SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Fiscal Year Ended December 31, 1996
Commission File No. 33-29696-A
CITRUS FINANCIAL SERVICES, INC.
A Florida Corporation (IRS Employer Identification No. 65-0136504)
1717 Indian River Boulevard, Suite 100
Vero Beach, Florida 32960
(561) 778-4100
Securities Registered Pursuant to Section 12(b) of the Securities Exchange
Act of 1934: NONE
Securities Registered Pursuant to Section 12(g) of the Securities Exchange
Act of 1934: NONE
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
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenues for the fiscal year ended December 31, 1996: $ 5,344,000
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (373,679 shares) on February 28, 1997 was
approximately $4,110,469. As of such date, no organized trading market
existed for the common stock of the Registrant. The aggregate market value
was computed by reference to recent trading activity of the common stock of
the registrant at $9.50 per share. For the purposes of this response,
directors, officers and holders of 5% or more of the Registrant's common stock
are considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's Common Stock, as of
February 28, 1997: 854,099 shares of $3.47 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Shareholders for the Fiscal Year
ended December 31, 1996.
(Parts II and IV)
2. Portions of Proxy Statement for the 1997 Annual Meeting of
Shareholders. (Parts III)
<PAGE>
TABLE OF CONTENTS
Consolidated--Citrus Financial Services, Inc. and Affiliates
NOTE: Certain information required by Form 10-KSB is incorporated by
reference from the 1996 Annual Report and 1997 Annual Meeting Proxy Statement
as indicated below. Only that information expressly incorporated by reference
is deemed filed with the Commission.
PART I Page Number
Item 1 Business 1
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders - None
ANNUAL REPORT REFERENCE(1)
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 12
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 7 Financial Statements and Supplementary Data 13
Item 8 Changes in and disagreements with Accountants on
Accounting and Financial Disclosure -- None
PROXY STATEMENT REFERENCE
PART III(2)
Item 9 Directors and Executive Officers of the Registrant: 13
Item 10 Executive Compensation 13
Item 11 Security Ownership of Certain Beneficial Owners and
Management 13
Item 12 Certain Relationships and Related Transactions 14
PART IV
Item 13 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 14
______________________________________________________________
(1) These items are incorporated from the 1996 Annual Report
(2) The material required by Items 9 through 12 is hereby incorporated
by reference from the Company's definitive proxy statement pursuant
to Instruction G of Form 10-KSB. The Company will file its
definitive Proxy Statement with the Commission prior to March 31,
1997.
<PAGE>
PART I
ITEM 1. - BUSINESS
Description
General
Citrus Financial Services, Inc. (the "Company") is a registered bank holding
company under the federal Bank Holding Company Act of 1956, as amended, and
owns 100% of the issued and outstanding common stock of Citrus Bank, N.A., Vero
Beach, Florida (the "Bank"). The Company was incorporated under the laws of the
State of Florida on May 19, 1989 to enhance the Bank's ability to serve its
future customers' requirements for financial services. The holding company
provides flexibility for expansion of the Company's banking business through
acquisition of other financial institutions and provision of additional
banking-related services which the traditional commercial bank may not provide
under present laws.
The Bank commenced business operations on April 13, 1990 in a permanent
facility located at the corner of Indian River Boulevard and 17th Street, Vero
Beach, Florida. The facility is a three-story office condominium, the first
floor of which is owned by the Bank. The Bank has one branch office located
at 1020 U.S. 1, Sebastian, Florida, which commenced operations in February
1993 and another branch office located at 1020 Buttonwood Street, Barefoot
Bay, Florida, which commenced operations in September, 1996.
The Bank is a full service commercial bank, without trust powers. The Bank
offers a full range of interest-bearing and noninterest-bearing accounts,
including commercial and retail checking accounts, negotiable order of
withdrawal ("NOW") accounts, money market accounts, individual retirement
accounts, regular interest bearing statement savings accounts, certificates of
deposit, commercial loans, real estate loans, home equity loans and
consumer/installment loans. In addition, the Bank provides such consumer
services as U.S. Savings Bonds, travelers checks, safe deposit boxes and
lockers, bank by mail services, direct deposit services, automatic teller
services, discount brokerage services and secondary mortgage loan origination
services (as a FNMA approved mortgage lender).
Market Area
The primary service area for the Bank encompasses Indian River County in total
with the natural boundaries of the county lines. Additionally, Barefoot Bay,
a retirement community in South Brevard County, is included in the Bank's
market area. This node is serviced by Citrus Bank's third, full service banking
center located in the heart of this retirement community. Barefoot Bay is
bordered by Micco Road to the south, the Indian River to the east, Grant Road
to the north, and I-95 to the west. Competition among financial institutions
in this area is intense. There are 32 banking offices and 7 offices of savings
and loan associations within the primary service area of the Bank. Most of
these offices are branches of, or are affiliated with, major bank holding
companies.
The Bank is in competition with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and
other business entities which have over the years, engaged more and more in
providing services which have historically been traditional banking services.
Due to the growth of the Indian River County area, it is anticipated that
competition will increase because of new entrants to the market.
<PAGE>
Rate/Volume Analysis of Net Interest Revenue
The effect on interest income, interest expense and net interest income in the
periods indicated, of changes in average balances, and rates from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from volume. The balance of the change in
interest income or expense and net interest income has been attributed to a
change in average rate.
<TABLE>
Year Ended December 31, 1996
compared with
Year Ended December 31, 1995
(in thousands)
Increase (Decrease) due to:
Volume Rate Total
<S> <C> <C> <C>
Interest earned on:
Interest-earnings deposits in other banks $ (3) $ 2 $ (1)
Taxable securities (163) (59) (222)
Federal funds sold 34 (2) 32
Net loans 373 (39) 334
Total Interest Income 239 (103) 143
Interest paid on:
NOW deposits 4 (11) (7)
Savings deposits (10) (14) (24)
Time deposits 162 (75) 87
Borrowings (149) (17) (166)
Total Interest Expense 7 (117) (110)
Change in net interest income $ 246 $ (220) $ 253
Year Ended December 31, 1995
compared with
Year Ended December 31, 1994
(in thousands)
Increase (Decrease) due to:
Volume Rate Total
<S> <C> <C> <C>
Interest earned on:
Interest-earnings deposits in other banks $ (11) $ (2) $ (13)
Taxable securities (77) 92 15
Federal funds sold (6) 6 0
Net loans 866 206 1,072
Total Interest Income 772 302 1,074
Interest paid on:
NOW deposits 2 6 8
Savings deposits (40) 18 (22)
Time deposits 329 390 719
Borrowings 47 30 77
Total Interest Expense 338 444 782
Change in net interest income $ 434 $ (142) $ 292
</TABLE>
<PAGE>
Investments
As of December 31, 1996, investment securities, securities held for sale and
interest-earning deposits in other banks comprised approximately 14.5% of the
Company's assets and net loans comprised approximately 76.3% of the Company's
assets. The Company has invested primarily in obligations of the United States
or obligations guaranteed as to principal and interest by the United States,
other taxable securities and in time deposits and notes of commercial banks.
In addition, the Company enters into Federal Funds transactions with its
principal correspondent banks, and acts as a seller of such funds.
The following table presents, for the period indicated, the book value and the
fair value of the Company's investment securities and securities held for sale
(in thousands):
<TABLE>
December 31,
1996 1995
Carrying Fair Carrying Fair
Investment Category Value Value Value Value
<S> <C> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Agencies $ 8,873 $ 8,686 $ 9,716 $ 9,608
Corporate Bonds 252 249 253 250
Federal Home Loan Bank stock 215 215 190 190
Federal Reserve Bank stock 159 159 159 159
Total $ 9,499 $ 9,309 $ 10,318 $ 10,207
</TABLE>
The following table indicates for the years ended December 31, 1995 and 1996
the estimated amount of investments due in (I) one year or less; (ii) one to
five years; (iii) five to ten years; and (iv) over ten years (in thousands):
<TABLE>
Investment Category 1996 1995
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. Agencies:
Due in 1 year or less $ 0 $ 107
Over 1 through 5 Years 3,156 3,449
Over 5 through 10 Years 900 988
Over 10 Years 4,817 5,172
Corporate Securities:
Over 1 through 5 Years 252 253
Other Securities:
No stated maturity 374 349
Total $ 9,499 $ 10,318
</TABLE>
<PAGE>
Loan Portfolio
The Bank engages in a full complement of lending activities, including the
originating and purchasing of commercial, consumer/installment and real
estate loans.
Commercial lending is directed principally toward businesses whose demands
for funds fall within the Bank's legal lending limits and which are potential
deposit customers of the bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Particular emphasis is placed on loans to small and
medium-sized businesses. The Bank's real estate loans consist of residential
and commercial first and second mortgage loans.
The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit. This category of loans
also includes term loans secured by second mortgages on the residences of
borrowers for a variety of purposes including home improvements, education and
other personal expenditures.
__________
The following table presents various categories of domestic loans contained in
the Bank's loan portfolio as of December 31, 1996 and 1995 and the total
amount of all loans for such periods:
<TABLE>
As of December 31,
1996 1995
Type of Loan (in thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 9,133 $ 9,105
Real estate-commercial and other 13,783 11,723
Real estate-residential mortgage 24,197 18,092
Installment and other loans to individuals 3,945 4,482
Subtotal 51,058 43,402
Less unearned discounts, net (34) (1)
Allowance for loan losses (354) (373)
Total (net of allowance) $ 50,670 $ 43,028
</TABLE>
__________
The following is a presentation of an analysis of sensitivities of loans as
of December 31, 1996 (in thousands):
Due in Due in Due
1 year 1 to 5 After 5
Loans Subject to Interest Rate Change: or less Years Years Total
Loans with predetermined interest rates $ 4,947 $ 6,804 $ 3,211 $ 14,962
Loans with floating interest rates 27,917 6,762 189 34,868
Credit Card loans 500 --- --- 500
Total $ 33,364 $ 13,566 $ 3,400 $ 50,330
(1) Non-accrual loans of $728 are not included.
__________
<PAGE>
The following table presents information regarding non-accrual, past due and
restructured loans for the periods indicated:
<TABLE>
Year Ended Year Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
(dollars in thousands)
Loans accounted for on a non-accrual basis:
Number 2 2
Amount $ 728 $ 493
Accruing loans which are contractually past
due 90 days or more as to principal and
interest payments:
Number 5 4
Amount $ 325 $ 106
Loans defined as "troubled debt
restructurings":
Number 6 0
Amount $ 1,510 $ -----
</TABLE>
As of December 31, 1996, there are no loans classified for regulatory purposes
as doubtful, substandard or special mention that have not been disclosed in
the above table, which (I) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.
The Bank's general practice is not to accrue interest on loans delinquent over
ninety days unless fully secured and in the process of collection. The
accrued and unpaid interest is reversed against current income and thereafter
interest is recognized only to the extent payments are received. Non-accrual
loans are restored to accrual basis when interest and principal payments are
current and prospects for recovery are no longer in doubt.
As of December 31, 1996, there were no loans which have not been disclosed
above, but where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of such borrowers
to comply with the present loan repayment terms.
The majority of the Company's loans are secured by real estate in Indian River
County, Florida, where the Bank is located. Accordingly, the ultimate
collectibility of a substantial portion of the loan portfolio is susceptible
to changes in market conditions in this County. The Company has $390,000 in
other real estate owned represented by one residential improved property.
<PAGE>
Summary of Loan Loss experience
An analysis of the Bank's loss experience is furnished in the following table
for the years ended December 31, 1996 and 1995, as well as a breakdown of the
allowance for loan losses (in thousands):
<TABLE>
Analysis of the Allowance for Loan Losses
Year Ended December 31,
1996 1995
<S> <C> <C>
Balance at beginning of period $ 373 $ 299
Charge-offs:
Commercial loans (3) ---
Real estate - commercial and other (776) ---
Installment loans (100) (27)
(879) (27)
Recoveries:
Commercial loans --- ---
Real estate - commercial and other 506 ---
Installment loans 2 1
Net charge-offs (371) (26)
Additions charged to operations 352 100
Balance at end of period $ 354 $ 373
Ratio of net charge-offs during the
period to average loans outstanding
during the period .81% .07%
</TABLE>
At December 31, 1996 the allowance was allocated as follows:
<TABLE>
Percent of Percent of
allowance total loans
in each in each
Amount category category
<S> <C> <C> <C>
Commercial and agricultural $ 124 35.0% 17.9%
Real Estate - commercial and other 123 34.8 27.0
Real Estate - residential mortgage 50 14.1 47.4
Installment and other loans to individuals 44 12.4 7.7
Unallocated 13 3.7 ---
Total $ 354 100% 100%
</TABLE>
_____________
At December 31, 1995 the allowance was allocated as follows:
<TABLE>
Percent of Percent of
allowance total loans
in each in each
Amount category category
<S> <C> <C> <C>
Commercial and agricultural $ 187 50.3% 21.0%
Real Estate - commercial and other 66 17.7 27.0
Real Estate - residential mortgage 37 9.9 41.7
Installment and other loans to individuals 73 19.4 10.3
Unallocated 10 2.7 ---
Total $ 373 100% 100%
<PAGE>
Loan Loss Reserves
In considering the adequacy of the Company's allowance for loan losses,
management has considered that as of December 31, 1996, 17.9% of outstanding
loans are in the commercial loan category. Commercial loans are generally
considered by management as having greater risk than other categories of loans
in the Company's loan portfolio. However, the majority of these commercial
loans at December 31, 1996 were made on a secured basis, with collateral
consisting primarily of accounts receivable, inventory, assignment of mortgages
and equipment. Management believes that the secured condition of the
preponderant portion of its commercial loan portfolio reduces any risk of loss
inherently present in commercial loans.
The Company's consumer loan portfolio at December 31, 1996 consisted primarily
of lines of credit and installment loans secured by automobiles, boats and
other consumer goods. Management believes that the risk associated with these
types of loans has been adequately provided for in the loan loss reserve.
Residential real estate mortgage loans constitute 47.4% of outstanding loans
at December 31, 1996. Management considers these loans to have minimal risk
due to the fact that these loans represent conventional residential real
estate mortgages where the amount of the original loan does not exceed 80% of
the appraisal value of the collateral or is otherwise covered by permanent
mortgage insurance.
The Company's Board of Directors monitors the loan portfolio monthly in order
to enable it to evaluate the adequacy of the allowance for loan losses. In
addition to reviews by regulatory agencies and the Company's certified public
accountants, the services of outside consultants have been engaged to assist
in the evaluation of credit quality and loan administration. These
professionals compliment the system implemented by the Company which identifies
potential problem credits as early as possible, categorizes the credits as to
risk and includes a reporting process to monitor the progress of the credits.
The allowance for loan losses represents the cumulative total of monthly
provisions for loan losses plus recoveries of amounts previously charged off,
less net charge-offs. The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged off against
the allowance when management believes the collectibility of principal is
unlikely. The monthly provision for loan losses is based on management's
judgment, after considering known and inherent risks in the portfolio, past
loss experience of the Company, adverse situations that may affect the
borrower's ability to repay, assumed values of the underlying collateral
securing the loans, the current and prospective financial condition of the
borrower, and the prevailing and anticipated economic condition of the local
market.
The Company maintains the allowance for loan losses at a level sufficient to
absorb all estimated losses in the loan portfolio. The allowance for loan
losses is made up of two primary components: (I) amounts allocated to loans
based on collateral type and (ii) amounts allocated for loans reviewed on an
individual basis in accordance with a credit risk grading system. The above
table presents an allocation of the entire allowance for loan losses among
various loan classifications and sets forth the percentage of loans in each
category to total loans.
Management does not anticipate that the future new loan charge-off rates for
loans will be materially different from the historic net charge-off rates
experienced by the Company. For a more complete discussion of the Company's
1996 loan losses, see Management's Discussion contained in the 1996 Annual
Report which is contained herein by reference.
Deposits
The Bank offers a full range of interest-bearing and noninterest-bearing
accounts, including commercial and retail checking accounts, negotiable order
of withdrawal ("NOW") accounts, money market accounts, individual retirement
accounts, regular interest-bearing statement savings accounts and certificates
of deposit with fixed rates and a range of maturity date options. The sources
of deposits are residents, businesses and employees of businesses within the
Bank's market area, obtained through the personal solicitation of the Bank's
officers and directors, direct mail solicitation and advertisements published
in the local media. The Bank pays competitive interest rates on time and
savings deposits up to the maximum permitted by law or regulation. In addition,
the Bank has implemented a service charge fee schedule competitive with other
financial institutions in the Bank's market area, covering such matters as
maintenance fees on checking accounts, per item processing fees, returned
check charges and the like.
<PAGE>
The following table indicates amounts outstanding of time certificates of
deposit of $100,000 or more and respective maturities at December 31, 1996
(in thousands):
</TABLE>
<TABLE>
Time
Certificates
of Deposit
<S> <C>
3 months or less $ 2,619
3-6 months 2,938
6-12 months 3,359
over 12 months 1,853
Total $ 10,769
</TABLE>
Return on Equity and Assets
Returns on average consolidated assets and average consolidated equity as
computed under generally accepted accounting principles for the year ended
December 31, 1996 and 1995 are as follows:
<TABLE>
1996 1995
<S> <C> <C>
Return on Average Assets .2% 1.1%
Return on Average Equity 1.5% 13.8%
Average Equity to Average Assets Ratio 9.0% 8.2%
Dividend Payout Ratio --- ---
</TABLE>
Asset/Liability Management
It is the objective of the Bank to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
officers of the Bank are responsible for monitoring policies and procedures
that are designed to ensure acceptable composition of the asset/liability mix,
stability and leverage of all sources of funds while adhering to prudent
banking practices. It is the overall philosophy of management to support
asset growth primarily through growth of core deposits, which include deposits
of all categories made by individuals, partnerships and corporations.
Management of the Bank seeks to invest the largest portion of the bank's
deposits in commercial, consumer and real estate loans.
The Board of Directors has established an Asset/Liability Investment Committee
which meets quarterly to work with management to establish policies and
strategies for the Bank's asset/liability mix and rate sensitivity. The Bank's
asset/liability position is monitored on a daily basis. A monthly report
reflecting interest-sensitive assets and interest-sensitive liabilities is
prepared and presented to the Bank's Board of Directors. In addition, an
outside consulting firm has been engaged to provide management with monthly
asset/liability management reports. These reports detail the Company's net
interest income exposure by considering the Company's budget forecasts,
interest rate movements, reinvestment of maturing loans, investments and
deposits, as well as the Company's anticipated cash flows. The objective of
this monitoring and the establishment of the asset/liability policy is to
control interest-sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on the Bank's earnings.
Correspondent Banking
Correspondent banking involves the providing of services by one bank to another
bank which cannot provide that service for itself from an economic or practical
standpoint. The Bank purchases correspondent services offered by larger banks,
including check collections, purchase or sale of Federal Funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Bank sells loan participations to correspondent banks with respect to loans
which exceed the Bank's lending limit. For the fiscal year ended December
31, 1996, the bank had sold loan participations totaling $2,890,000.
<PAGE>
Data Processing
The Bank has a data processing servicing agreement with FiServ, Inc. This
servicing agreement provides for the Bank to receive a full range of data
processing services including an automated general ledger, deposit accounting,
commercial, real estate and installment lending data processing, central
information file ("CIF") and ATM processing. The data processing servicing
agreement provides for the Bank to pay a monthly fee based on the type, kind
and volume of data processing services provided, priced at a stipulated rate
schedule.
Facilities
The Bank operates out of the first floor of a three-story office condominium
situated on approximately 2.5 acres of land located at the corner of Indian
River Boulevard and 17th Street in Vero Beach, Florida. This first floor
facility is owned by the Bank. The facility consists of 6 teller stations, 7
offices, vaults, two night depositories, 3 drive-in windows and a full-service
safe deposit box facility, including vault locker storage.
The Bank operates a full service Branch office which is located at 1020 U.S.
1, Sebastian, Florida. The facility consists of a 2,800 square foot building
with 5 drive-in windows, 10 teller stations, an office, a vault, a night
depositary, a full-service safe deposit box facility, and an automated teller
machine.
In September, 1996 the Bank opened its second full service Branch office at
1020 Buttonwood Street, Barefoot Bay, Florida. This newest facility is a 2,160
square foot building with 2 drive-in windows, 6 teller stations, two offices,
a vault, a night depository, a full-service safe deposit box facility, and an
automated teller machine.
Employees
The Bank currently employs 37 full time and 2 part time persons, including 11
officers. The Bank will hire additional persons as needed.
Monetary Policies
The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments
of monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. In view of changing conditions in the national economy
and in the money market, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand, or
the business and earnings of the Bank.
Supervision and Regulation
The Company and the Bank operate in a highly regulated environment, and their
business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are supervised
by a number of federal regulatory agencies, including the Federal Reserve
Board, the Comptroller of the Currency ("Comptroller") and the Federal Deposit
Insurance Corporation ("FDIC").
The Company is regulated by the Federal Reserve Board under the federal Bank
Holding Company Act, which requires every bank holding company to obtain the
prior approval of the Federal Reserve Board before acquiring more than 5% of
the voting shares of any bank or all or substantially all of the assets of a
bank, and before merging or consolidating with another bank holding company.
The Federal Reserve Board (pursuant to regulation and published policy
statements) has maintained that a bank holding company must serve as a source
of financial strength to its subsidiary banks. In adhering to the Federal
Reserve Board Policy, the Company may be required to provide financial support
for a subsidiary bank at a time when, absent such Federal Reserve Board policy,
the Company may not deem it advisable to provide such assistance.
A bank holding company is generally prohibited from acquiring control of any
company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to
be so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies.
<PAGE>
As a national bank, the Bank is subject to the supervision of the Comptroller
and, to a limited extent, the FDIC and the Federal Reserve Board. With
respect to expansion, the Bank may establish branch offices anywhere within
the State of Florida. The Bank is also subject to the Florida banking and
usury laws restricting the amount of interest which it may charge in making
loans or other extensions of credit. In addition, the bank, as a subsidiary
of the Company, is subject to restrictions under federal law in dealing with
the Company and other affiliates, if any. These restrictions apply to
extensions of credit to an affiliate, investments in the securities of an
affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal lending
limitations. Under federal law, a national bank may grant unsecured loans and
extensions of credit in an amount up to 15% of its unimpaired capital and
surplus to any person. In addition, a national bank may grant additional
loans and extensions of credit to the same person up to 10% of its unimpaired
capital and surplus, provided that the transactions are fully secured by
readily marketable collateral having a market value determined by reliable and
continuously available price quotations. This 10% limitation is separate
from, and in addition to, the 15% limitation for unsecured loans. Loans and
extensions of credit may exceed the general lending limit if they qualify under
one of several exceptions.
Both the Company and the Bank are subject to regulatory capital requirements
imposed by the Federal Reserve Board and the Comptroller. Both the Federal
Reserve Board and the Comptroller have established risk-based capital
guidelines for bank holding companies and banks which make regulatory capital
requirements more sensitive to differences in risk profiles of various banking
organizations. The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies on a consolidated basis with the
banks owned by the holding company. The Comptroller's risk capital guidelines
apply directly to national banks regardless of whether they are a subsidiary
of a bank holding company. Both agencies' requirements (which are
substantially similar) provide that banking organizations must have capital
equivalent to 8% of weighted risk assets. The risk weights assigned to assets
are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category. For example, securities
with an unconditional guarantee by the United States government are assigned
to the lowest risk category. A risk weight of 50% is assigned to loans
secured by owner-occupied one to four family residential mortgages. The
aggregate amount of assets assigned to each risk category is multiplied by the
risk weight assigned to that category to determine the weighted values, which
are added together to determine total risk-weighted assets. At December 31,
1996, the Company's total risk-based capital and Tier 1 ratio were 12.4% and
11.7%, respectively. Both the Federal Reserve Board and the Comptroller have
also implemented new minimum capital leverage ratios to be used in tandem with
the risk-based guidelines in assessing the overall capital adequacy of bank
and bank holding companies. Under these rules, banking institutions are
required to maintain a ratio of 3% "Tier 1" capital to total assets (net of
goodwill). Tier 1 capital includes common stockholders equity, noncumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
excellent asset quality, high liquidity, good earnings and in general, have to
be considered strong banking organizations, rated composite 1 under the CAMEL
rating system for banks or the BOPEC rating system for bank holding companies.
Institutions with lower ratings and institutions with high levels of risk or
experiencing or anticipating significant growth would be expected to maintain
ratios 100 to 200 basis points above the stated minimums.
On September 1, 1995 the Comptroller, the Federal Reserve Board and the FDIC
proposed the agencies adopted an interest-rate risk assessment method for
determining a bank's capital needs using a model to be adopted by the agencies.
The final rule does not set a supervisory threshold which defines whether a
bank has an above normal level of interest-rate risk exposure. Instead, the
agencies published on the same date a proposed Policy Statement which includes
a supervisory model for measuring and assessing interest rate exposure. The
agencies indicated that prior to establishing an explicit supervisory threshold
above which additional capital would be required, they intend first to
collect industry data and evaluate the level of interest rate risk exposure
existing in the banking industry. Under the proposed Policy, small,
well-managed banks are provided with an exemption from the provisions of the
Policy statement. Banks with total assets of less than $300 million and with a
CAMEL rating of either "1" or "2" will be exempt from the requirements of the
Policy if the sum of 30% of the bank's fixed and floating-rate loans and
securities that have contractual maturity or repricing dates between 1 and 5
years, and 100% of the bank's fixed- and floating-rate loans and securities
that have contractual maturity or repricing dates beyond 5 years, is less than
or equal to 30% of the bank's total assets. No final Policy has been adopted
by the Agencies and until the final Policy has been adopted by the agencies,
no estimate of the proposed Policy's impact on the Company can be made.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (or FDICIA),
created five "capital categories" ("well capitalized, " "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized") which are defined in the Act and which are used
to determine the severity of corrective action the appropriate regulator may
take in the event an institution reaches a given level of undercapitalization.
<PAGE>
For example, an institution which becomes "undercapitalized" must submit a
capital restoration plan to the appropriate regulator outlining the steps it
will take to become adequately capitalized. Upon approving the plan, the
regulator will monitor the institution's compliance. Before a capital
restoration plan will be approved, any entity controlling a bank (i.e.,
holding companies) must guarantee compliance with the plan until the
institution has been adequately capitalized for four consecutive calendar
quarters. The liability of the holding company is limited to the lesser of
five percent of the institution's total assets or the amount which is necessary
to bring the institution into compliance with all capital standards. In
addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject
to certain asset growth restrictions and will be required to obtain prior
approval from the appropriate regulator to open new branches or expand into
new lines of business. As an institution drops to lower capital levels, the
extent of action to be taken by the appropriate regulator increases,
restricting the types of transactions in which the institution may engage and
ultimately providing for the appointment of a receiver for certain institutions
deemed to be critically undercapitalized.
The FDICIA required each federal banking agency to prescribe for all insured
depository institutions and their holding companies standards relating to
internal controls, information systems and audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, and
compensation, fees and benefits and such other operational and managerial
standards as the agency deems appropriate. In addition, the federal banking
regulatory agencies were required to prescribe by regulation standards
specifying: (i) maximum classified assets to capital ratios; (ii) minimum
earnings sufficient to absorb losses without impairing capital; (iii) to the
extent feasible, a minimum ratio of market value to book value for publicly
traded shares of depository institutions or the depository institution
holding companies; and (iv) such other standards relating to asset quality,
earnings and valuation as the agency deems appropriate. Finally, each federal
banking agency was required to prescribe standards for employment contracts
and other compensation arrangements of executive officers, employees, directors
and principal stockholders of insured depository institutions that would
prohibit compensation and benefits and other arrangements that are excessive
or that could lead to a material financial loss for the institution. If an
insured depository institution or its holding company fails to meet any of its
standards described above, it will be required to submit to the appropriate
federal banking agency a plan specifying the steps that will be taken to cure
the deficiency. If an institution fails to submit an acceptable plan or fails
to implement the plan, the appropriate federal banking agency will require the
institution or holding company, to correct the deficiency and until corrected,
may impose restrictions on the institution or the holding company including any
of the restrictions applicable under the prompt corrective action provisions
of the FDICIA. The Federal banking agencies final rule implementing the
safety and soundness provisions of the FDICIA was effective on August 9, 1995.
The FDICIA also required each appropriate federal banking agency to adopt
uniform regulations prescribing standards for extensions of credit secured by
real estate or made for the purpose of financing the construction of
improvements on real estate. In prescribing these standards, the banking
agencies considered the risk posed to the deposit insurance funds by real
estate loans, the need for safe and sound operation of insured depository
institutions and the availability of credit. The FDIC and the other federal
banking agencies adopted uniform regulations implementing such standards,
effective March, 1993.
In response to the directive issued under the Act, the regulators have adopted
regulations which, among other things, prescribe the capital thresholds for
each of the five capital categories established by the Act. The following
table reflects the capital thresholds:
<TABLE>
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
<S> <C> <C> <C>
Well capitalized (1) 10% 6% 5%
Adequately capitalized (1) 8% 4% 4% (2)
Undercapitalized (3) < 8% < 4% < 4%
Significantly Undercapitalized (3) < 6% < 3% < 3%
Critically Undercapitalized - - < 2%
</TABLE>
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
<PAGE>
The Act also provided that banks must have to meet new safety and soundness
standards. In order to comply with the Act, the Federal Reserve Board, the
Comptroller and the FDIC, adopted a final Rule effective, August 9, 1995 which
institutes guidelines defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, director and officer compensation, asset quality,
earnings and stock valuation. Both the capital standards and the safety and
soundness standards which the Act seeks to implement were designed to bolster
and protect the deposit insurance fund.
As a national bank, the bank is subject to examination and review by the
Comptroller. The Bank submits to the Comptroller quarterly reports of
condition, as well as such additional reports as may be required by the
national banking laws.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
existing restrictions on interstate acquisitions of banks by bank holding
companies were repealed on September 29, 1995, such that the Company and any
other bank holding company located in Florida would be able to acquire any
Florida-based bank, subject to certain deposit percentage and other
restrictions. The legislation also provides that, unless an individual state
elects beforehand either (i) to accelerate the effective date or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate. De novo branching by an
out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. During its 1996 Legislative Session the Florida Legislature
adopted Legislation which will permit interstate branching effective June 1,
1997.
As a bank holding company, the Company is required to file with the Federal
Reserve Board an annual report of its operations at the end of each fiscal
year and such additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make examinations of
the Company and each of its subsidiaries.
The Scope of regulation and permissible activities of the Company and the Bank
is subject to change by future federal and state legislation.
ITEM 2. - PROPERTIES
On May 23, 1990, the Bank purchased from Louis L. Schlitt, a director of the
Company and an organizer of the Bank, and Louis Schlitt, Inc., a company owned
by Mr. Schlitt, the entire first floor (approximately 10,000 square feet) of a
three-story office condominium for use as the bank facility, at a purchase
price of $1,209,188. The building is situated on approximately 2.5 acres of
land located at the corner of Indian River Boulevard and 17th Street in Vero
Beach, Florida. The bank facility consists of 6 teller stations, 7 offices,
vaults, two night depositories, 3 drive-in windows and a full-service safe
deposit box facility, including vault locker storage.
On December 24, 1992, the Bank purchased from First Union Bank, a branch
facility that they had abandoned for $460,214. The branch consists of a 2,800
square foot building located at 1020 U.S. 1, Sebastian, Florida . The branch
facility consists of 10 teller stations, an office, a vault, night depository,
5 drive-in windows and a full-service safe deposit box facility.
On February 29, 1996, the Bank purchased from Avatar Properties, Inc. a parcel
of land for the construction of a branch facility. The land was purchased for
$50,000. The branch facility was then constructed and consisted of a 2,160
square foot building located at 1020 Buttonwood Street, Barefoot Bay, Florida.
The branch facility consists of 2 drive-in windows, 6 teller stations, 2
offices, a vault, night depository, and a full-service safe deposit box
facility.
ITEM 3. - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or the
Bank is a party or of which any of their properties are subject; nor are there
material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the
Company, pending or contemplated, in which any director, officer, affiliate
or any principal security holder of the Company, or any associate of any of
the foregoing is a party or has an interest adverse to the Company or the Bank.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
<PAGE>
PART II
ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
During the period covered by this report and to date, there has been no
established public trading market for the Company's Common Stock.
As of February 28, 1997, the number of holders of record of the Company's
Common Stock was 450.
To date, the Company has not paid any dividends on its Common Stock. It is
the present policy of the Board of Directors of the Company to reinvest
earnings for such period of time as is necessary to ensure the success of the
operations of the Company and of the Bank. There are no current plans to
initiate payment of cash dividends, and future dividend policy will depend on
the Bank's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors of the Company.
The Bank is restricted in its ability to pay dividends under the national
banking laws and by regulations of the Comptroller. Pursuant to 12 U.S.C. 56,
a national bank may not pay dividends from its capital. All dividends must be
paid out of net profits then on hand, after deducting losses and bad checks.
Payment of dividends out of net profits is further limited by 12 U.S.C. 60(a),
which prohibits a bank from declaring a dividend on its shares of common stock
until its surplus equals its stated capital, unless there has been transferred
to surplus not less than 1/10 of the Bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). Pursuant
to 12 U.S.C. 60 (b), the approval of the Comptroller is required if the total
of all dividends declared by the Bank in any calendar year exceeds the total
of its net profits for that year combined with its retained net profits for
the preceding two years, less any required transfers to surplus.
In December 1990, the Comptroller promulgated regulations which affect the
level of allowable dividend payments by national banks. The intended effect
of the regulations is to make the calculation of national banks' dividend-
paying capacity consistent with generally accepted accounting principles
(GAAP). In this regard, the allowance for loan and lease losses will not be
considered an element of either "undivided profits then on hand" or "net
profits". Further, a national bank may be able to use a portion of its
capital surplus account as "undivided profits then on hand", depending on the
composition of that account. In addition, the regulations clarify that
dividends on preferred stock are not subject to the limitations of 12 U.S.C.
56, while explicitly making such dividends subject to the constraints of 12
U.S.C. 60. The regulations do not diminish or impair a well-capitalized
bank's ability to make cash payments to its shareholders in the form of a
return of capital.
ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS & FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company hereby incorporates by reference the section entitled
"Management's Discussion" on pages 7 through 10 of the 1996 Annual Report to
Shareholders for the year ended December 31, 1996.
ITEM 7. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company hereby incorporates by reference the Report of the Independent
Auditors and the Consolidated Financial Statements contained in the 1996
Annual Report to Shareholders for the year ended December 31, 1996.
ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS - None
PART III
ITEM 9. - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Company's hereby incorporates by reference the sections entitled "Election
of Directors" and "Board of Directors Meeting" contained at pages 2 through 5
of the Proxy Statement filed as an Exhibit under Item 14 herein.
ITEM 10. - EXECUTIVE COMPENSATION
The Company's hereby incorporates by reference the section entitled "Executive
Compensation" contained at pages 5 through 6 of the Proxy Statement filed as
an Exhibit under Item 14 herein.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The Company's hereby incorporates by reference the sections entitled "Election
of Directors" and "Certain Shareholders" contained at pages 2 through 5 of the
Proxy Statement filed as an Exhibit under Item 14 herein.
<PAGE>
(b) Security Ownership of Management
The Company's hereby incorporates by reference the section entitled "Election
of Directors" contained at pages 2 through 5 of the Proxy Statement filed as
an Exhibit under Item 14 herein.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a
subsequent date result in a change of control of the Company.
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has outstanding loans to certain of the Company's directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans were made in the ordinary
course of business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons not affiliated with the Company or the Bank and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
ITEM 13. - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by
reference from either (i) a Registration Statement on Form -18 under the
Securities Act of 1933 for the Company, as filed with the Securities and
Exchange Commission on June 30, 1989, Registration No. 33-29696-A (referred to
as "S-18"), or (ii) an Annual Report on Form 10-KSB "10-K". (iii) The
quarterly report filed on Form 10-QSB for the quarter ended March 31, 1995
(10-Q). The exhibit numbers correspond to the exhibit numbers in the
referenced documents.
Exhibit No. Description of Exhibit
*3.1 Articles of Incorporation dated May 19, 1989 (S-18)
*3.2 By-laws adopted June 29, 1989 (S-18)
*3.3 Amendments to bylaws adopted March 16, 1995 (1995 10-Q)
*10.3 Employment Agreement dated July 11, 1991 between Registrant and
Randy J. Riley (1992 10-K)
*10.4 Employment Agreement dated July 11, 1991 between Registrant and
Henry O. Speight (1993 10-K)
22.1 The Company's 1997 Annual Meeting Proxy Statement.
22.2 The Company's 1996 Annual Report for the year ended December
31, 1996.
(b) Reports on Form 8-K. A Form 8-K was filed December 30, 1996 regarding
"Other Events", a 20% stock split.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
CITRUS FINANCIAL SERVICES, INC.
Dated: March 14, 1997 By: /s/ Josh C. Cox, Jr.
Josh C. Cox, Jr.
President and Chief Executive Officer
Dated: March 14, 1997 By: /s/ Henry O. Speight
Henry O. Speight
Senior Vice President
(Chief Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Robert L. Brackett March 14, 1997
ROBERT L. BRACKETT
Class II Director
/s/ Josh C. Cox, Jr. March 14, 1997
JOSH C. COX, JR.
President, Chief Executive Officer
and Class III Director
/s/ Hubert Graves, Jr. March 14, 1997
HUBERT GRAVES, JR.
Class I Director
/s/ Roy H. Lambert March 14, 1997
ROY H. LAMBERT
Class II Director
/s/ Earl H. Masteller March 14, 1997
EARL H. MASTELLER
Class I Director
/s/ Louis L. Schlitt March 14, 1997
LOUIS L. SCHLITT
Secretary and Class III Director
/s/ Walter E. Smith, Jr. March 14, 1997
WALTER E. SMITH, JR.
Class I Director
/s/ James R. Thompson March 14, 1997
JAMES R. THOMPSON
Class II Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as of the
date of filing this report. An annual report and proxy materials will be
furnished to security holders subsequent to the filing of this Annual Report
on Form 10-KSB. The company's proxy Statement and 1996 Annual Report are
included as Exhibits 22.1 and 22.2 of this filing.
Corporate Profile
Citrus Financial Services, Inc., (CFSI) is the parent company of Citrus Bank,
National Association, which has three full-service banking offices. Two of the
offices are located in Indian River County, one in Vero Beach and one in
Sebastian. The third location is in Barefoot Bay which is in adjacent Brevard
County.
CFSI has $66.4 million in consolidated assets. The principal business
activities for Citrus Bank, National Association include a wide range of FDIC
insured deposit products, and commercial, real estate and consumer loans
together with full service mortgage banking. CFSI's stock is closely held and
not traded on any national market.
Contents
To Our Stockholders and Friends 2
Consolidated Financial Highlights 3
Looking At the Future 4
Looking Inside 5
Management's Discussion 7
Consolidated Financial Statements 11
Notes to Consolidated Financial Statements 15
Independent Auditor's Report 28
Board of Directors 29
Officers 30
Shareholder Information 31
<PAGE>
To Our Stockholders and Friends
Expanding Our Reach
Late in 1995 your Board of Directors directed Management to establish a new
banking center in adjacent Brevard County. The site chosen was in Barefoot
Bay, a retirement community of manufactured homes. Construction began in the
second quarter of 1996 and the Barefoot Bay Center opened on September 2.
This newest location was very well received by Bay residents. They continually
express their excitement over the convenient financial services provided by an
independent community-minded bank. By December 31, 1996 total deposits in
Barefoot Bay topped $5.2 million after only four months of operation. At the
end of January, 1997, deposits were almost $6 million representing 850
depository accounts. Management anticipates that the rapid growth of this
banking center will continue through 1997 and provide a significant source of
funding for the bank's expanding loan portfolio.
The Board of Directors and Management are committed to expanding the geographic
reach of the Company. Diversity of locations and products enhances the value
of our franchise and develops additional markets for profitable opportunities
allowing us to expand our influence in the community bank market. As relaxed
regulatory fire walls allow banks to offer non-traditional products, Citrus
will work to enhance profitability in these areas.
While 1996 was a great year for developing new markets, profitability was below
our anticipations. Net income for the year fell to $85,000. Three problematic
loans are responsible for this downturn in profitability as provisions for loan
losses increased and associated litigation costs rose in an effort to take
aggressive recovery action and provide for any anticipated loss. As a result,
one of the loans has been resolved with foreclosure, the second is nearing
completion of bankruptcy with full recovery anticipated, and the remaining
credit is in litigation. Both Management and the Board of Directors realize
how discouraging these events are after such a tremendous turn for profitability
in 1995. Please be assured, however, that the Board of Directors, Management
and outside consultants have carefully reviewed the bank's entire loan portfolio
and found these loans to be isolated instances. This review has further
concluded that the loans in question are exceptions involving clients' fraud
or misrepresentations. No systemic loan credit quality was found.
Growing Toward 2000
The Company's loans grew $7.6 million during 1996 compared to $5 million in
1995, as management continued its focus on loan growth. Since 1994 the Board
of Directors has pointed Management toward loan growth in an effort to invest
asset growth in the most profitable direction. In this regard net loans have
continued to spiral up moving from $25 million at the end of 1993; $38 million
at the end of 1994; $43 million at the end of 1995 and $51 million at the end
of 1996. Reflecting the demographics of the local economy the loan portfolio
is largely vested in real estate related loans. Commercial and consumer loans
have remained largely unchanged for the year. The Company's loan growth was
funded primarily from traditional deposit growth during 1996. Management
placed increased emphasis on non-interest bearing demand deposits and increased
these deposits by year-end 1996 in excess of 20%. Overall deposit growth was
up 9%. With the addition of the Barefoot Bay Center, Management expects
deposit growth to be even greater in 1997.
Thank You
The support we have received from our stockholders and our local community has
been an important ingredient in our success, on behalf of your Board of
Directors, thank you.
Sincerely,
Robert L. Brackett, Chairman of the Board Josh C. Cox, Jr., President & CEO
<PAGE>
Consolidated Financial Highlights
CFSI and Subsidiary
<TABLE>
1996 1995 1994
For the Year
(in thousands)
<S> <C> <C> <C>
Interest income $ 4,973 $ 4,830 $ 3,756
Interest expense 2,288 2,398 1,616
Net interest income 2,685 2,432 2,140
Provision for loan losses 352 100 160
Other income 371 328 262
Other expenses 2,573 2,090 2,117
Income taxes 46 (94) (55)
Net income (loss) 85 664 180
Per Share Data(1)
Net income (loss) $ .10 $ .78 $ .21
Book Value 6.35 6.29 4.98
Key Performance Ratios
Return on average assets .14% 1.13% .35%
Return on average stockholders'
equity 1.55% 13.79% 4.17%
Stockholders' equity to total
assets 8.17% 8.73% 7.38%
Tier One capital ratio 11.70% 13.00% 12.40%
Total risk-based capital ratio 12.44% 13.90% 13.20%
At Year-end
(in thousands)
Investments $ 9,499 $ 10,318 $ 13,228
Loans, net 50,670 43,028 37,910
Total assets 66,416 61,498 57,599
Deposits 58,646 53,803 48,283
Borrowings 2,055 2,076 4,898
Stockholders' equity 5,427 5,371 4,250
</TABLE>
(1) 1994, 1995 and 1996 per share data has been restated to give effect to
1997 stock split.
<PAGE>
"Looking At the Future"
Continuing Loan Portfolio Development
1996 delivered strong loan growth that approached 18% by the year's end. This
focus on loan expansion will be continued in 1997 with a promise of renewed
growth in the development of business-related loans. The profitability of
these relationships include all areas of our financial services and make this
thrust of particular interest to Citrus Bank. Our commitment to the local
small business community continues to be an integral part of the overall
success and vitality of the Company. In addition, the origination and sale of
residential mortgage loans will be continued in the 1997 strategy. Real estate
and real estate related activities are foundational to the dynamics of our
local economic base. Citrus Bank will be involved in all aspects of this
industry as it relates to financial services.
Developing Our Newest Market
In September of 1996 our newly constructed Barefoot Bay Center was opened and
began to provide full service banking to the residents of this retirement
community. Management's extensive advance preparation with the local residents
for this branch expansion reflected in our early success at this location.
The residents have been very supportive, encouraging management by indicating
that as our independent, community-minded bank meets their needs and is
responsive to their requests, the community will respond. That has been the
case. During 1997 we will continue to develop this new Brevard County market
with new products and services. Our resolve is to continue the progress we
have enjoyed to date.
Continuing Our Commitment
From our very inception, our founders have been committed to the development
of the local business and residential community. That commitment has not
changed, but it has been expanded to our new friends at Barefoot Bay and into
Brevard County. Attention to our community and our clientele in 1997 will
include broadening our services to include accounts that address our customers'
needs. Our first commitment is to ensure that we provide personal service. In
that regard we will devote an additional focus on the training and developing
of our personnel to highlight our desire to provide prompt, professional
service. While we will continue to develop our systems in this new information
age of computer enhancements, our commitment is to personal service delivered
by courteous professionals.
Providing financial services is a business of people, for people, through
people. Automation is no substitute for a warm, concerned smile and
professional service. At Citrus we want to know you personally; we hope you
will be our neighbor first, our customer next.
<PAGE>
"Looking Inside"
The following is a presentation of the average consolidated balance sheet of
the Company for the years ended December 31,1996 and 1995. This presentation
includes all major categories of interest-earning assets and interest-bearing
liabilities.
<TABLE>
Average Consolidated Asset December 31, 1996 December 31,1995
(in thousands)
<S> <C> <C>
Cash and due from banks $ 1,617 $ 1,299
Interest-bearing deposits in other banks 100 137
Taxable securities 9,981 12,803
Federal funds sold 1,015 378
Net Loans 45,327 41,438
Total earning assets 56,423 54,756
Other assets 3,267 2,861
Total assets $ 61,307 $ 58,916
Average Consolidated Liabilities
And Shareholders' Equity
Noninterest-bearing deposits $ 7,058 $ 5,596
NOW deposits 3,207 2,987
Savings deposits 6,778 7,153
Time deposits 37,369 34,391
Borrowings 1,095 3,754
Other liabilities 307 221
Total liabilities 55,814 54,102
Common stock 2,964 2,966
Capital surplus 3,108 3,108
Retained deficit (579) (1,260)
Total shareholders' equity 5,493 4,814
Total liabilities and shareholders'
equity $ 61,307 $ 58,916
</TABLE>
<PAGE>
The following is a presentation of an analysis of the net interest earnings of
the Company for the periods indicated with respect to each major category of
interest-earning asset and each major category of interest-bearing liability
(in thousands):
<TABLE>
Year Ended December 31, 1996
Average Interest Average
Assets Amount Earned Yield
<S> <C> <C> <C>
Interest-earning deposits in other banks $ 100 $ 7 7.0 %
Taxable securities 9,981 562 5.6 %
Federal funds sold 1,015 54 5.3 %
Net loans 45,327 (1) 4,350 (2) 9.6 %
Total earnings assets $ 56,423 $ 4,973 8.8 %
Average Interest Average
Liabilities Amount Paid Rate Paid
NOW deposits $ 3,207 $ 49 1.5 %
Savings deposits 6,778 173 2.5 %
Time deposits 37,369 2,005 5.4 %
Borrowings 1,095 61 5.6 %
Total interest-bearing liabilities $ 48,449 $ 2,288 4.7 %
</TABLE>
(1) Includes non-accrual loans of $728
(2) Interest earned on net loans includes $50 in loan brokerage fees.
Net interest earnings totaled $2,685 in the year ended December 31, 1996, for a
net yield on interest earning assets of 4.8%.
<TABLE>
Year Ended December 31, 1995
Average Interest Average
Assets Amount Earned Yield
<S> <C> <C> <C>
Interest-earning deposits in other banks $ 137 $ 5.8 %
Taxable securities 12,803 784 6.1 %
Federal funds sold 378 22 5.8 %
Net loans 41,438 (1) 4,016 (2) 9.7 %
Total earnings assets $ 54,756 $ 4,830 8.8 %
Average Interest Average
Liabilities Amount Paid Rate Paid
NOW deposits $ 2,987 $ 56 1.9 %
Savings deposits 7,153 197 2.8 %
Time deposits 34,391 1,918 5.6 %
Borrowings 3,754 227 6.0 %
Total interest-bearings liabilities $ 48,285 $ 2,398 5.0 %
</TABLE>
(1) Includes non-accrual loans of $493.
(2) Interest earned on net loans includes $43 in amortized loan fees and loan
brokerage fees.
Net interest earnings totaled $2,432 during the year ended December 31, 1995,
for a net yield on interest earning assets of 4.4%.
<PAGE>
Management's Discussion
CFSI and Subsidiary
Liquidity and Capital Resources
To the best knowledge of management, there are no trends, demands, commitments,
events or uncertainties that will result in or are reasonably likely to result
in the Company's liquidity increasing or decreasing in any material way. The
Company is not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material
effect on the Company's liquidity, capital resources, or results of operations.
The Company's current liquidity is considered adequate. Primary liquidity
rests in balances due from other depository institutions and Federal Funds
sold which can be converted to cash the same day. These balances aggregate
$2,514,000 or 3.8% of total assets at the end of 1996. Additional liquidity
is available through established Federal Funds purchase agreements which
aggregate $2,250,000 and by lines of credit with the Federal Home Loan Bank of
Atlanta which enables the Company to borrow up to $10,000,000. As of
December 31, 1996, the Company had drawn $1,555,000 under these lines.
Management currently expects to increase the Bank's loan portfolio to achieve
higher earnings. These increases are projected to be funded by traditional
bank deposit increases. Nonetheless, Federal Funds purchased, borrowings,
lines of credit and other liquidity considerations will be maintained to
provide the Company adequate liquidity for the future. For example,
commitments to extend credit totaled $7,115,000 at December 31, 1996. If all
such commitments were to materialize, they would be funded primarily from
deposit growth and Federal Funds balances.
During the fourth quarter of 1996, Citrus Bank opened a new full-service
branch in Barefoot Bay in Brevard County, Florida. This newest banking center
has provided almost $6 million in new deposit dollars enhancing the liquidity
and resources to continue the institution's loan growth. Capital expenditures
for this branch expansion have been carefully integrated into the Company's
overall strategy, profitability, and capitalization. The Board of Directors
and management are confident that this expansion will continue the growth and
financial vitality of the Company enhancing the financial condition of the
Company.
Management monitors the Company's asset and liability positions in order to
maintain a desirable balance between rate-sensitive assets and rate-sensitive
liabilities and at the same time maintain sufficient liquid assets to meet
expected customer needs for loans and for withdrawals of deposits.
The interest sensitivity "gap" is the difference between total
interest-sensitive assets and total interest-sensitive liabilities. The need
for gap management is critical in times of rapid change in interest rates.
The goal of gap management is to provide for stable and steady growth of the
Bank's net interest margin. The following is an analysis of rate-sensitive
assets and liabilities as of December 31, 1996 (excluding loans totaling
$728,000 on non-accrual status).
<TABLE>
(in thousands)
Over
0-3 mos. 3-12 mos. 1-5 yrs. 5yrs. Total
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 105 $ -- $ -- $ -- $ 105
Taxable securities -- -- 2,941 6,184 9,125
Federal funds sold -- -- -- -- --
Total loans 20,775 12,089 14,066 3,400 50,330
Total rate sensitive assets 20,880 12,089 17,007 9,584 59,560
NOW deposits 3,386 -- -- -- 3,386
Savings deposits 6,877 -- -- -- 6,877
Time deposits 11,556 21,189 7,502 -- 40,247
Borrowings 500 1,000 555 -- 2,055
Total rate sensitive
liabilities 22,319 22,189 8,057 -- 52,565
Excess (deficiency) of rate
sensitive assets $ (1,439) $(10,100) $ 8,950 $ 9,584 $ 6,995
over rate sensitive
liabilities
</TABLE>
<PAGE>
The above interest rate sensitivity table illustrates the Company's gap position
at December 31, 1996. The table should not be viewed as the only factor in
determining the impact of interest rate changes on net interest income. Certain
assumptions have been made in the construction of the table. For example,
loans and investments have been assigned rate sensitivity categories according
to their maturities or scheduled rate adjustments without regard to payment
schedules or to the liquidity of those interest sensitive assets. Additionally,
the table represents a one day position, however, the Company adjusts its
interest sensitivity throughout the year.
Management utilizes a simulation model provided by an independent consultant
to project, on a dynamic basis, the impact of changing interest rates in three
different assumption models. The first assumption considers the effect of
increasing interest rates in excess of what is actually anticipated, the
second considers interest rate movements that are generally anticipated in the
marketplace, and the third considers movements of decreasing interest rates in
excess of what is expected. These three scenarios are then measured against
the bank's growth and inflation budgets and the result is reflected in the
amount of change in net interest income. That change then quantifies the
anticipated risks of the institution to changing interest rates. Since these
projections are updated monthly, management has timely anticipations of events
that may have an adverse impact on the institution. Management then begins to
make changes in deposit and loan terms to manage the volatility of interest
rate risks. During 1996, management was continuously adjusting to somewhat
increasing interest rates and was able to continue to limit interest rate risk
and reduce the dollar impact of rising interest rates. While this management
position is less likely to produce record interest rate spreads, it limits the
institution's exposure to large changes in interest rates should interest rates
move dramatically against the institution's interest rate position.
Stockholders' equity at December 31, 1996 was $5.5 million or 8.3% of total
assets compared to $5.4 million at December 31, 1995. The increase reflects
the unrealized loss on securities available for sale of $158,000 at December
31, 1996. Management anticipates that capital will be adequate to sustain
anticipated 1997 growth . The following table sets forth the applicable
required capital ratios for the Company and the Bank and the actual capital
ratios for both as of December 31, 1996. See "Supervision and Regulation".
<TABLE>
Leverage Capital Tier 1 Capital Total Risk-Based Capital
Regulatory Regulatory Regulatory
Minimum Actual Minimum Actual Minimum Actual
<S> <C> <C> <C> <C> <C> <C>
Company 3.0 % 8.7% 4.0 % 11.7 % 13.0 % 12.4 %
Bank 3.0 % 8.1% 4.0 % 10.8 % 8.0 % 11.6 %
</TABLE>
Results of Operations
The Company experienced stronger growth in 1996 when compared to 1995. Total
assets grew from $61 million at the end of 1995 to $66 million at the end of
1996. Deposits ended 1995 at $54 million and had reached almost $59 million
at the end of 1996, a growth rate of 9%. As in 1995, deposit growth was used
almost exclusively to fund loan growth.
Loans aggregated $43 million at the end of 1995 and rose to $51 million by the
end of 1996, an increase of $8 million. This 18.6% increase in loans from
year end to year end was largely accomplished toward the end of the year.
Average loans for 1996 were $45 million compared to $41 million in 1995. Loan
demand during the middle of 1996 was found be less robust than the fourth
quarter where great strides in loan growth were accomplished. Loan growth
during 1996 was centered in residential and commercial real estate.
Residential real estate that closed 1995 at $18 million grew to $24 million at
the end of 1996. Almost $5 million of these loans rested in residential real
estate loans awaiting sale into the secondary market. Commercial real estate
loans moved from $12 million at the end of 1995 to $14 million by the end of
1996. Commercial loans not related to real estate remained largely unchanged
and consumer loans fell $537,000.
These dynamics are reflected in the change in the loan portfolio's mix.
Aggregate real estate loans now represent 74% of the entire portfolio with
commercial and consumer loans trailing at 18% and 8% respectively. Residential
mortgage loans make up the largest portion of the portfolio at 47% and
commercial real estate loans comprise 27%. The loan portfolio's slant toward
real estate lending illustrates the complexion of the local economy. The real
estate industry and its associated business make up the largest portion of
business activities in the local market and account for the majority of business
conducted in the area.
Throughout 1996 the investment portfolio has been reduced through prepayments
and maturities. Aggregate investments were reduced over $800,000 from the end
of 1995 to the end of 1996. No securities were purchased or sold during this
period as management continued to focus on loan growth. Funds from the
reduction of the investment portfolio continued to be used to fund loan growth.
At the end of the year the portfolio consists primarily of U.S. Government
Agency issues which represent 93% of the portfolio; largely unchanged from 1995.
The balance of the portfolio is made up of Federal Reserve and Federal Home
Loan Bank stock at $374,000 and one corporate bond at $252,000.
<PAGE>
The majority of the reductions in the investment portfolio came from prepayments
on mortgage-backed securities. These prepayments are expected to continue
throughout 1997 and near the same level as 1996.
Deposits continue to be the principal funding source for the Company's growth.
During 1996 deposits moved from $54 million to $59 million, an increase of 9%.
Average deposits for the years ended 1995 and 1996 had much the same result
with average deposits increasing 8.5%. During 1996 management placed greater
emphasis on the development of non-interest bearing demand deposits with good
success. By year end 1996 these deposits had grown in excess of 20% with the
aggregate balances over $8 million. Interest bearing demand deposits reflected
a growth of almost 9% while a 14% downturn in money market deposits was more
than offset by a 36% increase in savings accounts. This savings deposit change
reflects the introduction of a new savings deposit for larger depositors that
successfully increased these accounts by $800,000. Time deposits grew almost
10% up $3 million for the year. The deposit portfolio's mix reflected some
change as a result of 1996's growth patterns. Noninterest demand deposits now
represent 14% of aggregate deposit compared to 12% last year. Money market
deposits represent the balance at 7% of total deposits while savings deposits
are up to 5% of deposits. The largest portion of aggregate deposits continues
to be time deposits which now represent over 68% of all deposits.
Although borrowings were up and down during 1996, aggregate borrowings at the
end of 1996 remained at the same level as at the end of 1995. Borrowings are
made up of $500,000 in Federal Funds purchased from correspondent banks and the
balance in borrowings from the Federal Home Loan Bank. Both the Federal Funds
purchased and $1,000,000 in FHLB borrowings were paid during the first part of
1997 from continued increases in deposit volume. Management continues to use
borrowings as necessary to meet funding needs. For 1996 the weighted average
interest rate on these borrowings for the year ended was 5.6%.
On September 2, 1996 the Bank opened its second full service banking center in
Barefoot Bay. This center is located in a community five miles north of the
Bank's Sebastian Branch in adjacent Brevard County. By the end of 1996
aggregate deposits from this location were $5 million. The reception of this
retirement community has been robust with deposit volumes increasing over $1
million per month. Management anticipates that this level of deposit growth
should continue throughout 1997.
While growth and the expansion of our market exceeded management anticipations
for 1996, profitability fell short. Net income fell to $85,000 after a record
$664,000 in 1995. Net interest income increased from $2,432,000 in 1995 to
$2,685,000, an increase of $253,000. Interest income increases were made up
almost entirely of increases in interest and fees on loans. Aggregate interest
income increased $143,000 for 1996 while concurrent interest costs decreased
$110,000. The Company's 1996 net interest income to average earning assets
increased to 4.8% from 4.4% in 1995.
Provisions for loan losses increased to $352,000 from $100,000 in 1995. These
increases in provisions reflected loan chargeoffs and provisions primarily on
three loan relationships. These provisions were necessary to reflect any
potential loss expected or sustained during the period. One of the loans has
been foreclosed and the collateral written down to appraised value, the second
is nearing the end of bankruptcy hearings with full recovery anticipated, and
the third is nearing court litigation. Nonetheless, these provisions reduced
net interest income after provision for loan losses to the 1995 level at
$2,333,000.
Other income increased from $328,000 in 1995 to $371,000 in 1996. All of these
increases related to service charges on deposit accounts. As the bank's
depository base grew during 1996, these related income items grew as well.
Since a large portion of the number of accounts opened were transaction
accounts, these fees grew at a greater rate than aggregate deposit balances.
Service charges on deposit accounts for 1996 grew $57,000 or 22%.
Other expenses increased from $2,090,000 in 1995 to $2,573,000 in 1996.
Salaries and benefits were up $121,000 to $1,142,000 and primarily reflected
additions in staff for the new Barefoot Bay Center as well as several staff
additions to complement the Bank's customer growth. Occupancy expenses coupled
with furniture and equipment expenses reflected a small reduction moving from
$395,000 in 1995 to $387,000 for 1996. With the growth of the Bank and the
requirements for the new banking center, stationery, printing and supplies
increased from $40,000 in 1995 to $57,000 in 1996. While these expenses
described above related to the growth of the bank, increases in miscellaneous
expenses reflected, in large part, expenses related to the problem credits
aforementioned that were in excess of $250,000 for the year 1996. The
remaining increase in miscellaneous expenses related to growth and accounted
for $153,000 of the aggregate increase to $987,000.
Fiscal 1995 Compared to Fiscal 1994
Total assets grew $11,621,000 in 1994 compared to $3,899,000 in 1995; ending
1995 at $61,498,000. Deposit growth of $5,520,000 was used to reduce
borrowings and fund loan growth.
Total loan growth remained strong at 13.5% but did not match the growth of 53%
experienced in 1994. Loan growth was in excess of $5 million for 1995 and over
$13 million in 1994. Net loans aggregated $43,028,000 at the end of 1995
<PAGE>
compared to $37,910,000 at the end of 1994. Management efforts during 1995
were concentrated in changing the loan portfolio's mix to reflect a larger
complexion of commercial loans. In that regard commercial loans increased from
$6,495,000 at the end of 1994 to $9,105,000 at the end of 1995, for a $2,610,00,
or 40% increase. Commercial loans make up the highest yielding portion of
the Company's portfolio and have resulted in a noticeable increase in
non-interest bearing deposits. While the loan portfolio's mix has shifted
toward commercial loans which now total 21% of the portfolio, commercial real
estate and residential real estate loans still make up the majority of the
portfolio at 27% and 42% respectively. Aggregate real estate loans at 69% of
total loans continue to reflect the local community's heavy reliance on the
real estate industry.
As the loan portfolio continued to expand, the investment portfolio was reduced
through sales and maturities. Aggregate investments fell $2,190,000 from the
end of 1994 to the end of 1995. These reductions, accomplished largely at the
end of 1995, were used to reduce borrowings and fund the increase in the loan
portfolio. The remaining investment portfolio continues to consist primarily
of U.S. Government Agency issues which represent 94% of the investment
portfolio. Federal Home Loan Bank stock was reduced from $246,000 to $190,000
as the level of borrowings with the FHLB were reduced. While management does
not anticipate any investment sales, the investment portfolio is expected to
be further reduced from maturities and prepayments of existing issues. Further
investment purchases are expected to be very limited as management's focus
continues to be on loan growth.
Total deposits aggregated $53,803,000 at the end of 1995 compared to
$48,283,000 at the end of 1994 for a growth of 11%. During 1995, average year
to date deposits increased 14% or $6,069,000 from 1994 levels. Average
noninterest-bearing deposits increased $736,000 and made up 11.2% of average
deposits compared to 11% for 1994. By the end of 1995, noninterest-bearing
deposits made up 12.4% of total deposits and aggregated $6,699,000. At the
same time, NOW accounts remained unchanged and money market accounts fell
$580,000. While savings accounts were largely unchanged, time deposits
increased to $37,260,000 at year end 1995, a $5,345,000 increase from year
end 1994. At the end of 1995 time deposits made up 69% of the total deposits,
up from 66% last year. The Company's time deposit mix is reflective of the
large retirement community of the local market.
Borrowings from the Federal Home Loan Bank are used by the Company for seasonal
funding sources when loan production exceeds deposit growth. During 1995 these
borrowings were reduced from $4,898,000 at the end of 1994 to $2,076,000 by
the end of 1995. For 1995 the weighted average interest rate on these
borrowings for the year ended 1995 was 6%. Management expects the use of
borrowings to continue into 1996 as the need arises.
During the fourth quarter of 1995, the Bank applied for and obtained regulatory
permission to establish a full-service branch in Barefoot Bay, a community
five miles north of the Bank's Sebastian Branch in adjacent Brevard County.
Management anticipates that construction of this branch will be completed and
will be opened to the community in August, 1996. This expansion is expected
to complement the continued growth of the Bank through increased deposits and
loans in a market not currently served by an independent, locally owned
financial institution.
The watchword for 1995 was profitability. The Company experienced record
earnings with net income of $664,000, an increase of $484,000 or 269% over
1994. These earnings resulted in a return on average assets of 1.13% and a
return on average equity of 13.79%. After a 20% stock split that was
distributed in the first half of 1995, the Company returned $.93 per share on
711,767 outstanding shares.
Net interest income provided the largest portion of the Company's profitability.
Net interest income increased from $2,140,000 in 1994 to $2,432,000 in 1995
for an increase of $292,000. Interest income increases were made up almost
entirely of increases in interest and fees on loans. This income aggregated
$4,830,000 which provided $1,074,000 of increased interest income while
concurrent interest costs increased only $782,000. The Company's 1995 net
interest income to average earning assets remained largely unchanged at 4.4%
compared to 4.5% for 1994.
Provisions for loan losses were reduced for 1995 commensurate with the Company's
less dramatic loan growth. In 1995, $100,000 in provisions were made in
comparison to $160,000 in 1994. Net loan chargeoffs for 1995 were $26,000
compared to $46,000 in 1994 with net chargeoffs representing .06% of average
loans for 1995 and .14% for 1994.
Additional enhancements to profitability were realized through increased other
income. Other income increased $66,000 to $328,000 for 1995. Service charges
on deposit accounts increased $42,000 for the period and were largely
responsible for the increase. As the number of demand accounts continued to
increase additional income was realized from these accounts. Other expenses
were well controlled in 1995 and were actually reduced from $2,117,000 in 1994
to $2,090,000 in 1995, enhancing profitability by $27,000. While salaries,
occupancy expenses and fixed asset expenses increased, miscellaneous expenses
were reduced from $725,000 to $634,000. While reductions were accomplished in
many of these expense areas, the largest single saving came from FDIC insurance
premiums which were reduced $35,000. Expectations are for continued reductions
in these premiums in 1996 as the required FDIC insurance reserve levels have
been met from the premiums paid by commercial banks across the nation.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
1996 1995
(In Thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 2,514 $ 1,644
Federal funds sold -- 3,358
2,514 5,002
Interest bearing deposits in other banks 106 124
Securities available for sale 5,296 5,571
Securities to be held to maturity (estimated
fair value of $4,013 for 1996; $4,636
for 1995) 4,203 4,747
Loans 50,670 43,028
Facilities 2,550 2,176
Accrued interest receivable 362 324
Deferred income taxes 199 216
Other assets 516 310
Total assets $ 66,416 $ 61,498
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 8,136 $ 6,699
Demand deposits 3,386 3,117
Money market accounts 3,889 4,522
Savings accounts 2,987 2,205
Time, $100,000 and over 10,769 11,080
Other time deposits 29,479 26,180
Total deposits 58,646 53,803
Federal funds purchased 500 ---
FHLB advances 1,555 2,076
Accounts payable and accrued liabilities 288 248
Total liabilities 60,989 56,127
Commitments and contingencies (Note J)
STOCKHOLDERS' EQUITY
Preferred stock, $5 par value, authorized
and unissued 1,000,000 shares --- ---
Common stock, $3.47 par value, authorized
10,000,000 shares, issued and
outstanding 854,120 shares 2,966 2,966
Additional paid-in capital 3,108 3,108
Treasury stock (114 shares, at cost) (1) ---
Accumulated deficit (488) (573)
Net unrealized holding losses on securities (158) (130)
Total stockholders' equity 5,427 5,371
Total liabilities and stockholders'
equity $ 66,416 $ 61,498
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Year Ended December 31,
1996 1995 1994
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,350 $ 4,016 $ 2,944
Interest on investment securities:
U. S. Government agencies and
corporations 537 758 746
Other 25 26 23
Income on Federal funds sold 54 22 22
Interest on deposits with other banks 7 8 21
Total interest income 4,973 4,830 3,756
INTEREST EXPENSE
Interest on deposits 2,227 2,171 1,466
Other 61 227 150
Total interest expense 2,288 2,398 1,616
Net interest income 2,685 2,432 2,140
PROVISION FOR LOAN LOSSES 352 100 160
Net interest income after
provision for loan losses 2,333 2,332 1,980
OTHER INCOME
Service charges on deposit accounts 316 259 217
Other fees for customer service 55 68 44
Gain on sale of securities --- 1 1
Total other income 371 328 262
OTHER EXPENSES
Salaries and employee benefits 1,142 1,021 972
Occupancy expense 173 166 163
Furniture and equipment expense 214 229 211
Stationery, printing and supplies 57 40 46
Miscellaneous expenses 987 634 725
Total other expenses 2,573 2,090 2,117
INCOME BEFORE INCOME TAXES 131 570 125
INCOME TAXES (CREDIT) 46 (94) (55)
NET INCOME $ 85 $ 664 $ 180
AVERAGE SHARES OUTSTANDING 854 854 854
PER SHARE INFORMATION
Income per share $ .10 $ .78 $ .21
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Net
Unrealized
Additional Holding Total
Common Paid-in Accumulated Treasury Losses on Stockholders'
Stock Capital Deficit Stock Securities Equity
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 2,966 $ 3,108 $ (1,417) $ - $ (59) $ 4,598
Net income - - 180 - - 180
Net change in net
unrealized holding
losses on securities - - - - (528) (528)
Balance, December 31, 1994 2,966 3,108 (1,237) - (587) 4,250
Net income - - 664 - - 664
Net change in net unrealized
holding losses on securities - - - - 457 457
Balance, December 31, 1995 2,966 3,108 (573) - (130) 5,371
Net income - - 85 - - 85
Acquisition of treasury stock - - - (1) - (1)
Net change in net unrealized
holding losses on securities - - - - (28) (28)
Balance, December 31, 1996 $2,966 $3,108 $(488) $ (1) $ (158) $5,427
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 85 $ 664 $ 180
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses 352 100 160
Depreciation and amortization 189 197 181
Amortization of organizational costs - 15 46
Net amortization of investment
security premiums and discounts 24 25 73
Gain on sale of securities - (1) (1)
Deferred income tax 46 (94) (55)
(Increase) decrease in assets:
Origination of loans held for sale (3,002) (935) (425)
Accrued interest and other assets 12 (237) (80)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities 41 80 (28)
Net cash provided by (used in)
operating activities (2,253) (186) 51
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales - 2,919 463
Purchases (25) - (351)
Proceeds from maturities 270 86 1,709
Securities to be held to maturity:
Purchases - - (994)
Proceeds from maturities 527 332 978
Proceeds from sale of other real estate 158 - -
(Increase) decrease in interest bearing
deposits in other banks 18 (8) 404
Increase in loans (5,434) (4,283) (12,817)
Purchase of facilities (569) (37) (194)
Net cash used in investing
activities (5,055) (991) (10,802)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 4,842 5,520 8,768
Proceeds from (disbursements to) FHLB
advances, net (521) (2,822) 3,229
Net increase in Federal funds purchased 500 - -
Acquisition of treasury stock (1) - -
Net cash provided by financing
activities 4,820 2,698 11,997
NET INCREASE (DECREASE) IN CASH (2,488) 1,521 1,246
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 5,002 3,481 2,235
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,514 $ 5,002 $ 3,481
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 2,257 $ 2,300 $ 1,455
Cash paid during the year for income
taxes $ 5 $ 5 $ -
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
General:
The consolidated financial statements include the accounts and transactions of
Citrus Financial Services, Inc. (Company) and its wholly-owned subsidiary,
Citrus Bank, National Association (Bank). All significant intercompany accounts
and transactions have been eliminated in consolidation.
The Bank provides a wide range of banking services to individual and corporate
customers primarily in Indian River County, Florida.
The Company and the Bank are subject to regulations issued by certain
regulatory agencies and undergo periodic examinations by those agencies.
Basis of Financial Statement Presentation:
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practices within the banking
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the fair
value of financial instruments.
Management believes that the allowance for losses on loans is adequate. While
management uses available information to recognize losses on loans, including
independent appraisals for significant properties, future additions to the
allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for losses on loans. Such agencies
may require the company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Investments:
Statement of Financial Accounting Standards No. 115 ("FAS 115"), Accounting for
Certain Investments in Debt and Equity Securities, sets the standard for
classification of and accounting for investments in equity securities that have
readily determinable fair values, and all investments in debt securities which
are to be classified as held-to-maturity securities, available-for-sale
securities, or trading securities.
Debt securities that an enterprise has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity.
The Bank classifies its investments at the purchase date in accordance with the
above-described guidelines. Premiums or discounts on securities at the date of
purchase are being amortized or accreted, respectively, over the estimated life
of the security using a method which approximates the level yield method.
Gains and losses realized on the disposition of securities are based on the
specific identification method and are reflected in other income.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
Loans:
Loans receivable are stated at unpaid principal balance, less the allowance for
loan losses and net deferred loan origination fees and costs.
Interest on loans is accounted for on the accrual basis. Generally, the
Company's policy is to discontinue the accrual of interest on loans delinquent
over ninety days unless fully secured and in the process of collection. The
accrued and unpaid interest is reversed from current income and thereafter
interest is recognized only to the extent payments are received. A non-accrual
loan may be restored to accrual basis when interest and principal payments are
current and prospects for future recovery are no longer in doubt.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 ("FAS 114"), Accounting by Creditors
for Impairment of a Loan, which sets the standard for recognition of loan
impairment and the measurement methods for certain impaired loans and loans
whose terms are modified in troubled debt restructurings.
Under FAS 114, a loan is impaired when it is probable that a creditor will be
unable to collect the full amount of principal and interest due according to
the contractual terms of the loan agreement. When a loan is impaired, a
creditor has a choice of ways to measure the impairment. The measurement of
impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective interest
rate, (2) the observable market price of the impaired loan, or (3) the fair
value of the collateral of a collateral-dependent loan. Creditors may select
the measurement method on a loan-by-loan basis, except that collateral-dependent
loans for which foreclosure is probable must be measured at the fair value of
the collateral. A creditor in a troubled debt restructuring involving a
restructured loan should measure impairment by discounting the total expected
future cash flows at the loan's original effective rate of interest.
The Company adopted FAS 114 during 1995. The adoption of FAS 114 did not
significantly effect the company's financial statements.
Loan Fees:
Loan origination and commitment fees and certain direct loan origination costs
are deferred and recognized over the term of the related loans as a yield
adjustment using the level-yield method (loan-by-loan basis). Amortization
of deferred fees and costs is discontinued when collectibility of the related
loan is deemed uncertain. Fees and direct loan origination costs for
unexercised commitments are recognized in income upon expiration of commitment.
Organizational Costs:
Certain costs incurred in organizing the Company have been deferred and are
being amortized to expense on the straight-line method over five years from
the date of opening for business. These costs were fully amortized as of
December 31, 1995.
Allowance for Loan Losses:
The provision for loan losses charged to operating expenses is based upon
management's judgment of the adequacy of the allowance giving consideration to
its loan loss experience and an evaluation of the current loan portfolio. Such
provision, less net charge-offs, comprise the allowance which is deducted from
loans and is available for future charge-offs.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
Facilities:
Facilities are stated at cost, less accumulated depreciation and amortization.
Charges to income for depreciation and amortization are computed on the
straight-line method over the assets' estimated useful lives.
When properties are sold or otherwise disposed of, the gain or loss resulting
from the disposition is credited or charged to income. Expenditures for
maintenance and repairs are charged against income and renewals and betterments
are capitalized.
Off Balance Sheet Financial Instruments:
In the ordinary course of business the Bank has entered into off balance sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
Income Taxes:
Provisions for income taxes are based on amounts reported in the statements of
operations, after exclusion of non-taxable income such as interest on state and
municipal securities, and include deferred taxes on temporary differences in
the recognition of income and expense for tax and financial statement purposes.
Deferred taxes are computed on the liability method as prescribed in FAS
No. 109, Accounting for Income Taxes.
Net Income per Share:
Net income per share is computed based on the weighted average shares of common
stock outstanding during the year. Stock splits are retroactively recognized
in determining weighted average shares of common stock outstanding.
Statement of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts on deposit in non-interest bearing accounts with other commercial
banks and Federal funds sold.
Reclassification of Accounts:
Certain items in the financial statements for 1995 and 1994 have been
reclassified to conform to the classifications used for the current year.
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated fair value of investments in debt and equity
securities at December 31, 1996, are as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U. S. Government agencies $ 500 $ - $ 5 $ 495
Mortgage-backed securities 4,643 - 216 4,427
Other 374 - - 374
$ 5,517 $ - $ 221 $ 5,296
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE B - INVESTMENT SECURITIES (Continued)
<TABLE>
Gross Gros Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Securities to be held to maturity:
U. S. Government agencies $ 1,499 $ - $ 177 $ 1,322
Mortgage-backed securities 2,452 2 12 2,442
Other 252 - 3 249
$ 4,203 $ 2 $ 192 $ 4,013
</TABLE>
The amortized cost and estimated fair value of investments in debt and equity
securities at December 31, 1995, are as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U. S. Government agencies $ 500 $ - $ 5 $ 495
Mortgage-backed securities 4,879 1 153 4,727
Other 349 - - 349
$ 5,728 $ 1 $ 158 $ 5,571
</TABLE>
<TABLE> Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Securities to be held to maturity:
U. S. Government agencies $ 1,459 $ - $ 68 $ 1,391
Corporate bonds 3,035 - 40 2,995
Other 253 - 3 250
$ 4,747 $ - $ 111 $ 4,636
</TABLE>
The fair value of securities fluctuates during the investment period. No
provision for loss has been made in connection with the decline of fair value
below book value, because the securities are purchased for investment purposes
and the decline is not deemed to be other than temporary. Temporary declines
in fair value of securities available for sale at December 31, 1996 of $158,000
(net of deferred income taxes of $66,000) are regarded as an adjustment to
stockholders' equity. The estimated fair value of securities is determined on
the basis of market quotations. At December 31, 1996, securities with carrying
value of approximately $3,699,000, and market values of approximately
$3,649,000, were pledged to secure deposits and for other operating purposes.
At December 31, 1996, the amortized cost of collateralized mortgage obligations
included in securities available-for-sale and securities to be held-to-maturity
was approximately $4,117,000 and $400,000, respectively.
No investment securities were sold during 1996. Proceeds from the sale of
investment securities during 1995 and 1994 were approximately $2,919,000 and
$463,000, respectively. Gross realized gains on such sales were approximately
$1,400 and $1,000 respectively.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE B - INVESTMENT SECURITIES (Continued)
The cost and estimated fair value of debt and equity securities at December 31,
1996, by contractual maturities, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
Securities Securities to be
Available-for-Sale Held-to-Maturity
Estimated Estimated
Amortized Fair Amortize Fair
Cost Value Cost Value
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ - $ -
Due from one to five years 500 495 2,661 2,627
Due from five to ten years - - 900 759
Due after ten years 4,643 4,427 390 378
Other 374 374 252 249
$ 5,517 $ 5,296 $ 4,203 $ 4,013
</TABLE>
NOTE C - LOANS
The loan portfolio is classified as follows:
<TABLE>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Commercial and agricultural $ 9,133 $ 9,105
Real estate 37,980 29,815
Installment and other loans 3,945 4,482
Total loans 51,058 43,402
Less, unearned income (34) (1)
Less, allowance for loan losses (354) (373)
$ 50,670 $ 43,028
</TABLE>
The following is a summary of the transactions in the allowance for loan
losses:
<TABLE>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 373 $ 299 $ 185
Provision charged to operating expenses 352 100 160
Loans charged-off (879) (27) (62)
Recoveries 508 1 16
Balance, end of year $ 354 $ 373 $ 299
</TABLE>
Loans on which interest was not being accrued totaled $728,000 and $493,000
at December 31, 1996 and 1995, respectively. Had interest been accrued on these
non-accrual loans at originally contracted rates, interest income (before
income taxes) would have been increased by approximately $69,000 for 1996 and
$10,000 for 1995.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE C - LOANS (Continued)
A loan is considered impaired when, according to the contractual terms of the
contract, it is probable that the Bank will be unable to collect all amounts
due. At December 31, 1996, the Bank had classified $413,000 as impaired. Such
amounts are also included in nonaccrual loans.
NOTE D - FACILITIES
Facilities are summarized as follows:
<TABLE>
Accumulated Estimated
Depreciation & Net Book Useful
Cost Amortization Value Lives
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1996
Land and land improvements $ 278 $ - $ 278
Bank building and improvements 2,200 363 1,837 31.5 years
Furniture, fixtures and equipment 1,099 664 435 2 - 15 years
$ 3,577 $ 1,027 $ 2,550
Accumulated Estimated
Depreciation Net Book Useful
Cost Amortization Value Lives
(In Thousands)
December 31, 1995
Land and land improvements $ 228 $ - $ 228
Bank building and improvements 1,825 301 1,524 31.5 years
Furniture, fixtures and equipment 975 551 424 2 - 15 years
$ 3,028 $ 852 $ 2,176
</TABLE>
Other expenses for the years ended December 31, 1996, 1995 and 1994, include
depreciation and amortization of facilities of $189,000, $197,000 and $181,000,
respectively.
NOTE E - FHLB ADVANCES
The Bank has a line of credit master agreement with the FHLB of Atlanta which
enables the Bank to borrow up to $10,000,000 with no expiration date. These
advances are collateralized by the Bank's FHLB stock and a blanket floating
lien consisting of wholly-owned residential (1-4 units) first mortgage loans.
Advances on the line of $1,000,000 and $1,400,000, were outstanding as of
December 31, 1996 and 1995. As of December 31, 1996 and 1995, the advances had
interest rates of 5.57% and 6.00%, respectively. In addition to the line of
credit arrangement, the Bank had fixed FHLB advances outstanding as of
December 31, 1996, as follows:
<TABLE>
Maturity Date Interest Rate 1996 1995
<S> <C> <C> <C>
2000 5.26% $ 238,095 $ 309,524
2003 5.76% $ 316,667 $ 366,667
</TABLE>
Interest expense on the line of credit and other FHLB advances amounted to
approximately $57,000, $217,000, and $140,000, for the years ended
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE F - STOCKHOLDERS' EQUITY
In connection with the Company's 1990 offering, organizers were granted
warrants to purchase 427,065 shares of common stock at $6.94 per share. The
warrants are exercisable for a ten year period commencing April 13, 1990.
As part of an employment agreement, in 1990 the Company granted stock options
to one of its organizing directors for 5,931 shares of common stock at $10 per
share. In addition, the director received options for 2,966 shares of common
stock in each of the second and fourth years of his employment agreement at an
option price of $10 per share. Such options are exercisable for a term of seven
years from the date of the grant.
In addition to stock options granted to the director, the Company granted stock
options to officers equal to 2% of the number of shares sold in the initial
public offering. The stock options totaling 17,081, are exercisable at $6.94
per share starting with the fifth anniversary of Bank operations and expire on
the tenth anniversary.
The Company has also entered into employment agreements with its officers
providing for the granting of 39,840 non-statutory stock options. Such options
are exercisable at $6.94 per share.
Information with respect to all options granted are summarized as follows:
<TABLE>
Exercise Price
Period Granted Shares Per Option Exercise Period
<S> <C> <C> <C>
1990 5,931 $ 10 through April 1997
1990 17,081 $ 6.94 April 1995 to April 2000
23,012
1991 2,966 $ 10 through 1998
1991 3,168 $ 6.94 through July 2001
29,146
1992 3,168 $ 6.94 through July 2001
32,314
1993 2,966 $ 10 through March 2001
1993 3,168 $ 6.94 through July 2001
38,448
1994 3,168 $ 6.94 through July 2001
41,616
1995 3,168 $ 6.94 through July 2001
44,784
1996 24,000 $ 6.94 through July 2001
68,784
</TABLE>
No options have been exercised as of December 31, 1996.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE F - STOCKHOLDERS' EQUITY (Continued)
The ability of the Company to pay dividends to stockholders depends primarily
on dividends received by the Company from the Bank. The Bank's ability to pay
dividends is limited by Federal banking regulations based upon the Bank's
profitability and other factors.
On December 19, 1996, Board of Directors approved a 20% stock split payable on
January 31, 1997 for shareholders of record on January 15, 1997. All stock
related data in the financial statements reflect the stock split for all periods
presented.
NOTE G - INTEREST ON DEPOSIT ACCOUNTS
Time deposits at December 31, 1996, totaled $40,248,000. Maturities of such
deposits are as follows:
<TABLE>
(In Thousands)
<S> <C>
Year Ending December 31,:
1997 $ 32,746
1998 4,960
1999 410
2000 715
2001 1,415
$ 40,248
</TABLE>
Interest expense of certificates of deposit of $100,000 or more for 1996, 1995
and 1994 were approximately $520,000, $545,000 and $344,000, respectively.
NOTE H - INCOME TAXES
The provision (credit) for income taxes on income is summarized as follows:
<TABLE>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
- - -
Deferred:
Federal 38 (74) (47)
State 8 (20) (8)
(46) (94) (55)
Total income tax provision (credit) $ (46) $ (94) $ (55)
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE H - INCOME TAXES (Continued)
A reconciliation of the income tax computed at the Federal statutory rate of
34% and the income tax provision shown on the statement of operations, follows:
<TABLE>
Year Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Tax computed at statutory rate $ 45 $ 194 $ 43
Increase (decrease) resulting from:
Utilization of net operating loss carryforwards (27) (200) (47)
Recognition of deferred tax assets 23 (94) (55)
Other 5 6 4
Income tax provision $ 46 $ (94) $ (55)
</TABLE>
The components of the deferred income tax asset are as follows:
<TABLE>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Deferred tax liability:
Federal $ (56) $ (54)
State (10) (9)
(66) (63)
Deferred tax asset:
Federal 236 275
State 41 35
277 310
211 247
Valuation allowance (12) (31)
Net deferred tax asset $ 199 $ 216
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Net unrealized holding losses on securities $ 96 $ 74
Depreciation (45) (48)
Net operating loss carryover 84 118
Allowance for credit losses 76 119
Other - (16)
Valuation allowance (12) (31)
Net deferred tax asset $ 199 $ 216
</TABLE>
For Federal and State income tax purposes, the Company has a net operating
loss carryforward of $222,000 as of December 31, 1996, which will expire in
the year 2008.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE I - DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan available to all employees who
have worked one year. Employees may make an election to contribute up to 15%
of their income. The Company pays an annual service fee and a set amount to
participating employees, but makes no contributions to the employees' accounts.
NOTE J - COMMITMENTS AND CONTINGENCIES
The financial statements do not reflect various commitments and contingent
liabilities which arise in the normal course of business and which involve
elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit and
standby letters of credit. A summary of these commitments and contingent
liabilities at December 31, 1996 and December 31, 1995 follows:
<TABLE>
1996 1995
(In Thousands)
<S> <C> <C>
Commitments to extend credit $ 7,115 $ 7,074
Standby letters of credit $ 175 $ 10
Commercial letters of credit $ 198 $ 198
</TABLE>
The Bank uses the same credit policies in making commitments to extend credit
and in issuing standby letters of credit as it does for extensions of credit
shown on the balance sheets.
The Company is party to litigation, outstanding commitments and other
contingent liabilities arising in the normal course of business. In the
opinion of management, the resolution of such matters will not have a material
effect on the financial statements.
The Bank has $1,250,000 unfunded lines-of-credit available from other banks for
the purchase of Federal funds.
NOTE K - CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments and standby letters of credit
have been granted to customers in south Florida. The concentrations of credit
by type of loan are set forth in Note C. The distribution of commitments to
extend credit approximates the distribution of loans outstanding. Standby
letters of credit were granted primarily to commercial borrowers.
NOTE L - RELATED PARTIES
The Bank holds loans and engages in transactions in the ordinary course of
business with certain of the directors and senior officers of the Bank. Total
loans to such persons and their affiliates amounted to $2,230,000 and
$1,790,000 at December 31, 1996 and 1995, respectively.
Following is a summary of activity for 1995 and 1996 for such loans:
<TABLE>
Beginning End of
of Year Year
Balance Additions Reductions Balance
(In Thousands)
<S> <C> <C> <C> <C>
1995 $ 2,250 $ 424 $ 883 $ 1,791
1996 $ 1,791 $ 1,610 $ 1,171 $ 2,230
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE M - NON-INTEREST OPERATING EXPENSES
Other expenses for 1996, 1995 and 1994, were as follows:
<TABLE>
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Advertising and public relations $ 54 $ 25 $ 71
Professional fees 266 69 77
Data processing 140 97 94
Amortization of organizational costs - 15 46
Insurance 47 74 110
Telephone 37 31 29
Other miscellaneous expenses 443 323 298
$ 987 $ 634 $ 725
</TABLE>
NOTE N - 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 a reasonable
estimate of fair value.
Investment Securities:
For securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans Receivable:
For loans subject to repricing and loans intended for sale within six
months, fair value is estimated at the carrying amount plus accrued interest.
The fair value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities:
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair
value of long-term fixed maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturities.
Short-term Debt:
For short-term debt, including accounts and demand notes payable, the
carrying amount is a reasonable estimate of fair value.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE N - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Bank's financial instruments at December 31,
1996, are as follows:
<TABLE>
Carrying Fair
Amount Value
(In Thousands)
<S> <C> <C>
Financial Assets
Cash and deposits in other banks $ 2,620 $ 2,620
Investment securities 9,499 9,309
Loans 50,670 49,630
Total assets valued $ 62,789 $ 61,559
Financial Liabilities
Deposits $ 58,646 $ 59,082
Federal funds purchased 500 500
FHLB Advances 1,555 1,555
Total liabilities valued $ 60,701 $ 61,137
</TABLE>
NOTE O - REGULATORY CAPITAL MATTERS
The Federal Reserve Board and other bank regulatory agencies have adopted
risk-based capital guidelines for banks and bank holding companies. The main
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of banking organizations and to take
into account the different risks among banking organizations' assets,
liabilities and off-balance sheet items. Bank regulatory agencies have
supplemented the risk-based capital standard with a leverage ratio for Tier I
capital to total reported assets.
Failure to meet the capital adequacy guidelines and the framework for prompt
corrective actions could initiate actions by the regulatory agencies which
could have a material effect on the financial statements.
As of December 31, 1996, the most recent notification from the FDIC, the Bank
was categorized as well capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well capitalized, it will have to
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as disclosed in the table below. There are no conditions or events since the
most recent notification that management believes have changed the prompt
corrective action category.
<TABLE>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio >= Amount >= Ratio >=Amount >=Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 5,508 11.56% $ 3,812 8.00% $ 4,765 10.00%
Tier I Capital
(to Risk-Weighted Assets) $ 5,154 10.82% $ 1,906 4.00% $ 2,859 6.00%
Tier I Capital
(to Adjusted Total Assets) $ 5,154 8.07% $ 2,555 4.00% $ 3,194 5.00%
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE O - PARENT COMPANY FINANCIAL INFORMATION
Presented below are condensed financial statements for Citrus Financial
Services, Inc. (parent only):
<TABLE>
Condensed Balance Sheets as of December 31: 1996 1995
(In Thousands)
<S> <C> <C>
Assets
Cash $ 263 $ 361
Investment in subsidiary bank, net 4,997 4,903
Other assets 178 150
Total $ 5,438 $ 5,414
Liabilities and Stockholders' Equity
Liabilities $ 11 $ 43
Stockholders' equity 5,427 5,371
Total $ 5,438 $ 5,414
</TABLE>
Condensed Statements of Operations and Stockholders' Equity
<TABLE>
Years Ended December 31: 1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Equity in net income of subsidiary bank $ 121 $ 643 $ 178
Other income 67 102 24
Other expenses (103) (81) (22)
Net Income 85 664 180
Stockholders' Equity:
Beginning of year 5,371 4,250 4,598
Acquisition of treasury stock (1) - -
Net change in unrealized holding losses
on securities in subsidiary bank (28) 457 (528)
End of year $ 5,427 $ 5,371 $ 4,250
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
Years Ended December 31: 1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Operating Activities
Net income $ 85 $ 664 $ 180
Adjustment to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiary (121) (643) (178)
Deferred income taxes 23 (74) (25)
Other (85) 57 (23)
Net cash Provided by (Used in)
operating activities (98) 4 (46)
Cash at beginning of year 361 357 403
Cash at end of year $ 263 $ 361 $ 357
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Citrus Financial Services, Inc. and Subsidiary
Vero Beach, Florida
We have audited the consolidated balance sheets of Citrus Financial Services,
Inc. and subsidiary as of December 31, 1996, and December 31, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Citrus Financial
Services, Inc. and subsidiary as of December 31, 1996, and December 31, 1995
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Certified Public Accountants
Tampa, Florida
January 10, 1997
<PAGE>
Board of Directors
Citrus Financial Services, Inc.
Citrus Bank, National Association
Robert L. Brackett
Chairman of the Board
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
Treasurer and Director
Credit Data Services, Inc.
Real Estate Investments
Josh C. Cox, Jr.
President and Chief Executive Officer
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
S. Hallock duPont, Jr.
Director
Citrus Bank, N.A.
President
Europa Corp.
Hubert Graves, Jr.
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
President
Hubert Graves Citrus, Inc.
President
HGX, Inc.
Roy H. Lambert
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
Chairman
Regency Windsor Companies
Earl H. Masteller
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
President
Masteller, Moler & Associates, Inc.
Vice President
Sickels & Masteller, Inc.
Louis L. Schlitt
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
President
Schlitt Insurance Services, Inc.
Louis Schlitt, Inc.
William B. Schuh
Director
Community Relations
Citrus Bank, N.A.
Walter E. Smith, Jr.
Director
Citrus Financial Services, Inc.
Owner/Operator
Unocal 76 Truck Stops
James R. Thompson
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
Consulting Engineer
Jeffrey L. Velde
Director
Citrus Bank, N.A.
President
Velde Ford
<PAGE>
<PAGE>
Officers
Citrus Financial Services, Inc.
Citrus Bank, National Association
Josh C. Cox, Jr.
President and Chief Executive Officer
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
Randy J. Riley
Senior Vice President
Chief Lending Officer
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
Jeffrey P. Meyer
Vice President
Commercial Lending
Citrus Bank, N.A.
Marie E. Yates
Vice President
Manager - Barefoot Bay Center
Citrus Bank, N.A.
Diana R. Best
Assistant Vice President
Manager - Sebastian Center
Citrus Bank, N.A.
Cindy L. Morley
Assistant Vice President
Credit Administration
Citrus Bank, N.A.
Marion H. De Tota
Finance Officer
Citrus Bank, N.A.
Henry O. Speight
Senior Vice President
Chief Financial Officer
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
Donna Mangino-Prieto
Vice President
Human Resources/Marketing
Citrus Bank, N.A.
Joanna Brown
Assistant Vice President
Operations Officer
Citrus Bank, N.A.
Ginette M. Sholan
Assistant Vice President
Loan Administration Officer
Citrus Bank, N.A.
<PAGE>
<PAGE>
Shareholder Information
Shareholder Assistance
Shareholders requiring a change of address, records, or
information about lost /missing certificates, should contact:
Citrus Financial Services, Inc.
P.O. Box 2560
Vero Beach, FL 32961-2560
Telephone: (561) 778-4100
Information
Analysts, investors and others seeking financial data or
general information are asked to contact Raymond James
and Associates.
Telephone: (561) 231-7000
Publications
Requests for printed materials, including annual and
quarterly reports, proxy statements, 10-K and 10-Q reports
should be directed to CFSI's Finance Officer:
Citrus Financial Services, Inc.
P.O. Box 2560
Vero Beach, FL 32961-2560
Telephone: (561) 778-4100
Annual Meeting
CFSI's 1996 annual meeting of shareholders will be held at
5:00 p.m. on Monday, April 28, 1997, at the offices of
Citrus Bank, N.A., 1717 Indian River Boulevard, Vero
Beach, Florida.
Independent Auditors
Rex Meighen & Company
509 South Hyde Park Avenue
Tampa, Florida 33606-2295
Telephone: (813) 251-1010
Legal Counsel
Igler & Dougherty, P.A.
1501 Park Avenue East
Tallahassee, Florida 32301
(904) 878-2411
CITRUS FINANCIAL SERVICES, INC.
1717 Indian River Boulevard
Vero Beach, Florida 32960
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
March 28, 1997
Solicitation and Voting of Proxies
This Proxy Statement and the accompanying Proxy Card are being furnished
to shareholders of Citrus Financial Services, Inc. ("Citrus" or the "Company")
in connection with the solicitation of proxies by the Board of Directors to be
used at the Company's Annual Meeting of Shareholders ("Annual Meeting") or any
adjournment thereof, which will be held on Monday, April 28, 1997 at 5:00 p.m.,
Eastern Time at the Company's headquarters located at 1717 Indian River
Boulevard, Vero Beach, Florida.
Regardless of the number of shares of common stock owned, it is important
that shareholders be represented by proxy or in person at the Annual Meeting.
Shareholders are requested to vote by completing the enclosed Proxy Card and
returning it signed and dated in the enclosed postage prepaid envelope.
Shareholders are urged to indicate the way they wish to vote in the space
provided on the Proxy Card. Proxies solicited by the Board of Directors of the
Company will be voted in accordance with the directions given therein. Where
no instructions are indicated, proxies will be voted "FOR" the management
director nominees set forth below; "FOR" the ratification of Rex Meighen &
Company as the independent auditors of Citrus for the fiscal year ending
December 31, 1996; and if necessary, "FOR" approval to adjourn the Annual
Meeting to further solicit Proxies.
Revocation of Proxy
A shareholder's presence at this Annual Meeting will not automatically
revoke his or her proxy. Shareholders may revoke a proxy at any time prior
to its exercise by filing with the Secretary of the Company a written notice
of revocation, by delivering to the Company a duly executed proxy bearing a
later date, or by attending this Annual Meeting and voting in person.
Voting Securities
The securities which may be voted at this Annual Meeting consist of shares
of common stock of Citrus ("Common Stock") with each share entitling its owner
to one vote for the election of directors and any other matters that may come
before the Annual Meeting. The close of business on March 14, 1997 has been
fixed by the Board of Directors as the record date ("Record Date") for the
determination of shareholders entitled to notice of and to vote at this Annual
Meeting and any adjournment thereof. The total number of shares of the
Company's Common Stock outstanding on the record date was 854,099 shares which
are held by approximately 450 shareholders.
<PAGE>
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares of Common Stock is necessary to constitute a
quorum at the Annual Meeting. In the event there are not sufficient votes for
a quorum to approve any Proposal at the time of the Annual Meeting, this
Annual Meeting may be adjourned in order to permit further solicitation of
proxies.
Certain Shareholders
As of March 14, 1997, no persons or apparent groups of persons, other than
Officers or Directors of the Company and the Bank, are known by management to
own beneficially five percent or more of the outstanding shares of Citrus'
Common Stock.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of Citrus, as proposed herein, will be composed of
eight members. The Board of Directors are divided into three classes and the
terms of each class are staggered so that approximately one-third of the
directors are elected each year. Terms for directors are three years. Currently
there are three Class I directors, three Class II directors, and two Class III
directors. Three Class I directors have been nominated by the Board to stand
for election at this Annual Meeting.
Management's nominees to fill the three-year terms are Hubert Graves, Jr.,
Earl H. Masteller, and Walter E. Smith, Jr., all of whom are presently
directors of Citrus.
It is intended that the proxies solicited by the Board of Directors will
be voted "FOR" the election of said nominees. If any nominee is unable to
serve, the shares represented by all valid proxies will be voted for the
election of such substitute as the Board may recommend. At this time the
Board of Directors knows of no reason why any nominee might not be able to
serve.
The Board of Directors recommends that shareholders vote "FOR" election
of the nominees
The following table describes the period that each nominee has served as
a director of Citrus, his position and offices held, with the Company, his
principal occupation or employment, and further contains information as of
March 14, 1997, with respect to the beneficial ownership (as such term is
defined under the Rules and Regulations of the Securities Exchange Commission)
of the Company's Common Stock held by each nominee, each director and all
directors as a group.
<PAGE>
<TABLE>
Name, age, principal Amount and nature
occupation, director- Current of beneficial
ships and business Director term ownership of Percent
experience since expires Common Stock of class(1)
Management's nominees
for three-year terms:
Class I Directors
<S> <C> <C> <C> <C>
Hubert Graves, Jr.,
Age 66. 1989 1997 136,052(2) 10.1%
President of Hubert
Graves Citrus, Inc.
since 1965. President
of HGX, Inc. since
1977.
Earl H. Masteller,
Age 58. 1989 1997 56,966(3) 4.2%
President of Masteller
& Moler Associates,
Inc., since 1985.
Vice President of
Masteller, Moler and
Reed, Inc., since 1987.
Vice President of
Sickels & Masteller,
Inc., since 1972.
Walter E. Smith, Jr.,
Age 56. 1990 1997 109,333(4) 8.1%
Owner and operator of
Unocal 76 Truck stops
in Florida and Georgia
since 1973.
Continuing Directors:
Class II Directors
Robert L. Brackett,
Age 62. 1989 1998 101,394(5) 7.5%
Chairman of the Board
of The Company and
Citrus Bank since 1990.
Treasurer and Director
of Credit Data Services,
Inc. since 1977.
Principal Shareholder
of Promotion Specialties
and Awards, Inc. since
1987.
Roy H. Lambert,
Age 66. 1994 1998 211,597(6) 15.7%
Chairman of Regency
Windsor, Inc. since
1974.
James R. Thompson,
Age 68. 1990 1998 2,450(7) 0.2%
Consulting Engineer for
Regency Windsor Capital,
Inc. since 1988.
President of Regency
Acquisitions, Inc. from
1980 to 1988.
</TABLE>
<PAGE>
<TABLE>
Name, age, principal Amount and nature
occupation, director- Current of beneficial
ships and business Director term ownership of Percent
experience since expires Common Stock of class
Class III Directors
<S> <C> <C> <C> <C>
Josh C. Cox, Jr.,
Age 55. 1993 1999 144 - -(8)
President and Chief
Executive Officer of
the Company since
June 1994. President
and Chief Executive
Officer of the Bank
since June, 1994. Bank
Consultant since 1976.
President and Chief
Executive Officer of
First Guaranty Bank,
Hammond, Louisiana from
1986 to 1991.
Louis L. Schlitt,
Age 61. 1989 1999 70,762(9) 5.2%
President of Schlitt
Insurance Services, Inc.
since 1983. President of
Louis Schlitt, Inc.
since 1984.
</TABLE>
(1) Percentage computed on 854,099 shares issued and outstanding, plus 427,065
shares subject to presently exercisable stock purchase warrants granted in
connection with the Company's stock offering, and 68,784 shares subject to
presently exercisable stock options for a total of 1,349,948 beneficial shares.
(2) Includes 53,252 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 68,400 shares owned jointly by Mr. Graves and his spouse, 7,200
shares owned by Hubert Graves Citrus, Inc. and 7,200 shares owned by HGX, Inc.,
both of which Mr. Graves is the President and principal shareholder.
(3) Includes 17,756 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 17,286 shares individually, 18,057 shares owned jointly with his wife,
3,680 shares held by his individual retirement account and 187 shares held in
his wife's individual retirement account.
(4) Includes 50,725 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 58,608 shares in the Walter E. Smith Revocable Trust.
(5) Includes 21,734 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 7,372 shares owned by Mr. Brackett individually, 280 shares owned by
his wife, and 72,000 shares owned by Mr. Brackett as Trustee.
(6) Includes 87,253 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 124,200 shares owned by the Revocable Trust of Roy H. Lambert of
which Mr. Lambert is the beneficiary, and 144 shares owned by Mr. Lambert
individually.
(7) Includes 1,010 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 124,200 shares owned by the Revocable Trust of Roy H. Lambert, of
which Mr. Thompson is the sole Trustee, and 1,440 shares owned individually.
<PAGE>
(8) Represents less than 1% of outstanding shares.
(9) Includes 52,614 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 6,852 shares owned individually by Mr. Schlitt, 7,860 shares held by
the Schlitt Insurance Profit Sharing Plan, 3,120 shares held by his wife's
individual retirement account, and 76 shares owned in trust for Mr. Schlitt's
son, David J. Schlitt for whom Mr. Schlitt is trustee and 240 shares held by
his individual retirement account.
Board of Directors Meetings
Citrus conducts its business through meetings of the Board of Directors.
During the fiscal year ended December 31, 1996, the Board of Directors held
five meetings. No director of the Company, attended fewer than 75% of the
total meetings of the Board of Directors.
Committees of the Board of Directors
The Board of Directors of the Company does not have standing Committees.
Directors' Compensation
Citrus paid director fees of $3,000 to its Directors for the period ending
December 31, 1996 and Citrus Bank paid director fees of $49,500 for the same
period.
Executive Compensation
The table below identifies the Chief Executive Officer and other principal
officers of Citrus or of its wholly owned subsidiary Citrus Bank, whose total
annual cash compensation exceeded $100,000 during the fiscal year ended
December 31, 1996.
<TABLE>
Summary Compensation Table
Long-term
Annual Compensation compensation All
Name and Other annual other
principal position Year Salary(1) Bonus compensation(2) Stock options compensation
<S> <C> <C> <C> <C> <C> <C>
Josh C. Cox, Jr. 1996 $160,000 None $ 17,853 20,000 None
President and Chief 1995 $160,000 None $ 8,701 None None
Executive Officer 1994 $ 81,544 None $ 7,333 None None
since July 1, 1994 1993 -- -- -- -- --
</TABLE>
(1) Mr. Cox's annual base salary for the fiscal year 1997 is $160,000. This
base salary is considered to be compensation for Mr. Cox's service as
President and Chief Executive Officer of both the Company and the Bank.
(2) Other annual compensation includes an annual automobile allowance of
$9,000, director fees of $5,500 and annual club dues of $3,353.
<PAGE>
Benefits
Insurance: Citrus Bank's full-time officers and employees are provided
hospitalization, major medical, short and long-term disability, dental
insurance and term life insurance under group plans on generally the same
basis to all full-time employees. The Bank pays 95% of the costs of this
insurance.
Bonuses: Neither the Company nor the Bank has an established bonus
policy for employees; however, based upon Citrus' operating results for 1996,
the Bank's Board of Directors awarded $3,000 in bonuses to employees of the
Bank during the year ended 1996. The payment of any bonus is at the sole
discretion of the Board of Directors.
401(k) Plan: During 1990 Citrus Bank adopted a 401(k) Plan ("401[k]")
which covers all of the employees of the Bank who have completed at least one
year of service and who are at least 20 years of age. The effective date of
the 401(k) was January 1, 1990. Eligible employees who choose to participate
in the 401(k) may contribute from 1% to 20% of their annual base salary to the
401(k). The Bank may match up to 100% of all employee contributions which are
equal to or less than $9,500 of base salary. In addition, the Bank may elect
to make additional contributions to the 401(k) based upon the Bank's annual
profit. Contributions made by the Bank do not vest in an individual employee
until that employee has 2 years of service, at which time 25% of contributions
made are earned. For each additional year of service, an employee will earn
another 25% until the end of year five when an employee will be 100% vested.
The Bank did not contribute to the 401(k) for the fiscal year ended December
31, 1996 or in previous years.
PROPOSAL II - APPOINTMENT OF AUDITORS
FOR FISCAL YEAR ENDING DECEMBER 31, 1996
Citrus' independent auditors for the fiscal year ended December 31, 1996,
were Rex Meighen & Company. The Board of Directors appointed Rex Meighen &
Company to be its independent auditors for the fiscal year ending December
31, 1996 and would like the shareholders to ratify that appointment. A member
of the firm will be present at the Annual Meeting to respond to shareholders
questions and will have the opportunity to make a statement if he so desires.
The Board of Directors recommends that shareholders vote "FOR" the
ratification of the appointment of Rex Meighen & Company as independent
auditors for the fiscal year ending December 31, 1996.
PROPOSAL III - ADJOURNMENT OF ANNUAL MEETING
The Board of Directors of Citrus seeks your approval to adjourn the Annual
Meeting in the event that the number of proxies sufficient to approve Proposals
I, II and III are not received by April 28, 1997. In order to permit proxies
that have been received by Citrus at the time of the Annual Meeting to be
voted, if necessary, for adjournment, Citrus is submitting the question of
adjournment to permit further solicitation of proxies as a separate matter for
your consideration.
<PAGE>
If it is necessary to adjourn the Annual Meeting and the adjournment is for a
period of less than 30 days, no notice of the time and place of the adjourned
meeting need be given the shareholders, other than an announcement made at the
Annual Meeting.
The Board of Directors recommends that shareholders vote "FOR" approval
to adjourn the Meeting.
Solicitation
The cost of soliciting proxies on behalf of the Board of Directors for
the Annual Meeting will be borne by Citrus. Proxies may be solicited by
directors, officers or regular employees of the Company or Citrus Bank in
person or by telephone, telegraph or mail. Citrus will request persons, firms
and corporations holding shares in their names, or in the names of their
nominees, which are beneficially owned by others, to send proxy materials to
and obtain proxies from such beneficial owners, and will reimburse such
holders for their reasonable out-of-pocket expenses in doing so.
Shareholder Proposals
In order to be eligible for inclusion in Citrus' proxy material for next
year's Annual Meeting of Shareholders, any shareholder proposal to take
action at such Annual Meeting must be received at the Corporate Office of the
Company, 1717 Indian River Boulevard, Suite 100, Vero Beach, Florida 32960,
on or before January 22, 1998. Proposals must comply with the provisions of
17 C.F.R. Section 240.14a-8 ("Rule 14a") of the rules and regulations of the
Securities and Exchange Commission in order to be included in the Company's
proxy materials.
New business may be taken up at the Annual Meeting, provided the proposal
is stated in writing and filed with the Secretary of the Company at least five
days before the Annual Meeting. Any shareholder may make any other proposal
at the Annual Meeting and the same may be discussed and considered, but unless
stated in writing and filed with the Company's Secretary by the above date, such
proposal shall be laid over for action at an adjourned Annual Meeting or at a
Special Meeting taking place 30 or more days thereafter. This provision does
not prevent the consideration and approval or disapproval at the Annual
Meeting of reports of officers, directors and committees; but in connection with
such reports, no new business shall be acted upon at such Annual Meeting unless
stated and filed as provided herein.
Financial Statements
A copy of the Annual Report for the fiscal year ended December 31, 1996,
accompanies this Proxy Statement. The Annual Report includes Financial
Statements, which information is incorporated herein by reference.
Report on Form 10-KSB
Shareholders of Citrus can obtain a copy of the Company's Annual Report
for the fiscal year ended December 31, 1996 on Form 10-KSB as filed with the
Securities and Exchange Commission by making a written request therefor to the
Company, Attention: Henry O. Speight, Senior Vice President and Chief
Financial Officer, 1717 Indian River Boulevard, Suite 100, Vero Beach, Florida
32960.
<PAGE>
Copies of exhibits and basic documents filed with that Report or referenced
therein will be furnished to shareholders of record upon request.
Other Matters
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of
Proxy to vote the Proxy in accordance with their judgment of what is in the
best interest of the Company.
Citrus Financial Services, Inc.,
Vero Beach, Florida
March 28, 1997
<PAGE>
