UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission File Number: 000-18507
Citi-Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-2298309
(State or Other Jurisdiction of (Internal Revenue Service Employer
Incorporation or Organization) Identification number)
1211 N. Boulevard W., Leesburg, Florida 34748
(Address of principal executive offices) (Zip Code)
352-787-5111
(Registrant's telephone number, including area code)
Indicate By Check Mark Whether The Registrant:
(1) Has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months ( or for
such shorter period that the registrant was required to file such
reports), and
(2) Has been subject to such filing requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
4,472,414
<PAGE>
Part I - Financial Information
Item 1. Financial Statements.
See attached.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
See attached.
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
See attached.
Item 6. Exhibits and Reports on Form 8-K
On November 8, 1996 the Company filed a current report on
Form 8-K (dated October 31, 1996) with respect to the
agreement between the company and Huntington Bancshares
Incorporated pursuant to which the company will be merged
with and into Huntington.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITI-BANCSHARES, INC.
(REGISTRANT)
DATED: November 12, 1996 By /s/ K. W. Mullis
K. W. Mullis
PRESIDENT
DATED: November 12, 1996 By /s/ T. Michael Killingsworth
T. Michael Killingsworth
SECRETARY
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
(Unaudited) (Audited) (Unaudited)
Month End as Year End as Month End as
of 9/30/96 of 12/31/95 of 9/30/95
----------- -----------------------------
<S> <C> <C> <C>
Cash and Demand Deposits Due From Banks $17,606 $17,833 $16,946
Investment Securities ( Market Value 9/30/96 -
$202,535; 12/31/95 - $228,916; 9/30/95 -
$217,723) 202,535 228,916 215,284
Fed Funds Sold 4,135 7,392 9,410
Loan Receivables 287,009 253,510 246,655
Less: Unearned Income (614) (826) (906)
Allowance for Loan Losses (3,949) (3,800) (3,637)
----------- ---------- -----------
Loan Receivables, Net 282,446 248,884 242,112
Real Estate Owned 528 663 613
Premises and Equipment, Net 9,941 9,285 8,311
Accrued Interest Receivable 5,078 4,515 4,587
Other Assets 2,096 1,986 2,166
----------- ---------- -----------
Total Assets 524,365 519,474 499,429
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-Bearing 45,971 47,929 41,581
Interest-Bearing 412,650 403,669 397,679
----------- ---------- -----------
Total Deposits 458,621 451,598 439,260
----------- ---------- -----------
Federal Funds Purchased and Securities Sold
Under Agreement to Repurchase 9,105 8,498 7,834
Accrued Interest Payable 3,542 4,180 4,029
Other Liabilities 1,053 4,314 972
----------- ---------- -----------
Total Liabilities 472,321 468,590 452,095
----------- ---------- -----------
Stockholders' Equity
Common Stock - Par Value $.01 Per Share;
Authorized 10,000,000 Shares; Issued
4,609,402 Shares 46 46 46
Capital Surplus 15,309 15,052 15,052
Retained Earnings 37,145 32,759 32,504
Less: Treasury Stock at Cost (136,988
Shares) (792) (792) (792)
Unrealized (Losses) on Certain Securities 336 3,819 524
Total Stockholders' Equity 52,044 50,884 47,334
----------- ---------- -----------
Total Liabilities and Stockholders' Equity $524,365 $519,474 $499,429
=========== ========== ===========
</TABLE>
See accompanying notes.
1
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- ---------------------------
1996 1995 1996 1995
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Interest Income
Loans, Including Fees 17,554 15,942 6,085 5,582
Investment Securities:
Taxable 8,052 8,825 2,501 3,024
Exempt From Federal Income Taxes 2,653 2,113 904 686
--------- ---------- ----------- --------
Total Investment Securities 10,705 10,938 3,405 3,710
Federal Funds Sold 372 581 149 230
--------- ---------- ----------- --------
Total Interest Income 28,631 27,461 9,639 9,522
--------- ---------- ----------- --------
Interest Expense
Deposits 13,228 12,779 4,440 4,522
Securities Sold Under Repurchase Agreements 300 263 107 98
--------- ---------- ----------- --------
Total Interest Expense 13,528 13,042 4,547 4,620
--------- ---------- ----------- --------
Net Interest Income 15,103 14,419 5,092 4,902
Provision For Loan Losses 200 255 150 130
--------- ---------- ----------- --------
Net Interest Income After Provision For Loan 14,903 14,164 4,942 4,772
--------- ---------- ----------- --------
Losses
Noninterest Income
Investment Securities (Losses) Gains 24 29 35 26
Service Charges on Deposits Accounts 1,571 1,175 509 416
Trust Income 700 629 236 212
Other Income 368 293 104 104
--------- ---------- ----------- --------
Total Noninterest Income 2,663 2,126 884 758
--------- ---------- ----------- --------
Noninterst Expense
Salaries and Employee Benefits 5,043 4,881 1,760 1,654
Occupancy Expense 940 998 320 325
Equipment Expense 906 756 321 243
Other Expenses 2,552 2,568 740 681
--------- ---------- ----------- --------
Total Noninterest Expense 9,441 9,203 3,141 2,903
--------- ---------- ----------- --------
Income Before Income Taxes 8,125 7,087 2,685 2,627
Provision For Income Taxes 2,179 1,908 711 734
--------- ---------- ----------- --------
Net Income $5,946 $5,179 $1,974 $1,893
========= ========== =========== ========
Earnings Per Common Share and Common
Shares Equivalent
$1.33 $1.16 $0.44 $0.42
========= ========== =========== ========
Average Number of Shares 4,484 4,482 4,486 4,483
========= ========== =========== ========
</TABLE>
See accompanying notes.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Common Capital Retained Treasury on Certain
Stock Surplus Earnings Stock Securities Total
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994
(Audited) $42 $11,208 $27,338 ($792) ($3,820) $33,976
Common Stock Issued For
Pooled Bank Acquired April 16,
1996 4 3,844 (12) 0 (80) $3,756
-------------- --------------- ------------ ------------- ----------------- ---------
Balances, December 31, 1994
After Stock Issued For
Pooled Bank 46 15,052 27,326 (792) (3,900) 37,732
Net Income 0 0 7,214 0 0 7,214
Cash Dividend Declared
($.44 Per Share) 0 0 (1,781) 0 0 (1,781)
Unrealized Gains on
Certain Securities 0 0 0 0 7,719 7,719
-------------- --------------- ------------ ------------- ----------------- ----------
Balances, December 31, 1995 46 15,052 32,759 (792) 3,819 50,884
Net Income 0 0 5,946 0 0 5,946
Cash Dividend Declared
($.12 Per Share Per Quarter) 0 0 (1,560) 0 0 (1,560)
Pre-Merger Options Exercised
For Stock of Acquired Company 0 181 0 0 0 181
Stock Options Grants 0 76 0 0 0 76
Unrealized (Loss) on Certain
Securities 0 0 0 0 (3,483) (3,483)
-------------- --------------- ------------ ------------- ----------------- -------
Balances, September 30, 1996 $46 $15,309 $37,145 ($792) $336 $52,044
============== =============== ============ ============= ================= =========
</TABLE>
3
See accompanying notes.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1996 1995
<S> <C> <C>
-------------- -------------
Cash Flows From Operating Activities
Net Income $5,946 $5,179
Adjustments to Reconcile net Income to Net Cash
Provided By Operating Activities:
Provision For Loan Losses 200 255
Depreciation 653 544
Loss on Fixed Asset Disposals 157 0
Net Amortization/(Accrection) of Discount on Investments 145 (327)
(Gain on Sale of Land (194) 0
(Gain) on Sale of Investments and Real Estate Owned (28) (30)
Net Amortization of Deferred Loan Fees (357) (143)
(Increase) in Accrued Interest Receivable (563) (455)
(Decrease) in Accrued Interest Payable (638) 1,599
Other 24 590
-------------- -------------
Net Cash Provided By Operating Activities 5,345 7,212
-------------- -------------
Cash Flows From Investing Activities
Proceeds From Sales of Investment Securities 59,474 65,151
Proceeds From Maturities of Investment Securities 9,792 21,120
Purchases of Investment Securities (48,511) (82,767)
Net (Increase) in Loan Receivables (33,548) (24,104)
Proceeds From Sale of Real Estate Owned 278 102
Proceeds From Sale of Land 296 0
Purchases of Premises and Equipment (1,568) (1,027)
-------------- -------------
Net Cash ( Used In) Investing Activities (13,787) (21,525)
-------------- -------------
Cash Flows From Financing Activities
Pre-Merger Stock Activity of Acquired Company 181 810
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 836 593
Net Increase in Certificates of Deposit 6,187 22,569
Net Increase in Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 607 961
Dividends Paid (2,853) (1,417)
-------------- -------------
Net Cash Provided By Financing Activities 4,958 23,516
-------------- -------------
Net (Decrease) in Cash and Cash Equivalents (3,484) 9,203
Cash and Cash Equivalents, Beginning of Period 25,225 17,153
-------------- -------------
Cash and Cash Equivalents, End of Period $21,741 $26,356
============== =============
</TABLE>
See accompanying notes.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
(CONCLUDED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash and Cash Equivalents
Cash and Demand Deposits Due From Banks $17,606 $16,946
Federal Funds Sold 4,135 9,410
Total Cash and Cash Equivalents $21,741 $26,356
=============================
Interest Paid $14,166 $11,444
============== =============
Income Taxes Paid $1,981 $1,476
============== =============
Disposal of Premises and Equipment
Cost Basis $921 2
(Accumulated Depreciation) (764) 0
-------------- -------------
Total $157 2
============== =============
Gain on Land Sale
Proceeds Received 296 0
Cost Basis (102) 0
-------------- -------------
Gain 194 0
============== =============
</TABLE>
See accompanying notes.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
Note 1 - Significant Accounting Policies
The accounting and reporting policies of Citi-Bancshares, Inc. (the Company) and
it subsidiary conform to generally accepted accounting principles and to
predominant practices within the banking industry.
In the opinion of the Company's management, all adjustments necessary to present
fairly the financial position as of September 30, 1996, and the results of
operations and cash flows for the period then ended have been included and are
of a normal and recurring nature.
Certain amounts for 1996 and 1995 were reclassified to conform with statement
presentation for September 30, 1996. These reclassifications have no effect on
stockholders' equity or net income as previously reported.
Note 2 - 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 using the flow-through method.
The Company 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 in consolidated taxable income.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
Note 3 - Loans and Allowance For Loan Losses
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
(In Thousands)
---------------------------------
(Unaudited) (Audited) (Unaudited)
9/30/96 12/31/95 9/30/95
<S> <C> <C> <C>
Commercial, Financial and Agricultural $ 30,814 $ 24,478 $ 23,196
Real Estate 225.678 200,185 195,453
Installment Loans 30,517 28,847 28,006
----------- ----------- ----------
Loans Receivable $ 287,009 $ 253,510 $246,655
======= ======= ========
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
---------------------------------
(Unaudited) (Audited) (Unaudited)
9/30/96 12/31/95 9/30/95
<S> <C> <C> <C>
Balance, Beginning of Period $ 3,800 $ 3,404 $ 3,404
Additions:
Provision Charged to Expense 200 255 255
Recoveries on Loans Previously
Charged Off 83 308 81
---------- ----------- ------
Total Additions 283 563 336
(Loans Charged Off) (134) (167) (103)
------------ ---------- ------
Balance, End of Period $ 3,949 $ 3,800 $ 3,637
======= ======= ======
</TABLE>
Note 4 - Unrealized Gain on Securities Available -For-Sale
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 No.115), Accounting
for Certain Investments in Debt and Equity Securities.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
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. The following
is a summary of the effects of the statement of stockholders' equity as of
September 30, 1996, December 31, 1995, and September 1995:
<TABLE>
<CAPTION>
( In Thousands)
----------------------------------------------------
(Unaudited) (Audited) (Unaudited)
9/30/96 12/31/95 9/30/95
------------ ------------- ----------
<S> <C> <C> <C>
Gross Unrealized Gains on Investments
Securities Available-For-Sale $ 531 $ 6,040 $ 821
Deferred Income Tax Asset (Liability) on
Unrealized Gain (195) (2,221) (298)
--------- ---------- --------
Net Increase in Stockholders'
Equity $ 336 $ 3,819 $ 523
======== ======== ======
</TABLE>
Note 5 - Premises and Equipment
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
( In Thousands)
---------------------------------------------------
(Unaudited) (Audited) (Unaudited)
9/30/96 12/31/95 9/30/95
-------------- --------- -------------
<S> <C> <C> <C>
Land $ 1,451 $ 1,518 $ 1,518
Buildings 9,526 7,969 7,546
Furniture, Fixtures and Equipment 6,237 6,274 6,000
Construction in Process 0 963 463
--------- ------- --------
17,214 16,724 15,527
(Accumulated Depreciation) (7,273) (7,439) (7,216)
---------- ------- ---------
Total Premises and Equipment $ 9,941 $ 9,285 $ 8,311
====== ======= ======
</TABLE>
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
Note 6 - Deposits
<TABLE>
<CAPTION>
( In Thousands)
---------------------------------------------------
(Unaudited) (Audited) (Unaudited)
9/30/96 12/31/95 9/30/95
--------- ----------- --------
<S> <C> <C> <C>
Demand $ 56,830 $ 59,679 $ 50,807
Savings 97,886 92,243 102,831
Time 257,934 251,747 244,041
---------- ------------ -------------
Total Interest-Bearing Accounts $ 412,650 $ 403,669 $ 397,679
======== ======= =======
</TABLE>
Note 7 - 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 company follows APB Opinion No. 25, Accounting for Stock Issued to Employees
in recognizing stock options. Total shares outstanding at September 30, 1996 was
23,750.
These securities were included in the calculation of primary earnings per share
as a common stock equivalent.
9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC., AND SUBSIDIARY - LEESBURG, FLORIDA
Note 8 - Acquisitions
On April 19, 1996, the Company acquired Citizens First Bancshares, Inc. (CFB), a
bank holding company in Ocala, Florida. The merger was accounted for as a
pooling of interests. As a result, the financial information presented is as if
the combining companies has been consolidated for all periods presented.
On the date of the merger, CFB has assets of $40,866,000, net loans of
$25,668,000, deposits of $35,863,000 and net income of $144,375.
Per the Merger Agreement, each share of issued and outstanding CFB common stock
was converted into 1.317911 shares of the Company's common stock with cash being
paid for fractional share interest. 424,711 shares of the Company's stock were
issued for 322,480 shares of CFB common stock.
10
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Citi-Bancshares, Incorporated (the Company) is a one bank holding company
located in Leesburg, Florida. It's sole subsidiary, Citizens National Bank,
operates full-service banking offices in central Florida. Citizens National
Bank, a national bank organized under the laws of the United States, operates
from its main office in Leesburg and ten branches in Eustis, Fruitland Park,
Lady Lake, Leesburg, Ocala, Summerfield and Tavares. Citizens National Bank has
eleven offices including the main office in Leesburg.
Third Quarter 1996
The following is a discussion of the company's financial performance, results of
operations and overall financial condition. This discussion should be read in
conjunction with the company's Condensed Consolidated Financial Statements and
the notes attached thereto.
FINANCIAL CONDITION
LOAN PORTFOLIO
Total loans (net of unearned income and excluding the allowance for loan losses)
were $282,446,000 at September 30, 1996, $40,334,000 or 16.66% more than at
September 30, 1995, and $33,562,000 or 13.48% more than at December 31, 1995.
Gross loans at September 30, 1996 were up $33,499,000 over December 31, 1995, an
increase of 13.21%. This is up from the $21,867,000 growth we enjoyed in the
first nine months of last year. Our loan growth in the first nine months of this
year was primarily in residential and commercial real estate mortgages. Real
Estate loans grew approximately $25,493,000 or 12.73% in the first nine months
of 1996. The Company also experienced growth in the commercial loan portfolio of
$6,336,000 or 25.88% from the end of the previous year ended December 31, 1995.
The ratio of gross loans to total deposits for September 30, 1996 was 62.58%
compared to 54.64% at year-end 1995.
<TABLE>
<CAPTION>
(in thousands)
Dollar Percentage
9/30/96 12/31/95 Growth Growth
<S> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $ 30,814 $ 24,478 $ 6,336 25.88%
Real Estate 225,678 200,185 25,493 12.73%
Installment Loans 30,517 28,847 1,670 5.79%
Loans Receivable $287,009 253,510 $33,499 13.21%
</TABLE>
11
<PAGE>
All loans and commitments for one-to-four family residential properties and
commercial real estate are generally secured with first mortgages on property
with the amount loaned at inception to the fair value of the property not to
exceed 80%. Nearly all of the residential real estate loans are made upon terms
and conditions that would make such loans eligible for resale under Federal
National Mortgage Association ( FNMA) or Federal Home Mortgage Corporation
(FHLMC) guidelines.
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 and
liabilities, when possible. At September 30, 1996, approximately $108,063,000 or
84.78% of the Company's mortgage loan balances secured by residential properties
were adjustable.
The Company's charge-offs for residential real estate loans have been minimal,
with no charge offs related to residential real estate loans for the first nine
months of 1996 and $9,430 for all of 1995.
At September 30, 1996 the Company had commitments to make loans (excluding
unused equity lines of credit and credit card lines) of $23,061,000, compared to
$17,955,000 at September 30, 1995.
DEPOSITS
Total deposits at September 30, 1996 were up $7,023,000 over December 31, 1995,
an increase of 2.07%. In comparison, deposits grew $15,355,000 in the same
period last year. Non-interest bearing deposits decreased $1,958,000 from
December 31, 1995 to September 30,1996 and interest-bearing deposits increased
$8,981,000 during the same period. From December 31, 1995 to September 30, 1996
we saw the following change in interest-bearing deposits:
<TABLE>
<CAPTION>
(in thousands)
$ %
Dollar Percentage
9/30/96 12/31/95 GROWTH GROWTH
<S> <C> <C> <C> <C>
Demand $ 56,830 $ 59,679 $( 2,849) ( 4.77%)
Savings 97,886 92,243 5,643 6.12%
Time 257,934 251,747 6,187 2.46%
Total Interest-Bearing $412,650 $403,669 $ 8,981 2.23%
Non-Interest Bearing $ 45,971 $ 47,929 $ (1,958) ( 4.09%)
Total Deposits $458,621 $451,598 $7,023 1.56%
</TABLE>
12
<PAGE>
EARNINGS SUMMARY
NET INTEREST INCOME
INTEREST INCOME
The interest income on earning assets was $9,639,000 in the third quarter of
1996, an increase of $117,000 when compared to the third quarter of 1995. The
increase in income was due entirely from the increase in outstanding loan
balances. The rates paid on loans actually decreased in the third quarter of
1996 which had a negative impact on interest income.
INTEREST EXPENSE
Interest expense was $4,547,000 in the third quarter of 1996, a decrease of $
73,000 when compare to the same period in 1995. Most of the decrease in interest
expense is due to the decrease in rates paid by the bank in the third quarter of
1996 as compared to the third quarter of 1995. The net interest margin remained
fairly stable in the third quarter of 1996. The dollar volume of interest
bearing deposits increased $14,971,000 from the ending of third quarter 1996 as
compared to the ending balance of third quarter 1995.
NET INTEREST INCOME
Net interest income for the third quarter of 1996 was $5,092,000, an increase
of $190,000 over the third quarter 1995 level of
$4,902,000.
13
<PAGE>
LOAN QUALITY
PROVISION/ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $150,000 in the third quarter of 1996. This is
a increase of $20,000 over the 1995 third quarter loan provision of $130,000.
The increase in the provision is a result of the growth in loans experienced in
the third quarter of 1996.
Net charge-off in the first nine months of 1996 were $51,000 compared to net
charge-offs of $15,000 for the first nine months of 1995.
The allowance for loan losses as a percentage of gross loans is as follows:
<TABLE>
<CAPTION>
09/30/96 12/31/95
<S> <C> <C>
ALL/Gross Loans 1.38% 1.50%
Actual $ in Loan Loss Reserve $3,949,000 $3,800,000
</TABLE>
The Company decided to reduce the Reserve for Loss on Loans as a percentage of
Gross Loans in the first nine months of 1996 due to the urging by the Company's
regulators. The regulators commented that the percentage was a little high due
to the impressive quality of the Company's loan portfolio.
The allowance for loan losses as a percentage of nonaccrual loans and loans 90
days or more past due was 305.41% at September 30,
1996, compared to 132.40% at September 30, 1995.
Management determines the provision for loan losses which is charged to
operations by regularly 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, there exists 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 and imprecise.
14
<PAGE>
RISK ELEMENTS
All loan delinquencies over 30 days past due and all loans on non-accrual as a
percentage of total loans are reflected below:
<TABLE>
<CAPTION>
9/30/96 12/31/95 9/30/95
<S> <C> <C> <C>
Total Loan Delinquencies 0.38% 0.31% 0.71%
Total Non-Accrual Loans 0.46% 0.35% 0.28%
Total Delinquencies and
Non-Accruals 0.84% 0.66% 0.99%
</TABLE>
Other Real Estate Owned (OREO) consists primarily of foreclosed real estate and
has decreased in the past year as the Company disposed of OREO. in an improving
economy:
<TABLE>
<CAPTION>
9/30/96 12/31/95 9/30/95
<S> <C> <C> <C>
OREO / Total Real
Estate Loans 0.23% 0.46% 0.31%
Actual $ In OREO $528,000 $662,000 $613,000
</TABLE>
All OREO has been written down to the current appraised value at the time the
bank took ownership.
15
<PAGE>
NON-INTEREST INCOME
Non-interest income for the third quarter of 1996, net of securities
gains/losses from securities sales was $849,000, an increase of $117,000 or
15.98% over the third quarter of 1995 figure of $732,000. The increase in
non-interest income was due primarily to the increase in service charges on
deposit accounts. Noninterest income, net of gains and losses from securities
sales, for the first nine months of 1996 increased $542,000 or 25.85%.
Gains on the sale of securities in the third quarter of 1996 were $35,000 as
compared to $26,000 of gains on sales of securities
in the third quarter of 1995.
The Company will continue to manage its securities portfolio in this moderately
progressive yield curve rate environment to sell any lower yielding securities
and purchase higher yielding investments as the opportunity arises.
Trust income for the third quarter of 1996 was up $24,000 over the same period
a year ago.
NON-INTEREST EXPENSE
The Company's non-interest expense was $3,141,000 in the third quarter of 1996,
an increase of $238,000 or 8.20% from the corresponding period in 1995. Included
in the non-interest expense classification for the third quarter of 1996 is the
non-capitalizable cost associated with the new wide area network that the
Company installed this year. Also, there were some cost paid in the third
quarter that were associated with the merger of Citizens First Bank of Ocala
that was merged in the second quarter of 1996.
Management continues to emphasize expense control in all areas as evidenced by
the Bank Holding Company Performance Report for June 30, 1996, which compares
our holding company to 165 holding companies in our peer group:
<TABLE>
<CAPTION>
6/30/96 6/30/96
OUR PEER
COMPANY GROUP
<S> <C> <C>
Overhead Expense as Percentage
of Average Assets 2.54% 3.25%
</TABLE>
16
<PAGE>
At September 30, 1996 the Company held $202,535,000 in it's securities
portfolio. This is a decrease of $12,749,000 or .059% from the amount at
September 30, 1995. The securities portfolio as a percentage of earnings assets
was 41.76% at September 30, 1996, compared to 47.07% at September 30, 1995. The
decrease is directly related to the increase in the demand for loans.
NET INCOME
Net income for the third quarter of 1996 totaled $1,974,000 or 0.44 per share,
compared with $1,893,000 or $0.42 per share in the third quarter of 1995.
Earnings per share for the third quarter of 1996 were $0.44 compare to $0.42
per share from total income in the third quarter of
1995.
Earnings in 1996 were favorably impacted by the increase in the demand for
loans, the increase in noninterest income and the continued control of
noninterest expenses.
The annualized return on average assets for the third quarter was 1.51% compared
to 1.52% for the same period in 1995. The annualized return on average assets
for the first nine months of 1996 was 1.53% as compared to 1.42% for the same
period in 1995.
The annualized return on average equity, including the impact of FASB 115, for
the third quarter of 1996 was 15.63% as compared to the third quarter of 1995
annualized return on average equity of 16.50%. The annualized return on average
equity for the first nine months of 1996, including the effects of FASB 115, was
16.18% as compared to 15.79% for the comparable period in 1995.
CAPITAL RESOURCES
Total stockholders' equity, excluding the effect of FASB 115, was $51,708,000 on
September 30, 1996, an increase of $4,643,000 over the December 31,1995 level of
$47,065,000. This 9.87% increase in capital was provided entirely through
retained earnings. The Company has changed it's dividend payment policy from an
annually payable dividend to a quarterly payable dividend beginning in January
of 1996.
When including the effect of FASB 115 by adding in the net unrealized gain on
securities classified "available-for-sale" the September 30, 1996 total
stockholders' equity is $52,044,000 compared to year-end 1995 stockholders'
equity of $50,884,000. On December 31,1995 the Company had $3,819,000 in net
unrealized gain on securities classified as "available-for-sale" compared to $
336,000 in unrealized gains on September 30, 1996. As a percentage of total
assets, stockholders' equity including adjustments for FASB 115, increase from
9.80% on December 31, 1995 to 9.93% on September 30, 1996. Excluding the impact
of FASB 115, stockholders' equity as a percentage of total assets was 9.06% on
December 31, 1995 compared to 9.86% on September 30, 1996.
17
<PAGE>
Risk Based Capital Ratios
Risk based capital ratios, excluding the effect of FASB 115, are shown below:
<TABLE>
<CAPTION>
REGULATORY
ACTUAL ACTUAL MINIMUM
9/30/96 9/30/95 12/31/95
<S> <C> <C> <C>
Tier I Risk Based Capital
(Tier I : Stockholders' Equity
/ Risk Based Assets at Quarter
End) 19.13% 18.77% 4.0%
Total Risk Based Capital
(Total : Stockholders' Equity
plus Loan Loss Reserve /
Risk Based Assets at Quarter
End) 20.38% 20.02% 8.0%
Leverage Capital ( excluding
FASB 115)
(Stockholders' Equity /
Average Total Assets for
the Quarter) 9.86% 9.31% 3.0%
</TABLE>
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
Asset/Liability Management Committee ( ALCO) is responsible for managing the
Company's exposure to changes in market interest rates. The 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 differences between rate sensitive assets and rate sensitive
liabilities represent the Company's interest sensitivity
18
<PAGE>
gap, which may be either positive (assets exceed liabilities) or negative
(liabilities exceed assets).
On September 30, 1996, the Company had a negative gap position based on
contractual maturities and prepayment assumptions for the next twelve months,
with a negative cumulative interest rate sensitivity gap as a percentage of
total earning assets of 0.04%. 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 earning assets, thus increasing the net interest
spread. If interest rates generally increase, the negative gap means that the
interest received on its earning assets may be expected to increase more slowly
than the interest paid on the Company's liabilities, therefore decreasing the
net interest spread.
It has been the Company's experience that deposit balances for NOW and savings
accounts are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points. Therefore, the
Company's ALCO uses model simulation to manage and measure its interest rate
sensitivity.
The Company has determined that an acceptable level of interest rate risk would
be for net interest income to fluctuate no more than 10 percent given an
immediate change in interest rates (up or down) 200 basis points.
LIQUIDITY MANAGEMENT
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected 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,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit. At September 30, 1996, the Company had federal
funds lines of credit available of $8,500,000.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements presented herein have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money, over time, due to
inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general levels of inflation. However, inflation affects financial institutions'
increased cost for goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items.
19
<PAGE>
Inflation and related increases in interest rates generally decrease the market
value of investments and loans held and may adversely affect liquidity, earnings
and shareholders' 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.
SUMMARY
The Company continues to enjoy good earnings through the third quarter of 1996.
While interest margins have remained moderate in the last nine months, good
investment portfolio management, expense control and loan growth have all
contributed to this profitability. "Other Real Estate Owned" and non-performing
assets have remained at very satisfactory levels.
At September 30, 1996, the Company held $202,535,000 in its securities
portfolio. This is a decrease of $12,749,000 or .059% from the amount at
September 30,1995. The securities portfolio as a percentage of earning assets
was 41.76% at September 30,1996, compared to 47.07% at September 30,1995. The
decrease is directly related to the increase in the demand for loans. The
Company has no securities in its investments portfolio that equal 10% or more of
our capital as of September 30, 1996. The unrealized gains in the investment
portfolio on securities classified "Available-for-sale" on September 30, 1996
were $ 336,000. These numbers are shown without any consideration of income tax
effects. While FASB 115 requires the "available-for-sale" securities be shown at
the market value we would receive if they were sold, the majority of these
securities will be held to maturity and no gain or loss will be incurred.
Management opted at year-end 1995 to put 100% of its portfolio in the
available-for-sale classification simply to provide the flexibility needed to
maintain liquidity and reposition its portfolio as necessary. Management does
not know of any loans not already classified or on non-accrual that would
materially impact future operating results, liquidity or capital resources. Nor
does Management know of any trends, events, current regulatory proposals or
uncertainties that will have, or that are reasonably likely to have material
effect on the Company's liquidity, capital, resources or operations.
Item 5. Other Information
As previously mentioned, Citizens First Bancshares, Inc., Ocala, Florida was
merged into Citi-Bancshares, Inc. on April 19, 1996. The merger was accounted
for as a pooling of interest and accordingly the figures reported herein reflect
the merger as if the two institutions had been together during the previous
periods.
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 17,606
<INT-BEARING-DEPOSITS> 412,650
<FED-FUNDS-SOLD> 4,135
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 202,004
<INVESTMENTS-MARKET> 202,535
<LOANS> 286,395
<ALLOWANCE> 3,949
<TOTAL-ASSETS> 524,365
<DEPOSITS> 458,621
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,053
<LONG-TERM> 0
0
0
<COMMON> 46
<OTHER-SE> 51,998
<TOTAL-LIABILITIES-AND-EQUITY> 524,365
<INTEREST-LOAN> 17,554
<INTEREST-INVEST> 10,705
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 28,631
<INTEREST-DEPOSIT> 13,228
<INTEREST-EXPENSE> 13,528
<INTEREST-INCOME-NET> 15,103
<LOAN-LOSSES> 200
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 2,552
<INCOME-PRETAX> 8,125
<INCOME-PRE-EXTRAORDINARY> 8,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,946
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 7.71
<LOANS-NON> 1,076
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,395
<CHARGE-OFFS> 148
<RECOVERIES> 97
<ALLOWANCE-CLOSE> 3,949
<ALLOWANCE-DOMESTIC> 3,949
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
