,339,017 (791,924) (3,820,466) 33,976,256
Net Income . . . . . . . . . . . . 6,569,938 6,569,938
Cash Dividends Declared ($.44 Per Share) (1,780,963) (1,780,963)
Unrealized Gain on Certain Securities 7,646,875 7,646,875
------- ----------- ----------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1995 . . . . . . $41,846 $11,207,783 $32,127,992 $(791,924) $3,826,409 $46,412,106
======= =========== =========== ========= ========== ===========
</TABLE>
See accompanying notes.
26
<PAGE> 24
CONSOLIDATED STATEMENTS OF
CASH FLOWS
DECEMBER 31, 1995, 1994 AND 1993 - CITI-BANCSHARES, INC. AND SUBSIDIARY -
LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 6,569,938 $ 6,005,318 $ 5,728,095
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Provision For Loan Losses . . . . . . . . . . . . . . 255,000 600,000 1,075,000
Depreciation . . . . . . . . . . . . . . . . . . . . 695,680 694,055 579,322
Net Accretion of Discount on Investments . . . . . . (352,182) (387,880) (31,233)
Loss (Gain) on Sale of Investments and Other
Real Estate . . . . . . . . . . . . . . . . . . . . 73,997 167,875 (445,453)
(Benefit) Provision For Deferred Income Taxes . . . . (59,450) (126,381) (321,362)
Net Amortization of Deferred Loan Fees . . . . . . . (132,087) (176,802) (38,807)
(Increase) in Accrued Interest Receivable . . . . . . (279,986) (302,599) (169,862)
Increase (Decrease) in Accrued Interest Payable . . . 1,585,667 451,692 (76,125)
Other . . . . . . . . . . . . . . . . . . . . . . . . 250,640 (12,882) (396,708)
-------------- -------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . 8,607,217 6,912,396 5,902,867
-------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales of Investment Securities . . . . . . 85,626,511 21,754,099 37,944,615
Proceeds From Maturities of Investment Securities . . . . 32,900,366 29,297,426 44,842,510
Purchases of Investment Securities . . . . . . . . . . . (119,929,798) (62,469,051) (100,382,610)
Net (Increase) in Loans Receivable . . . . . . . . . . . (27,916,904) (20,628,192) (19,727,797)
Payment of Other Costs on Real Estate Owned . . . . . . . (28,139) (172,013) (76,278)
Proceeds From Sale of Real Estate Owned . . . . . . . . . 101,819 1,711,770 797,120
Purchases of Premises and Equipment . . . . . . . . . . . (1,260,172) (831,029) (372,561)
-------------- -------------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES . . . . . . . . . . . (30,506,317) (31,336,990) (36,975,001)
-------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Demand Deposits,
NOW Accounts, and Savings Accounts . . . . . . . . . . (18,611,060) 355,004 14,532,249
Net Increase in Certificates of Deposit . . . . . . . . . 46,627,744 24,237,461 6,877,954
Net Increase in Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase . . . . 2,864,564 142,153 2,880,892
Dividends Paid . . . . . . . . . . . . . . . . . . . . . (1,416,679) (1,254,769) (1,134,792)
Purchases of Treasury Stock . . . . . . . . . . . . . . . 0 0 (49,248)
-------------- -------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . 29,464,569 23,479,849 23,107,055
-------------- -------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 7,565,469 (944,745) (7,965,079)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . 14,321,737 15,266,482 23,231,561
-------------- -------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . $ 21,887,206 $ 14,321,737 $ 15,266,482
============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH AND CASH EQUIVALENTS
Cash and Demand Deposits Due From Banks . . . . . . . . . $ 15,731,206 $ 14,321,737 $ 14,168,482
Federal Funds Sold . . . . . . . . . . . . . . . . . . . 6,156,000 0 1,098,000
-------------- -------------- ------------
TOTAL CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . $ 21,887,206 $ 14,321,737 $ 15,266,482
============== ============== ============
INTEREST PAID . . . . . . . . . . . . . . . . . . . . . . . . $ 14,925,882 $ 12,002,895 $ 11,770,924
============== ============== ============
INCOME TAXES PAID . . . . . . . . . . . . . . . . . . . . . . $ 2,422,537 $ 2,292,048 $ 2,282,506
============== ============== ============
</TABLE>
See accompanying notes.
27
<PAGE> 25
NOTES
CONSOLIDATED FINANCIAL STATEMENTS OF
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Citi-Bancshares, Inc. (the Company) is a bank holding company whose sole
subsidiary, Citizens National Bank of Leesburg (the Bank), is engaged in bank
and bank-related activities. The Bank commenced operation as a national bank on
April 11, 1953. It is a member of the Federal Reserve System, Federal Deposit
Insurance Corporation (FDIC) and the Bank Insurance Fund (BIF). The Company's
primary service area consists of Lake, Sumter and Marion Counties in Central
Florida.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Citi-Bancshares, Inc. and its wholly-owned subsidiary, Citizens National Bank
of Leesburg. All significant intercompany accounts and transactions have been
eliminated. Assets held in an agency or fiduciary capacity are not assets of
the Bank and, accordingly, are not included in the accompanying financial
statements.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include cash, demand deposits due from banks and federal
funds sold. Generally, federal funds sold mature within ninety days.
SECURITIES
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial Accounting
Standards Board Statement of Financial Accounting Standards Statement No. 115
(FASB No. 115), Accounting for Certain Investments in Debt and Equity
Securities. Under FASB No. 115, the Company is required to classify acquired
debt and equity securities into one of three categories: held-to-maturity,
available-for-sale and trading.
-Investments in debt securities are classified as held-to-maturity only if
the Company has the positive intent and ability to hold such securities to
maturity. These investments are carried in the balance sheet at amortized
cost, i.e., cost adjusted for amortization of premiums and accretion of
discounts as computed by the interest method.
-All investments not classified as either held-to-maturity securities or
trading securities are classified as available-for-sale. These securities are
carried at market value as of the date of the balance sheet. The unrealized
gains and losses on these securities are excluded from earnings for the year.
Instead, the net unrealized gain or loss, net of the applicable deferred income
taxes, is shown as a separate component of stockholders' equity in the balance
sheet.
-Securities that are acquired and held principally for the purpose of
selling them in the near term are classified as trading securities. Such
securities, if any, are carried at market value and the unrealized gains and
losses on such securities are included in income for the current year.
Prior to the adoption of FASB No. 115, investment debt securities were
stated at cost adjusted for amortization of premiums and accretion of discounts
as computed by the interest method. Investments in marketable equity
securities were carried at the lower of cost or market value. Unrealized
losses on such equity securities considered to be temporary were charged
against stockholders' equity; declines in market value considered to be other
than temporary were charged to earnings.
In December 1995, the Company utilized the FASB guidance outlined in
"Special Report - A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," and reclassified all of its
securities in held-to-maturity to available-for-sale. The gain, net of tax, is
included in the separate component of stockholders' equity as "Unrealized Gain
(Losses) on Certain Securities."
Gains and losses on the sale of investment securities are computed on the
basis of specific identification of the adjusted cost of each security.
LOANS RECEIVABLE
The Company adopted Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan (FASB No. 114) on January 1,
1995. FASB No. 114 addresses the accounting by creditors for impairment of
certain loans, uncollateralized as well as collateralized, except large groups
of smaller-balance homogeneous loans which the Bank considers to be credit
card, consumer installment, residential real estate and home equity loans that
are collectively evaluated for impairment. Also, FASB No. 114 requires that
impaired loans be measured either by the present value of expected future cash
flows discounted at the loan's effective interest rate or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Management considers a loan impaired when it becomes
probable that there will be a loss resulting from the credit after foreclosure
and liquidation of the collateral or as a result of not receiving payments when
contractually agreed upon, which could result in a loss of principal or
interest.
Nonaccrual loans are loans on which the accrual of interest has been
discontinued because either a reasonable doubt exists as to the full and timely
28
<PAGE> 26
collection of interest or principal, or when a loan becomes contractually past
due ninety days or more with respect to interest or principal. A nonaccrual
loan may not have an anticipated loss associated with it because of the
collateral supporting the credit and, therefore, not be considered impaired.
An impaired loan is anticipated to have a loss and may or may not be on
nonaccrual. When a loan is placed on nonaccrual status, all interest
previously accrued, but not collected, is reversed against current period
interest income. Interest income on nonaccrual loans and impaired loans is
recognized only to the extent cash is received and where the future collection
of principal is probable. Interest accruals are resumed on such loans only
when they are brought fully current with respect to interest and principal and
when, in management's judgment, the loans are estimated to be fully collectible
as to both principal and interest.
Interest income on loans is recognized based upon the principal amounts
outstanding, except that on consumer loans, the sum of the month's digits
method is used.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely or, with respect to consumer installment loans, according to an
established delinquency schedule. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing loans and
commitments to extend credit, based on evaluations of the collectibility and
prior loss experience of loans and commitments to extend credit. The
evaluations take into consideration such factors as changes in the nature and
volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, and current and anticipated economic
conditions that may affect the borrower's ability to pay. Recoveries of
previous charge-offs are added back to the allowance.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure is
carried at the lower of its estimated fair value less estimated costs to sell
or the balance of the related loan at the date the real estate is acquired.
Costs relating to the development and improvement of the real estate are
capitalized, whereas those costs relating to holding the real estate are
charged to expense.
Sales of real estate owned are recorded under the full accrual method of
accounting. Under this method, a sale is not recognized until payments
received aggregate a specific required percentage of the contract sales price.
Losses are charged to operations as incurred or when it is determined that the
investment in such real estate is greater than the estimated net realizable
value.
PREMISES AND EQUIPMENT
Land is stated at cost. The premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the straight-line method
over the assets' estimated useful lives.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
The Bank enters into agreements to repurchase securities sold to customers.
The securities sold are United States Treasury and agency securities which are
included in the Bank's investment portfolio and are held in safekeeping by
other large banks. The repurchase agreements outstanding at December 31, 1995
are one day agreements which are automatically renewable unless the customer
notifies the Bank. The interest rate on such agreements varies between 4.38%
and 8.50%.
Federal funds purchased mature within one to four days from the transaction
date.
INCOME TAXES
Federal and state income taxes are provided on income reported for financial
statement purposes and include both current and deferred income tax expense.
Current income tax expense is recorded to reflect income taxes based upon the
tax returns filed with the appropriate taxing agencies. Deferred income taxes
are recorded to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at year end. The change in deferred taxes attributable to the carrying
value of investments categorized as "Available-for-Sale" is recognized as a
change in stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as deferred income
tax expense or benefit. The tax benefit related to operating loss and tax
credit carryforwards, if any, are recognized if management believes, based on
available evidence, that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for under the flow-through
method.
Citi-Bancshares, Inc. files consolidated federal and state income tax
returns with its subsidiary, Citizens National Bank of Leesburg. Federal and
state income taxes are allocated between the Company and its subsidiary in
proportion to the respective contributions to consolidated taxable income.
Effective January 1, 1993, the Company adopted the asset and liability
method of accounting for income taxes as required by FASB No. 109, Accounting
for Income Taxes. The Company previously used the deferred method to account
for income taxes. The Company accounted for this change as a cumulative
effect of an accounting change in the 1993 financial statements.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of
common stock outstanding, including stock options earned, adjusted
retroactively for stock dividends and stock splits.
29
<PAGE> 27
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield on the related loan.
CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial, and residential loans primarily to
customers in Lake, Marion and Sumter Counties in the state of Florida.
Although the Bank has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their contracts is dependent upon the real estate
economic sector as described in note 3.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current
financial reporting to facilitate comparison of the financial data.
NOTE 2 - SECURITIES
The carrying value of securities, including information regarding amortized
cost, gross unrealized gains, gross unrealized losses and market value is
tabulated below:
<TABLE>
<CAPTION>
1995 AVAILABLE-FOR-SALE
-----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 25,099,888 $ 837,622 $ 0 $ 25,937,510
U.S. Government Agencies . . . . . . . . . . 86,097,853 1,663,667 310,874 87,450,646
Mortgage-Backed Securities . . . . . . . . . 39,218,186 881,311 148,581 39,950,916
Obligations of State and
Political Subdivisions . . . . . . . . . . 62,260,489 3,057,166 11,218 65,306,437
Corporate Securities . . . . . . . . . . . . 1,000,000 82,670 0 1,082,670
------------ ---------- -------- ------------
Total Debt Securities . . . . . . . . . . . . 213,676,416 6,522,436 470,673 219,728,179
Equity Securities . . . . . . . . . . . . . . 550,000 0 0 550,000
------------ ---------- -------- ------------
TOTAL SECURITIES . . . . . . . . . . . . . . $214,226,416 $6,522,436 $470,673 $220,278,179
============ ========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
1995 HELD-TO-MATURITY
-----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL SECURITIES . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
============ =========== ========== ============
</TABLE>
For the year ended December 31, 1994:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
----------------------------------------------------
1994
----------------------------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
-------------- ---------------- --------------
<S> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 37,198,800 $ 0 $ 37,198,800
U.S. Government Agencies . . . . . . . . . . 50,735,813 11,238,149 61,973,962
Mortgage-Backed Securities . . . . . . . . . 37,656,428 8,122,239 45,778,667
Obligations of State and
Political Subdivisions . . . . . . . . . . 5,895,856 50,365,192 56,261,048
Corporate Securities . . . . . . . . . . . . 4,874,300 0 4,874,300
------------ ------------ ------------
Total Debt Securities . . . . . . . . . . . . 136,361,197 69,725,580 206,086,777
Equity Securities . . . . . . . . . . . . . . 0 460,000 460,000
------------ ------------ ------------
TOTAL SECURITIES . . . . . . . . . . . . . . $136,361,197 $ 70,185,580 $206,546,777
============ ============ ============
</TABLE>
30
<PAGE> 28
<TABLE>
<CAPTION>
1994 AVAILABLE-FOR-SALE
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 37,877,190 $ 148,074 $ 826,464 $ 37,198,800
U.S. Government Agencies . . . . . . . . . . 53,807,679 117,300 3,189,166 50,735,813
Mortgage-Backed Securities . . . . . . . . . 39,821,707 104,726 2,270,005 37,656,428
Obligations of State and
Political Subdivisions . . . . . . . . . . 5,862,952 79,907 47,003 5,895,856
Corporate Securities . . . . . . . . . . . . 4,990,202 30,850 146,752 4,874,300
------------ ---------- ------------ ------------
TOTAL DEBT SECURITIES . . . . . . . . . . . . $142,359,730 $ 480,857 $ 6,479,390 $136,361,197
============ ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 HELD-TO-MATURITY
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
U.S. Government Agencies . . . . . . . . . . 11,238,149 0 565,544 10,672,605
Mortgage-Backed Securities . . . . . . . . . 8,122,239 19,482 193,955 7,947,766
Obligations of State and
Political Subdivisions . . . . . . . . . . 50,365,192 795,335 2,721,202 48,439,325
Corporate Securities . . . . . . . . . . . . 0 0 0 0
------------ ---------- ------------ ------------
Total Debt Securities . . . . . . . . . . . . 69,725,580 814,817 3,480,701 67,059,696
Equity Securities . . . . . . . . . . . . . . 460,000 0 0 460,000
------------ ---------- ------------ ------------
TOTAL SECURITIES . . . . . . . . . . . . . . $ 70,185,580 $ 814,817 $ 3,480,701 $ 67,519,696
============ ========== ============ ============
</TABLE>
For the year ended December 31, 1993:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
--------------------------------------------------
1993
--------------------------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
------------ ------------- --------------
<S> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 43,367,870 $ 1,021,848 $ 44,389,718
U.S. Government Agencies . . . . . . . . . . 48,330,295 997,363 49,327,658
Mortgage-Backed Securities . . . . . . . . . 48,213,750 6,882,449 55,096,199
Obligations of State and
Political Subdivisions . . . . . . . . . . 6,841,190 43,127,242 49,968,432
Corporate Securities . . . . . . . . . . . . 7,285,100 0 7,285,100
------------ ------------ ------------
Total Debt Securities . . . . . . . . . . . . 154,038,205 52,028,902 206,067,107
Equity Securities . . . . . . . . . . . . . . 0 460,000 460,000
------------ ------------ ------------
TOTAL SECURITIES . . . . . . . . . . . . . . 154,038,205 $ 52,488,902 $206,527,107
============ ============ ============
</TABLE>
31
<PAGE> 29
<TABLE>
<CAPTION>
1993 AVAILABLE-FOR-SALE
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 40,890,734 $2,477,801 $ 665 $ 43,367,870
U.S. Government Agencies . . . . . . . . . . 47,337,801 1,060,111 67,617 48,330,295
Mortgage-Backed Securities . . . . . . . . . 46,867,554 1,402,397 56,201 48,213,750
Obligations of State and
Political Subdivisions . . . . . . . . . . 6,347,849 493,341 0 6,841,190
Corporate Securities . . . . . . . . . . . . 6,974,939 310,161 0 7,285,100
------------ ---------- ---------- ------------
TOTAL DEBT SECURITIES . . . . . . . . . . . . $148,418,877 $5,743,811 $ 124,483 $154,038,205
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
1993 HELD-TO-MATURITY
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities . . . . . . . . . . $ 1,021,848 $ 0 $ 1,248 $ 1,020,600
U.S. Government Agencies . . . . . . . . . . 997,363 2,637 0 1,000,000
Mortgage-Backed Securities . . . . . . . . . 6,882,449 315,291 0 7,197,740
Obligations of State and
Political Subdivisions . . . . . . . . . . 43,127,242 2,925,530 57,136 45,995,636
Corporate Securities . . . . . . . . . . . . 0 0 0 0
------------ ---------- ---------- ------------
Total Debt Securities . . . . . . . . . . . . 52,028,902 3,243,458 58,384 55,213,976
Equity Securities . . . . . . . . . . . . . . 460,000 0 0 460,000
------------ ---------- ---------- ------------
TOTAL SECURITIES . . . . . . . . . . . . . . $ 52,488,902 $3,243,458 $ 58,384 $ 55,673,976
============ ========== ========== ============
</TABLE>
The amortized cost, carrying (market) value and weighted average yields
of investment securities at December 31, 1995, by contractual maturity are
shown below. The weighted average yield is determined using the amortized cost
of securities. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligation with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING
AMORTIZED (MARKET) WEIGHTED
COST VALUE AVERAGE YIELD
------------- ------------- -------------
<S> <C> <C> <C>
Due in One Year or Less . . . . . . . . . . . . . $ 10,230,017 $ 10,408,998 8.32%
Due After One Year Through Five Years . . . . . . 35,793,549 36,377,309 6.21%
Due After Five Years Through Ten Years . . . . . 75,313,048 77,907,321 7.45%
Due After Ten Years . . . . . . . . . . . . . . . 53,121,616 55,083,635 8.01%
-------------- ---------------
. . . . . . . . . . . . . . . . 174,458,230 179,777,263
Mortgage-Backed Securities . . . . . . . . . . . 39,218,186 39,950,916 7.47%
Equity Securities . . . . . . . . . . . . . . . . 550,000 550,000
-------------- ---------------
TOTAL . . . . . . . . . . . . . . . . . . . . . $ 214,226,416 $ 220,278,179
============== ===============
</TABLE>
Proceeds from sales of investment securities classified as
available-for-sale during 1995 were $85,626,511, with gross losses of $905,759
and gross gains of $831,762. There were no sales or transfers of assets
classified as held-to-maturity during 1994. During 1994, proceeds from sales
of investment securities classified as available-for-sale were $21,754,099,
with gross gains of $80,158 and gross losses of $275,998. Proceeds from sales
of investment securities during 1993 were $37,944,615, with gross gains of
$567,334 and gross losses of $121,181. In computing recognized gains and
losses, cost is determined using specific identification of securities.
32
<PAGE> 30
As of December 31, 1995, investment securities with a carrying value
of $10,869,000 were pledged as collateral for public funds, trust deposits and
repurchase agreements.
UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
As discussed in note 1, effective December 31, 1993, the Company
adopted the investment categorization and carrying value rules as required by
FASB No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Under this statement, the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes, is shown as a
separate component of stockholders' equity in the balance sheet.
In December 1995, the Company utilized the FASB guidance outlined in
"Special Report - A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities" and reclassified all
its securities in held-to-maturity to available-for-sale. As of the transfer
date, the amortized cost was $77,480,555 and market value was $80,807,215.
Accordingly, there was an unrealized gross gain of $3,326,660 at transfer,
which is included net of $1,251,822 tax as part of the unrealized gains
(losses) on certain securities component of stockholders' equity.
The following is a summary of the effects of the statement on
stockholders' equity as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------ --------------
<S> <C> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale . . . . . . . . . . . . . . . . . . . . . $ 6,051,763 $ (5,998,533)
Deferred Income Tax (Liability) Asset on
Unrealized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,225,354) 2,178,067
------------- -------------
NET INCREASE (DECREASE) IN STOCKHOLDERS' EQUITY . . . . . . . . . . . . . $ 3,826,409 $ (3,820,466)
============= =============
</TABLE>
The following tabulation presents the net change in unrealized gain or
loss on available-for-sale securities that is shown as a separate component of
stockholders' equity.
<TABLE>
<CAPTION>
1995 1994
------------ --------------
<S> <C> <C>
Increase (Decrease) in Unrealized Gain or Loss . . . . . . . . . . . . $ 12,050,296 $ (11,617,861)
(Increase) Decrease in Related Deferred Income Taxes . . . . . . . . . (4,403,421) 4,211,027
------------- -------------
NET INCREASE (DECREASE) IN STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 7,646,875 $ (7,406,834)
============= =============
</TABLE>
At December 31, 1995, the investment portfolio included $9,153,178 in
structured note derivative financial instruments, which is 4.16% of the total
carrying value. The derivative instruments are classified as available-for-sale
and included as a component of investment securities on the balance sheet.
Recognition and measurement policies for derivatives are the same as all
investment securities detailed in note 1. The Company maintains only one class
of derivative instruments, structured notes, which were originally purchased for
investment yield. Current objectives are to divest of any and all structured
notes as the market allows while minimizing any loss on the sales. In January
1996, the Company sold two notes, reducing the total derivative instruments to
$6,653,178.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994
------------- --------------
<S> <C> <C>
Commercial, Financial and Agricultural . . . . . . . . . . . . . . . . $ 20,210,086 $ 13,457,158
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,985,476 166,039,204
Installment Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,572,392 20,479,844
------------- -------------
Loans Receivable (Gross) . . . . . . . . . . . . . . . . . . . . . . . 227,767,954 199,976,206
(Unearned Income) . . . . . . . . . . . . . . . . . . . . . . . . . . . (802,466) (1,024,096)
------------- -------------
LOANS RECEIVABLE (NET OF UNEARNED INCOME) . . . . . . . . . . . . . . . $ 226,965,488 $ 198,952,110
============= =============
</TABLE>
33
<PAGE> 31
The maturity ranges of the loan portfolio and the amount of loans with
predetermined interest rates and floating rates in each maturity range, as of
December 31, 1995, are summarized as follows:
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DISTRIBUTION
------------------------------------------------------------------
WITHIN ONE - AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural . . . $ 16,359,432 $ 3,719,884 $ 123,749 $ 20,203,065
Real Estate . . . . . . . . . . . . . . . . . 138,180,632 35,020,887 12,192,836 185,394,355
Installment Loans . . . . . . . . . . . . . . 5,978,032 14,260,776 1,129,260 21,368,068
------------ ------------- ------------ --------------
TOTAL LOANS (NET OF UNEARNED INCOME) . . . . 160,518,096 53,001,547 13,445,845 226,965,488
============ ============= ============ ==============
Loans With Predetermined Rate . . . . . . . . 7,239,873 52,980,828 13,445,845 73,666,546
Loans With a Floating Rate . . . . . . . . . 153,278,223 20,719 0 153,298,942
------------ ------------- ------------ --------------
TOTAL LOANS (NET OF UNEARNED INCOME) . . . . $160,518,096 $ 53,001,547 $ 13,445,845 $ 226,965,488
============ ============= ============ ==============
</TABLE>
The Bank has granted loans to its executive officers, directors and
principal equity holders and their associates. The aggregate dollar amount of
these loans was approximately $4,011,580 and $2,967,543 at December 31, 1995
and 1994, respectively. During 1995, approximately $1,529,658 in new loans
were made while repayments approximated $485,621.
Loans on which the accrual of interest has been discontinued or reduced at
December 31, 1995 and 1994, approximated $802,348 and $502,574, respectively.
Interest income realized on these loans was $31,758 and $42,960 in 1995 and
1994, respectively. If interest on those loans had been accrued, it would not
have a material effect on the accompanying consolidated financial statements.
At December 31, 1995, the Bank had loans subject to floors and caps totalling
$92,826,031. The floors and caps on these loans range from 2.75% to 15.25%.
At December 31, 1995, there were no commitments to lend additional funds to
borrowers whose loans are classified as nonaccrual.
Changes in the allowance for loan losses for 1995, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR . . . . . . . . . $ 2,994,255 $ 2,489,991 $1,686,880
------------- ------------ ----------
Provisions Charged to Expense . . . . . . . 255,000 600,000 1,075,000
------------- ------------ ----------
Recoveries of Loans Previously Charged-Off:
Commercial, Financial and Agricultural. . 28,316 59,167 33,092
Real Estate . . . . . . . . . . . . . . . 222,180 47,904 21,674
Installment Loans . . . . . . . . . . . . 28,553 7,544 53,977
------------- ------------ ----------
Total Recoveries . . . . . . . . . . . . . 279,049 114,615 108,743
------------- ------------ ----------
Loans Charged-Off:
Commercial, Financial and Agricultural . 1,011 55,389 0
Real Estate . . . . . . . . . . . . . . . 9,430 77,479 320,96
Installment Loans . . . . . . . . . . . . 122,367 77,483 59,665
------------- ------------ ----------
Total Loans Charged-Off . . . . . . . . . . (132,808) (210,351) (380,632)
------------- ------------ ----------
BALANCE, END OF YEAR. . . . . . . . . . . . . $ 3,395,496 $ 2,994,255 $2,489,991
============= ============ ==========
RATIO OF NET (RECOVERIES) CHARGE-OFFS TO
AVERAGE LOANS OUTSTANDING . . . . . . . . . (.07)% .05% .16%
============= ============ ==========
RATIO OF ALLOWANCE FOR LOAN LOSSES AS A
PERCENTAGE OF YEAR END LOANS. . . . . . . . 1.49% 1.51% 1.39%
============= ============ ==========
</TABLE>
34
<PAGE> 32
As of December 31, 1995 and 1994, the allowance for loan losses was
allocated as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- ------------------------
PERCENT BY PERCENT BY
AMOUNT CATEGORY AMOUNT CATEGORY
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . . . $ 324,921 10% $ 682,990 23%
Real Estate . . . . . . . . . . . . . . . . . . . . . . 2,954,119 87% 2,200,895 73%
Installment . . . . . . . . . . . . . . . . . . . . . . 116,456 3% 110,370 4%
---------- ---- ---------- ----
TOTAL ALLOWANCE FOR LOAN
LOSSES. . . . . . . . . . . . . . . . . . . . . . . . $3,395,496 100% $2,994,255 100%
========== ==== ========== ====
</TABLE>
At December 31, 1995, the total recorded investment in impaired loans was
$1,845,025, of which $1,845,025 had a related allowance for credit losses of
$516,128. None of the recorded investment in impaired loans were without a
related allowance for credit losses. The average recorded investment in
impaired loans at December 31, 1995 was $1,797,821. The amount of interest
income recognized during the time within the year ended December 31, 1995, that
the loans were impaired was $166,505. The amount of interest income recognized
using a cash basis method of accounting during the time within the year ended
December 31, 1995, that the loans were impaired was $30,378.
NOTE 4 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1995 1994
------------- --------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,058,612 $ 839,958
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,269,740 6,669,938
Furniture, Fixtures and Equipment . . . . . . . . . . . . . . . . . . . 5,337,535 4,923,264
------------ -------------
13,665,887 12,433,160
(Accumulated Depreciation) . . . . . . . . . . . . . . . . . . . . . . (6,294,560) (5,626,325)
------------ -------------
TOTAL PREMISES AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . $ 7,371,327 $ 6,806,835
============ =============
</TABLE>
35
<PAGE> 33
NOTE 5 -DEPOSITS
A summary of interest-bearing deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,690,835 $ 54,121,540
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,329,247 111,648,230
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,185,480 188,557,736
-------------- -------------
TOTAL INTEREST-BEARING DEPOSITS . . . . . . . . . . . . . . . . . . . . $ 375,205,562 $ 354,327,506
============== =============
</TABLE>
Time deposit maturities for future years are presented in the following
table:
<TABLE>
<S> <C>
1996 $161,200,121
1997 28,253,810
1998 14,875,797
1999 18,764,303
2000 11,575,088
Thereafter 516,361
------------
TOTAL $235,185,480
============
</TABLE>
Included in interest-bearing deposits are certificates of deposit in amounts
of $100,000 or more. These certificates and their remaining maturities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Three Months or Less . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,902,964 $ 7,609,057
Three Through Six Months . . . . . . . . . . . . . . . . . . . . . . . 3,649,532 2,953,564
Six Through Twelve Months . . . . . . . . . . . . . . . . . . . . . . . 9,108,004 5,066,999
Over Twelve Months . . . . . . . . . . . . . . . . . . . . . . . . . . 11,180,719 11,584,021
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,841,219 $ 27,213,641
============ ============
</TABLE>
A summary of interest on deposits is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Interest-Bearing Demand Deposits . . . . . . . . . . $ 2,416,615 $ 2,709,256 $ 2,878,854
Savings . . . . . . . . . . . . . . . . . . . . . . 1,341,956 1,309,118 1,235,463
Time Deposits of $100,000 or More . . . . . . . . . . 1,621,524 1,249,600 1,064,086
Other Time Deposits . . . . . . . . . . . . . . . . . 10,760,311 7,031,965 6,516,396
------------- ------------ -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 16,140,406 $ 12,299,939 $ 11,694,799
============= ============ =============
</TABLE>
36
<PAGE> 34
NOTE 6 - INCOME TAXES
As discussed in note 1, effective January 1, 1993, the Company adopted the
asset and liability method of accounting for income taxes as required by FASB
No. 109, Accounting for Income Taxes. The Company previously used the deferred
method to account for income taxes. The Company accounted for this change as
the cumulative effect of an accounting change in the 1993 financial statements.
The cumulative effect of $225,072 is recognized in the 1993 consolidated
statement of income.
The total provision (benefit) for income taxes in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal . . . . . . . . . . . . . . . $ 2,064,201 $ 1,924,114 $ 1,841,861
State of Florida . . . . . . . . . . . . . 371,476 284,551 321,463
------------ ------------ ------------
TOTAL CURRENT INCOME TAX EXPENSE . . . . . . 2,435,677 2,208,665 2,163,324
------------ ------------ ------------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal . . . . . . . . . . . . . . . . (50,761) (107,909) (274,392)
State of Florida . . . . . . . . . . . . . . (8,689) (18,472) (46,970)
------------ ------------ ------------
TOTAL DEFERRED INCOME TAX (BENEFIT) . . . . . (59,450) (126,381) (321,362)
------------ ------------ ------------
TOTAL INCOME TAX EXPENSE . . . . . . . . . . $ 2,376,227 $ 2,082,284 $ 1,841,962
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- ------------------ -------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ------ --------- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Computed "Expected" Income
Tax Expense . . . . . . . . . . . . . . . . . $3,041,696 34.0 $ 2,749,785 34.0 $ 2,487,095 34.0
Interest Income Exempt From
Federal Income Tax . . . . . . . . . . . . . (851,596) (9.5) (851,507) (10.5) (717,410) (9.8)
State Income Taxes, Net of
Federal Income Tax Benefits . . . . . . . . . 239,439 2.7 175,612 2.1 181,165 2.5
Other . . . . . . . . . . . . . . . . . . . . . (53,312) (0.6) 8,394 .1 (108,888) (1.5)
---------- ---- ----------- ---- ----------- ----
TOTAL . . . . . . . . . . . . . . . . . . . . . $2,376,227 26.6 $ 2,082,284 25.7 $ 1,841,962 25.2
========== ==== =========== ==== =========== ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at December
31:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,148 $ 91,466
Basis Difference on Investment Securities
Available-For-Sale . . . . . . . . . . . . . . . . . . . . . . . . 2,225,354 0
----------- -----------
GROSS DEFERRED TAX LIABILITIES . . . . . . . . . . . . . . . . . . . . 2,326,502 91,466
----------- -----------
DEFERRED TAX (ASSETS)
Basis Difference on Investment Securities
Available-For-Sale . . . . . . . . . . . . . . . . . . . . . . . . 0 2,178,067
Allowance For Loan Losses . . . . . . . . . . . . . . . . . . . . . . 972,369 878,493
Allowance For Losses on Other Real Estate Owned . . . . . . . . . . . 53,114 61,633
Earnings of Real Estate Mortgage Investment
Conduit (REMIC) . . . . . . . . . . . . . . . . . . . . . . . . . . 50,947 46,108
Deferred Expenses Payable . . . . . . . . . . . . . . . . . . . . . . 75,383 65,835
Deferred Loan Income . . . . . . . . . . . . . . . . . . . . . . . . 257,537 290,612
Deferred Other Income . . . . . . . . . . . . . . . . . . . . . . . . 2,463 0
----------- -----------
GROSS DEFERRED TAX (ASSETS) . . . . . . . . . . . . . . . . . . . . . . (1,411,813) (3,520,748)
----------- -----------
NET DEFERRED TAX LIABILITIES (ASSETS) . . . . . . . . . . . . . . . . . $ 914,689 $(3,429,282)
=========== ============
</TABLE>
37
<PAGE> 35
The sources of timing differences and the related income tax effect of each
of the years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Provision For Loan and Other Real Estate Owned
Losses For Income Tax Purposes (Less)
Than For Financial Statement Purposes . . . . . . . $ (85,357) $ (153,672) $ (316,785)
Interest Income Earned on Real Estate Mortgage
Investment Conduit For Income Tax Purposes
(Less) Greater Than For Financial Statement
Purposes . . . . . . . . . . . . . . . . . . . . . (4,840) 39,800 39,461
Depreciation Deducted For Tax Purposes Greater
(Less) Than That Recognized as Expense For
Financial Statement Purposes . . . . . . . . . . . 9,683 (7,709) 1,931
Loan Fee Income Realized For Income Tax
Purposes Greater (Less) Than For Financial
Statement Purposes . . . . . . . . . . . . . . . . 33,075 (15,468) (35,674)
Other . . . . . . . . . . . . . . . . . . . . . . . . (12,011) 10,668 (10,295)
-------------- ------------ --------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ (59,450) $ (126,381) $ (321,362)
============== ============ ==============
</TABLE>
As a result from gains and losses on sales of securities, income tax expense
increased (decreased) by the following amounts: $(27,845) in 1995; $(63,171)
in 1994; $167,624 in 1993.
NOTE 7 - 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 SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is considered a
reasonable estimate of fair value.
INVESTMENT SECURITIES
For marketable equity securities held for investment purposes, fair values
are based on quoted market prices or dealer quotes. For other securities held
as investments, fair value equals quoted market price, if available. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
LOANS RECEIVABLE
The fair value 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 fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For those short-term instruments, the carrying amount is considered a
reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Substantially all of the Bank's commitments to extend credit and standby
letters of credit are at variable rates and are subjected to the same credit
criteria as for recognized loans receivable. The variable rates ascribed to
these commitments to extend credit and standby letters of credit approximate
market rates for such instruments. Accordingly, the carrying amount is
considered a reasonable estimate of fair value.
38
<PAGE> 36
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1995 1994
--------------------------------- ----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term
Investments . . . . . . . . . . . . . . . . $ 15,731,206 $ 15,731,206 $ 14,321,737 $ 14,321,737
Investment Securities . . . . . . . . . . . . $ 220,278,179 $220,278,179 $206,546,777 $ 203,880,893
Loans Receivable, Net . . . . . . . . . . . . $ 223,569,992 $224,812,250 $195,957,855 $ 195,063,705
FINANCIAL LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . $ 416,883,806 $418,838,323 $388,867,122 $ 390,534,696
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase . . . . . . . . . . . . . . . . $ 8,497,780 $ 8,497,780 $ 5,633,216 $ 5,633,216
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to Extend Credit . . . . . . . . $ 10,726,625 $ 10,726,625 $ 28,728,029 $ 28,728,029
Standby Letters of Credit . . . . . . . . . . $ 747,867 $ 747,867 $ 630,602 $ 630,602
</TABLE>
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit and
interest rate caps and floors written. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual notional
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. For interest rate caps and floors, the contract or notional
amounts do not represent exposure to credit loss.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing, and
similar transactions. Most guarantees extend for only one year and expire in
decreasing amounts through 1997. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. The Bank holds marketable securities, certificates of deposit,
securities sold under agreements to repurchase and real estate, as collateral
supporting those commitments for which collateral is deemed necessary.
39
<PAGE> 37
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various commitments and
contingent liabilities outstanding, such as commitments to extend credit and
standby letters of credit which are not reflected in the consolidated financial
statements. At December 31, 1995, the Bank had commitments to customers of
approximately $747,867 for standby letters of credit, and $24,534,081 for
approved lines of credit. Unfunded loan commitments at December 31, 1995, were
$10,726,625. No losses are anticipated as a result of these transactions.
The Bank is involved in legal proceedings primarily concerning the recovery
of loans previously charged-off or adequately provided for in the allowance for
loan losses. Management, after a review of all litigation with counsel,
believes that the resolution of these matters will not have a material effect
on the accompanying consolidated financial statements.
Minimum commitments for rental expenditures under all noncancellable
operating leases are presented for future years in the following table:
<TABLE>
<S> <C>
1996 $ 36,000
1997 36,000
1998 36,000
1999 36,000
2000 36,000
Thereafter 0
--------
TOTAL MINIMUM LEASE PAYMENTS $180,000
========
</TABLE>
Rental expense for all operating leases was $35,250, $68,896 and $68,720 in
1995, 1994 and 1993, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
AVERAGE SHARES OUTSTANDING
The weighted-average number of shares outstanding during 1995, 1994 and 1993
were 4,052,326, 4,047,643 and 4,050,051, respectively.
REGULATORY MATTERS
There are no restrictions on the ability of the Company to pay dividends
from its retained earnings; however, banking regulations limit the amount of
dividends national banks may declare without receiving prior approval from the
Comptroller of the Currency. At December 31, 1995, approximately $15,631,901
was available for payment of dividends by the Bank without such approval.
The Board of Governors of the Federal Reserve System has specified
guidelines for purposes of evaluating a bank's capital adequacy. Currently,
banks must maintain a minimum primary capital ratio of capital to risk assets
of 8.0%. Primary capital includes the Company's stockholders' equity and the
allowance for loan losses. At December 31, 1995, the primary capital ratio of
capital to risk assets was in excess of 10%.
STOCK OPTION PLAN
In 1994, the Company adopted a stock option plan for granting nonqualified
stock options to specified officers. The nonqualified stock options are
granted to the officers provided the Bank meets certain target performance and
asset quality criteria. The stock options, after a two-year vesting
requirement, are exercisable at a price equal to the book value per share, net
of FASB No. 115. The Board normally makes its decision on whether or not to
grant the options for a given year in February of the following year, allowing
time to review complete financial data and achievement of certain performance
criteria. If approved, the options are granted effective the first business
day following the end of the year. The option price is the year-end book
value, net of FASB No. 115, for the year just completed. Should a grantee
retire, the options granted to him or her are exercisable within one year of
retirement. In 1995, options for 11,250 shares were granted effective January
2, 1995, based on the Company's performance for the year ended December 31,
1994. The Company follows APB Opinion No. 25, Accounting for Stock Issued to
Employees in recognizing stock options. In December 1995, the Board approved a
stock option of 6,250 shares for the Chief Financial Officer to be effective
starting January 2, 1996. This was done as per discussions with the Chief
Financial Officer prior to his employment in March 1995. These options may be
earned by the Chief Financial Officer if future performance criteria is met.
40
<PAGE> 38
NOTE 10 - OTHER EXPENSES
A summary of other expenses is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Stationery and Supplies . . . . . . . . . . . $ 351,395 $ 355,800 $ 272,633
Advertising . . . . . . . . . . . . . . . . . 347,955 285,212 275,235
Insurance, Including Regulatory Assessments . 451,705 891,428 836,066
Postage . . . . . . . . . . . . . . . . . . 228,703 195,433 169,937
Taxes (Other Than Payroll, Real Estate and
Income Taxes) . . . . . . . . . . . . . . . 266,456 181,760 206,080
Directors' Fees . . . . . . . . . . . . . . . 268,846 265,288 266,167
Trust Department Expense . . . . . . . . . . 137,060 136,116 118,255
Miscellaneous . . . . . . . . . . . . . . . . 846,028 814,580 785,321
------------- ------------ ------------
TOTAL OTHER EXPENSES . . . . . . . . . . . . $ 2,898,148 $ 3,125,617 $ 2,929,694
============= ============ ============
</TABLE>
NOTE 11 - PENSION AND PROFIT SHARING PLANS
The Bank maintains a noncontributory defined benefit pension and a profit
sharing plan covering eligible officers and employees. Profit sharing
contributions ($383,000 in 1995, $385,645 in 1994 and $261,991 in 1993) are
determined annually at the discretion of the Board of Directors of the Bank.
Effective January 1, 1988, the Bank adopted FASB No. 87, Employers' Accounting
For Pensions. Under this statement, pension expense must be accounted for
using the projected unit credit method. Net periodic pension expense for the
years ended December 31 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Service Cost . . . . . . . . . . . . . . . . $ 278,586 $ 255,148 $ 224,639
Interest Cost . . . . . . . . . . . . . . . . 180,647 175,201 149,779
Return on Plan Assets . . . . . . . . . . . . (447,457) 65,955 (111,429)
Amortization of Net Transition Asset . . . . (7,823) (7,283) (7,283)
Amortization of Prior Service Cost . . . . . 18,040 18,040 19,989
Amortization of Net Loss (Gain) From
Earlier Periods . . . . . . . . . . . . . . 54,429 69,363 60,512
Asset Gain (Loss) Deferred . . . . . . . . . 284,841 (210,725) (11,112)
------------- ------------ ------------
TOTAL PENSION EXPENSE . . . . . . . . . . . . $ 361,263 $ 365,699 $ 325,095
============= ============ ============
</TABLE>
The initial unrecognized asset at January 1, 1988, was $316,896, which is
the excess of the fair value of assets over the projected benefit obligation on
that date. The initial unrecognized transition asset, as adjusted for any
subsequent lump-sum settlements, is being amortized over thirty-one years.
The Bank's funding policy is to make an annual contribution that will not be
less than the minimum required contribution nor greater than the maximum
federal income tax deductible limit. The Bank contributed $271,000 for 1995;
$362,000 for 1994; and $345,588 for 1993.
41
<PAGE> 39
The funded status of the plan at December 31, 1995 and 1994 as
determined by consulting actuaries, was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,024,378 $ 1,934,126
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356,173 259,354
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,380,551 $ 2,193,480
============ ============
ACCRUED PENSION LIABILITY
Projected Benefit Obligation . . . . . . . . . . . . . . . . . . . . $ (3,452,703) $ (3,199,274)
Fair Value of Plan Assets . . . . . . . . . . . . . . . . . . . . . 3,242,746 2,548,469
------------ ------------
PROJECTED BENEFIT OBLIGATION (IN EXCESS OF
OR) LESS THAN PLAN ASSETS . . . . . . . . . . . . . . . . . . . . . (209,957) (650,805)
UNRECOGNIZED NET TRANSITION ASSET . . . . . . . . . . . . . . . . . . . (167,516) (174,799)
UNRECOGNIZED NET LOSSES (GAINS) . . . . . . . . . . . . . . . . . . . . 630,757 1,151,651
UNRECOGNIZED PRIOR SERVICE COST . . . . . . . . . . . . . . . . . . . . 177,642 195,682
------------ ------------
PREPAID PENSION COST . . . . . . . . . . . . . . . . . . . . . . . . . $ 430,926 $ 521,729
============ ============
</TABLE>
The expected long-term rate of return on plan assets was 6.00% in 1995, 1994
and 1993, and 9% for the preceding years. The discount rate and rate of
increase in future compensation levels used in determining the actuarial
present value of benefit obligations is presented below for each year.
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount Rate . . . . . . . . . . . . . . . . 6.00% 6.00% 6.00%
Rate of Compensation Increase . . . . . . . . 5.00% 5.00% 5.00%
</TABLE>
As of December 31, 1995, the assets of the defined benefit plan were
invested as follows: 17% in cash and cash equivalents; 34% in U.S. Treasury and
government agency debt securities; 11% in taxable obligations of state and
political subdivisions; 15% in corporate debt securities; and 23% in equity
securities. Five percent of the value of the defined benefit plan's assets is
invested in the common stock of the Company.
NOTE 12 -FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit,
interest rate caps and floors written. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written, is represented by the contractual notional
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. For interest rate caps and floors, the contract or notional
amounts do not represent exposure to credit loss.
42
<PAGE> 40
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Company
which, in the opinion of management, reflects adjustments (comprising only
normal recurring accruals) necessary for fair presentation:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
--------------------------------------------------------------
1995 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Interest Income . . . . . . . . . . . . . . . $ 8,850 $ 8,698 $ 8,481 $ 7,999
Interest Expense . . . . . . . . . . . . . . (4,328) (4,289) (4,175) (3,720)
Net Interest Income . . . . . . . . . . . . . 4,522 4,409 4,306 4,279
Provision For Losses
on Loans . . . . . . . . . . . . . . . . . 0 (130) (95) (30)
Security Gains (Losses) . . . . . . . . . . . (103) 26 18 (15)
Net Income . . . . . . . . . . . . . . . . . 1,802 1,727 1,536 1,505
Earnings Per Share (Shown in dollars) . . . . .44 .43 .38 .37
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
--------------------------------------------------------------
1994 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Interest Income . . . . . . . . . . . . . . . $ 7,816 $ 7,490 $ 7,403 $ 6,885
Interest Expense . . . . . . . . . . . . . . 3,418 3,215 2,959 2,863
Net Interest Income . . . . . . . . . . . . . 4,398 4,275 4,444 4,022
Provision For Losses
on Loans . . . . . . . . . . . . . . . . . 77 201 172 150
Security Gains (Losses) . . . . . . . . . . . (44) 0 (178) 54
Net Income . . . . . . . . . . . . . . . . . 1,544 1,550 1,539 1,373
Earnings Per Share (Shown in dollars) . . . . .38 .38 .38 .34
</TABLE>
NOTE 14 - MERGER COMMITMENTS
An Agreement and Plan of Merger, dated October 19, 1995, was signed by the
Company in anticipation of acquiring a local financial institution. A due
diligence investigation has been completed and a Form S-4 Registration
Statement filed with the Securities and Exchange Commission on January 2, 1996,
under the Securities Act of 1993. Regulatory approval is pending.
NOTE 15 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Citi-Bancshares, Inc. (Parent Company
Only) for the years ended December 31, 1995 and 1994 are presented as follows:
43
<PAGE> 41
CONDENSED
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 - CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG,
FLORIDA
<TABLE>
<CAPTION>
ASSETS
1995 1994
------------ -------------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,792,106 $ 1,552,951
Investment in Wholly-Owned Subsidiary,
at Equity in Underlying Assets . . . . . . . . . . . . . . . . . . . 46,385,177 33,832,787
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,427 50,921
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,243,710 35,436,659
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividends Payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,780,963 1,416,675
Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . 50,641 43,728
------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,831,604 1,460,403
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,846 41,846
Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 11,207,783 11,207,783
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 32,127,992 27,339,017
(Treasury Stock) . . . . . . . . . . . . . . . . . . . . . . . . . . (791,924) (791,924)
Unrealized Gains (Losses) on Certain Securities . . . . . . . . . . 3,826,409 (3,820,466)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . 46,412,106 33,976,256
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . $ 48,243,710 $ 35,436,659
============= =============
</TABLE>
44
<PAGE> 42
CONDENSED STATEMENTS OF
INCOME
DECEMBER 31, 1995, 1994 AND 1993 - CITI-BANCSHARES, INC. AND SUBSIDIARY -
LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INCOME
Cash Dividends From Subsidiary . . . . . . . . . . . . . . $ 1,683,000 $ 1,500,000 $ 1,400,000
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 24,508 21,350 16,798
------------ ------------- ------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . . . . 1,707,508 1,521,350 1,416,798
------------ ------------- ------------
EXPENSES
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 3,015 2,856 1,910
Other Expense . . . . . . . . . . . . . . . . . . . . . . 54,221 82,866 69,650
------------ ------------- ------------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 57,236 85,722 71,560
------------ ------------- ------------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARY . . . . . . . . . . . 1,650,272 1,435,628 1,345,238
INCOME TAX BENEFIT RESULTING FROM FILING
CONSOLIDATED INCOME TAX RETURNS . . . . . . . . . . . . . 14,152 23,294 19,814
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY . . . . . . . . 4,905,514 4,546,396 4,363,043
------------ ------------- ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,569,938 $ 6,005,318 $ 5,728,095
============ ============= ============
</TABLE>
CONDENSED STATEMENTS OF
CASH FLOWS
DECEMBER 31, 1995, 1994 AND 1993 - CITI-BANCSHARES, INC. AND SUBSIDIARY -
LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,569,938 $ 6,005,318 $ 5,728,095
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Deferred Compensation . . . . . . . . . . . . . . . 6,913 (15,968) 10,926
Income From Subsidiary . . . . . . . . . . . . . . . (4,905,515) (4,546,396) (4,363,043)
Tax Benefit . . . . . . . . . . . . . . . . . . . . (14,152) (23,294) (19,814)
Other . . . . . . . . . . . . . . . . . . . . . . . (1,354) (2,816) 87,005
------------ ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . 1,655,830 1,416,844 1,443,169
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (1,416,675) (1,254,769) (1,134,792)
Purchase of Treasury Stock . . . . . . . . . . . . . . . . 0 0 (49,248)
------------ ------------- ------------
NET CASH (USED IN) FINANCING ACTIVITIES . . . . . . . . . . . (1,416,675) (1,254,769) (1,184,040)
------------ ------------- ------------
INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . 239,155 162,075 259,129
CASH, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . 1,552,951 1,390,876 1,131,747
------------ ------------- ------------
CASH, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . $ 1,792,106 $ 1,552,951 $ 1,390,876
============ ============= ============
</TABLE>
45
<PAGE> 1
EXHIBIT 21
Subsidiaries
Citizens National Bank of Leesburg, N. A.
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
<PAGE> 2
[PURVIS GRAY & CO. LOGO]
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Citi-Bancshares, Inc. and Subsidiary of our report dated February 1, 1996,
included in the 1995 Annual Report to Shareholders of Citi-Bancshares, Inc. and
Subsidiary.
We also consent to the incorporation by reference in the Citi-Bancshares, Inc.
Registration Statement (Form S-8 No. 33-87462) dated December 15, 1994, of our
report dated February 1, 1996, with respect to the financial statements of
Citi-Bancshares, Inc. and Subsidiary, incorporated by reference herein.
March 26, 1996
Gainesville, Florida /s/ PURVIS, GRAY AND COMPANY
--------------------------------
Purvis, Gray and Company
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR CITI-BANCSHARES INC.:
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 15,713,206
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,156,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 220,278,179
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 226,965,488
<ALLOWANCE> 3,395,496
<TOTAL-ASSETS> 479,959,257
<DEPOSITS> 416,883,806
<SHORT-TERM> 8,497,780
<LIABILITIES-OTHER> 8,165,565
<LONG-TERM> 0
0
0
<COMMON> 41,846
<OTHER-SE> 46,370,260
<TOTAL-LIABILITIES-AND-EQUITY> 479,959,257
<INTEREST-LOAN> 19,178,892
<INTEREST-INVEST> 14,213,185
<INTEREST-OTHER> 635,953
<INTEREST-TOTAL> 34,028,030
<INTEREST-DEPOSIT> 16,140,406
<INTEREST-EXPENSE> 16,511,549
<INTEREST-INCOME-NET> 17,516,481
<LOAN-LOSSES> 255,000
<SECURITIES-GAINS> (73,997)
<EXPENSE-OTHER> 10,533,031
<INCOME-PRETAX> 8,946,165
<INCOME-PRE-EXTRAORDINARY> 8,946,165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,569,938
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
<YIELD-ACTUAL> 3.86
<LOANS-NON> 802,348
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,845,025
<ALLOWANCE-OPEN> 2,994,255
<CHARGE-OFFS> 132,808
<RECOVERIES> 279,049
<ALLOWANCE-CLOSE> 3,395,496
<ALLOWANCE-DOMESTIC> 3,395,496
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
