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 June 30, 1998
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 outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
Class Outstanding as of August 8, 1998
Common Stock 952,296
Par Value $3.15 per share
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
INDEX
PAGE
PART I: FINANCIAL INFORMATION NUMBER
Item 1: Financial Statements:
Consolidated Condensed Balance Sheets June 30, 1998
(Unaudited) and December 31, 1997 1
Consolidated Condensed Statements of Income for the
Three Months and Six Months Ended June 30, 1998 and
1997 (Unaudited) 2
Consolidated Condensed Statements of Comprehensive
Income for the Six Months Ended June 30, 1998 and
1997 (Unaudited) 3
Consolidated Condensed Statements of Cash Flows for
the Six Months Ended June 30, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1998 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements
(Unaudited) 6-11
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II: OTHER INFORMATION 23
Signatures 24
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands Except Per Share Data)
<TABLE>
June 30, 1998 December 31,
(Unaudited) 1997*
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,599 $ 3,742
Federal funds sold 2,600 2,500
Interest-bearing deposits in other banks 5 61
Investment securities:
Available-for-sale at fair value 5,262 5,796
Held-to-maturity at amortized cost 2,843 3,487
Loans receivable less allowance for credit losses 62,299 50,107
Bank premises and equipment - net 2,555 2,471
Other real estate owned 390 390
Other assets 643 544
TOTAL $ 81,196 $ 69,098
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 11,169 $ 10,723
NOW accounts 3,504 3,701
Money market accounts 3,171 4,095
Savings accounts 7,405 5,993
Time, $100,000 and over 12,165 8,079
Other time deposits 33,225 30,010
Total deposits 70,639 62,601
Federal funds purchased and FHLB advances 3,872 433
Other accrued expenses and liabilities 488 242
Total liabilities 74,999 63,276
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 3,006 3,007
Additional paid-in capital 3,150 3,149
Retained earnings (accumulated deficit) 106 (238)
Treasury stock, at cost (1) (1)
Unrealized loss on available-for-sale securities (64) (95)
Total stockholders' equity 6,197 5,822
TOTAL $ 81,196 $ 69,098
Book value per common share $ 6.51 $ 6.11
Common shares outstanding, adjusted for
stock dividend 952,296 952,296
</TABLE>
*Condensed from December 31, 1997 audited consolidated balance sheet.
The accompanying notes to consolidated condensed financial statements are
an integral part of these financial statements.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands Except Per Share Data)
<TABLE>
For the Three Months For the Six Months
Ended June 30, 1998 Ended June 30, 1997
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1,453 $ 1,186 $ 2,772 $ 2,360
Investment income on investment
securities and interest-bearing
deposits in other banks 107 139 232 275
Federal funds sold 14 40 53 74
Total interest income 1,574 1,365 3,057 2,709
Interest on deposits 661 602 1,286 1,205
Other 24 9 30 26
Total interest expense 685 611 1,316 1,231
Net interest income before
provision for credit losses 889 754 1,741 1,478
Provision for credit losses 47 14 (49) 212
Net interest income 842 740 1,790 1,266
Fees and service charges 94 87 187 168
Other income 15 6 22 14
Total other income 109 93 209 182
Other expenses:
Salaries and employee benefits 370 335 711 652
Expenses of bank premises and
fixed assets 127 118 255 232
Other operating expenses 245 306 481 563
Total other expenses 742 759 1,447 1,447
Income before provision for income
taxes 209 74 552 1
Provision for income taxes 78 27 207 -
Net income $ 131 $ 47 $ 345 $ 1
Weighted average common shares
outstanding during period:
Basic 952,296 857,114 952,296 857,114
Fully diluted 1,148,746 1,053,564 1,148,746 1,053,564
Earnings per share:
Basic $ .14 $ .05 $ .36 $ -
Fully diluted $ .11 $ .04 $ .30 $ -
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF
COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Thousands)
<TABLE>
For the Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Net income $ 345 $ 1
Other comprehensive income, net of tax:
Unrealized holding gains arising during period 34 40
Less: reclassification adjustment for gains
included in net income during the period (3) -
Total 31 40
Comprehensive income $ 376 $ 41
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
<TABLE>
For the Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Net cash provided (used) by operating activities $ (2,297) $ 2,735
Cash flows from investing activities:
Net (increase) decrease in:
Investment securities 1,178 (204)
Interest-bearing deposits in other banks 56 99
Loans (9,289) (2,732)
Purchases of bank premises and equipment, net (167) (31)
Net cash used by investing activities (8,222) (2,868)
Cash flows from financing activities:
Net increase (decrease) in deposits 8,038 (363)
Advances (repayment) of FHLB advances, net 3,439 (561)
Issuance of common stock upon exercise of stock
options - 82
Cash paid in lieu of fractional shares (1) -
Net cash provided (used) by financing
activities 11,476 (842)
Increase (decrease) in cash and cash equivalents 957 (975)
Cash and cash equivalents at January 1 6,242 2,514
Cash and cash equivalents at June 30 $ 7,199 $ 1,539
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
Net
Unrealized
Holding
Gains Total
Additional (Losses) Stock-
Common Stock Paid-In Retained Treasury on holders'
Shares Amount Capital Earnings Stock Securities Equity
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 865,961 $ 3,007 $ 3,149 $ (238) $ (1) $ (95) $ 5,822
Stock issued for
stock split and
par value
reduction
(rounded) 86,467 (1) 1 - - - -
Cash in lieu of
fractional shares - - - (1) - - (1)
Comprehensive income:
Net income - - - 345 - - -
Net change in
unrealized
holding gains
on securities - - - - - 31 -
Total comprehensive
income - - - - - - 376
Balance,
June 30, 1998 952,428 $ 3,006 $ 3,150 $ 106 $ (1) $ (64) $ 6,197
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Citrus Financial
Services, Inc. (the "Company") and its wholly owned subsidiary Citrus Bank,
N.A. (the "Bank"). 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 which may 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, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowances for losses on loans and foreclosed real estate.
Such agencies may require the Banks to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, due from banks, Federal
funds sold, investment securities, loans receivable, accrued interest
receivable, deposits, Federal funds purchased, other borrowings, accrued
interest payable, and off-balance sheet commitments such as commitments to
extend credit and standby letters of credit. On an interim basis, management
considers the cost of providing estimated fair values by each class of financial
instrument to exceed the benefits derived. In management's opinion, the
carrying amount of financial instruments approximates fair value.
Investment Securities
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
SFAS 115 applies to all debt securities and to equity securities that have
readily determinable fair values. SFAS 115 requires the Company to carry its
securities classified "available-for-sale" at fair market value. The Company's
investment in securities are classified in two categories and accounted for as
follows:
Available-for-Sale. Securities available-for-sale consist of bonds, notes,
debentures, and certain equity securities not classified as trading
securities or as securities held-to-maturity.
Held-to-Maturity. Bonds, notes, and debentures for which the Bank has
the positive intent and ability to hold to maturity are reported at cost
and adjusted for amortization of premiums and accretion of discounts.
Such adjustments are recognized in interest income using the interest
method over the period to maturity.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
NOTE 1 - ACCOUNTING POLICIES (Continued)
Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the sale of
securities available-for-sale are determined using the specific-identification
method.
Mortgage-backed Securities
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized using methods approximating the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Should any be sold, cost of securities sold is determined using
the specific identification method.
Loans
Loans are stated at unpaid principal balances, less the allowance for credit
losses and net deferred loan fees and unearned discounts. Unearned discounts
on installment loans are recognized as income over the term of the loans using
a method that approximates the interest method. Nonrefundable loan fees and
certain direct loan origination costs are deferred and the net amount is
recognized into income over the life of the loans as a yield adjustment.
The Company has adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). For loans
considered impaired under SFAS 114, the Company is required to compute the
present value of expected cash flows from the impaired loan and adjust credit
losses accordingly. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for credit losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions, and other information. Allowances for impaired
loans are generally determined based on collateral values or the present value
of estimated cash flows. The allowance is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
provision for depreciation is computed by the straight-line method over the
estimated useful lives of the assets. For income tax purposes, the Company
utilizes straight-line and accelerated depreciation methods.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE 1 - ACCOUNTING POLICIES (Continued)
Other Real Estate Owned
Foreclosed real estate includes formally foreclosed property and in-substance
foreclosed property. In-substance foreclosed properties are those properties
for which the Banks have taken possession, regardless of whether formal
foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the Company's cost or the asset's fair value less costs to sell, which becomes
the property's new basis. Any write-downs based on the asset's fair value at
date of acquisition are charged to the allowance for credit losses. After
foreclosure, these assets are carried at the lower of their new cost basis or
fair value less cost to sell. Costs incurred in maintaining foreclosed real
estate and subsequent write-downs to reflect declines in the fair value of the
property are included in income (loss) on foreclosed real estate.
Interest Income on Loans
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed.
Employee Benefits
Profit-sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
Income Taxes
Deferred income taxes are provided for temporary differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes. The principal temporary differences are depreciation and
amortization, loan loss provisions, the use of cash basis accounting for income
tax purposes, and unrealized gain (loss) on securities available-for-sale.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Banks have entered into off-balance-
sheet financial instruments consisting of commitments to extend credit and
commercial and standby letters of credit. Such financial instruments are
recorded in the financial statements when they become payable.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated condensed statements of
cash flows, cash and cash equivalents are defined as those amounts included
in the consolidated condensed balance sheets' caption "Cash and due from banks"
and "Federal funds sold."
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE 1 - ACCOUNTING POLICIES (Continued)
Financial Reporting
In February 1997, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which requires the disclosure of basic earnings per share, in replacement of
primary earnings per share, and diluted earnings per share, in replacement of
fully diluted earnings per share. Primary earnings per share is based on the
weighted average number of shares of common stock outstanding and the dilutive
effect of options and other common stock equivalents. Basic earnings per
share does not consider any dilution. Diluted earnings per share is similar
to fully diluted earnings per share, which considers all potentially dilutive
securities. SFAS 128 becomes effective with annual and interim financial
statements for periods ending after December 15, 1997. Upon initial application
of SFAS 128, all earnings per share data presented for prior periods must be
restated to conform to the new standard. The Company adopted SFAS 128 during
the second quarter of 1998.
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which requires an entity to report its change in equity during
the period from transactions and events other than those resulting from
investments by and distributions to owners. All items that are recognized as
comprehensive income are required to be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS 130
becomes effective with annual and interim financial statements for periods
ending after December 15, 1997. The company adopted SFAS 130 during the second
quarter of 1998.
NOTE 2 - LOANS
Loans consisted of (dollars in thousands):
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Real estate $ 46,228 $ 35,922
Commercial loans 11,879 10,330
Consumer loans 4,600 4,312
Total loans, gross 62,707 50,564
Unearned income and deferred fees ( 3) ( 26)
Allowance for credit losses ( 405) ( 431)
Net loans $ 62,299 $ 50,107
</TABLE>
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The Company's Board of Directors monitors the loan portfolio quarterly in
order to enable it to evaluate the adequacy of the allowance for credit 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>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES (Continued)
The Company maintains the allowance for credit losses at a level sufficient to
absorb all estimated losses inherent in the loan portfolio. Activity in the
allowance for credit losses follows (dollars in thousands):
<TABLE>
Six Months Twelve Months
Ended June 30, Ended December 31,
1998 1997
<S> <C> <C>
Balance, beginning of period $ 431 $ 354
Recoveries 44 20
Charge-offs (21) (212)
Provision charged (credited) to
operations (49) 269
Balance, end of period $ 405 $ 431
</TABLE>
During the first quarter of 1998, the Company settled litigation involving a
significant problem credit. As a result of this settlement, the Company
recorded a credit provision of $96,000 for the quarter ended March 31, 1998.
The OCC had previously mandated that this credit be written down prior to
resolution of the Company's lawsuit against the borrower. While management
disagreed with the amount of the adjustment made in 1997, the effect on
financial condition and results of operations was not considered material.
NOTE 4 - 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 include 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 June 30, 1998, consisted of commitments to extend
credit approximating $9.6 million and letters of credit of $175,000.
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.
NOTE 5 - STOCK SPLIT
On April 27, 1998, the Company's Board of Directors declared a stock split
payable at a rate of 10% of shares issued and outstanding to stockholders of
record on May 8, 1998, payable May 31, 1998. Cash in lieu of fractional shares
was paid at the rate of $6.38 per share. The total cash paid in lieu of
fractional shares amounted to less than $1,000.
The majority of the Company's shareholders are either directors, officers, or
employees, and there is a presumption that these parties have intimate knowledge
of the affairs of the Company. Since the Company is a closely-held registrant,
and the Board of Directors has clearly stated that this distribution is a
stock split and their intent is such, the need to transfer retained earnings
does not exist. Accordingly, this stock split was not accounted for as a stock
dividend as is generally the case for stock splits less than 20% to 25%.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE 6 - YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The issue
is whether computer systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The
Company is utilizing both internal and external resources to identify, correct,
and test their systems for the year 2000 compliance. It is anticipated that
all necessary modifications and testing will be completed by December 31, 1998.
To date, confirmations have been received from the Bank's primary processing
vendors that their software is now year 2000 compliant or that year 2000
compliant upgrades will be delivered by October, 1998. Management has not yet
completed their assessment of the compliance expense for the year 2000 and
related potential effect on the Bank's earnings. It is recognized that any
year 2000 compliance failures could result in additional expense to the Company.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 operates a branch office 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, and secondary mortgage loan origination services (as a FNMA approved
mortgage lender). The Bank recently offered an armored car service for its
commercial customers for whom service is provided by the Company.
Market Area
The primary service area for the Bank encompasses all of Indian River
County and Barefoot Bay, a retirement community in South Brevard County.
Barefoot Bay is served 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 35 banking offices and 8 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 Bank's primary service area, it is
anticipated that competition will increase because of new entrants to the
market.
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.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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 $7,199,000 or 9% of total assets at June 30, 1998. Additional
liquidity is available through established federal funds purchase agreements
which aggregate $1,750,000 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
June 30, 1998, the Company had drawn $3,500,000 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 $9,783,000 at June 30, 1998. If
all such commitments were to materialize, they would be funded primarily from
deposit growth and federal funds sold balances.
During the fourth quarter of 1997, Citrus Bank, through its one-bank
holding company, Citrus Financial Services, Inc. began an armored car service
for the Bank's clientele. This service provides enhanced opportunity to
develop the commercial deposit market while, at the same time, providing the
Bank's customers with a safe, labor-saving alternative to driving their
deposits to the Bank. Trained and licensed armed guards are employed to
facilitate this service in a safe and professional manner. Currently, this
service is operated only in Indian River County but still provides geographical
access to commercial clients that would otherwise be difficult to service.
Year 2000 Compliance
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is utilizing both internal and external resources to
identify, correct, and test their systems for the year 2000 compliance. It is
anticipated that all necessary modifications and testing will be completed by
December 31, 1998. To date, confirmations have been received from the Bank's
primary processing vendors that their software is now year 2000 compliant or
that year 2000 compliant upgrades will be delivered by October, 1998.
Management has not yet completed their assessment of the compliance expense
for the year 2000 and related potential effect on the Bank's earnings. It is
recognized that any year 2000 compliance failures could result in additional
expense to the Company.
Credit Risk
The Company's primary business includes making commercial, business,
consumer, and real estate loans. This activity entails potential loan losses,
the magnitude of which depend on a variety of economic factors affecting
borrowers which are beyond the control of the Company. While underwriting
guidelines and credit review procedures have been instituted to protect the
Company from avoidable credit losses, some losses will inevitably occur.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The following table sets forth certain information on nonaccrual loans
and real estate owned, the ratio of such loans and real estate owned to total
assets as of the dates indicated, and certain other related information:
<TABLE>
At June 30, At December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Real estate loans $ - $ 601
Installment loans 10 10
Credit card and related plans - -
Commercial and all other loans 83 172
Total nonaccrual loans 93 783
Accruing loans over 90 days delinquent:
Real estate loans 229 336
Installment loans 17 5
Credit card and related plans - -
Commercial and all other loans 85 -
Total accrual loans over 90 days delinquent 331 341
Troubled debt restructurings past due over 30
days and not included above - -
Total nonperforming loans 424 1,124
Other real estate owned:
Real estate acquired by foreclosure or deed
in lieu of foreclosure 390 390
Total nonperforming loans and other real
estate owned $ 814 $ 1,514
Total nonperforming loans as a percentage
of total loans 0.7% 2.2%
Total nonperforming loans as a percentage
of total assets 0.5% 1.7%
Total nonperforming loans and other real
estate owned as a percentage of total
assets 1.0% 2.3%
</TABLE>
A loan is considered impaired when, according to the contractual terms of
the contract, it is probable that the Company will be unable to collect all
amounts due. At June 30, 1998, the Company had no loans classified as impaired.
The following table sets forth the information with respect to activity in
the Company's allowance for credit losses during the periods indicated:
[TABLE FOLLOWS THIS PAGE]
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
<TABLE>
At June 30, December 31,
1998 1997
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period $ 431 $ 354
Charge-offs:
Real estate loans - 167
Installment loans 18 19
Credit cards and related plans 3 16
Commercial and all other loans - 10
Total charge-offs 21 212
Recoveries:
Real estate loans 40 -
Installment loans 3 15
Credit cards and related plans - 5
Commercial and all other loans 1 -
Total recoveries 44 20
Provision for credit losses charged
(credited) to operations (49) 269
Allowance at end of period $ 405 $ 431
Ratio of net charge-offs during the period
to average loans outstanding during the
period -0.1% 0.4%
</TABLE>
Loan Portfolio Composition
Residential real estate loans comprise the largest group of loans in the
Company's portfolio amounting to $31.4 million, or 50% of the total loan
portfolio as of June 30, 1998, of which approximately 91% are first mortgage
loans.
Commercial real estate loans comprise the second largest group of loans in
the Company's loan portfolio, amounting to $14.8 million or 24% of the total
loan portfolio as of June 30, 1998. As of June 30, 1998, commercial and
consumer loans amounted to $11.9 million and $4.6 million, respectively, or
19% and 7% of the total loan portfolio, respectively.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Investments
The investment portfolio is comprised primarily of U.S. Treasury and U.S.
Government agency securities and mortgage-backed securities. According to
Financial Accounting Standards No. 115, investment portfolio is categorized as
either "held-to-maturity," "available-for-sale," or "trading." Investments
held-to-maturity represent those investments which the Company has the positive
intent and ability to hold to maturity. These investments are carried at
amortized cost. Investments available-for-sale represent those investments
which may be sold for various reasons including changes in interest rates and
liquidity considerations. These investments are reported at fair market value
with unrealized gains and losses being reported as a separate component of
stockholders' equity, net of income taxes. Trading securities are held
primarily for resale and are recorded at their fair values. Unrealized gains
or losses on trading securities are included immediately in earnings. At
June 30, 1998, the Company had no securities categorized as trading.
The following table sets forth the carrying value of the Company's
investment portfolio (dollars in thousands):
<TABLE>
At June 30, At December 31,
1998 1997
Securities available-for-sale:
<S> <C> <C>
U. S. Government agency securities $ 1,100 $ 1,104
Mortgage-backed securities 3,568 4,265
Other 594 427
Total $ 5,262 $ 5,796
Securities held-to-maturity:
U. S. Government agency securities $ 1,479 $ 1,474
Mortgage-backed securities 1,114 1,762
Other 250 251
Total $ 2,843 $ 3,487
</TABLE>
Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest-rate risk exposure. The measurement
of market risk associated with financial instruments is meaningful only when
all related and offsetting on- and off-balance-sheet transactions are
aggregated, and the resulting net positions are identified. Disclosures about
the fair value of financial instruments, which reflect changes in market prices
and rates, can be found in Note 14 to Consolidated Financial Statements for the
year ended December 31, 1997.
The Company's primary objective is managing interest-rate risk to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while adjusting the asset-liability structure to obtain
the maximum yield-cost spread on that structure. The Company relies primarily
on its asset-liability structure to control interest-rate risk. However, a
sudden and substantial increase in interest rates may adversely impact the
Company's earnings, to the extent that the interest rate borne by assets and
liabilities do not change at the same speed, to the same extent, or on the
same basis. The Company does not engage in trading activities.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Asset and Liability Management
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.
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 1997, as well as
during the six months ended June 30, 1998, management was continuously
adjusting to somewhat decreasing interest rates to limit interest rate risk
and reduce the dollar impact of falling 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. The
Company's cumulative one-year gap at June 30, 1998, was a negative 14.4% of
assets.
Deposits and Other Sources of Funds
General. In addition to deposits, the sources of funds available for
lending and other business purposes include loan repayments, loan sales, and
securities sold under agreements to repurchase. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
influenced significantly by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in
other sources, such as deposits at less than projected levels, and are also
used to fund the origination of mortgage loans designated to be sold in the
secondary markets.
Deposits. Deposits are attracted principally from the Company's Primary
Geographical Market. The Company offers a broad selection of deposit
instruments including demand deposit accounts, NOW accounts, money market
accounts, regular savings accounts, term certificate accounts, and retirement
savings plans (such as IRA accounts). Certificate of deposit rates are set to
encourage longer maturities as cost and market conditions will allow. Deposit
account terms vary, with the primary differences being the minimum balance
required, the time period the funds must remain on deposit and the interest
rate offered.
The Company has emphasized commercial loan and deposit relationships in
an effort to increase demand deposits as a percentage of total deposits. The
Company's courier service began operations in the fourth quarter of 1997. The
courier service will serve the Company's business customers primarily in
Indian River County.
Management sets the deposit interest rates weekly based on a review of
deposit flows for the previous week, and a survey of rates among direct
competitors and other financial institutions in Florida.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The following table shows the distribution of, and certain other information
relating to, the Company's deposit accounts by type at the date indicated
(dollars in thousands):
<TABLE>
At June 30, At December 31,
1998 1997
Percent of Percent of
Amount Total Amount Total
<S> <C> <C> <C> <C>
Demand deposits $ 11,169 15.8% $ 10,723 17.1%
NOW deposits 3,504 4.9% 3,701 5.9%
Money-market deposits 3,171 4.5% 4,095 6.5%
Savings deposits 7,405 10.5% 5,993 9.6%
Certificates of deposit 45,390 64.3% 38,089 60.9%
Total deposits $ 70,639 100.0% $ 62,601 100.0%
</TABLE>
Results of Operations
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on interest-earning assets and rates paid on interest-
bearing liabilities ("interest-rate spread") and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Company's
interest-rate spread is affected by regulatory, economic, and competitive
factors that influence interest rates, loan demand, and deposit flows. In
addition, the Company's net earnings are also affected by the level of
nonperforming loans and foreclosed real estate, as well as the level of its
non-interest income, and its non-interest expenses, such as salaries and
employee benefits, occupancy and equipment costs and income taxes.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The following table sets forth, for the periods indicated, information
regarding: (I) the total dollar amount of interest and dividend income of the
Company from interest-earning assets and the resultant average yield; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and
the resultant average costs; (iii) net interest/dividend income; (iv) interest-
rate spread; and (v) net interest margin. Average balances are based on average
daily balances.
<TABLE>
For the Six Months Ended June 30,
1998 1997
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ 46 $ 1 4.3% $ 40 $ 1 5.0%
Taxable securities 8,578 231 5.4% 9,422 274 5.8%
Federal funds sold 1,965 53 5.4% 2,822 74 5.2%
Net loans 55,781 2,772 9.9% 49,836 2,360 9.5%
Total interest-earning
assets 66,370 3,057 9.2% 62,120 2,709 8.7%
Noninterest-earning assets 6,820 5,231
Total assets $ 73,190 $ 67,351
Interest-bearing liabilities:
NOW and money market
deposits $ 7,403 72 1.9% $ 7,307 72 2.0%
Savings 6,990 116 3.3% 4,047 59 2.9%
Time deposits 40,312 1,098 5.4% 40,597 1,074 5.3%
Other borrowings 1,055 30 5.7% 902 26 5.8%
Total interest-bearing
liabilities 55,760 1,316 4.7% 52,853 1,231 4.7%
Noninterest bearing
liabilities 11,646 8,958
Stockholders' equity 5,784 5,540
Total liabilities
and stockholders'
equity $ 73,190 $ 67,351
Net interest/dividend income $ 1,741 $ 1,478
Interest-rate spread (1) 4.5% 4.1%
Net interest margin (2) 5.2% 4.8%
Ratio of average interest-
earning assets to average
interest-bearing
liabilities 119.0% 117.5%
</TABLE>
(1) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(2) Net interest margin is net interest income divided by average interest-
earning assets.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income and interest expenses for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (I) changes in rate
(change in rate multiplied by prior volume); (ii) changes in volume (change in
volume multiplied by prior rate); and (iii) changes in rate-volume (change in
rate multiplied by change in volume).
<TABLE>
For the Six Months Ended June 30, 1998
vs. the Six Months Ended June 30, 1997
Increase (Decrease) Due to:
Rate/
Volume Rate Volume Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ - $ - $ - $ -
Taxable securities (25) (20) 2 (43)
Federal funds sold (22) 2 (1) (21)
Net loans 282 117 13 412
Total interest-earning assets 235 99 14 348
Interest-bearing liabilities:
NOW and money-market deposits 1 (1) - -
Savings 43 8 6 57
Time deposits (8) 32 - 24
Other borrowings 4 - - 4
Total interest-bearing liabilities 40 39 6 85
Net interest/dividend income $ 195 $ 60 $ 8 $ 263
</TABLE>
Comparison of the three months Ended June 30, 1998 and 1997
General. Net income for the three months ended June 30, 1998, was $131,000
or $.14 per basic share ($.11 per diluted share) compared to a net income of
$47,000, or $.05 per basic share ($.04 per diluted share), for the three months
ended June 30, 1997. This improvement in the Company's net operating results
was primarily due to an increase in net interest income of $102,000, or 14%,
over the same period in 1997. This increase was attributable to a 15%
improvement in total interest income.
Interest Income and Expense. Interest income increased from $1,365,000 for
the three months ended June 30, 1997 to $1,574,000 for the same period in 1998
or $209,000. Interest and fees on loans increased $267,000 as average loan
balances increased from $49 million for the three months ended June 30, 1997
to $59 million for 1998 as well as an increase in the weighted-average yield
of 12 basis points. Interest on securities and interest-bearing deposits in
other banks declined $32,000 from a decline in these average balances that
aggregated $1.2 million as the average balances were reduced from
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
$9.7 million for the three months ended June 30, 1997 to $8.5 million for the
period ended June 30, 1998. The weighted-average yields were reduced from
5.30% to 5.19% for the same respective periods. Interest income on federal
funds sold decreased $26,000 as a result of a decline in the average balances
outstanding for 1997 of $2.9 million as compared with $934 thousand for the
same period in 1998. An increase in the weighted-average yield of federal
funds sold of 73 basis points partially offset the decline in volume.
Interest expense increased $74,000 in 1998 compared to 1997. Interest
expense increased due to an increase in average deposits from $52 million to
$56 million. There was an overall rise in the cost of interest-bearing
deposits from 4.61% to 4.73% but the large increase in noninterest-bearing
deposits actually reduced on aggregate deposits from 3.96% for the period in
1997 and 3.94% for the 1998 period. Average noninterest-bearing deposits
increased during this period from $8.7 million for the period ending
June 30, 1997, to $11.2 million for the period ending June 30, 1998.
Provision for Credit Losses. The provision for credit losses was charged to
earnings to bring the total allowance to a level deemed appropriate by
management and is based upon historical experience, the volume and type of
lending conducted by the Company, industry standards, the amounts of
nonperforming loans, and general economic conditions. Particularly as they
relate to the Company's market areas, and other factors related to the
collectibility of the Company's loan portfolio. Management believes that the
allowance for credit losses of $405,000 is adequate at June 30, 1998.
Other Income. Other income increased from $93,000 for the three months
ending June 30, 1997, to $109,000 for the three months ending June 30, 1998.
Increased service charges and other income related to increased transaction
deposit activity is responsible for the $16,000 or 17% increase.
Other Expenses. Total other expenses decreased $17,000 moving from $759,000
for 1997 to $742,000 for 1998. Salaries and benefits increased $35,000
reflecting additional employees. Expenses of bank premises and fixed assets
increased $9,000 reflecting additions to equipment and related costs. Other
operating expenses were reduced $61,000 primarily from the reduction of legal
fees with the resolution of two problem credits.
Comparison of the Six Months Ended June 30, 1998 and 1997
General. Net income for the six months ended June 30, 1998, was $345,000 or
$.36 per basic share ($.30 per diluted share) compared to a net income of
$1,000, or $-0- per basic and diluted share, for the six months ended
June 30, 1997. This improvement in the Company's net operating results was
primarily due to an increase in net interest income of $524,000, or 41%, over
the same period in 1997. The increase in net interest income was attributable
to a 13% increase in total interest income and the favorable settlement of a
problem credit, which resulted in a decline in the provision for loan losses
from $212,000 in 1997 to $(49,000) in 1998. (For a more detailed discussion
of this matter, see Note 3 of the Notes to Consolidated Condensed Financial
Statements for the Unaudited Interim Financial Statements.)
Interest Income and Expense. Interest income increased by $348,000 from
$2.7 million for the six months ended June 30, 1997, to $3.1 million for the
six months ended June 30, 1998. Interest income on loans increased $412,000
due to an increase in the average loan portfolio balance from $49.8 million
for the six months ended June 30, 1997, to $55.8 million for 1998, as well as
an increase in the weighted-average yield of 40 basis points. Interest on
securities and interest-bearing deposits in other banks declined $43,000 due
to a decline in the average portfolio balances from $9.5 million for the six
months ended June 30, 1997, to $8.6 million for 1998, and a decline in the
weighted-average yields of 70 and 40 basis points for interest-earning
deposits and securities, respectively. Interest income from federal funds
sold decreased $21,000 as a result of a decline in the average balances
outstanding for 1997 of $2.8 million as compared with $2.0 million for the same
period in 1998. An increase in the weighted-average yield of federal funds sold
of 20 basis points partially offset the decline in volume.
</PAGE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Interest expense increased $85,000 in 1998 compared to 1997. Interest
expense increased due to an increase in average deposits from $52.9 million
to $55.8 million from 1997 to 1998. Although there was an overall rise in
the weighted-average yield of total interest-earning assets of 50 basis
points, the overall rise in interest rates paid on deposits in the industry
was offset by a favorable shift in the deposit mix of the Company.
Provision for Credit Losses. The provision for credit losses was charged
to earnings to bring the total allowance to a level deemed appropriate by
management and is based upon historical experience, the volume and type of
lending conducted by the Company, industry standards, the amounts of
nonperforming loans, general economic conditions, particularly as they relate
to the Company's market areas, and other factors related to the collectibility
of the Company's loan portfolio. Management believes that the allowance for
credit losses of $405,000 is adequate at June 30, 1998.
Other Income. Other income increased from $182,000 in 1997 to $209,000 in
1998 primarily because of increased service charges and other income related
to the increased transaction deposit accounts, which increased 18% from June 30,
1997, to June 30, 1998.
Other Expenses. Total other expenses were flat for the six months ended
June 30, 1998, as compared with the same period for 1997. Increases in
employee compensation and benefits of $59,000 were due to additional employees
and normal salary and benefit increases. All other operating expenses declined
$82,000, primarily due to reduced legal and professional costs associated with
the resolution of two problem credits.
Income Taxes. The income tax provision was $207,000 (an effective rate of
37.5%) for 1998 compared to no amount for 1997.
Future Accounting Requirements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS133"), which addresses the accounting for
derivative instruments and provides for matching the timing of gain or loss
recognition on the hedging instrument. Guidance on identifying derivative
instruments is also provided as well as additional disclosures. SFAS 133
becomes effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. Earlier application is permitted with certain exceptions.
Management does not anticipate that adoption of SFAS 133 will have a material
impact on the financial condition or results of operations of the Company.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
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.
An annual meeting of shareholders was held on
April 27, 1998. At that meeting a majority of the
shareholders of record gave their proxy to the
re-election of three Class III Directors, to ratify
the Board of Directors' appointment of the Company's
independent auditors for the fiscal year ended
December 31, 1998, and to approve the adjournment of
the Annual Meeting to solicit additional proxies in
the event that there were not sufficient votes to
approve any one or more of the proposals.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
On April 28, 1998 a Form 8-K was filed concerning a
10% stock split for shareholders of record on
May 8, 1998.
<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: August 13, 1998 /s/ Josh C. Cox, Jr.
Josh C. Cox, Jr.
President and CEO
Date: August 13, 1998 /s/ Henry O. Speight
Henry O. Speight
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,599
<INT-BEARING-DEPOSITS> 5
<FED-FUNDS-SOLD> 2,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,262
<INVESTMENTS-CARRYING> 2,843
<INVESTMENTS-MARKET> 2,796
<LOANS> 62,704
<ALLOWANCE> 405
<TOTAL-ASSETS> 81,196
<DEPOSITS> 70,639
<SHORT-TERM> 3,500
<LIABILITIES-OTHER> 488
<LONG-TERM> 373
0
0
<COMMON> 3,006
<OTHER-SE> 3,150
<TOTAL-LIABILITIES-AND-EQUITY> 81,196
<INTEREST-LOAN> 2,772
<INTEREST-INVEST> 232
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 3,057
<INTEREST-DEPOSIT> 1,286
<INTEREST-EXPENSE> 1,316
<INTEREST-INCOME-NET> 1,741
<LOAN-LOSSES> (49)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,447
<INCOME-PRETAX> 552
<INCOME-PRE-EXTRAORDINARY> 552
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345
<EPS-PRIMARY> .36
<EPS-DILUTED> .30
<YIELD-ACTUAL> 9.08
<LOANS-NON> 93
<LOANS-PAST> 331
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 431
<CHARGE-OFFS> 21
<RECOVERIES> 44
<ALLOWANCE-CLOSE> 405
<ALLOWANCE-DOMESTIC> 405
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
