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, 1997
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, 1997: $ 5,913,000
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (467,549 shares) on February 28, 1998 was
approximately $4,675,000. 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 $10.00 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, 1998: 865,961 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, 1997. (Part II )
2. Portions of Proxy Statement for the 1998 Annual Meeting of
Shareholders. (Part 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 1997 Annual Report and 1998 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 12
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 7(1)
Item 7 Financial Statements and Supplementary Data 11(1)
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 9 Directors and Executive Officers of the Registrant 3(2)
Item 10 Executive Compensation 5(2)
Item 11 Security Ownership of Certain Beneficial Owners and
Management 2(2)
Item 12 Certain Relationships and Related Transactions 14
Item 13 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 15
______________________________________________________________
(1) These items are incorporated by reference from the Company's 1997
Annual Report pursuant to instruction EZ of Form 10-KSB.
(2) The material required by Items 9 through 11 is hereby incorporated by
reference from the Company's definitive proxy statement pursuant to
Instruction E-3 of Form 10-KSB.
<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 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, discount brokerage 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 which 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.
<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, 1997
compared with
Year Ended December 31, 1996
(in thousands)
Increase (Decrease) due to:
Volume Rate Total
<S> <C> <C> <C>
Interest earned on:
Interest-earnings deposits in other banks $ (3) $ (1) $ (4)
Taxable securities (25) 7 (18)
Federal funds sold 86 -- 86
Net loans 445 32 477
Total Interest Income 503 38 541
Interest paid on:
NOW deposits 3 (9) (6)
Savings deposits 48 35 83
Time deposits 129 (9) 120
Borrowings (4) 1 (3)
Total Interest Expense 176 18 194
Change in net interest income $ 327 $ 20 $ 347
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 $ (2) $ 1 $ (1)
Taxable securities (173) (49) (222)
Federal funds sold 37 (5) 32
Net loans 377 (43) 334
Total Interest Income 239 (96) 143
Interest paid on:
NOW deposits 4 (11) (7)
Savings deposits (10) (14) (24)
Time deposits 166 (79) 87
Borrowings (161) (5) (166)
Total Interest Expense (1) (109) (110)
Change in net interest income $ 240 $ 13 $ 253
</TABLE>
<PAGE>
Investments
As of December 31, 1997, investment securities, securities held for sale and
interest-earning deposits in other banks comprised approximately 13.5% of the
Company's assets and net loans comprised approximately 72.5% 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, and other taxable securities. 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,
1997 1996
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 $ 8,605 $ 8,545 $ 8,873 $ 8,686
Corporate Bonds 251 250 252 249
Federal Home Loan Bank stock 268 268 215 215
Federal Reserve Bank stock 159 159 159 159
Total $ 9,283 $ 9,222 $ 9,499 $ 9,309
</TABLE>
The following table indicates for the years ended December 31, 1997 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 1997 1996
<S> <C> <C>
Obligations of U.S. Treasury and other U.S. Agencies:
Due in 1 year or less $ 2,095 $ 0
Over 1 through 5 Years 1,464 3,156
Over 5 through 10 Years 674 900
Over 10 Years 4,372 4,817
Corporate Securities:
Due in 1 year or less 251 0
Over 1 through 5 Years 0 252
Other Securities:
No stated maturity 427 374
Total $ 9,283 $ 9,499
</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, 1997 and 1996, and the total
amount of all loans for such periods (in thousands):
<TABLE>
As of December 31,
1997 1996
Type of Loan
<S> <C> <C>
Commercial, financial and agricultural $ 10,316 $ 9,133
Real estate-commercial and other 13,783 13,783
Real estate-residential mortgage 22,139 24,197
Installment and other loans to individuals 4,326 3,945
Subtotal 50,564 51,058
Less unearned discounts, net (26) (34)
Allowance for loan losses (431) (354)
Total (net of allowance) $ 50,107 $ 50,670
</TABLE>
__________
The following is a presentation of an analysis of sensitivities of loans as
of December 31, 1997 (in thousands):
<TABLE>
Loans Subject to Interest Due in 1 Due in 1 to Due After
Rate Change: year or less 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Loans with predetermined
interest rates $ 4,786 $ 9,885 $ 3,639 $ 18,261
Loans with floating
interest rates 23,445 7,137 370 30,952
Credit Card loans 519 --- --- 519
Total $ 28,750 $ 17,022 $ 4,009 $ 49,781(1)
(1) Non-accrual loans of $783,000 are not included.
</TABLE>
__________
<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, 1997 December 31, 1996
(dollars in thousands)
Loans accounted for on a non-accrual basis:
<S> <C> <C>
Number 7 2
Amount $ 783 $ 728
Accruing loans which are contractually past
due 90 days or more as to principal and
interest payments:
Number 8 5
Amount $ 341 $ 325
Loans defined as "troubled debt restructurings":
Number 2 6
Amount $ 303 $ 1,510
</TABLE>
As of December 31, 1997, 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, 1997, 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 that
is currently leased at prevailing market rates.
<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, 1997 and 1996, 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,
1997 1996
<S> <C> <C>
Balance at beginning of period $ 354 $ 373
Charge-offs:
Commercial loans (10) (3)
Real estate - commercial and other (167) (776)
Installment loans (35) (100)
(212) (879)
Recoveries:
Commercial loans --- ---
Real estate - commercial and other --- 506
Installment loans 20 2
Net charge-offs (192) (371)
Additions charged to operations 269 352
Balance at end of period $ 431 $ 354
Ratio of net charge-offs during the period
to average loans outstanding during the period .42% .81%
</TABLE>
At December 31, 1997 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 $ 140 32.5% 20.4%
Real Estate - commercial and other 115 26.7 27.2
Real Estate - residential mortgage 109 25.3 43.8
Installment and other loans to individuals 66 15.3 8.6
Unallocated 1 .2 ---
Total $ 431 100% 100%
___________
</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>
Loan Loss Reserves
In considering the adequacy of the Company's allowance for loan losses,
management has considered that as of December 31, 1997, 20.4% 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, 1997 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, 1997 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 43.8% of outstanding loans at
December 31, 1997. 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, reviews have been conducted by regulatory agencies and the Company's
certified public accountants 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 ofamounts 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
1997 loan losses, see Management's Discussion contained in the 1997 Annual
Report which is incorporated 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 for time certificates of
deposit of $100,000 or more and respective maturities at December 31, 1997
(in thousands):
<TABLE>
Time
Certificates
of Deposit
<S> <C>
3 months or less $ 2,850
3-6 months 2,726
6-12 months 955
Over 12 months 1,548
Total $ 8,079
</TABLE>
Returns on Equity and Assets
Returns on average consolidated assets and average consolidated equity as
computed under generally accepted accounting principles for the years ended
December 31, 1997 and 1996, are as follows:
<TABLE>
1997 1996
<S> <C> <C>
Return on Average Assets .4% .2%
Return on Average Equity 4.5% 1.5%
Average Equity to Average Assets Ratio 8.3% 9.0%
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 Bank's net
interest income exposure by considering the Bank's budget forecasts, interest
rate movements, reinvestment of maturing loans, investments and deposits, as
well as the Bank'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
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, 1997, the bank had sold loan participations totaling $2,328,000.
</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, 8
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
depository, a full-service safe deposit box facility, and an automated teller
machine.
In September, 1996 the Bank opened a Branch office at 1020 Buttonwood Street,
Barefoot Bay, Florida. This 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 persons, including 11 officers. The
Bank will hire additional persons as needed. In addition, the Company employs
two full time persons for the armored car service that the Company provides
for the Bank's clientele.
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.
</PAGE>
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.
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, 1997, the Company's total risk-based
capital and Tier 1 ratio were 12.6% 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.
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.
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.
</PAGE>
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.
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
The Company owns the entire first floor (approximately 10,000 square feet) of
a three-story office condominium building for use as the bank's main office
facility. 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.
The Bank operates a 2,800 square foot branch facility 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.
The Bank operates a 2,160 square foot branch facility 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
PART II
ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 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 March 4, 1998, the number of holders of record of the Company's Common
Stock was 424.
<PAGE>
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 OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company hereby incorporates by reference the section entitled "Management's
Discussion" on pages 7 through 11 of the 1997 Annual Report to Shareholders
for the year ended December 31, 1997, filed as an Exhibit under Item 14 herein.
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 1997
Annual Report to Shareholders for the year ended December 31, 1997.
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 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.
</PAGE>
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The Company 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.
(b) Security Ownership of Management
The Company 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.
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.
<PAGE>
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.
Set forth below is certain information as of December 31, 1997 concerning loans
made by the Bank to each of its directors, executive officers and their
immediate families whose aggregate indebtedness to the Bank exceeded $60,000
at anytime since January 1, 1997.
<TABLE>
Largest
Amount
Maturity Outstanding Balance
Date Date from as of
of of January December Interest
Name Loan Loan 1, 1997 31, 1997 Rate Type
<S> <C> <C> <C> <C> <C> <C>
Robert L. Brackett 5/97 6/02 $ 250,000 $ 250,000 9.0% Commercial
6/97 6/02 350,000 343,373 9.0% Commercial
10/93 10/98 81,291 28,000 8.5% Real Estate
8/93 1/04 100,000 95,391 10.0% Line of Credit
4/90 4/99 15,000 1,460 13.5% Credit Card
$ 796,291 $ 718,224
Earl H. Masteller 2/95 2/10 75,000 68,582 9.8% Real Estate
7/93 3/00 82,386 20,838 10.0% Line of Credit
1/91 4/99 42,000 0 9.0% Real Estate
4/90 4/99 15,000 Nil 13.5% Credit Card
Masteller & Moler, 5/94 5/99 19,742 6,395 7.9% Commercial
Inc. 2/95 2/98 13,429 0 9.0% Commercial
10/95 6/99 50,000 25,000 9.5% Commercial
12/95 12/98 12,645 3,523 9.5% Commercial
5/97 6/00 6,353 4,962 9.25% Commercial
6/97 6/99 3,700 2,537 9.25% Commercial
9/97 9/99 3,855 2,959 9.25% Commercial
4/91 4/00 5,000 3,135 13.5% Credit Card
4/91 4/00 5,000 2,819 13.5% Credit Card
5/97 5/06 2,500 0 13.5% Credit Card
5/97 5/06 2,500 1,233 13.5% Credit Card
5/97 5/06 2,500 777 13.5% Credit Card
Masteller, Moler & 10/95 6/99 30,000 0 9.5% Commercial
Reed, Inc. 11/95 11/00 80,000 48,859 10.0% Commercial
2/96 2/98 8,501 0 8.75% Commercial
3/96 3/99 12,500 4,551 9.25% Commercial
7/96 7/99 9,609 4,617 9.0% Commercial
10/95 10/99 21,552 12,092 9.0% Commercial
7/97 7/00 10,018 8,311 9.0% Commercial
Walsh Environmental 7/97 7/01 14,858 13,067 9.0% Commercial
Services, Inc. 7/97 7/99 1,539 1,122 9.0% Commercial
7/97 7/06 5,000 550 13.5% Credit Card
$ 535,187 $ 236,052
Louis L. Schlitt 9/93 12/00 25,000 17,718 10.0% Line of Credit
10/90 10/99 5,000 863 13.5% Credit Card
10/90 10/99 5,000 4,129 13.5% Credit Card
CFC Unit 201 Corp. 5/97 5/02 525,000 520,569 9.25% Real Estate
Schlitt Insurance 4/96 6/98 50,000 50,000 10.5% Commercial
Services, Inc. 10/90 10/99 5,000 2,001 13.5% Credit Card
$ 615,000 $ 595,280
Walter E. Smith, Jr. 3/94 3/99 200,000 100,000 9.25% Commercial
7/90 7/99 50,000 1,739 13.5% Credit Card
Walter E. Smith, Jr. 12/96 2/01 350,000 332,178 7.5% Home Equity
Revocable Trust
Sherry Smith & 1/92 1/01 5,000 3,117 13.5% Credit Card
Walter Smith
Walter Smith & 10/90 10/99 8,000 0 13.5% Credit Card
Sheila Gallira
Southeast Interstate 6/95 6/04 15,000 537 13.5% Credit Card
Services 6/95 6/04 15,000 2,422 13.5% Credit Card
6/95 6/04 5,000 1,086 13.5% Credit Card
6/95 6/04 5,000 1,257 13.5% Credit Card
6/95 6/04 5,000 0 13.5% Credit Card
$ 658,000 $ 442,336
Henry O. Speight 3/94 3/04 8,571 1,200 9.5% Line of Credit
8/97 9/07 23,000 0 9.5% Home Equity
4/90 4/99 5,000 4,613 13.5% Credit Card
12/97 1/28 139,500 139,271 7.0% Real Estate
2/98 2/08 18,000 18,000 8.625% Home Equity
$ 194,071 $ 163,084
</TABLE>
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"), (ii) an Annual Report on Form 10-KSB (10-K) or (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 1998 Annual Meeting Proxy Statement.
22.2 The Company's 1997 Annual Report for the year ended December 31,
1997.
(b) Reports on Form 8-K. A Form 8-K was filed August 29, 1997, "Change
in Registrant's Certifying Accountant".
A Form 8-K was filed September 4, 1997, "Change
In Registrant's Certifying Accountant", to
include a letter of agreement from the
accountant that was dismissed.
<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 19, 1998 By: /s/ Josh C. Cox, Jr.
Josh C. Cox, Jr.
President and Chief Executive Officer
Dated: March 19, 1998 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 19, 1998
ROBERT L. BRACKETT
Class II Director
/s/ Josh C. Cox, Jr. March 19, 1998
JOSH C. COX, JR.
President, Chief Executive Officer
and Class III Director
/s/ Hubert Graves, Jr. March 19, 1998
HUBERT GRAVES, JR.
Class I Director
/s/ Roy H. Lambert March 19, 1998
ROY H. LAMBERT
Class II Director
/s/ Earl H. Masteller March 19, 1998
EARL H. MASTELLER
Class I Director
/s/ Louis L. Schlitt March 19, 1998
LOUIS L. SCHLITT
Secretary and Class III Director
/s/ Walter E. .Smith, Jr. March 19, 1998
WALTER E. SMITH, JR.
Class I Director
/s/ James R. Thompson March 19, 1998
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 1997 Annual Report are
included as Exhibits 22.1 and 22.2 of this filing.
<PAGE>
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 $69 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
providing full service mortgage banking activities. In late 1997, the Company
added armored car services to its product list. CFSI's stock is closely held
and not traded on any national market.
Contents
To Our Stockholders and Friends 2
Consolidated Financial Highlights 3
What's New with Services and Markets 4
Looking Inside 5
Management's Discussion and Analysis 7
Consolidated Financial Statements 11
Notes to Consolidated Financial Statements 15
Independent Auditor's Report 30
Board of Directors 31
Officers 32
Shareholder Information 33
<PAGE>
To Our Stockholders and Friends
A Move to Routes, Not Branches
Late in 1997 your Board of Directors directed Management to establish an
innovative, new banking service for our local community. The service was
created to provide our commercial clients with a safe, convenient service to
handle their excess cash while protecting their employees from possible harm.
Instead of driving to and from the bank, business managers now have more time
to run their businesses and attend to the needs of their employees. The
service, brought operational in the fourth quarter of 1997, is an armored car
service staffed and delivered by experienced and professional armed personnel.
We chose routes instead of branches to reach commercial clients that might not
bank with us just because of their location. Now we have truly expanded our
reach to all of Indian River County. We have noticed that other local banks
have recently adopted the term "commercial bank". That has been the Citrus
Bank watchword since our inception and we consider commercial banking our
"bread and butter". When you see our armored car cruising Indian River County,
you know our commercial business commitment is more than overnight rhetoric.
Our newest banking Center, opened late in 1996, continues to be well received
in the Barefoot Bay community. Deposits were $11 million at the end of
December, 1997 with 1,563 depository accounts. Management expects that the
rapid growth of this branch will continue in 1998 resulting in a significant
source of funding for our banking operations. Our banking center in Sebastian
completed 1997 with 1,900 depository accounts and $16 million in deposits.
Your Board of Directors and Management are committed to expanding the
geographic reach of the Company by continuing our diversity of products and
services and continuing to enhance the value of our franchise. We will also
continue to develop additional markets for profitable operations.
Net income for the year increased 194% to $250,000 but was still plagued by
one remaining problematic credit. We are happy to report, however, that this
difficulty was resolved during February of 1998 and the subsequent recovery
recorded in the first quarter of 1998. The problem loans that were discovered
in late 1996 have now all been resolved with significant recoveries to the bank.
Litigation costs will now be normalized and profitability anticipations should
be realized. Both Management and the Board of Directors appreciate your
support while we resolved these previously discouraging events. We have
carefully reviewed our entire portfolio with outside consultants and have
determined that these loans were isolated instances within a safe and strong
portfolio.
Growing and Changing Toward 2000
The Company's deposits grew $4 million during 1997 while dramatically changing
the deposit portfolio's mix. In an effort to control and enhance the Company's
funding costs, Management set about to increase the bank's proportionate share
of less interest intensive deposits. We are happy to report that non-interest
bearing demand deposits grew $2,587,000 to $10,723,000 for an increase of 32%
from the previous year end. Savings accounts grew an impressive $3,006,000 to
$5,993,000; growing 101% since December 31, 1996. By attracting these types
of accounts the Bank realized a reduction in it's dependence on time deposits
from 69% of total deposits at the end of 1996 to 61% by December 31, 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 Staff, Officers
and 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>
For the Year 1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Interest income $ 5,514 $ 4,973 $ 4,830
Interest expense 2,482 2,288 2,398
Net interest income 3,032 2,685 2,432
Provision for loan losses 269 352 100
Other income 399 371 328
Other expenses 2,775 2,573 2,090
Income taxes 137 46 (94)
Net income 250 85 664
Per Share Data(1)
Net income $ .29 $ .10 $ .78
Book Value 6.72 6.35 6.29
Key Performance Ratios
Return on average assets .37% .14% 1.13%
Return on average stockholders'
equity 4.46% 1.55% 13.79%
Stockholders' equity to total
assets 8.43% 8.17% 8.73%
Tier One capital ratio 11.73% 11.70% 13.00%
Total risk-based capital ratio 12.58% 12.44% 13.90%
At Year-end
(in thousands)
Investments $ 9,283 $ 9,499 $ 10,318
Loans, net 50,107 50,670 43,028
Total assets 69,098 66,416 61,498
Deposits 62,601 58,646 53,803
Borrowings 433 2,055 2,076
Stockholders' equity 5,822 5,427 5,371
</TABLE>
(1) 1995 and 1996 per share data has been restated to give effect to 1997
stock split.
<PAGE>
"What's New with Services and Markets"
Our Newest Service Offers Pickups and Deliveries
In the fourth quarter the Company began its newest service, completely unique
in our marketplace, a fully staffed, professional armored car service for our
commercial clientele. Our corporate focus has been, since our inception, a full
service commercial banking enterprise specializing in small to medium
businesses. With the addition of our armored car service we can provide our
business clients with cash processing needs and the ability to operate their
businesses in a safer manner for their employees. In addition, more of our
clients limited management time is made available for their businesses; not
driving to and from to the bank. We can also provide convenience and
availability to businesses whose geographic location made banking with us
difficult. It is easy for us to say we are a commercial bank, but it is quite
different to prove it.
Developing Our Newest Markets
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. By December 31, 1997, this newest Center had garnered $11 million
in deposits just fifteen months from its opening. Our Sebastian Center which
opened a few years earlier, had deposits of $16 million at the end of December
1997. Both of these Centers provide a great source of funding as well as
customers for our consolidated success. The local residents have been very
supportive of these Center expansions and have welcomed us into their
marketplace.
Developing Our Future
Our future, like the future of all service industries, relies on the delivery
of our products. First and foremost our future relies on the service our
clientele receives. No computer system and no technological advance can take
the place of a friendly helping hand or a service delivered with a smile and
a concern. Second, we must deliver what we promise, when we promise, at the
price we promise. Last, we must provide products and innovations to put us a
step ahead in a rapidly expanding, competitive business.
During 1998 we will concentrate on developing our future by meeting these
objectives. First we will provide vigorous training for our staff so that
they continue to develop the skills to make them the most professional
financial service personnel in the industry. Next we will continue to upgrade
our systems to enhance our staff's ability to provide timely services and new
innovations. Finally, we will explore opportunities to provide new products
and services that will enhance our market niche.
Providing financial services continues to be a business of people, for people,
through people. Some institutions think people can be replaced by machines,
we do not. At Citrus we want to know you personally; call you by name, and 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, 1997 and 1996. This presentation
includes all major categories of interest-earning assets and interest-bearing
liabilities.
<TABLE>
Year ended December 31,
Average Consolidated Assets 1997 1996
(in thousands)
<S> <C> <C>
Cash and due from banks $ 1,959 $ 1,617
Interest-bearing deposits in other banks 51 100
Taxable securities 9,549 9,981
Federal funds sold 2,621 1,015
Net Loans 49,965 45,327
Total earning assets 62,186 56,423
Other assets 3,564 3,267
Total assets $ 67,709 $ 61,307
Average Consolidated Liabilities
And Shareholders' Equity
Noninterest-bearing deposits $ 8,730 $ 7,058
NOW deposits 3,427 3,207
Savings deposits 8,642 6,778
Time deposits 39,768 37,369
Borrowings 1,016 1,095
Other liabilities 517 307
Total liabilities 62,100 55,814
Common stock 2,996 2,964
Capital surplus 3,139 3,108
Retained deficit (526) (579)
Total shareholders' equity 5,609 5,493
Total liabilities and shareholders' equity $ 67,709 $ 61,307
</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, 1997
Average Interest Average
Assets Amount Earned Yield
<S> <C> <C> <C>
Interest-earning deposits in other banks $ 51 $ 3 5.9 %
Taxable securities 9,549 544 5.7 %
Federal funds sold 2,621 140 5.3 %
Net loans 49,965 (1) 4,827 (2) 9.7 %
Total interest-earning assets $62,186 $ 5,514 8.9 %
Average Interest Average
Liabilities Amount Paid Rate Paid
NOW deposits $ 3,427 $ 43 1.3 %
Savings deposits 8,642 256 3.0 %
Time deposits 39,768 2,125 5.3 %
Borrowings 1,016 58 5.7 %
Total interest-bearing liabilities $52,853 $ 2,482 4.7 %
</TABLE>
(1) Includes non-accrual loans of $783,000
(2) Interest earned on net loans includes $49,000 in loan brokerage fees.
Net interest earnings totaled $3,032 in the year ended December 31, 1997, for
a net yield on interest earning assets of 4.9%.
<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 interest-earning 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 $728,000.
(2) Interest earned on net loans includes $50,000 in amortized loan fees and
loan brokerage fees.
Net interest earnings totaled $2,685 during the year ended December 31, 1996,
for a net yield on interest earning assets of 4.8%.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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.
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 $6,242,000 or 9.0% of total assets at the end of 1997.
Additional liquidity is available through established federal funds purchase
agreements which aggregate $2,750,000 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 December 31, 1997, the Company had drawn $433,000 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 $7,098,000 at December 31, 1997. 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 our 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 in Indian
River County but still provides geographical access to commercial clients that
would otherwise be difficult to service. The Board of Directors and management
are confident that continued innovative products and services like the armored
car service will continue the growth and financial vitality of the Company
enhancing the financial condition of the Company.
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. The following is an analysis of rate-sensitive assets and
liabilities as of December 31, 1997 (excluding loans totaling $783,000 on
non-accrual status).
<TABLE>
(in thousands)
Over
0-3 mos. 3-12 mos. 1-5 yrs. 5 yrs. Total
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 61 $ -- $ -- $ -- $ 61
Taxable securities 1,139 1,634 1,464 5,046 9,283
Federal funds sold 2,500 -- -- -- 2,500
Total loans 15,772 12,978 17,022 4,009 49,781
Total rate sensitive 19,472 14,612 18,486 9,055 61,625
assets
NOW deposits 3,701 -- -- -- 3,701
Savings deposits 10,088 -- -- -- 10,088
Time deposits 11,653 15,285 11,151 -- 38,089
Borrowings 0 0 433 -- 433
Total rate sensitive 25,442 15,285 11,584 -- 52,311
liabilities
Excess (deficiency) of $(5,970) $ (673) $ 6,902 $ 9,055 $ 9,314
rate sensitive assets
over rate sensitive liabilities
</TABLE>
The above interest rate sensitivity table illustrates the Company's gap
position at December 31, 1997. 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 1997, 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.
Stockholders' equity at December 31, 1997 was $5.8 million or 8.4% of total
assets compared to $5.4 million at December 31, 1996. The increase reflects
the improved earnings, a decline in the unrealized loss on securities available
for sale from $158,000 to $95,000, and the exercise of 11,862 stock options
in 1997. 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, 1997. 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 % 8.0 % 12.6 %
Bank 3.0 % 7.9% 4.0 % 10.8 % 8.0 % 11.7 %
</TABLE>
Results of Operations
Total assets increased from $66 million at the end of 1996 to $69 million at
the end of 1997. Deposits reached $63 million by the end of 1997, an increase
of almost 7%. Borrowings were reduced to $433,000, compared to $2,055,000 at
the end of 1996.
Loans at the end of 1997 aggregated $50,107,000 compared to $50,670,000 at
December 31, 1996. This downturn at year end 1997 reflects a decrease in
residential mortgage loans that are immediately sold into the secondary market.
On December 31, 1997 these loans were down $3,651,000 when compared to
December 31, 1996. Average loans for 1997 were $49,965,000 compared to
$45,327,000 in 1996, an increase of 10.2% or $4,638,000.
<PAGE>
Commercial loans reflected the largest increase in 1997. These loans were up
$1,183,000 from year end 1996 ending the year at $10,316,000, an increase of
13%. Residential real estate loans, including those aforementioned loans
developed to sell into the secondary market, were down $2,058,000 from 1996's
year end. Installment loans were up $381,000, reversing last year's downturn.
Management has continued its strategy of continuing to restructure the loan
portfolio by emphasizing commercial and commercial real estate loans. This
strategy has impacted the portfolio's mix to reflect lending activities that
are considered a market niche for the institution. Commercial loans now
represent 20.4% of total loans, up from 17.9% on December 31, 1996. Aggregate
real estate loans are now 71% of total loans compared to 74% last year with
commercial real estate loans now 38% of all real estate loans. Installment
loans are 8.6% of total loans, up from 7.7% last year.
The investment portfolio has been reduced throughout 1997 through prepayments
and maturities. These prepayments and maturities aggregated $952,000 during
the current year. U.S. Treasury securities were purchased during the year for
$601,000, there were no sales of securities. Management has continued to limit
the role of investment securities to secondary liquidity with prepayments and
maturities invested in loan growth. At the end of the year the portfolio
consisted primarily of U.S. Government Treasury and Agency issues which
represent 93% of the portfolio; unchanged from 1996. The balance of the
portfolio is made up of Federal Reserve and Federal Home Loan Bank stock
totaling $427,000 and one corporate bond totaling $251,000. The majority of
the reductions in the investment portfolio came from prepayments on
mortgage-backed securities. These prepayments are expected to continue
throughout 1998 and near the same level as 1997.
Deposits grew from $58,646,000 at December 31, 1996 to $62,601,000 at December
31, 1997. This growth of almost 7% permitted borrowing reductions of
$1,622,000 and left $2,500,000 in federal funds sold to fund additional loan
growth. During 1997 management continued its emphasis on the development of
non-interest bearing deposits and these deposits have grown from $8,136,000
at the end of 1996 to $10,723,000 or 32% by December 31,1997. Savings accounts
grew to $5,993,000 increasing 101% and represents the very successful
introduction of a new savings deposit account. Interest bearing demand
deposits grew to $3,701,000, an increase from December 31, 1996 of $315,000
or 9.3%. Money market accounts ended 1997 at $4,095,000, an increase of
$206,000 from the end of 1996. Time deposits were reduced during 1997 by
$2,159,000 to $38,089,000 reducing time deposits to 60.8% of total deposits
from 68.6% at this same time in 1996.
Borrowings were reduced significantly during 1997. At December 31, 1996
borrowings totaled $2,055,000 and were reduced to $433,000 by the end of 1997.
The remaining balance of borrowings represents two loans with the Federal Home
Loan Bank that continue to be amortized. Management will continue to use
borrowings as necessary, however, to meet funding needs as they arise. For
1997 the weighted average interest rate of all borrowings for the year ended
was 5.7%.
During the fourth quarter of 1997 the company purchased an armored car and
began a fully staffed armored car service for Citrus Bank clients. This
service is now fully operational and has enabled the bank to reach commercial
clientele that was otherwise unavailable due to geographic location or cash
handling requirements. This service augments the Company's continued
expansion in the local marketplace and has successfully attracted larg
commercial depositors.
Net income improved dramatically during 1997. Net income increased from
$85,000 to $250,000 or 194%. Net interest income continued to increase and
was up $347,000 or 12.9% in 1997 compared to 1996. Interest income increases
were primarily the result of increases in interest and fees on loans.
Aggregate interest income increased $541,000 for 1997 while concurrent
interest costs increased only $194,000. The Company's 1997 net interest
income to average earning assets increased to 4.9% from 4.8% in 1996.
Provisions for loan losses decreased to $269,000 from $352,000 in 1996.
Larger provisions reflected in 1996 related primarily to three loan
relationships. One of these relationships was resolved in 1996, the second
has been resolved during 1997 with the loan's balance recovered, and the third
was resolved in February, 1998 with appropriate recoveries recorded in the
first quarter of 1998.
Other income continued to grow in 1997 reflecting continued deposit account
growth. Increasing to $399,000 from $371,000 in 1996, other income reflected
a 7.5% growth.
Other expenses increased from $2,573,000 in 1996 to $2,775,000 in 1997.
Salaries and benefits were up $138,000 to $1,280,000 reflecting additions to
staff for the new armored car service as well several staff additions to
complement customer growth. This increase also reflects a full year's staff
expense on the Bank's Barefoot Bay Center that opened in September, 1996.
Occupancy expenses increased $12,000 from 1996 largely representing expenses
related to the new banking center. Furniture and equipment expenses were up
$53,000 primarily attributable to the new banking center and the armored car
service as well as computer equipment repairs and upgrading. Miscellaneous
expenses remained largely unchanged at $1,043,000. Legal expenses, primarily
for the aforementioned problem credits, increased to $221,000 from $155,000
in 1996 and make up the largest single miscellaneous expense. Offsite computer
services accounted for $178,000 of the expenses and was up from $156,000 in
1996.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
1997 1996
(In Thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 3,742 $ 2,514
Federal funds sold 2,500 ---
6,242 2,514
Interest bearing deposits in other banks 61 106
Securities available-for-sale 5,796 5,296
Securities to be held-to-maturity
(estimated fair value of $3,426 for
1997; $4,013 for 1996) 3,487 4,203
Loans 50,107 50,670
Facilities 2,471 2,550
Other real estate owned 390 390
Accrued interest receivable 292 362
Other assets 252 325
Total assets $ 69,098 $ 66,416
LIABILITIES
Deposits:
Non-interest bearing demand deposits $ 10,723 $ 8,136
Demand deposits 3,701 3,386
Money market accounts 4,095 3,889
Savings accounts 5,993 2,987
Time, $100,000 and over 8,079 10,769
Other time deposits 30,010 29,479
Total deposits 62,601 58,646
Federal funds purchased ---- 500
FHLB advances 433 1,555
Accrued interest payable 195 228
Accounts payable and accrued liabilities 47 60
Total liabilities 63,276 60,989
Commitment and contingencies ---- ----
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 865,961
shares in 1997 and 854,120 in 1996 3,007 2,966
Additional paid-in capital 3,149 3,108
Accumulated deficit (238) (488)
Treasury stock (114 shares, at cost) (1) (1)
Net unrealized holding losses on securities (95) (158)
Total stockholders' equity 5,822 5,427
Total liabilities and stockholders' equity $ 69,098 $ 66,416
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Year Ended December 31,
1997 1996
(In Thousands, Except
Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,827 $ 4,350
Interest on investment securities:
U. S. Government agencies and corporations 516 537
Other 28 25
Income on Federal funds sold 140 54
Interest on deposits with other banks 3 7
Total interest income 5,514 4,973
INTEREST EXPENSE
Interest on deposits 2,424 2,227
Other 58 61
Total interest expense 2,482 2,288
Net interest income 3,032 2,685
PROVISION FOR LOAN LOSSES 269 352
Net interest income after provision for
loan losses 2,763 2,333
OTHER INCOME
Service charges on deposit accounts 327 316
Other fees for customer service 72 55
Gain (loss) on sale of securities --- ---
Total other income 399 371
OTHER EXPENSES
Salaries and employee benefits 1,280 1,142
Occupancy expense 185 173
Furniture and equipment expense 267 214
Miscellaneous expenses 1,043 1,044
Total other expenses 2,775 2,573
INCOME BEFORE INCOME TAXES 387 131
INCOME TAXES (CREDIT) 137 46
NET INCOME $ 250 $ 85
AVERAGE SHARES OUTSTANDING 862 854
PER SHARE INFORMATION
Income per share $ 0.29 $ 0.10
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Net
Unrealized Total
Additional Holding Stock-
Common Paid-in Accumulated Treasury Losses on holders'
<S> <C> <C> <C> <C> <C> <C>
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
Net income - - 250 - - 250
Stock options
exercised 41 41 - - - 82
Net change in net
unrealized
holding losses
on securities - - - - 63 63
Balance,
December 31, 1997 $3,007 $3,149 $ (238) $ (1) $ (95) $ 5,822
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31,
1997 1996
(In Thousands, Except
Per Share Data)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 250 $ 85
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 269 352
Depreciation and amortization of facilities 226 189
Amortization of organizational costs - -
Net premium amortization and discount accretion 18 24
Gain on sale of securities - -
Deferred income tax 49 46
(Increase) decrease in assets:
Origination of loans held for sale 3,714 (3,002)
Accrued interest and other assets 64 12
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (46) 41
Net cash provided by (used in)
operating activities 4,544 (2,253)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Proceeds from sales - -
Purchases (661) (25)
Proceeds from maturities 239 270
Securities to be held-to-maturity:
Purchases - -
Proceeds from maturities 713 527
Proceeds from sale of other real estate - 158
(Increase) decrease in interest bearing deposits
in other banks 45 18
Increase in loans (3,420) (5,434)
Purchase of facilities (147) (569)
Net cash used in investing activities (3,231) (5,055)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 3,955 4,842
Proceeds from (disbursements to) FHLB advances, net (1,122) (521)
Net increase (decrease) in federal funds purchased (500) 500
Proceeds from exercise of stock options 82 -
Acquisition of treasury stock - (1)
Net cash provided by financing activities 2,415 4,820
NET INCREASE (DECREASE) IN CASH 3,728 (2,488)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,514 5,002
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,242 $ 2,514
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash received during the year for interest $ 5,594 $ 4,992
Cash paid during the year for interest $ 2,515 $ 2,257
Cash paid during the year for income taxes $ 75 $ 5
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
General:
The consolidated financial statements include the accounts and transactions of
Citrus Financial Services, Inc. (the "Company") and its wholly-owned subsidiary,
Citrus Bank, National Association (the "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, the fair value
of financial instruments, 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 loan
losses and foreclosed real estate, management obtains independent appraisals
for significant properties.
Management believes that the allowance for loan losses 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 based on their judgments about
information available to them at the time of their examination.
Investments:
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FAS No. 115"), 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
that 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
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, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
Loans:
Loans receivable are stated at unpaid principal balances, less the allowance
for loan 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.
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. An nonaccrual
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 1995, the Company adopted Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan ("FAS No. 114"),
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 No. 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. If the value of the loan is less than the recorded
investment in the loan, a loss should be recognized by recording a valuation
allowance and a corresponding increase to the provision for credit losses
charged to operating expenses.
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, 1996.
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, 1997
NOTE 1 - 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.
Other Real Estate Owned:
Real estate properties acquired through, or in lieu of, loan foreclosure are
to be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in loss on foreclosed real
estate.
Off-Balance Sheet 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 1996 and 1995 have been
reclassified to conform to the classifications used for the current year.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 1997, 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 $ 1,101 $ 5 $ 2 $ 1,104
Mortgage-backed securities 4,396 - 131 4,265
Other 427 - - 427
$ 5,924 $ 5 $ 133 $ 5,796
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Securities held-to-maturity:
U.S. Government agencies $ 1,474 $ - $ 45 $ 1,429
Mortgage-backed securities 1,762 - 15 1,747
Other 251 - 1 250
$ 3,487 $ - $ 61 $ 3,426
The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 1996, are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
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, 1997
NOTE 2 - INVESTMENT SECURITIES (Continued)
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Securities 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 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, 1997, of
$95,000 (net of deferred income taxes of $33,000) 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, 1997, securities with
carrying value of approximately $107,000, and market values of approximately
$108,000, were pledged to secure deposits and for other operating purposes.
At December 31, 1997, the carrying value of collateralized mortgage obligations
included in securities available-for-sale and securities to be held-to-maturity
was approximately $3,998,000 and $7,000, respectively.
No investment securities were sold during 1997 or 1996. Proceeds from the sale
of investment securities during 1995 were approximately $2,919,000. Gross
realized gains on such sales were approximately $1,000.
The cost and estimated fair value of debt and equity securities at December
31, 1997, 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 Amortized Fair
Cost Value Cost Value
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 500 $ 498 $ 1,848 $ 1,837
Due from one to five years 601 606 858 849
Due from five to ten years 206 197 477 441
Due after ten years 4,190 4,068 304 299
Other 427 427 - -
$ 5,924 $ 5,796 $ 3,487 $ 3,426
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - LOANS
The loan portfolio is classified as follows:
<TABLE>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
Commercial and agricultural $ 10,316 $ 9,133
Real estate 35,922 37,980
Installment and other loans 4,326 3,945
Total loans 50,564 51,058
Less, unearned income (26) (34)
Less, allowance for loan losses (431) (354)
$ 50,107 $ 50,670
</TABLE>
The following is a summary of the transactions in the allowance for loan
losses:
<TABLE>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 354 $ 373 $ 299
Provisions charged to operating expenses 269 352 100
Loans charged-off (212) (879) (27)
Recoveries 20 508 1
Balance, end of year $ 431 $ 354 $ 373
</TABLE>
Loans on which interest was not being accrued totaled $783,000 and $728,000 at
December 31, 1997 and 1996, respectively. Had interest been accrued on these
nonaccrual loans at originally contracted rates, interest income (before
income taxes) would have been increased by approximately $100,000 for 1997 and
$69,000 for 1996.
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, 1997, the Bank had classified $256,000 as impaired. Such
amounts are also included in nonaccrual loans.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - FACILITIES
<TABLE>
Facilities are summarized as follows:
Accumulated Estimated
Depreciation & Net Book Useful
Cost Amortization Value Lives
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1997
Land and land improvements $ 278 $ - $ 278
Bank building and improvements 2,200 434 1,766 31.5 years
Furniture, fixtures, and equipment 1,178 751 427 2-15 years
$ 3,656 $ 1,185 $ 2,471
Accumulated Estimated
Depreciation & Net Book Useful
Cost Amortization Value Lives
(In Thousands)
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
</TABLE>
Other expenses for the years ended December 31, 1997, 1996, and 1995, included
depreciation and amortization of facilities of $226,000, $189,000, and
$197,000, respectively.
NOTE 5 - FHLB ADVANCES
The Bank has a line of credit master agreement with the FHLB of Atlanta that
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 were outstanding as of December 31, 1996,
with interest at 5.57%. All advances under this line were repaid in 1997.
In addition to the line of credit arrangement, the Bank had fixed FHLB advances
outstanding as follows:
<TABLE>
<S> <C> <C> <C>
Maturity Date Interest Rate 1997 1996
2000 5.26% $ 166,667 $ 238,095
2003 5.76% $ 266,666 $ 316,667
</TABLE>
Interest expense on the line of credit and other FHLB advances amounted to
approximately $56,000, $57,000, and $217,000, for the years ended December
31, 1997, 1996, and 1995, respectively.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - TIME DEPOSITS
Time deposits at December 31, 1997, totaled $38,089,000. Maturities of such
deposits are as follows:
<TABLE>
Time, $100,000 Other Time
And Over Deposits
(In Thousands)
<S> <C> <C>
Three months or less $ 2,850 $ 8,803
Over three through twelve months 3,681 11,604
Over twelve months through three years 1,548 9,603
Over three years - -
$ 8,079 $ 30,010
</TABLE>
Interest expense of certificates of deposit of $100,000 or more for 1997, 1996,
and 1995 were approximately $504,000, $520,000, and $545,000, respectively.
NOTE 7 - INCOME TAXES
The provision (credit) for income taxes on income is summarized as follows:
<TABLE>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 87 $ - $ -
State 1 - -
88 - -
Deferred:
Federal 41 38 (74)
State 8 8 (20)
49 46 (94)
Total income tax provision (credit) $ 137 $ 46 $ (94)
</TABLE>
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,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Tax computed at statutory rate $ 132 $ 45 $ 194
Increase (decrease) resulting from:
Utilization of net operating loss carryforwards (2) (27) (200)
Recognition of deferred income tax assets - 23 (94)
Other 7 5 6
Income tax provision (credit) $ 137 $ 46 $ (94)
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 7 - INCOME TAXES (Continued)
The components of the deferred income tax assets included in other assets on
the consolidated balance sheets are as follows:
<TABLE>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
Deferred tax asset:
Federal $ 111 $ 236
State 19 41
130 277
Deferred tax liability:
Federal (80) (56)
State (14) (10)
(94) (66)
36 211
Valuation allowance - (12)
Net deferred tax asset $ 36 $ 199
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
Net unrealized holding losses on securities $ 33 $ 96
Depreciation (94) (45)
Net operating loss carryover - 84
Allowance for loan losses 97 76
Valuation allowance - (12)
Net deferred tax asset $ 36 $ 199
</TABLE>
As of December 31, 1996, the Company had a net operating loss carryforward of
$222,000 for Federal and State income tax purposes, which was fully utilized
in 1997.
NOTE 8 - PROFIT SHARING PLAN
The Company sponsors a 401(k) Profit Sharing Plan (the "Plan") that covers
substantially all employees. The Company, at its sole discretion, may make
matching and discretionary contributions to eligible participants. The Plan
is a prototype plan and has been approved by the Internal Revenue Service.
During 1996 and 1995, no contributions were made by the Company to this Plan.
For 1997, the Company expensed approximately $12,000.
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 9 - 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 follows:
<TABLE>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
Commitments to extend credit $ 7,098 $ 7,115
Standby letters of credit $ 75 $ 175
Commercial letters of credit $ 100 $ 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 consolidated financial statements.
The Bank has $2,750,000 unfunded lines-of-credit available from other banks
for the purchase of Federal funds.
NOTE 10 - 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 3. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Standby letters of credit were granted primarily to commercial
borrowers.
NOTE 11 - 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
$3,543,000 at December 31, 1997 and 1996, respectively.
Following is a summary of activity for 1996 and 1997 for such loans:
<TABLE>
Beginning End of
of Year Year
Balance Additions Reductions Balance
(In Thousands)
<S> <C> <C> <C> <C>
1996 $ 1,791 $ 1,610 $ 1,171 $ 2,230
1997 $ 2,230 $ 1,973 $ 660 $ 3,543
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - 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 $10.00
per share. In addition, the director received stock options in each of the
second and fourth years of his employment agreement for an aggregate total of
5,931 shares at an option price of $10.00 per share. On April 28, 1997, the
directors amended the employment agreement to be consistent with all other
options and warrants. This action reduced the exercise price per option from
$10.00 per share to $6.94 per share. On May 15, 1997, all of these options
were exercised.
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.
For the year ended December 31, 1996, Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("FAS No. 123"),
became effective. FAS No. 123 permits application of the accounting
requirements of an earlier issued APB Opinion No. 25 and, accordingly, no
compensation cost has been recognized in 1997, 1996, or 1995. However, the
Company must comply with certain additional disclosures under FAS No. 123.
The following is a summary of the activity in the option plans during 1997,
1996, and 1995.
<TABLE>
Weighted Weighted
Average Average
Number of Exercise Fair Value of
Shares Price Granted Options
<S> <C> <C> <C>
Outstanding at December 31, 1994 41,615 $ 7.81
Granted 3,168 $ 6.94 $ 3.51
Outstanding at December 31, 1995 44,783 $ 7.75
Granted 24,000 $ 6.94 $ 3.27
Outstanding at December 31, 1996 68,783 $ 7.47
Exercised (11,862) $ 6.94
Outstanding at December 31, 1997 56,921 $ 6.94
</TABLE>
No options were granted during 1997.
The following is a summary of the status of the plans at December 31, 1997:
<TABLE>
Weighted
Average Weighted
Remaining Average
Exercise Contractual Exercise
Price Number Life Price
<C> <C> <C> <C>
$ 6.94 17,081 28 months $ 6.94
$ 6.94 39,840 43 months $ 6.94
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 12 - STOCKHOLDERS' EQUITY (Continued)
All outstanding options were fully vested and exercisable at December 31, 1997.
Under FAS No. 123, compensation cost is the fair value of the stock options at
the grant date less any amounts paid by the employee or director for the stock
options. The fair value of the stock options granted in 1996 and 1995 were
estimated using a Black-Scholes option pricing model and the following
assumptions:
<TABLE>
1996 1995
<S> <C> <C>
Dividend yield 0% 0%
Risk-free interest rate 5% 5%
Expected life 55 months 67 months
Expected volatility 15% 15%
</TABLE>
Based on the above assumptions, pro forma net income would have declined by
approximately $49,000 and $7,000 for 1996 and 1995, respectively, as compared
with reported results for the same periods. Pro forma net income per share
would have declined by $0.06 and $0.01, respectively.
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. At December 31, 1997, approximately $120,000
of retained earnings of the Bank was available for payment of dividends to the
Company without prior regulatory approval.
On December 19, 1996, the 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 13 - NON-INTEREST OPERATING EXPENSES
Other expenses were as follows:
<TABLE>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Advertising and public relations $ 69 $ 54 $ 25
Professional fees 288 266 69
Data processing 153 140 97
Stationary, printing, and supplies 58 57 40
Amortization of organizational costs - - 15
Insurance 24 47 74
Telephone 40 37 31
Other miscellaneous expenses 411 443 323
$ 1,043 $ 1,044 $ 674
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 14 - 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.
The estimated fair values of the Bank's financial instruments at December 31,
1997, are as follows:
</TABLE>
<TABLE>
Carrying Fair
Amount Value
(In Thousands)
<S> <C> <C>
Financial Assets
Cash and deposits in other banks $ 3,803 $ 3,803
Federal funds sold 2,500 2,500
Investment securities 9,283 9,222
Loans 50,107 49,956
Total assets valued $ 65,693 $ 65,481
Financial Liabilities
Deposits $ 62,601 $ 62,754
FHLB advances 433 433
Total liabilities valued $ 63,034 $ 63,187
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 15 - 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, 1997, 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
Actual Adequacy Action
Purposes Provisions
Amount Ratio >Amount >Ratio >Amount >Ratio
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 5,859 11.68% $ 4,014 8.00% $ 5,018 10.00%
Tier I Capital
(To Risk-Weighted Assets) $ 5,428 10.82% $ 2,007 4.00% $ 3,011 6.00%
Tier I Capital
(To Adjusted Total Assets) $ 5,428 7.93% $ 2,737 4.00% $ 3,421 5.00%
</TABLE>
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 16 - 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: 1997 1996
(In Thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 264 $ 263
Investment in subsidiary bank, net 5,333 4,997
Other assets 225 178
Total $ 5,822 $ 5,438
Liabilities and Stockholders' Equity
Liabilities $ - $ 11
Stockholders' equity 5,822 5,427
Total $ 5,822 $ 5,438
</TABLE>
Condensed Statements of Operations and Stockholders' Equity
<TABLE>
Years Ended December 31: 1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Equity in net income of subsidiary bank $ 273 $ 121 $ 643
Other income 43 67 102
Other expenses (66) (103) (81)
Net income 250 85 664
Stockholders' Equity:
Beginning of year 5,427 5,371 4,250
Stock options exercised 82 - -
Acquisition of treasury stock - (1) -
Net change in unrealized holding losses on
securities in subsidiary bank 63 (28) 457
End of year $ 5,822 $ 5,427 $ 5,371
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
Years Ended December 31: 1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Operating Activities
Net income $ 250 $ 85 $ 664
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary (273) (121) (643)
Deferred income taxes 68 23 (74)
Other (44) (85) 57
Net Cash Provided By (Used In) Operating Activities 1 (98) 4
Cash and cash equivalents:
Beginning of year 263 361 357
End of year $ 264 $ 263 $ 361
</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 sheet of Citrus Financial Services,
Inc. and Subsidiary (the "Company") as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. 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
audit. The consolidated financial statements of Citrus Financial Services,
Inc. and Subsidiary as of December 31, 1996 and 1995, were audited by other
auditors whose report dated January 10, 1997, expressed an unqualified
opinion on those consolidated financial statements.
We conducted our audit 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
audit provides 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, 1997, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
STEVENS, THOMAS, SCHEMER & SPARKS, P.A.
Jacksonville, Florida
January 30, 1998
<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.
Chairman
Regency Windsor Companies
Earl H. Masteller
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
President
Masteller, Moler & Associates, Inc.
Vice President
Masteller, Moler & Reed, Inc.
Secretary
Walsh Environmental Services, Inc.
John A. Purdie
Director
Citrus Bank, N.A.
President
Regency Windsor Capital, Inc.
<PAGE>
Louis L. Schlitt
Director
Citrus Financial Services, Inc.
and Citrus Bank, N.A.
CEO
Schlitt Insurance Services, Inc.
President
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
Director
Travel Centers of America, Inc.
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>
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.
Henry O. Speight
Senior Vice President
Chief Financial 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.
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>
Barbara S. Camarigg
Assistant Vice President
Mortgage Manager
Citrus Bank, N.A.
<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 Josh C. Cox, Jr., President and CEO.
Telephone: (561) 778-4100
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 1997 annual meeting of shareholders will be held at 5:00 p.m. on Monday,
April 27, 1998, at the Courthouse Executive Center, 2145 14th Avenue, Vero
Beach, Florida.
Independent Auditors
Stevens, Thomas, Schemer & Sparks, P.A.
6273 DuPont Station Court
Jacksonville, Florida 32217-2513
Telephone: (904) 731-1366
Legal Counsel
Igler & Dougherty, P.A.
1501 Park Avenue East
Tallahassee, Florida 32301
(850) 878-2411
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
1717 Indian River Boulevard
Vero Beach, Florida 32960
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 27, 1998
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 27, 1998 at 5:00 p.m.,
Eastern Time at the Courthouse Executive Center, 2145 14th Avenue, 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 Stevens,
Thomas, Schemer & Sparks, P.A. as the independent auditors of Citrus for the
fiscal year ended December 31, 1997; 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 13, 1998 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 865,961 shares which
are held by approximately 424 shareholders.
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 13, 1998, no persons or apparent groups of persons, other than
Officers or Directors of the Company and Citrus Bank, N.A. (The "Bank"), are
known by management to own beneficially five percent or more of the outstanding
shares of Citrus' Common Stock.
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of Citrus, as proposed herein, will be composed of eight
members. The Board of Directors is 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 II 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 Robert L. Brackett, Roy
H. Lambert, and James R. Thompson, 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 13, 1998, 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 II Directors
<S> <C> <C> <C> <C>
Robert L. Brackett, Age 63. 1989 1998 101,164(2) 7.5%
Chairman of the Board of the
Company and the Bank
since 1990. Treasurer
and Director of Credit Data
Services, Inc. since 1977.
Roy H. Lambert, Age 67. 1994 1998 192,910(3) 14.3%
Chairman of Regency
Windsor, Inc. since 1974.
James R. Thompson, Age 69. 1990 1998 107,963(4) 8.0%
Consulting Engineer for
Regency Windsor Capital,
Inc. since 1988. President
of Regency Acquisitions,
Inc. from 1980 to 1988.
Advisor to Chairman of
Regency Windsor Management
Co. since 1996.
Continuing Directors:
Class III Directors
Josh C. Cox, Jr., Age 56. 1993 1999 144 --(5)
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 62. 1989 1999 70,762(6) 5.2%
CEO of Schlitt Insurance
Services, Inc. since 1983.
President of Louis Schlitt,
Inc. since 1984. CEO of
SIS Realty since 1983.
</TABLE>
<PAGE>
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)
<TABLE>
Class I Directors
<S> <C> <C> <C> <C>
Hubert Graves, Jr., Age 67. 1989 2000 136,052(7) 10.1%
President of Hubert Graves
Citrus, Inc. since 1965.
President of HGX, Inc. since
1977.
Earl H. Masteller, Age 59. 1989 2000 56,966(8) 4.2%
President of Masteller &
Moler Associates, Inc., since
1985. Vice President of
Masteller, Moler and Reed,
Inc., since 1987. Secretary
of Walsh Environmental
Services, Inc. since 1997.
Walter E. Smith, Jr., Age 56. 1990 2000 110,211(9) 8.2%
Owner and operator of
Unocal 76 Truck stops in
Florida and Georgia since 1973.
Director of Travel Centers of
America, Inc. and Subsidiaries
since 1997.
</TABLE>
(1) Percentage computed on 865,961 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 56,921 shares subject to
presently exercisable stock options for a total of 1,349,947 beneficial shares.
(2) 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, 288 shares owned by
his wife, and 71,770 shares owned by Mr. Brackett as Trustee.
(3) Includes 87,253 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 105,513 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.
(4) Includes 1,010 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 105,513 shares owned by the Revocable Trust of Roy H. Lambert, of
which Mr. Thompson is the sole Trustee, and 1,440 shares owned individually.
(5) Represents less than 1% of outstanding shares.
(6) Includes 52,614 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 5,802 shares owned individually by Mr. Schlitt, 7,860 shares held by
the Schlitt Insurance Profit Sharing Plan, 3,970 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 440 shares held by
his individual retirement account.
<PAGE>
(7) 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.
(8) Includes 17,756 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 10,300 shares individually, 9,540 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 and 15,503 shares owned by the
Revocable Trust of Earl H. Masteller.
(9) Includes 50,725 shares subject to presently exercisable stock purchase
warrants granted in connection with the Company's initial stock offering.
Includes 59,486 shares in the Walter E. Smith Revocable Trust.
Board of Directors Meetings
Citrus conducts its business through meetings of the Board of Directors.
During the fiscal year ended December 31, 1997, 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 $3,500 to its Directors for the period ended
December 31, 1997 and Citrus Bank paid director fees of $44,500 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, 1997.
Summary Compensation Table
<TABLE>
Long-term
Annual Compensation compensation
Name and Other annual Stock All other
principal position Year Salary(1) Bonus compensation(2) options compensation
<S> <C> <C> <C> <C> <C> <C>
Josh C. Cox, Jr. 1997 $160,000 None $ 18,852 None None
President and Chief 1996 $160,000 None $ 17,853 20,000 None
Executive Officer 1995 $160,000 None $ 8,701 None None
since July 1, 1994
</TABLE>
(1) Mr. Cox's annual base salary for the fiscal year 1998 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 $6,000 and annual club dues of $3,852.
<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 1997, the Bank's
Board of Directors awarded $9,505 in bonuses to employees of the Bank during
the year ended December 31, 1997. 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 contributed $10,549 for a 25% match to employee contributions in 1997
to the 401(k) for the fiscal year ended December 31, 1997. This was the first
employer match since the plan's inception.
PROPOSAL II - APPOINTMENT OF AUDITORS
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
Citrus' independent auditors for the fiscal year ended December 31, 1997, were
Stevens, Thomas, Schemer & Sparks, P.A. The Board of Directors appointed
Stevens, Thomas, Schemer & Sparks, P.A. to be its independent auditors for the
fiscal year ended December 31, 1998, subject to shareholder approval. 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 Stevens, Thomas, Schemer & Sparks, P.A. as independent
auditors for the fiscal year ended December 31, 1998.
<PAGE>
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 and II are not received by April 28, 1998. 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. 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, 1999. 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, 1997,
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, 1997 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.
Copies of exhibits and basic documents filed with that Report or referenced
therein will be furnished to shareholders of record upon request. Copies may
also be obtained from the Securities and Exchange Commission's Internet
website located at www.sec.gov.
<PAGE>
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 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,742
<INT-BEARING-DEPOSITS> 61
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,796
<INVESTMENTS-CARRYING> 3,487
<INVESTMENTS-MARKET> 3,426
<LOANS> 50,538
<ALLOWANCE> 431
<TOTAL-ASSETS> 69,098
<DEPOSITS> 62,601
<SHORT-TERM> 0
<LIABILITIES-OTHER> 242
<LONG-TERM> 433
0
0
<COMMON> 3,007
<OTHER-SE> 2,815
<TOTAL-LIABILITIES-AND-EQUITY> 69,098
<INTEREST-LOAN> 4,827
<INTEREST-INVEST> 544
<INTEREST-OTHER> 143
<INTEREST-TOTAL> 5,514
<INTEREST-DEPOSIT> 2,424
<INTEREST-EXPENSE> 2,482
<INTEREST-INCOME-NET> 3,032
<LOAN-LOSSES> 269
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,775
<INCOME-PRETAX> 387
<INCOME-PRE-EXTRAORDINARY> 387
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250
<EPS-PRIMARY> .29
<EPS-DILUTED> .40
<YIELD-ACTUAL> 4.88
<LOANS-NON> 783
<LOANS-PAST> 341
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 354
<CHARGE-OFFS> (212)
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 431
<ALLOWANCE-DOMESTIC> 431
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
