UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number 33-29696-A
__________________________________________________
CITRUS FINANCIAL SERVICES, INC.
(Exact Name of registrant as specified in its charter)
Florida 65-0136594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 Indian River Boulevard
Suite 100
Vero Beach, Florida 32960
(Address of Principal Executive Offices) (Zip Code)
__________________________________________________
(561) 778-4100
(Registrant's telephone number including area code)
__________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
Indicate the number of shares of outstanding of each of the issuer's classes
of Common Stock:
Class Outstanding as of November 3, 1997
Common Stock 865,961
Par Value $3.47 per share
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
INDEX
PAGE
PART I: FINANCIAL INFORMATION NUMBER
Item 1: Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 1
Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1996 and for the three months
ended September 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and September 30, 1996 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4-7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
PART II: OTHER INFORMATION 11
Signatures 12
<PAGE>
<TABLE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, 1997 December 31, 1996*
(dollars in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 2,302 $ 2,514
Federal Funds Sold 2,950 0
Interest Bearing Deposits in Other Banks 111 106
Investment Securities 3,656 4,203
(Market Value September 30, 1997 was $3,574)
(Market Value December 31, 1996 was $4,013)
Securities Available for Sale 5,864 5,296
Loans, Net of Deferred Fee Income 50,868 51,024
Less: Allowance for Loan Losses 395 354
Net Loans 50,473 50,670
Premises & Equipment, Net 2,492 2,550
Other Assets, Net 1,123 1,077
Total Assets $ 68,971 $ 66,416
LIABILITIES
Deposits:
Noninterest Bearing Demand Deposits $ 8,434 $ 8,136
Interest Bearing Accounts:
NOW 3,255 3,386
Money Market Deposit Accounts 3,984 3,889
Savings 5,949 2,987
Certificates of Deposits 39,462 40,248
Total Deposits 61,084 58,646
Federal Funds Purchased and FHLB Advances 1,764 2,055
Other Liabilities 428 288
Total Liabilities 63,276 60,989
STOCKHOLDERS' EQUITY
Treasury Stock (1) (1)
Common Stock 3,007 2,966
Additional Paid-In Capital 3,149 3,108
Accumulated Deficit ( 367) ( 488)
Unrealized loss on securities available for sale ( 93) ( 158)
Total Shareholders' Equity 5,695 5,427
Total Liabilities and Stockholders' Equity $ 68,971 $ 66,416
* Condensed from December 31, 1996, audited
balance sheet
</TABLE>
<PAGE>
<TABLE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
(dollars in thousands except
per share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Loans Including Fees $ 3,589 $ 3,217 $ 1,229 $ 1,077
Investment Securities and Interest
Bearing Deposits in Other Banks 413 430 138 141
Federal Funds Sold 94 31 20 6
Total Interest Income 4,096 3,678 1,387 1,224
Interest Expense:
Interest on Deposits 1,809 1,646 604 545
Other Interest 51 43 25 19
Total Interest Expense 1,860 1,689 629 564
Net Interest Income 2,236 1,989 758 660
Provision for Loan Losses 237 244 25 122
Net Interest Income After Provision for
for Loan Losses 1,999 1,745 733 538
Noninterest Income 284 263 102 91
Noninterest Expense 2,088 1,754 641 642
INCOME BEFORE INCOME TAXES 195 254 194 (13)
INCOME TAXES (CREDIT) 74 84 74 (5)
NET INCOME $ 121 $ 170 $ 120 $ (8)
NET INCOME PER COMMON SHARE $ 0.14 $ 0.24 $ .14 $ (0.01)
AVERAGE SHARES OUTSTANDING 865,961 865,961 865,961 865,961
</TABLE>
<PAGE>
<TABLE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
(dollars in thousands) 1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 121 $ 170
Adjustment To Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 16 137
Increase in Prepaid Expenses and Other Assets (46) (270)
Provision for Loan Losses 237 244
Origination of Loans Held for Sale (38,718) (46,788)
Proceeds on Sale of Loans Held for Sale 41,264 43,822
Increase (Decrease) in Other Liabilities 140 83
Net Cash Provided (Used) by Operating Activities 3,165 (2,602)
Cash Flows from Investing Activities:
Loan Originations, Net of Principal Payments (2,586) 788
Purchase of Investment Securities and Interest
Bearing Deposits (5) (10)
Proceeds on Maturing Securities 547 386
Purchase of Securities Available for Sale (601) 0
Proceeds on Sale of Securities Available for Sale 98 227
Capitalization of Premises and Equipment (109) (500)
Net Cash Provided (Used) by Investing Activities (2,656) 891
Cash Flows from Financing Activities:
Increase (Decrease) in Certificates of Deposit - Net (786) 114
Decrease in Other Deposits - Net 3,224 (172)
FHLB Advances --- 1,000
Repayment of FHLB Advances (291) (1,491)
Purchase of Treasury Stock 82 (1)
Net Cash Provided (Used) by Financing Activities 2,229 (550)
Net Decrease in Cash and Cash Equivalents 2,738 (2,261)
Cash and Cash Equivalents at Beginning of Period 2,514 5,002
Cash and Cash Equivalents at End of Period $ 5,252 $ 2,741
Supplemental disclosure of cash flow information
Amount paid during the period for:
Interest Expense $ 1,861 $ 1,690
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
Note (1) Accounting Policies
The consolidated financial statements include the accounts of Citrus Financial
Services, Inc. and its wholly owned subsidiary Citrus Bank, National
Association, (Company). The information contained in the financial statements
is unaudited. In the opinion of management, all adjustments have been made
(consisting only of normal recurring accruals) necessary to present a fair
statement of the results for interim periods. The results for interim periods
are not necessarily indicative of trends or results to be expected for a full
year. It is suggested that these financial statements and notes be read in
conjunction with the Company's financial statements for the year ended
December 31, 1996 included in the Company's annual report on Form 10-KSB filed
with the Securities and Exchange Commission.
Note (2) Loans
Loans receivable are stated at unpaid principal balances, less unearned
discounts, and net of deferred loan origination fees and costs. Interest
receivable is accrued only if deemed collectible. Generally, Company policy
is not to accrue interest on loans delinquent over ninety days. Such interest
ultimately collected is credited to income in the period received.
Loans, as categorized by the underlying collateral, consist of:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate $ 36,102 71.0% $ 37,980 74.4%
Commercial, Financial, and Agriculture 10,811 21.2% 9,133 17.9%
Consumer and Other 3,982 7.8% 3,945 7.7%
Total loans, gross $ 50,895 100.0% $ 51,058 100.0%
</TABLE>
Note (3) Allowance for Loan Losses
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 lending professionals have been engaged
to assist in the valuation 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 puts a reporting process in place to monitor the progress of the
credits.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
The Company maintains the allowance for loan losses at a level sufficient to
absorb all estimated losses inherent in the loan portfolio. The allowance for
loan losses is made up of two primary components, amounts allocated to loans
based on collateral type and amounts allocated for loans reviewed on an
individual basis in accordance with a credit risk grading system.
Activity in the allowance for loan losses from January 1, through
September 30, 1996 and 1997 is as follows: (in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
Balance, January 1, $ 354 $ 373
Recoveries 0 0
Chargeoffs (196) (84)
Provision charged to expense 237 244
Balance, September 30, $ 395 $ 533
</TABLE>
Note (4) Investment Securities
Investment securities are carried at cost, adjusted for amortization of
premiums or accretion of discounts. The amortized cost and estimated fair
value of investments in securities are as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(in thousands)
Debt Securities:
<S> <C> <C> <C> <C>
U.S. Government Agencies $ 1,472 $ 1,412 $ 1,499 $ 1,322
Mortgaged-backed Securities 1,933 1,912 2,452 2,442
Other 251 250 252 249
Total Securities $ 3,656 $ 3,574 $ 4,203 $ 4,013
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
The amortized cost and estimated fair value of debt securities by contractual
maturity, are shown below. Debt securities with maturities greater than ten
years includes $317,000 in an amortized cost fixed rate mortgage backed
obligation which has a significantly shorter expected maturity as a result of
prepayments.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(in thousands)
<S> <C> <C> <C> <C>
Due in One Year or Less $ 1,509 $ 1,499 $ --- $ ---
From One to Five Years 1,355 1,342 2,661 2,627
From Five to Ten Years 475 425 900 759
Due After Ten Years 317 308 390 378
Other 252 249
$ 3,656 $ 3,574 $ 4,203 $ 4,013
</TABLE>
Note (5) Securities Available for Sale
The amortized cost and estimated fair value of securities available for sale
as of September 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 601 $ 606 $ --- $ ---
U.S. Government Agencies 500 498 500 495
U.S. Government Agency
Mortgage Backed Securities 4,496 4,333 4,643 4,427
Other 427 427 374 374
Total Securities $ 6,024 $ 5,864 $ 5,517 $ 5,296
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
The amortized cost and estimated fair value of debt securities by contractual
maturity, are shown below. Debt securities with maturities greater than ten
years include $2,846,000 in market value adjustable rate issues and the balance
in primarily fixed rate mortgage backed obligations that have significantly
shorter expected maturities as a result of prepayments.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
(in thousands)
<S> <C> <C> <C> <C>
Due in One to Five Years $ 1,101 $ 1,103 $ 500 $ 495
Due After Ten Years 4,496 4,334 4,643 4,427
Other 427 427 374 374
Total Securities $ 6,024 $ 5,864 $ 5,517 $ 5,296
</TABLE>
From January 1, 1997 through September 30, 1997 securities were sold, called,
or prepaid that aggregated $645,000. During the year $601,000 in two year U.S.
Treasury Notes were purchased. Securities Available for Sale had an unrealized
market value loss of $160,000 as of September 30, 1997.
Note (6) Financial Instruments With Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments included commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Financial instruments at September 30, 1997 consisted of commitments to extend
credit approximating $8,508,000, and standby letters of credit of $150,000.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. and SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Citrus Financial Services, Inc., a one bank holding company, had consolidated
assets of $68,971,000 at the end of the third quarter of 1997. At the end of
1996 the Company reached $66,416,000. As loan growth slowed during the second
and third quarter the loan portfolio remained flat while depository accumulation
was invested in daily federal funds sold awaiting resurgent loan demand. At
the end of June total assets were $65,613,000, slightly below 1996's year end
total of $66,416,000. By the end of the third quarter, however, deposit
balances began to turn up with total assets at the end of September increasing
$3.4 million from the previous quarter's end.
The Company's net interest income increased $247,000 compared to the same period
last year but the increase was offset by the increase in noninterest expenses
of $334,000 for the same period. Noninterest income was up $21,000. Many of
these increased expenses reflected the costs of the bank's newly opened branch
in Barefoot Bay, Florida but the majority of this increase was due to legal
fees from litigation involving two Citrus Bank problem credits.
STATEMENT OF CONDITION ANALYSIS
Total assets exceed December 31, 1996 aggregate total assets of $66,416,000
and this growth should heighten thru the end of 1997. During October, 1997
the Company's initiated armored car services for Citrus Bank's customers. This
service is expected to enhance the bank's noninterest bearing deposit growth
and garner commercial accounts not previously available to the bank. In
September of 1996 Citrus Bank opened its second branch in Barefoot Bay,
Florida. At the end of September, 1997 this new branch had garnered almost
$9,000,000 in average deposits. A return of the area's winter residents,
normally beginning in October, will also strengthen deposit growth. Management
anticipates that aggregate deposit growth targeted at $550,000 per month will
be realized by year end 1997.
The Company's overall deposit mix exhibits some significant change. Savings
deposits have increased from 5.1% to 9.7% of total deposits. Certificates of
deposit have been reduced as to their prorata share of the deposit portfolio.
Bank management introduced a new savings deposit during the year that has
become very successful. This new product, while having a higher interest rate
than traditional savings accounts, nonetheless, provides a more cost effective
alternative to certificates of deposit. Certificates of Deposit exhibited a
large change moving from 68.6% of total deposits to 64.7% by the end of
September. This reduced reliance on Certificates of Deposits will be continued
in the future in management's continuing efforts to reduce funding costs.
Management will continue to place increased emphasis upon building aggregate
deposits concentrating on less costly deposit products.
The following schedule illustrates the deposit mix using monthly consolidated
deposit aggregates:
<TABLE>
<CAPTION>
Monthly Deposit Mix Comparison
Deposit types 9/97 Change 12/96
<S> <C> <C> <C>
Demand Deposits 13.8% -0.1% 13.9%
NOW Accounts 5.3% -0.5% 5.8%
Money Market Accounts 6.5% -0.1% 6.6%
Savings Deposits 9.7% 4.6% 5.1%
Certificates of Deposit 64.7% -3.9% 68.6%
</TABLE>
<PAGE>
Loans have been flat the second and third quarters of 1997. Ending 1996 at
$51,024,000, total loans aggregated $50,868,000 at the end of September, 1997.
New competitors into the local marketplace with aggressive new entrant pricing
has impacted new loan growth opportunities but management anticipates that loan
growth will return during the fourth quarter. While management has experienced
a less hesitant local economy, local business leaders are being aggressive
solicited with new lenders.
The loan portfolio continues to favor real estate collateralized loans but to
a lesser degree. This portion of the portfolio moved from 74.4% to 71% of
aggregate loan outstandings from the end of 1996 to the end of this current
period, September 30, 1997. Commercial loans increased during this period
both in dollars and in their respective portfolio positioning moving from 17.9%
to 21.2% of the loan portfolio. Consumer loans exhibited no appreciable change.
Residential real estate loans represent the largest portion of the loan
portfolio and remains at 41.6% at the end of 1996 and at September 30, 1997.
Short term residential mortgage loans were sold to the secondary market during
the first nine months of 1997 that totaled $41,264,000. Management continually
reviews all of its loan programs for profitability into the future and
expectations for enhanced growth.
Management has continued its monthly monitoring of the loan portfolio and the
relationship of the loan loss reserve throughout 1997. The level of the
reserve has been increased during this period to its current level of $395,000.
Loan chargeoffs through September 30, 1997 were $196,000. The identification
of problematic credits necessitated this increase reflecting possible loss
exposure of these credits. The reserve was .78% of gross loans at
September 30, 1997.
During 1997 U.S. Treasury Notes with two year maturities were purchased at
$601,000. No other securities have been purchased or sold. Investing activities
have primarily been left to the development of the loan portfolio which
management anticipated to have greater long term profitability for the Company.
Prepayments and maturities have reduced the amortized value of investments by
$645,000. At the same time decreasing interest rates during the period has
increased the market value of the securities available for sale by $65,000 with
$98,000 in unrealized losses on securities after tax for September 30, 1997.
U.S. Treasury and Agency securities represent 92.9% of the portfolio.
The Company has sufficient liquidity at the current time with $2,302,000 in
Cash and Due from Banks, $2,950,000 in federal funds sold to other banks,
$1,750,000 in unsecured federal funds purchased lines of credit with other
banks, and $5,864,000 in the market value of securities available for sale.
An additional $10,000,000 in lines of credit with the Federal Home Loan Bank
(FHLB) are established should the need arise. This relationship provides
increased flexibility to match terms of maturity and interest rate risk.
Management anticipates that these funding sources are adequate to meet
anticipated needs. There are no other 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.
As of September 30, 1997 equity capital represents 8.26% of total assets and
overnight cash and cash equivalents aggregate 7.6% of total assets. The
capital adequacy measurement known as risk based capital has been adopted by
regulatory bodies and applies capital to risk weighted assets according to
predetermined risk factors per categories of assets. The greater the potential
risk, the greater the capital need. The capital to risk weighted assets
requirement is 8%. At September 30, 1997 the Company had a risk based capital
to asset ratio of 11%. Management expects to maintain capital above the
required level through earnings retention and management of the Company's mix
of risk weighted assets.
<PAGE>
RESULTS OF OPERATIONS
Net income after tax for the nine month period ending September 30, 1997 was
$121,000. Net income for the same period in 1996 was $170,000. The third
quarter provision for loan losses was $237,000 for 1997 and $244,000 for the
previous year. Year to date net interest income for the first three quarters
compared favorably to the prior period. For the period ended September 30, 1996
net interest income was $1,989,000 compared to $2,236,000 for 1997, an increase
of $247,000. Net interest income to average earning assets (net interest margin)
improved to 4.78% from 4.38% at the end of September, 1996.
<TABLE>
<CAPTION>
Net Interest Non Interest
Income Expense
<S> <C> <C>
Nine months ended 9/30/97 $ 2,236,000 $ 2,088,000
Nine months ended 9/30/96 1,989,000 1,754,000
</TABLE>
Noninterest income increased to $284,000 from $263,000 for September 30, 1997
and 1996 respectively. This $21,000 improvement as well as the improvement in
net interest income were inadequate, however, to handle increasing noninterest
expenses that moved to $2,088,000 from $1,754,000 in the prior year. Legal
fees for two of the bank's problem loans account for the increase in
noninterest expenses. One of these credits has now been resolved to the bank's
favor with full loan recovery anticipated. The other loan is still being
litigated. Other noninterest expenses were within expectations and even
reduced from the same period last year when consideration is given to the costs
related to the bank's newest branch in Barefoot Bay, Florida.
Using the current balance sheet, the current maturity schedule and the
forecasted balance sheet, management projects the worst-case scenario to be
falling rates. Should the prime rate decrease from its current 8.50% to 6.50%
during the next twelve months, net interest income could fall $115,000.
Conversely, if prime rates increased to 10.25% during the next twelve months,
net interest income could be enhanced.
An outside consulting firm continues to provide management with monthly
asset/liability position reports. These reports measure the Bank's
vulnerability to interest rates should rates change in an adverse direction.
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes In Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) None
b) Reports on Form 8-K.
None
Item 7. Exhibit 27 - Article 9 Financial Data Schedule for
10-QSB
<PAGE>
CITRUS FINANCIAL SERVICES, INC..
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Citrus Financial Services, Inc.
Date: November 10, 1997 /s/ Josh C. Cox, Jr.
Josh C. Cox, Jr.
President and CEO
Date: November 10, 1997 /s/ Henry O. Speight
Henry O. Speight
Chief Financial Officer
<PAGE>
