As filed with the Securities and Exchange Commission on October 28, 1999
File No. 333-67613
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------------------------------
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 2
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CITRUS FINANCIAL SERVICES, INC.
(Name of small business issuer in its charter)
Florida 6712 65-0136504
------- ---- ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1717 Indian River Boulevard, Suite 100
Vero Beach, Florida 32960
(561) 778-4100
(Address and telephone number
of principal executive offices)
------------------------------------
Josh C. Cox, Jr.
President and Chief Executive Officer
1717 Indian River Boulevard, Suite 100
Vero Beach, Florida 32960
(561) 778-4100
(Name, address and telephone number of agent for service)
----------------------------------------------------------
Copies Requested to:
Herbert D. Haughton, Esq. Neil E. Grayson, Esq.
or A. George Igler, Esq. Nelson Mullins Riley & Scarborough, L.L.P.
Igler & Dougherty, P.A. First Union Plaza, Suite 1400
1501 Park Avenue East 999 Peachtree Street, N.E.
Tallahassee, Florida 32301 Atlanta, Georgia 30309
(850) 878-2411 Telephone (404) 817-6000 Telephone
(850) 878-1230 Facsimile (404) 817-6225 Facsimile
Approximate date of proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis as required by rule 415 under the Securities Act of
1933 check the following box. [ ]
If this form is filed to register additional securities for an offering as
required by to rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this form is a post-effective amendment filed as required by to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made as required by to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================== ======================== ====================== ====================== ===================
Title of Proposed Proposed
each class Amount maximum maximum
of securities to be offering aggregate Amount of
to be registered registered price(1) offering price(2) registration fee(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $3.15 par value 1,200,000 $11.50 $13,800,000 $3,836.40
=================================== ======================== ====================== ====================== ===================
</TABLE>
(1) Maximum purchase price of stock to be issued.
(2) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum offering price per share.
(3) Previously paid.
The Registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall become
effective on the date the Commission, acting as required by to Section 8(a), may
determine.
================================================================================
<PAGE>
PROSPECTUS
[GRAPHIC OMITTED]
Citrus Financial Services, Inc. is a bank holding company headquartered
in Vero Beach, Florida. We are offering through our sales agent a minimum of
560,000 and a maximum of 1,200,000 shares of our common stock at $10.75 per
share. This is an extension of our offering which originally began on May 3,
1999 and which expired on October 30, 1999. We extended the offering in order to
reduce the minimum number of shares and to extend the time period in which to
sell those shares. We intend to use the proceeds of the offering to open two new
banks. Our offering is now scheduled to end April 30, 2000. Following the
offering, the common stock will be quoted on the OTC Bulletin Board. We have
requested the symbol "CFHC".
This is a risky investment. It is not a deposit or an account and is not
insured by the Federal Deposit Insurance Corporation or any other government
agency. You should not invest in this offering unless you can afford to lose
your entire investment. Some of the risks of this investment are described under
the heading "Risk Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Estimated
Subscription Sales Agent Proceeds to
Price Commissions Citrus
----- ----------- ------
<S> <C> <C> <C>
Per share $ 10.75 $0.00 to $0.75 $10.75 to $10.00
Minimum offering $ 10.75 $290,100 $ 5,729,900
Maximum offering $ 10.75 $771,688 $12,128,312
</TABLE>
The proceeds to Citrus will be reduced by offering expenses estimated to be
approximately $200,000, including registration fees, legal and accounting fees,
printing and other miscellaneous expenses.
[GRAPHIC OMITTED]
The date of this prospectus, which was filed with the
Securities and Exchange Commission in a
post-effective amendment on October 28, 1999, is
October ___, 1999.
2
<PAGE>
[Inside Front Cover]
Location map of Citrus locations with highlights for Dade and Highlands
Counties.
i
<PAGE>
PROSPECTUS SUMMARY
We encourage you to read the entire prospectus carefully before investing.
General. Citrus operates primarily through its wholly-owned subsidiary,
Citrus Bank, N.A. which began banking operations on April 13, 1990. Citrus Bank
operates from three full-service banking centers:
o the main office in Vero Beach, Florida,
o the Sebastian banking center in Sebastian, Florida, and
o the Barefoot Bay banking center, in Barefoot Bay, Florida.
Our primary service area includes all of Indian River County and the
southern portion of Brevard County, Florida. The major industries in this area
include tourism, retail trade, citrus, insurance, health care, aircraft
manufacturing and related industries, light industry, and real estate.
Our Primary Business. Citrus' primary business is attracting deposits
from the general public and using those deposits, together with borrowings and
other funds, to originate loans and to purchase investments. We offer various
types of deposit accounts and loans for consumers and businesses. We also engage
in mortgage banking activities, which include the origination, purchase and
subsequent sale of residential mortgage loans.
Recent Developments. Citrus Bank opened a loan production office in
Dade County, Florida during the first quarter of 1999 and opened a loan
production office in Sebring, Florida during the second quarter of 1999. It is
Citrus' intent that these loan production offices will be closed when and if
Citrus opens its proposed new banks. Loans originated in these loan production
offices would then be transferred to the new banks. Citrus Bank has incurred
loan production office operating costs through September 30, 1999 totaling
approximately $250,000.
Citrus Bank's assets at September 30, 1999 increased from $80.2 million
to $84.4 million while total loans increased from $60.2 million to $66.2
million. Deposits increased from $73.3 million to $77.6 million, while total
capital accounts increased from $6.5 million to $6.7 million.
Nine month year-to-date net income dropped $167,215 from $480,422 in
1998 to $313,207 for 1999, primarily due to the operating costs incurred by
Citrus Bank's new loan production offices.
Use of Proceeds. We intend to use the proceeds of this offering to
expand our community banking business through the formation of two new banks. We
intend to create an organization of independently managed community banks that
serve their respective local markets. We believe that many consumers and small
businesses prefer to do business with a local bank rather than with a branch
office of a bank located outside their community. These new banks will be run by
local boards of directors. We have chosen Highlands County, Florida for our
first new bank and Dade County, Florida for our second new bank. See "Business
of Citrus - Citrus' Expansion Plans Include New Banks".
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<PAGE>
We intend to use the first $5 million of the net proceeds of the
offering to capitalize our proposed Highlands County bank. We will locate the
proposed bank at 3900 U.S. 27 North in Sebring, Florida. We have received
preliminary approval to open this bank from the Office of the Comptroller of the
Currency and the Federal Reserve Bank of Atlanta. We expect to receive FDIC
approval for deposit insurance by November 15, 1999. We anticipate opening this
new bank sometime late in the fourth quarter of 1999 or early in the first
quarter of 2000.
We intend to use an additional $5 million of the net proceeds of this
offering to capitalize our Dade County bank. See "Use of Proceeds". We are
searching for a site for our proposed Dade County bank. We are currently
focusing our search in the Coral Gables area, but we will also consider other
communities in Dade County. We anticipate selecting a site for the new bank
during the first quarter 2000. We anticipate opening the new bank in the second
quarter of 2000.
In the event we sell more than 560,000 shares but less than 1,000,000
shares, we will use the net proceeds in excess of $5,000,000 to open additional
full-service banking center branch offices of our subsidiary banks instead of
opening the Dade County bank. We would expect to open one banking center for
each $1,000,000 of net capital raised in excess of the minimum. We would expect
our first center to open in Dade County, Florida, although we still have not
selected a location for the center. We believe it would be located in Coral
Gables, Florida, but we would consider other communities. Other banking centers
would be opened in Melbourne, Florida, and Vero Beach, Florida, at locations yet
to be determined.
We will consider opportunities that may arise from time to time to open
other new banks or to acquire other banks or branches, but we do not have any
other specific expansion plans at this time. We anticipate that we would raise
additional capital to open or acquire any other banks.
No Dividends Paid on Our Shares
We have not paid a cash dividend since we began operations. We expect
to retain our earnings to support growth and expansion into new business
opportunities. We, therefore, do not expect to pay a cash dividend in the
foreseeable future. See "Regulation and Supervision-Restrictions on Payment of
Dividends".
The Offering
Citrus Financial began offering its shares to the public on May 3,
1999. The offering was scheduled to expire on August 1, 1999, unless extended
for up to an additional 90 days. Prior to August 1, 1999, our board of directors
extended the offering to October 30, 1999, and filed supplement no. 1 with the
Securities and Exchange Commission. We did so in order to have additional time
to sell the minimum number of shares. We do not expect to sell the minimum
number of shares required to break escrow before October 30th. In accordance
with the terms of the offering, if the minimum number of shares has not been
sold by October 30, 1999, the offering will terminate.
Our board of directors voted on October 7, 1999 to amend our
registration statement to extend the offering for a period of six months from
October 30, 1999, or until April 30, 2000, in order to sell the minimum number
of required shares. In addition, the board voted to reduce the minimum offering
from 1,000,000 shares to 560,000 shares at an offering price of $10.75 per
share. The board also voted to direct
3
<PAGE>
our management to refund all subscription proceeds plus prorata interest.
Finally, the board voted to provide each former subscriber with a copy of this
new prospectus along with a new subscription offer form.
Sales Agent and Fees to Participating Broker-Dealers. Banc Stock
Financial will continue to assist us with this offering . We have agreed to pay
Banc Stock Financial a sales commission for its services. See "Sales Agent
Retained For This Offering".
Determination of Offering Price. Our common stock is not publicly
traded. Our board of directors, after consulting with Banc Stock Financial,
determined the offering price per share after considering, among other criteria,
Citrus' assets, market position, net worth, historical and projected earnings,
book value and the last private trades reported to Citrus.
Subscription Funds Will be Held in Escrow. We will continue to deposit
funds we receive during the offering with the escrow agent. The escrow agent,
Independent Bankers' Bank of Florida, will hold these funds until we raise at
least $6,020,000 in the offering. If we fail to raise at least $6,020,000 by the
close of the offering, we will refund your subscription in full, together with
any prorata interest earned.
Procedure for Subscribing for Common Stock. Investors who desire to
participate in the offering must properly complete the order form which
accompanies this prospectus. Subscribers must forward the order form with full
payment of the aggregate subscription price to the escrow agent on or prior to
the expiration date. If the U.S. Postal Service is used to forward order forms,
we recommend that insured, registered mail, return receipt requested, be used.
See "The Offering - Procedures for Subscribing for Common Stock".
Duration of the Offering. The amended offering will close on April 30,
2000. We may terminate the offering at any earlier time in our discretion.
Preference in the Offering for Existing Shareholders. Citrus values its
relationship with its shareholders and wants to ensure that its existing
shareholders have the opportunity to participate in this offering. For this
reason, Citrus has requested that Banc Stock Financial contact each of its
existing shareholders to offer them the opportunity to purchase shares in the
offering. In addition, Citrus has requested that Banc Stock Financial
concentrate its sales efforts in Citrus' existing and proposed market areas.
If the offering is oversubscribed, Citrus may, but is not required to,
allocate shares among subscribers. Citrus may give a preference to existing
shareholders, officers and directors. Citrus may also take into account other
factors it considers relevant when determining preferences, including the order
in which subscriptions are received, a subscriber's potential to do business
with, or to direct customers to Citrus and Citrus' desire to have a broad
distribution of stock ownership. See, "The Offering - Citrus' Right and
Flexibility for Allocation Preference if the Offering is Oversubscribed".
Intentions of Citrus Executive Officers and Directors to Purchase
Shares in the Offering. Our executive officers, directors and proposed Highlands
County directors have preliminarily indicated that collectively they intend to
purchase approximately 175,000 shares of common stock in the offering, although
they are under no obligation to do so. Any purchases by officers and directors
in this offering will be made on the same terms as purchases by other investors.
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<PAGE>
Our executive officers and directors or affiliates of Banc Stock Financial may
purchase up to 100% of the shares in the offering if necessary to help us
achieve the minimum subscription level necessary to release subscription
proceeds from escrow. See - "Beneficial Ownership of Common Stock".
Investor Dilution per Share
The book value of our shares was $7.01 on June 30, 1999. Purchasers of
common stock in the minimum offering will experience an immediate dilution of
$2.68, or 33.2%, in book value per share of the common stock from the public
offering price of $10.75 per share. In the maximum offering, this dilution would
be $2.11, or 24.4%, in book value per share.
In connection with our initial stock offering, we issued purchase
warrants which, when adjusted for the various stock splits and if fully
exercised, would result in an additional 469,772 shares being issued at $6.31
per share. In addition, we have granted stock options periodically to officers
and employees of Citrus at exercise prices equal to fair market value at the
date of grant. As of June 30, 1999, officers and employees held stock options to
purchase 112,613 shares of common stock outstanding at an exercise price ranging
from $6.31 per share to $10.75 per share. See "Immediate Dilution In Book Value
Per Share".
The Listing of Our Stock Following the Offering
We expect that our shares will be quoted on the OTC Bulletin Board
following the offering. The OTC Bulletin Board is a quotation service for
subscribing members and should not be confused with the NASDAQ Stock Market or a
national securities exchange. Securities are traded on the OTC Bulletin Board by
a community of market makers through a closed computer network. The Securities
and Exchange Commission's order-handling rules do not apply to OTC Bulletin
Board securities. Unlike the NASDAQ or other exchanges, the OTC Bulletin Board:
o does not impose listing standards;
o does not provide automated trade executions;
o does not maintain relationships with quoted issuers; and
o does not have the same requirements for market makers.
We intend to apply to Nasdaq to have our securities listed on the
Nasdaq SmallCap Market as soon as we meet the qualification requirements. We
believe it will be at least one year before we will meet all of the requirements
for listing. We cannot assure you that we will be able to meet the requirements,
or that the listing requirements for the Nasdaq SmallCap Market will not have
changed by that time.
Information on the Offering
If you have questions concerning the offering, contact Banc Stock
Financial at the Stock Sales Center at (800) 733-2265.
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<PAGE>
RISK FACTORS
The occurrence of some of the following could reduce our profitability and
return on equity and may cause the value of our stock to fall. You should not
invest in the common stock unless you can afford to lose some or all of your
investment. Before investing, we encourage you to read this entire prospectus,
including the following risk factors.
Failure To Implement Our Expansion Plans Could Affect Profitability
We intend to expand our business by opening two new banks. The success
of this strategy depends on our ability to identify and integrate new and
existing locations and acceptable management teams. It also depends on our
ability to generate enough new deposits and loans for these locations to become
profitable. Our inability to identify suitable locations or management teams
following this offering will reduce our profitability and return on equity.
We May Fail To Obtain Regulatory Approvals For The New Banks
Before the proposed new banks may open, we must obtain regulatory
approvals. While we have received approvals from the Comptroller and the Federal
Reserve for our Highlands County bank, we are still awaiting FDIC approval. We
plan to file applications for the Dade County bank approvals in the first
quarter of 2000. Although we anticipate these applications will receive
preliminary approval during the second or third quarter of 2000, there is a risk
that we will fail to do so. Any significant delay or the failure to obtain any
of the approvals required will result in an increase in expenses and may reduce
the amount of our capital, potential revenues, and income.
If We Do Not Use The Proceeds As Planned, We Could Use Them In a Way That You
May Not Believe Is As Effective
Citrus is raising between $5.53 and $11.93 million in this offering,
after expenses. Depending upon the amount raised, we intend to use between $5
million and $6 million to establish each new bank. We will have significant
discretion regarding how and when the proceeds will be applied toward the
expansion of our business. If we do not obtain regulatory approvals to open the
new banks, but reach the minimum offering threshold, we will use the offering
proceeds for the other purposes described under "Use of Proceeds", including the
opening of new branches and internal growth. Likewise, if we do not sell
sufficient shares to capitalize our Dade County bank, but reach the minimum
threshold, we will use the proceeds in excess of the minimum for other purposes
including those described in "Use of Proceeds". Our failure to apply these funds
effectively, however, could have a material adverse effect on our profitability.
For additional information, see "Use of Proceeds".
Our New Banks Will Initially Lose Money
Neither of our proposed new banks is open and, therefore, neither has
any operating history. The operations of new businesses are always risky. We
expect our new banks to incur large initial expenses. Although we expect both
banks to become profitable in their second year, there is a risk that they may
never become profitable. We estimate that each new bank may lose as much as
$300,000 before becoming profitable.
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The Banking Business is Highly Competitive
Our primary service area encompasses all of Indian River County and
Barefoot Bay. Competition among financial institutions in this area is highly
competitive. As of February 1999, there were 47 banking offices and 10 offices
of savings and loan associations in this area. In the event we are unable to
compete effectively for customers, our profitability may be reduced.
Banks Are Highly Regulated and Are at a Disadvantage Compared to Many of Their
Non-Bank Competitors
We operate in a highly regulated environment and are supervised and
examined by several federal regulatory agencies. Federal laws and regulations
govern matters ranging from deposit insurance premiums to the maintenance of
adequate capital for our general business operations. Many of these regulations
are intended to protect depositors or the FDIC and not shareholders.
Many of our competitors are non-banks which are larger and have greater
resources than we do. Generally, our non-bank competitors are not as heavily
regulated as we are and may have greater flexibility in competing for business.
Some of the non-bank competitors are:
o Credit unions o Securities firms o Insurance companies
o Mutual funds o Mortgage brokers o Consumer finance companies
For additional information, see "Business-Competition".
Anti-Takeover Provisions in Our Articles of Incorporation Make it More Difficult
For Persons to Make Offers to Acquire Control of Citrus That You May Want to
Consider
In many cases, shareholders receive a premium for their shares when a
company is purchased by another. However, state and federal law, and our
articles of incorporation and bylaws make it more difficult for anyone to
purchase control of Citrus Financial without approval of our board of directors.
For a discussion of some of these provisions, see "Regulation and Supervision"
and "Summary of Articles of Incorporation of Citrus".
Our Board of Directors Owns a Majority of Our Shares and Will be Able to Make
Decisions That You May be Opposed To
Before this offering, our directors and executive officers as a group
owned more than a majority of our common stock. Even after the offering, our
directors and executive officers will still own sufficient shares to have a
significant influence on the election of board members and on the direction of
Citrus. This continued influence may negatively affect the price of our shares.
For additional information, see "Beneficial Ownership Of Common Stock".
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We Are Authorized to Issue Preferred Stock Which, if Issued, May Adversely
Affect Your Voting Rights and Reduce the Market Price of the Common Stock
We are authorized by our articles of incorporation to issue shares of
preferred stock without the consent of the shareholders. Preferred stock, when
issued, may rank senior to common stock with respect to voting rights, the
payment of dividends and amounts received by shareholders upon liquidation,
dissolution or winding up. The existence of rights which are senior to common
stock may reduce the price of our shares. We do not, however, plan to issue any
shares of preferred stock at this time.
The Limited Trading Market For Our Shares Following the Offering May Make it
Difficult For You to Sell Your Stock
Prior to this offering, there has been only limited trading activity in
our shares. Although we expect that an active trading market will develop
following the offering there is a risk that no market or only a limited market
will develop. A public market having depth and liquidity depends on having
enough buyers and sellers at any given time. Because this is a relatively small
offering and our directors and officers own a substantial number of our shares,
after the offering we still may not have enough shareholders or outstanding
shares to support an active trading market. Without an active trading market,
shareholders may find it difficult to find buyers for their shares. See "Market
For Common Stock".
Directors May Make Decisions Which Are Not in the Best Financial Interests of
the Shareholders
Florida law requires directors of a Florida corporation to act in the
best interests of the corporation, not the shareholders. Florida law provides
that directors, when discharging this duty, may consider all factors a director
deems relevant. The consideration of these factors may result in board of
director action which may not be in the best financial interests of Citrus'
shareholders. For further information see page 76.
We Face Risks Relating to Year 2000 Readiness
Like many financial institutions, we rely upon computers for conducting
our business and for information systems processing. There is concern among
industry experts that on January 1, 2000, computers will be unable to read or
interpret the new year and there may be widespread computer malfunctions.
Wide-spread malfunctions would be disruptive to our operations, as well as the
operations of our customers. These disruptions would affect our ability to
compete and reduce our profitability. See "Management's Discussion And Analysis
Of Financial Condition And Results Of Operations - Year 2000".
FORWARD LOOKING STATEMENTS
This prospectus contains "forward looking statements" relating to
future economic performance, plans and objectives of management for future
operations. It also contains projections of revenues and other financial items
that are based on the beliefs of Citrus' management, as well as information
currently available to Citrus' management. The words "expect," "estimate,"
"anticipate," and "believe," as well as similar expressions, are intended to
identify forward looking statements. Actual results may differ materially from
those contained in the forward looking statements.
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USE OF PROCEEDS
Citrus estimates that the net proceeds it will receive from the sale of
the common stock in this offering, at a public offering price of $10.75 per
share, will be approximately $5,530,000 based on the minimum offering of 560,000
shares and $11,928,000 based on the maximum offering of 1,200,000 shares.
Offering expenses and sales agent commissions are estimated to be approximately
$490,000 for the minimum offering and $972,000 for the maximum offering. The net
proceeds to be raised in the offering and the actual amount of expenses incurred
in the offering will depend upon the number of shares of common stock sold and
may differ from these estimates.
We intend to use the net proceeds for the establishment of two new
banks and to capitalize each of these banks with between $5 million if we
complete the minimum offering and approximately $6 million if we complete the
maximum offering. Each of our new banks will use these funds to repay
organizational and pre-opening expenses, to acquire a site and construct and
furnish its facilities, and to commence business. Because Citrus has not yet
identified any specific expansion sites or entered into any agreements for the
acquisition or the construction of facilities, we cannot determine with
certainty the cost to open each new bank. The actual costs could be
significantly higher than estimated.
In the event we sell more than 560,000 shares but less than 1,000,000
shares, we will use the net proceeds in excess of $5,000,000 to open additional
full-service banking center branch offices of our subsidiary banks instead of
opening the Dade County bank. We would expect to open one banking center for
each $1,000,000 of net capital raised in excess of the minimum.
Management will have significant discretion regarding when the proceeds
will be applied toward the expansion of Citrus' business. In the event our
expansion plans are delayed or curtailed for any reason, Citrus will deploy the
proceeds of the offering in alternative investments, such as loans or
securities, in order to maximize returns. Also, in that event, Citrus may
utilize some portion of the proceeds to open branches of Citrus Bank. Citrus
believes that the offering proceeds, together with all other sources of
financing currently available to it, are sufficient to sustain its proposed
activities for at least 12 months following the offering.
Pending the application of proceeds in the manner set forth above, the
net proceeds will initially be invested by Citrus in short-term,
interest-bearing securities.
The following table illustrates the use of proceeds based upon a
minimum and a maximum offering:
<TABLE>
<CAPTION>
Shares Shares
Use of Proceeds 560,000 % 1,200,000 %
--------------- ------- ----- --------- ---
<S> <C> <C> <C> <C>
Estimated Net Proceeds $ 5,529,912 100.0% $11,928,312 100.0%
============ ====== =========== ======
Total Use of Proceeds
Capital for new banks $ 5,529,912 100.0% $11,928,312 100.0%
============ ====== =========== ======
</TABLE>
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<TABLE>
<CAPTION>
The following is a schedule of estimated expenditures each
proposed bank will make from the proceeds of the sale of its capital stock to
Citrus:
<S> <C>
Organizational expenses of the proposed bank
including application, legal and consulting fees...................................... $ 150,000
Pre-opening expenses of the proposed bank
including salaries, occupancy and other expenses...................................... 100,000
Acquisition of bank premises (land and site
improvements only).................................................................... 850,000
Furniture, fixtures and equipment....................................................... 150,000
Cash, investments and other assets...................................................... 3,750,000
---------
Total uses of capital.......................................................... $5,000,000
==========
</TABLE>
The above described expenditures are estimates only and assume
the proposed banks will commence operations sometime during the fourth quarter
of 1999. Actual expenses may exceed these amounts. We will charge organizational
and pre-opening costs to expense when incurred.
CAPITALIZATION OF CITRUS
The following table sets forth the consolidated capitalization
of Citrus as of June 30, 1999, and as adjusted to give effect to the sale of a
minimum of 560,000 shares and a maximum of 1,200,000 shares of common stock
offered, at a public offering price of $10.75 per share, net of estimated
offering expenses. The data does not include 582,385 shares of common stock
issuable under the terms of the outstanding stock options and stock warrants
assuming all options were currently exercisable.
<TABLE>
<CAPTION>
As Adjusted As Adjusted
for Minimum for Maximum
Actual Offering Offering
------ -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Borrowings:
FHLB advances at 5.76%, maturing 2003 $ 192 $ 192 $ 192
Central Illinois Bank at prime, maturing 2000 50 50 50
FHLB advances at 5.09 to 5.16%,
maturing within 30 days 5,800 5,800 5,800
----------- ------------ ------------
Total borrowings $ 6,042 $ 6,042 $ 6,042
========== =========== ===========
Stockholders' equity:
Preferred Stock, $5.00 par value, authorized and
unissued 1,000,000 shares $ - $ - $ -
Common Stock, $3.15 par value, 10,000,000 shares
authorized, 952,296 issued
and outstanding (1,512,296
shares at the minimum offering
and 2,152,296 shares at the maximum offering) 3,007 4,771 6,787
Additional paid-in capital 3,149 6,915 11,297
Retained earnings 569 569 569
Net unrealized holding losses on securities (52) (52) (52)
------------ ----------- ------------
Total stockholders' equity $ 6,673 $ 12,203 $ 18,601
========== ========== ==========
Total capitalization $ 12,715 $ 18,245 $ 24,643
========== ========== ==========
</TABLE>
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NO ESTABLISHED MARKET FOR CITRUS' COMMON STOCK
There is currently no established public trading market in the common
stock. Citrus is aware of only limited trades occurring recently in its shares,
with the range of prices between $10.00 to $11.00 per share. Prior to the
expiration of the offering, Citrus had received subscriptions for approximately
325,000 shares at $10.75 share.
Following the offering the common stock will be traded on the OTC
Bulletin Board under the trading symbol "CFHC". Banc Stock Financial has advised
Citrus that upon completion of the offering it intends to act as a "market
maker" in the common stock. However, Banc Stock Financial is not required to do
so and Banc Stock Financial may discontinue any market making activity at any
time without notice. Making a market in securities involves maintaining bid and
ask quotations and being able, as principal, to effect transactions at those
quoted prices, all under various securities laws and other regulatory
requirements. The development of a public trading market depends, however, on
the existence of willing buyers and sellers, the presence of which is not within
the control of Citrus, Banc Stock Financial, or any market maker.
We intend to list the common stock on the Nasdaq SmallCap Market as
soon as we meet the requirements to do so, but we do not expect to meet these
listing requirements for at least one year following the offering. The decision
whether to apply for listing remains in the discretion of Citrus. We cannot,
however, assure you that we will apply for or be accepted for listing within any
particular period of time, if at all. See "Risk Factors - Limited Trading
Market". As of the date of this prospectus, Citrus' shares of common stock are
held by approximately 490 shareholders.
IMMEDIATE DILUTION IN BOOK VALUE PER SHARE
At June 30, 1999, Citrus had a book value of approximately $6.7
million, or $7.01 per share. Book value per share represents the amount of
Citrus' stockholders' equity divided by the number of shares of common stock
outstanding. Dilution per share to new investors represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the pro forma book value per share of common stock immediately
after completion of the offering. The following table illustrates the per share
dilution to new investors after (a) giving effect to the sale by Citrus of a
minimum of 560,000 shares and a maximum of 1,200,000 shares of common stock in
this offering, at a public offering price of $10.75 per share, (b) deducting
estimated offering expenses, and (c) giving effect to the application of the
estimated net proceeds as set forth under "Use of Proceeds":
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
------------------------ --------------------
<S> <C> <C> <C> <C>
Public offering price per share $10.75 $10.75
Book value per share at June 30, 1998 $ 7.01 $ 7.01
Increase per share attributable to new investors 1.06 1.63
---- ----
Pro forma book value per share after the offering 8.07 8.64
---- ----
Dilution per share to new investors $ 2.68 $ 2.11
======= =======
</TABLE>
11
<PAGE>
The following tables set forth on a pro forma basis, as of December 31,
1998, (a) the number of shares of common stock purchased from Citrus prior to
the offering and the number of shares purchased in the offering, and (b) the
total consideration and average price per share paid to Citrus with respect to
common stock held by the existing shareholders of Citrus and to be paid by new
investors in the offering, based upon a public offering price of $10.75 per
share.
<TABLE>
<CAPTION>
Based on the maximum offering:
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 952,296 44.2% $ 6,156 32.3% $ 6.46
New investors............................... 1,200,000 55.8 12,900 67.7 $10.75
--------- ------ -------- ------
Total.............................. 2,152,296 100.0% $19,056 100.0%
========= ===== ======= =====
Based on the minimum offering:
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing shareholders....................... 952,296 63.0% $ 6,156 50.6% $ 6.46
New investors............................... 560,000 37.0 6,020 49.4 $10.75
----------- ------ -------- -------
Total.............................. 1,512,296 100.0% $12,176 100.0%
========== ====== ======= ======
</TABLE>
Organizers, founders and proposed directors received in the initial
offering, for no additional consideration, warrants to purchase additional
shares of common stock at $6.31 per share. Warrant holders may exercise their
warrants at any time until April 13, 2000, at which time any warrants not
exercised will expire. The foregoing tables assume no exercise of any
outstanding warrants or outstanding stock options. As of June 30, 1999, there
are outstanding options to purchase 62,613 shares of common stock and
outstanding warrants to purchase 469,772 shares of common stock, all at an
exercise price of $6.31 per share. In addition, there were outstanding options
to purchase 25,000 shares for $10.00 per share, and 25,000 shares for $10.75 per
share, of which 10,000 shares in the aggregate were vested. If all outstanding
options and warrants are exercised, the pro forma book value per share
immediately after the minimum offering would be $7.62 and after the maximum
offering would be $8.18. These amounts represent a potential total dilution per
share to investors in this offering of $3.13 in the minimum offering and $2.57
in the maximum offering.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following unaudited selected financial data for the six month
periods ended June 30, 1999 and 1998, are derived from the financial statements
and other data of Citrus Financial. The selected financial data should be read
in conjunction with the financial statements of Citrus Financial, including the
financial statement notes (data in thousands except per share).
<TABLE>
<CAPTION>
At or for the six-month period
Ended June 30,
--------------
1999 1998
---- ----
<S> <C> <C>
Statement of Operations Data:
Total interest income $ 3,154 $ 3,057
Total interest expense 1,381 1,316
Net interest income before provision for credit losses 1,773 1,741
Provision for credit losses 20 (49)
Net interest income after provision for credit losses 1,753 1,790
Noninterest income 237 209
Noninterest expense 1,597 1,447
Provision for income taxes 148 207
Net income 245 345
Balance Sheet Data:
Total assets $ 81,192 $ 81,196
Earning assets 73,936 73,729
Investment securities 6,917 8,105
Loans held for investment(1) 58,674 49,271
Allowance for loan losses 380 405
Loans held for sale 3,686 13,433
Deposit accounts 68,247 70,639
Stockholders' equity 6,673 6,197
Share Data:(2)(3)
Basic earnings per share $ 0.26 $ 0.36
Diluted earnings per share 0.21 0.30
Book value per share (period end) 7.01 6.77
Weighted average shares outstanding
Used for basic earnings per share 952 952
Used for diluted earnings per share 1,179 1,148
Performance Ratios:
Return on average assets 0.61% 0.95%
Return on average equity 7.46% 11.21%
Interest-rate spread during the period 4.03% 4.49%
Net interest margin 4.79% 5.25%
Efficiency(4) 79.45% 74.21%
Asset Quality Ratios:
Allowance for credit loan losses to period end loans held for investment 0.65% 0.82%
Net charge-offs to average loans held for investment 0.37% -0.09%
Nonperforming assets to period end loans held for investment and
foreclosed property 1.03% 1.64%
Nonperforming assets to period end total assets 0.74% 1.00%
Capital and Liquidity Ratios:(5)
Average equity to average assets 8.12% 8.47%
Leverage (4.00% required minimum) 7.88% 7.77%
Risk-based capital:
Tier 1 9.98% 10.05%
Total 10.58% 10.75%
Average loans held for investment to average deposits 75.69% 74.06%
</TABLE>
See next page for footnotes. The information contained in this table, and
elsewhere in the prospectus, reflects the May, 1998 10% stock split and the
January, 1997 20% stock split.
13
<PAGE>
The following selected financial data for the years ended December 31,
1998 and 1997, are derived from the financial statements and other data of
Citrus. The selected financial data should be read in conjunction with the
financial statements of Citrus, including the financial statement notes,
included elsewhere herein (data in thousands except per share).
<TABLE>
<CAPTION>
At or for the
Years Ended December 31,
1998 1997
---- ----
<S> <C> <C>
Statement of Operations Data:
Total interest income $ 6,452 $ 5,514
Total interest expense 2,941 2,482
Net interest income before provision for credit losses 3,511 3,032
Provision for credit losses 23 269
Net interest income after provision for credit losses 3,488 2,763
Noninterest income 421 399
Noninterest expense 3,007 2,775
Provision for income taxes 338 137
Net income 564 250
Balance Sheet Data:
Total assets $ 84,051 $ 69,098
Earning assets 76,470 61,599
Investment securities 5,982 9,283
Loans held for investment(1) 53,009 49,691
Allowance for loan losses 461 431
Loans held for sale 8,291 847
Deposit accounts 76,703 62,601
Stockholders' equity 6,447 5,822
Share Data:(2)(3)
Basic earnings per share $ 0.59 $ 0.26
Diluted earnings per share 0.48 0.21
Book value per share (period end) 6.77 6.11
Weighted average shares outstanding
Used for basic earnings per share 952 948
Used for diluted earnings per share 1,179 1,168
Performance Ratios:
Return on average assets 0.72% 0.37%
Return on average equity 9.13% 4.46%
Interest-rate spread during the period 4.20% 4.17%
Net interest margin 4.92% 4.88%
Efficiency(4) 76.53% 80.88%
Asset Quality Ratios:
Allowance for credit loan losses to period end loans held for investment 0.87 % 0.87%
Net charge-offs to average loans held for investment (0.01)% 0.40%
Nonperforming assets to period end loans held for investment and
foreclosed property 1.67% 3.02%
Nonperforming assets to period end total assets 1.06% 2.19%
Capital and Liquidity Ratios:(5)
Average equity to average assets 7.92% 8.28%
Leverage (4.00% required minimum) 7.33% 7.93%
Risk-based capital:
Tier 1 9.94% 10.82%
Total 10.71% 11.68%
Average loans held for investment to average deposits 82.32% 93.42%
</TABLE>
(1) Loans held for investment are stated net of unearned income but, before
allowance for credit losses.
(2) Net income per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalents from stock
warrants and options using treasury stock method.
(3) Book value per share excludes the effect of any outstanding stock
warrants and options.
(4) Efficiency is determined by dividing noninterest expense by the sum of
net interest income before provision for credit losses and other
income, net of gains and losses on sales of assets.
(5) Capital and liquidity ratios are for Citrus Bank, not Citrus.
14
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(For the Six Months Ended June 30, 1999 and 1998)
Overview
Citrus is a bank holding company and owns 100% of the common stock of
Citrus Bank. Citrus was incorporated under the laws of the State of Florida on
May 19, 1989, to enhance Citrus Bank's ability to serve its future customers'
requirements for financial services.
Citrus Bank began its 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 Citrus Bank. Citrus Bank operates a branch
office at 1020 U.S. 1, Sebastian, Florida, which began operations in February
1993 and another branch office located at 1020 Buttonwood Street, Barefoot Bay,
Florida, which began operations in September 1996.
Forward-looking Statements
When used herein, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in Citrus' market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in Citrus' market
area and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Citrus wishes
to caution readers not to place undue reliance on any such forward- looking
statements, which speak only as to the date made. Citrus wishes to advise
readers that the factors listed above, as well as others, could affect Citrus'
financial performance and could cause Citrus' actual results for future periods
to differ materially from any opinions or statements expressed with respect to
future periods in any current statements. Citrus does not undertake, and
specifically disclaims any obligation, to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
Year 2000
Citrus is aware of the issue associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Primary systems that do not properly recognize this
information could generate erroneous data or cause a system to fail. Citrus is
utilizing both internal and external resources to identify, correct and test
15
<PAGE>
their systems for the Year 2000 compliance. Management believes that all
necessary modifications and testing have been completed. To date, confirmations
have been received from all of the Bank's primary processing vendors that their
software is now Year 2000 compliant. To date there have been no significant
limitations on recourse under the representations obtained from primary vendors
that have indicated Year 2000 compliance. In addition to representations made by
the primary vendors, Citrus has completed testing for all mission critical
hardware and software. At June 30, 1999, Citrus had estimated total Year 2000
costs of $55,000 in excess of normal recurring capital expenditures for routine
software and hardware upgrades. Of this amount, approximately $22,000 remains to
be spent. It is recognized that any Year 2000 compliance failures could result
in additional expense to Citrus.
Citrus has established time lines for testing all ancillary systems,
including telephone systems and security devices. We cannot give assurances,
however, that all hardware and software that Citrus uses will be Year 2000
compliant, and Citrus cannot predict with any certainty the costs it will incur
to respond to any unidentified Year 2000 issues. Factors which may affect the
amount of these costs include Citrus' inability to control third party
modification plans, Citrus' ability to identify and correct all relevant
computer codes, the availability and cost of engaging personnel trained in
solving Year 2000 issues, and other similar uncertainties.
Further, the business of many of Citrus' customers may be negatively
affected by the Year 2000 issue, and any financial difficulties incurred by
Citrus' customers in solving Year 2000 issues could negatively affect those
customers' ability to repay any loans which Citrus may have extended. Therefore,
even if Citrus does not incur significant direct costs in connection with
responding to the Year 2000 issue, we cannot give assurances that the failure or
delay of Citrus' customers or other third parties in addressing the Year 2000
issue or the costs involved in the process will not have a material adverse
effect on Citrus' business, financial condition, or results of operations.
However, we do not believe that such situations will be the case.
During 1998, we notified our customers for the purpose of making them
aware of the Year 2000 issues. In 1999, our significant commercial customers
were surveyed to assess their status in preparing for the Year 2000 using
checklists to assist in identifying other current and potential borrowers with a
high Year 2000 risk exposure. No current nor potential borrowers have been
determined to have a high Year 2000 risk exposure. Should Citrus identify a Year
2000 exposure associated with one of its borrowers, the lending officer will
work with the borrower on a one-on-one basis to minimize the exposure. Frequent
reminders will be made to all customers of Year 2000 matters in monthly deposit
statements and other correspondence.
Our Year 2000 plans provide for use of outside consultants to ensure
that adequate contingency plans have been adopted. Citrus has completed its
initial contingency plan and management currently believes the most likely worst
case scenario centers around the loss of power at its main office, branches, and
ATM machines. Citrus is currently investigating the most reliable alternate
power supply to operate its main office. If necessary, the ATM machines and
branch operations would be suspended and the main office would conduct all
business operations until the power is restored. Plans also exist to handle the
contingency of a disruption in data communications, which include use of
16
<PAGE>
couriers to provide tapes of data normally transmitted by data lines and
printing of reports at the main office for delivery to the tellers and branches.
Future Accounting Requirements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which addresses the accounting
for derivative instruments and provides for matching the timing of gain or loss
recognition on the hedging instrument. Guidance on identifying derivative
instruments is also provided as well as additional disclosures. SFAS 133 becomes
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Earlier application is permitted with certain exceptions. Management does
not anticipate that adoption of SFAS 133 will have a material impact on the
financial condition or results of operations of Citrus.
Impact of Inflation
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurements of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of Citrus
are monetary in nature. As a result, interest rates have a more significant
impact on Citrus' performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services, since such prices are affected by
inflation to a larger extent than interest rates. As discussed herein,
management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
Results of Operations
Overview
Citrus' net income decreased $8,000 and $100,000 for the three and six
months ended June 30, 1999, respectively, over the comparable periods in 1998.
This decline for the six months of 1999 versus 1998 reflects the effects of
increases in the provision for the allowance for loan losses, increased
operating costs associated with the start-up of loan production offices in Miami
and Sebring, Florida, as well as declining net interest. The increase in average
earning assets of 11.6% for the first six months of 1999 versus the same period
in 1998 was partially offset by a decline of approximately 70 basis points in
the average yield on earning assets. These factors produced a net increase in
total interest income of 3.2% in the first six months of 1999 as compared to the
first six months of 1998. Total interest income was approximately $1.6 million
for both the three months ended June 30, 1999 and 1998. For the six months ended
June 30, 1999, as compared with the comparable period in 1998, increases in
total interest income of $97,000 were partially offset by increases in interest
17
<PAGE>
expense of $65,000. Noninterest income increased 13.4%, to $237,000 in the first
six months of 1999 as compared to $209,000 in the first six months of 1998. This
improvement resulted primarily from deposit account charges resulting from the
growth in average deposits. Noninterest expense in the first six months of 1999
as compared to the first six months of 1998 rose at a pace of 10.4% to
$1,597,000 from $1,447,000. The return on average assets for the six months
ended June 30, 1999, declined to 0.61% annualized as compared with the return of
average assets of 0.72% for 1998. Net income for the three months ended June 30,
1999, declined $8,000 from the same period in 1998 primarily due to a 14.8%
increase in other expenses. During the three months ended June 30, 1999,
expenses for the Miami and Sebring loan production offices totaled $119,000 and
$162,000 for the six months ended June 30, 1999. The $110,000 increase in other
expenses for the second quarter of 1999 as compared with the same period of 1998
was partially offset by lower costs on deposits and a reduction in the provision
for credit losses. An overall improvement in the quality of Citrus Bank's loan
portfolio contributed to the lower allowance for credit losses.
Average Balances, Income and Expenses, and Rates. The following table
depicts, for the periods indicated, certain information related to Citrus'
average balance sheet and its average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.
[Table follows on next page]
18
<PAGE>
Average Balances, Income and Expenses, and Rates (dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1999 1998
------------------------------------ ------------------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits $ 28 $ 1 4.9% $ 46 $ 1 4.3%
Taxable securities 5,987 160 5.3% 8,578 231 5.4%
Federal funds sold 6,390 151 4.7% 1,965 53 5.4%
Loans held for sale 6,515 324 9.9% 6,943 346 10.0%
Loans held for investment, net 55,143 2,518 9.1% 48,838 2,426 9.9%
------- ------ ------- ------
Total earning assets 74,063 3,154 8.5% 66,370 3,057 9.2%
------ ------
Non-earning assets 6,841 6,820
------- -------
Total assets $80,904 $73,190
======= =======
Interest-bearing liabilities:
NOW and money market deposits $ 6,799 62 1.8% $ 7,403 72 1.9%
Savings 9,580 152 3.2% 6,990 116 3.3%
Time deposits 44,158 1,147 5.2% 40,312 1,098 5.4%
Other borrowings 944 20 4.2% 1,055 30 5.7%
--------- -------- -------- --------
Total interest-bearing liabilities 61,481 1,381 4.5% 55,760 1,316 4.7%
------ ------
Noninterest-bearing liabilities 12,856 11,646
Stockholders' equity 6,567 5,784
-------- --------
Total liabilities and
stockholders' equity $80,904 $73,190
======= =======
Net interest income before provision
for credit losses $1,773 $ 1,741
====== =======
Interest-rate spread 4.0% 4.5%
==== ====
Net interest margin 4.8% 5.2%
==== ====
Ratio of average earning assets to
average interest-bearing liabilities 120.5% 119.0%
====== ======
</TABLE>
Comparison of Results of Operations
for the Six Months Ended June 30, 1999 and 1998
Net Interest Income
The largest component of net income for Citrus is net interest income,
which is the difference between the income earned on assets and interest paid on
deposits and borrowings used to support such assets. Net interest income is
determined by the rates earned on Citrus' interest-earning assets and the rates
paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities.
19
<PAGE>
Net interest income was $1,773,000 for the six months ended June 30,
1999, as compared to $1,741,000 for the six months ended June 30, 1998. The
increases in earning assets of $7.7 million reflected the growth of Citrus' loan
portfolio of $5.9 million, or 10.5%, between these periods, which resulted in
improvements in Citrus' total interest income. However, net interest income
increased only 1.8% for the six months ended June 30, 1999, versus the
comparable period in 1998, due to declining yields on earning assets. Net
interest spread, the difference between the yield on earning assets and the rate
paid on interest-bearing liabilities, was 4.0% for the six months ended June 30,
1999, as compared to 4.5% for the six months ended June 30, 1998. Net interest
margin, net interest income divided by average interest-earning assets, declined
to 4.8% for the six months ended June 30, 1999, as compared to 5.2% for the six
months ended June 30, 1998. These decreases reflect the fact that during the
first six months of 1999 yields on loans held for investment have declined
approximately 80 basis points, while interest rates on deposits and borrowings
have only dropped approximately 20 basis points in 1999 versus 1998.
Provision and Allowance for Credit Losses
Citrus has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem loans. Management's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events which it believes to be
reasonable, but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for credit
losses or that additional increases in the credit loss allowance will not be
required.
Asset Classification. Commercial banks are required to review and, when
appropriate, classify their assets on a regular basis. The OCC has the authority
to identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful and
loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, condition, and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes a specific reserve for the full amount of the portion of
the asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not warrant classification in the
aforementioned categories, but possess weaknesses, are classified as special
mention and are monitored by Citrus.
At June 30, 1999, Citrus had 14 loans classified by regulatory
standards as substandard, doubtful, or loss totaling $471,000. At December 31,
1998, Citrus had 12 loans totaling $448,000 in the same categories. At June 30,
1999, and December 31, 1998, Citrus had loss assets to be charged-off totaling
$30,000 and $-0-, respectively. The loss assets were fully reserved at June 30,
20
<PAGE>
1999. Loans classified by management as impaired under generally accepted
accounting principles (and are included in the regulatory classifications of
doubtful or loss) totaled $108,000 and $85,000 at June 30, 1999, and December
31, 1998, respectively.
Nonperforming loans include loans that have been placed on nonaccrual
status by Citrus and loans past due for ninety days or more. Some of these
nonperforming loans are well- collateralized, posing no significant risk of
loss, and have not been classified as substandard, doubtful, or loss.
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended June 30, Ended December 31,
1999 1998
-------- -------
<S> <C> <C>
Nonaccrual loans held for investment:
Real estate loans $ - $ -
Installment loans 12 2
Credit cards and related plans - -
Commercial and all other loan 118 139
------- -------
Total nonaccrual loans held for investment 130 141
------- -------
Accruing loans held for investment over 90 days delinquent:
Real estate loans 129 228
Installment loans 67 23
Credit cards and related plans 4 -
Commercial and all other loans 273 108
------- -------
Total accrual loans held for investment over 90 days delinquent 473 359
------- -------
Troubled debt restructurings not included above - -
------- -------
Total nonperforming loans held for investment 603 500
------- -------
Other real estate owned:
Real estate acquired by foreclosure or deed in lieu
of foreclosure - 390
------- -------
Total nonperforming loans held for investment and
other real estate owned $ 603 $ 890
===== ======
Total nonperforming loans held for investment
as a percentage of total loans 1.0% 0.9%
==== ====
Total nonperforming loans held for investment
as a percentage of total assets 0.7% 0.6%
==== ====
Total nonperforming loans held for investment
and other real estate owned as a percentage of total assets 0.7% 1.1%
==== ====
Troubled debt restructurings and modified loans held for investment:
Current $ 542 $ 685
Past due over 30 days and less than 90 days - -
Past due over 90 days and included above - -
------- ------
$ 542 $ 685
======= =====
</TABLE>
Nonperforming loans at June 30, 1999, declined from the quarter-end
March 31, 1999, total of $859,000, but continue to exceed December 31, 1998,
levels. However, the overall credit quality improved in the second quarter of
1999 with the reduction in total nonperforming loans and other real estate
owned.
21
<PAGE>
Allowance for Credit Losses. The allowance for credit losses is
established through a provision for loan losses charged against income. Loans
are charged against the provision when management believes that the
collectibility of the principal is unlikely. The provision is an estimated
amount that management believes will be adequate to absorb losses inherent in
the loan portfolio based on evaluations of its collectibility. The evaluations
take into consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, specific problem loans and commitments,
and current anticipated economic conditions that may affect the borrower's
ability to pay. While management uses the best information available to
recognize losses on loans, future additions to the provision may be necessary
based on changes in economic conditions.
Activity in the allowance for credit losses follows (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended June 30, Ended December 31,
1999 1998
-------- -------
<S> <C> <C>
Allowance at beginning of period $ 461 $ 431
------ ------
Charge-offs:
Real estate loans - -
Installment loans 6 35
Credit cards and related plans 5 10
Commercial and all other loans 90 -
--------- ---------
Total charge-offs 101 45
-------- -------
Recoveries:
Real estate loans - 43
Installment loans - 8
Credit cards and related plans - -
Commercial and all other loans - 1
---------- --------
Total recoveries - 52
---------- -------
Provision for credit losses charged to operations 20 23
--------- -------
Allowance at end of period $ 380 $ 461
======= ======
Ratio of net charge-offs during the period to average
loans outstanding during the period 0.4% 0.0%
==== ====
</TABLE>
At June 30, 1999, the allowance for credit losses amounted to $380,000,
or 0.65% of outstanding loans held for investment. At December 31, 1998, the
allowance for credit losses amounted to $461,000, or 0.87% of outstanding loans
held for investment. Citrus' provision for credit losses was $20,000 for the six
months ended June 30, 1999. For the same six months period in 1998, the
provision for credit losses was $(49,000). The provision in 1999 was made based
on management's assessment of general credit loss risk and asset quality. The
decline in the allowance for credit losses as a percentage of outstanding loans
reflects the overall improvement in the quality of the loan portfolio, the
recognition of losses on one impaired credit relationship totaling $85,000, and
favorable historical trends in overall charge-offs.
22
<PAGE>
During the first quarter of 1998, Citrus settled litigation involving a
significant problem credit. As a result of this settlement, Citrus recorded a
credit provision of $49,000 for the six months ended June 30, 1998. Citrus'
allowance for credit losses remains at levels lower than its peer group with
approximately 70% of Citrus' loans secured by real estate as of June 30, 1999.
No separate allowance for credit losses has been established for loans held for
sale since these loans are purchased for amounts up to 98% of the note amount.
Substantially all of these loans have take-out commitments in place at the time
purchased by Citrus, and these loans meet Citrus' underwriting guidelines.
Noninterest Income and Expense
Noninterest Income. Citrus' primary source of noninterest income is
service charges on deposit accounts. In addition, Citrus originates mortgage
loans, which are closed in the name of a third party, for which Citrus receives
a fee. Other sources of noninterest income include credit card fees, commissions
on check sales, safe deposit box rent, wire transfer, and official check fees.
Total noninterest income increased by $28,000 during the six months
ended June 30, 1999, as compared to the same period in 1998, reflecting
increased activity fees related to increases in deposit and loan balances. Fees
and service charges were $220,000 for the six months ended June 30, 1999, as
compared to $187,000 for the comparable period in 1998, an increase of 17.6%.
Noninterest Expense. Total noninterest expense increased by $150,000
during the six months ended June 30, 1999, as compared to the same period in
1998, as a result of Citrus' continued growth. For the first six months in 1999,
this increase includes an increase in salary and benefits expense of $122,000,
as Citrus employed additional employees for its new loan production offices and
provided normal salary and benefit increases. Occupancy-related expenses
increased $48,000 in the first six months of 1999 as compared with the same
period in 1998, principally due to the start-up of Citrus' in-house data
processing center. Continued reductions in professional fees were realized in
the first six months of 1999 along with reductions in outside data processing
costs, which partially offset total increases in noninterest expenses.
Income Tax Expense
The income tax provision was $148,000 for the six months ended June 30,
1999, or an effective rate of 37.6%. This compares with an effective rate of
37.5% for the same period in 1998.
23
<PAGE>
Comparison of Results of Operations
for the Three Months Ended June 30, 1999 and 1998
Net Interest Income
Net interest income was $924,000 for the three months ended June 30,
1999, as compared to $889,000 for the three months ended June 30, 1998. The
increases in earning assets of $5.2 million, or 7.7%, reflected the growth of
Citrus' loan portfolio of $4.3 million, or 7.5%, between these periods; however
the declining net interest spread and net interest margin contributed to only
moderate increases in net interest income in 1999 versus 1998. Net interest
spread, the difference between the yield on earning assets and the rate paid on
interest-bearing liabilities, was 4.4% for the three months ended June 30, 1999,
as compared to 4.6% for the three months ended June 30, 1998. Net interest
margin, net interest income divided by average interest-earning assets, improved
to 5.1% in the second quarter of 1999, but continues to lag the 5.3% reported
for the three months ended June 30, 1998.
Noninterest Income and Expense
Noninterest Income. Total noninterest income increased by $14,000
during the three months ended June 30, 1999, as compared to the same period in
1998, reflecting increased activity fees related to increases in deposit and
loan balances. Fees and service charges were $113,000 for the three months ended
June 30, 1999, as compared to $94,000 for the comparable period in 1998, an
increase of 20.2%.
Noninterest Expense. Total noninterest expense increased by $110,000
during the three months ended June 30, 1999, as compared to the same period in
1998, as a result of Citrus' continued growth. For the second quarter of 1999,
this increase includes an increase in salary and benefits expense of $75,000, as
Citrus employed additional employees for its new loan production offices and
provided normal salary and benefit increases. Occupancy-related expenses
increased $35,000 in the first three months of 1999 as compared with the same
period in 1998, principally due to the start-up of Citrus' in-house data
processing center. Continued reductions in professional fees were realized
during 1999 which, when combined with reductions in outside data processing
costs, resulted in no net increase in other operating expenses for the second
quarter of 1999 as compared with the same period in 1998.
Income Tax Expense
The income tax provision was $74,000 for the three months ended June
30, 1999, or an effective rate of 37.6%. This compares with an effective rate of
37.3% for the same period in 1998.
24
<PAGE>
Financial Condition
Citrus' total assets at June 30, 1999, were $81.2 million, decreasing
from $84.1 million at December 31, 1998. The decrease of approximately $2.9
million was due principally to the decline in federal funds sold of $4.8 million
and loans held for sale of $4.6 million, partially offset by an increase in
loans held for investment of $5.7 million. Deposits declined approximately $8.5
million, with $7.4 million of the decline attributable to higher costing
certificates of deposit.
Total stockholders' equity as of June 30, 1999, was $6.7 million, an
increase of $226,000 or approximately 3.5% compared with stockholders' equity of
$6.4 million as of December 31, 1998. This increase was attributable to net
income for the six months of 1999 of $245,000 offset by a $19,000 decrease in
the market value (net of deferred income taxes) of investment securities
available-for-sale.
The following table shows selected ratios for the periods ended or at
the dates indicated (annualized for the six months ended June 30, 1999):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Return on average assets 0.61% 0.72%
Return on average equity 7.46% 9.13%
Interest-rate spread during the period 4.03% 4.20%
Net interest margin 4.79% 4.92%
Allowance for credit losses to period end loans held for investment 0.65% 0.87%
Net charge-offs to average loans held for investment 0.37% (0.01)%
Nonperforming assets to period end loans held for investment
and foreclosed property 1.03% 1.67%
Nonperforming assets to period end total assets 0.74% 1.06%
</TABLE>
Liquidity and Capital Resources
Liquidity Management. Liquidity management involves monitoring Citrus'
sources and uses of funds in order to meet its day-to-day cash flow requirements
while maximizing profits. Liquidity represents the ability of a company to
convert assets into cash or cash equivalents without significant loss and to
raise additional funds by increasing liabilities. Liquidity management is made
more complicated because different balance sheet components are subject to
varying degrees of management control. For example, the timing of maturities of
the investment portfolio is very predictable and subject to a high degree of
control at the time investment decisions are made. However, net deposit inflows
and outflows are far less predictable and are not subject to the same degree of
control. Asset liquidity is provided by cash and assets which are readily
marketable, which can be pledged, or which will mature in the near future.
Liability liquidity is provided by access to core funding sources, principally
the ability to generate customer deposits in Citrus' market area. In addition,
liability liquidity is provided through the ability to borrow against approved
lines of credit (federal funds purchased) from correspondent banks and the
Federal Home Loan Bank to borrow on a secured basis through securities sold
under agreements to repurchase.
25
<PAGE>
Short-Term Investments. Short-term investments, which consist of
federal funds sold and securities purchased under agreements to resell and
interest-bearing deposits, averaged $6.4 million in the first six months of 1999
as compared to $2.0 million in the same period of 1998. At June 30, 1999, and
December 31, 1998, short-term investments totaled $4.4 million and $9.2 million,
respectively. These funds are a primary source of Citrus' liquidity and are
generally invested in an earning capacity on an overnight basis.
Management regularly reviews the liquidity position of Citrus and has
implemented internal policies which establish guidelines for sources of
asset-based liquidity and limit the total amount of purchased funds used to
support the balance sheet and funding from non-core sources.
Deposits and Other Sources of Funds. In addition to deposits, the
sources of funds available for lending and other business purposes include loan
repayments, loan sales, and securities sold under agreements to repurchase. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows are influenced significantly by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in other sources, such as deposits at less than projected levels and
are also used to fund the origination of mortgage loans designated to be sold in
the secondary markets.
Core Deposits. Core deposits, which exclude certificates of deposit of
$100,000 or more, provide a relatively stable funding source for Citrus' loan
portfolio and other earning assets. Citrus' core deposits were $59.6 million at
June 30, 1999, and $66.3 million at December 31, 1998. Most of the $6.7 million
decrease in core deposits since December 31, 1998, was attributable to
maturities of higher-priced short-term certificates of deposit that were
obtained during 1998 to fund Citrus' investment in loans held-for-sale. As the
cyclical funding requirements for loans held-for-sale have declined in the first
six months of 1999 from 1998 levels, management has not attempted to replace the
higher-priced short-term certificates of deposit. Loans held-for-sale have
declined $4.6 million during the period from December 31, 1998, to June 30,
1999. The remaining decline in core deposits of $2.1 million at June 30, 1999,
from December 31, 1998, represents a 3.2% reduction, which management does not
consider to be significant. Management anticipates that a stable base of
deposits will be Citrus' primary source of funding to meet both its short-term
and long-term liquidity needs in the future.
Customers with large certificates of deposit tend to be extremely
sensitive to interest rate levels, making these deposits less reliable sources
of funding for liquidity planning purposes than core deposits. Some financial
institutions fund their balance sheets in part through large certificates of
deposit obtained through brokers. These brokered deposits are generally
expensive and are unreliable as long-term funding sources. Accordingly, Citrus
does not accept brokered deposits.
Borrowings. Citrus Bank has a line of credit master agreement with the
FHLB of Atlanta that enables Citrus Bank to borrow up to $10,000,000. These
advances are collateralized by Citrus Bank's FHLB stock and a blanket floating
lien consisting of wholly-owned residential (1-4 units) first mortgage loans. At
June 30, 1999, advances totaling $5.8 million, which mature within 30 days at
interest rates ranging from 5.09% to 5.16%, were outstanding under this line.
26
<PAGE>
At June 30, 1999, Citrus had borrowed $50,000 from Central Illinois Bank under a
revolving line of credit agreement in the amount of $500,000. This line of
credit matures May 20, 2000 with interest floating at New York prime. In
addition to the line of credit arrangements, Citrus Bank had fixed FHLB advances
outstanding as follows (dollars in thousands):
<TABLE>
<CAPTION>
At June 30, At December 31,
Maturity Date Interest Rate 1999 1998
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
2003 5.76% $ 192 $ 217
===== =====
</TABLE>
Capital. The Federal Reserve Board and bank regulatory agencies require
bank holding companies and financial institutions to maintain capital at
adequate levels based on a percentage of assets and off-balance sheet exposures,
adjusted for risk weights ranging from 0% to 100% (the Federal Reserve grants an
exemption from these requirements for bank holding companies with less than $150
million in consolidated assets, and therefore Citrus' capital is currently
measured only at Citrus Bank level). Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital consists of common stockholders'
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general
allowance for credit losses subject to certain limitations. An institution's
qualifying capital base for purposes of its risk-based capital ratio consists of
the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements
are 4% for Tier 1 and 8% for total risk-based capital.
Bank holding companies and banks are also required to maintain capital
at a minimum level based on total assets, which is known as the leverage ratio.
The minimum requirement for the leverage ratio is 3%, but all but the highest
rated institutions are required to maintain ratios 100 to 200 basis points above
the minimum. Citrus and Citrus Bank exceeded their minimum regulatory capital
ratios as of June 30, 1999, as reflected in the following table.
The following table sets forth Citrus Bank's regulatory capital
position (dollars in thousands):
<TABLE>
<CAPTION>
Actual Minimum(1) Well-Capitalized(2)
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets) $ 6,656 10.58% $ 5,031 8.00% $ 6,289 10.00%
Tier I Capital (to Risk-Weighted Assets) $ 6,276 9.98% $ 2,515 4.00% $ 3,773 6.00%
Tier I Capital (to Average Assets) $ 6,276 7.88% $ 3,188 4.00% $ 3,985 5.00%
- -----------
</TABLE>
(1) The minimum required for adequately capitalized purposes.
(2) To be "well-capitalized" under the FDIC's Prompt Corrective Action
regulations.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(For the Years Ended December 31, 1998 and 1997)
Overview
<TABLE>
<CAPTION>
We have grown over the last two years:
December 31,
------------
1996 1998
(dollars in thousands)
<S> <C> <C>
Assets $66,416 $84,051
Loans held for investment 46,463 53,009
Loans held for sale 4,561 8,291
Deposits 58,646 76,703
Stockholders equity 5,427 6,447
</TABLE>
The following discussion should be read in conjunction with the
preceding "Selected Consolidated Financial Data" and Citrus' financial
statements and the financial statement notes and the other financial data
included elsewhere in this prospectus.
Results of Operations
Net Income
Citrus' net income for the year ended December 31, 1998, was $564,000,
or $0.59 per share, as compared to $250,000, or $0.26 per share, for the year
ended December 31, 1997. This improvement reflects Citrus' continued growth, as
average earning assets increased to $71.4 million during 1998 as compared to
$62.2 million during 1997. This improvement also reflects a provision for credit
losses for the year ended December 31, 1998 of $23,000 versus $269,000 for the
year ended December 31, 1997. The increase in average earning assets resulted in
an increase in net interest income before provision for credit losses of
$479,000, or 15.8%, for 1998 over 1997. In addition, noninterest income
increased 5.5%, to $421,000, in 1998 as compared to $399,000 in 1997. This
improvement resulted primarily from deposit account charges resulting from the
growth in deposits. The increases in net interest income and noninterest income
were partially offset by an increase of $232,000 in noninterest expense for 1998
as compared to 1997, which resulted from increases in staffing costs, a full
year of the courier service, and general growth experienced at Citrus Bank. The
return on average assets for the year ended December 31, 1998, improved to 0.72%
as compared with 0.37% in 1997.
Citrus' net income was $250,000, or $0.26 per share, for the year ended
December 31, 1997, as compared to $85,000, or $0.09 per share, for the year
ended December 31, 1996. The improvement in net income from 1996 to 1997
resulted primarily from a $347,000 increase in net interest income, which is
attributable to Citrus' growth, higher net interest margins, and improved asset
quality during these periods. Total assets at December 31, 1997, were $69.1
million as compared to $66.4 million at December 31, 1996. Average earning
28
<PAGE>
assets increased to $62.2 million during 1997 as compared to $56.4 million
during 1996. Average total asset growth was principally attributable to a net
increase in average loans of $4.6 million during 1997.
A $28,000 increase in noninterest income in 1997 as compared to 1996
also contributed to the improvement in net income. Increases in noninterest
income resulted from increased deposit and related account charges associated
with an increase in deposit balances of $4.0 million from year-end 1996 to
year-end 1997. The increases in net interest income and noninterest income were
partially offset by a $202,000 increase in noninterest expense. All components
of noninterest expense increased with the exception of other miscellaneous
expenses. The increases in expenses primarily result from increases in staff
during this period, increased costs associated with the new banking center
opened in September 1996, the new courier service, and other equipment
acquisitions, upgrades, and repairs.
Net Interest Income
The largest component of net income for Citrus is net interest income,
which is the difference between the income earned on assets and interest paid on
deposits and borrowings used to support its assets. Net interest income is
determined by the rates earned on Citrus' interest-earning assets and the rates
paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities.
Net interest income was $3.5 million for the year ended December 31,
1998, as compared to $2.8 million for the year ended December 31, 1997. This
26.2% increase reflected the substantial growth of Citrus' loan portfolio
between these periods. Net interest spread, the difference between the yield on
earning assets and the rate paid on interest-bearing liabilities, was 4.2% for
both 1998 and 1997. Net interest margin (which is net interest income divided by
average interest-earning assets) remained at 4.9% for 1998 and 1997. Total
average loans (including loans held for sale and investment) grew at a faster
pace in 1998 versus 1997 than other earning assets. During 1998, total average
loans increased 17.6% over 1997 total average loans as compared with 3.4% for
all other earning assets over the same period. This resulted in a moderate
increase in the average yield on total earning assets from 8.9% in 1997 to 9.0%
in 1998. Loans typically provide a higher yield than the other types of earning
assets and thus one of Citrus' goals is to continue to grow the loan portfolio
as a percentage of total earning assets. The increase in the yield on average
earning assets was partially offset by an increase in the rate paid on
interest-bearing liabilities to 4.8% in 1998 as compared to 4.7% in 1997.
Increases in average savings of $3.0 million and average time deposits of $5.4
million, both of which typically pay higher rates than transaction accounts,
contributed to the increase in overall rates on interest-bearing liabilities.
Net interest income totaled $2.8 million in 1997 and $2.3 million in
1996. Net interest spread was 4.2% in 1997 as compared to 4.1% in 1996. Citrus'
net interest margin also increased to 4.9% in 1997 as compared to 4.8% in 1996.
The net interest spread and net interest margin increased from 1996 to 1997
primarily because of a slight increase in the average yield on loans held for
investment of 9.6% in 1997 as compared with 9.5% in 1996, and no change in the
29
<PAGE>
average rates paid on interest-bearing liabilities. Also, the total amount of
earning assets increased by $5.8 million between the two periods.
Average Balances, Income and Expenses, and Rates. The following table
depicts, for the periods indicated, certain information related to Citrus'
average balance sheet and its average yields on assets and average costs of
liabilities. Yields are derived by dividing income or expense by the average
balance of the corresponding assets or liabilities. Average balances have been
derived from daily averages and nonaccrual loans have been included in net loans
held for investment.
<TABLE>
<CAPTION>
Average Balances, Income and Expenses, and Rates (dollars in thousands)
Years Ended December 31,
------------------------
1998 1997
---- ----
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Interest-earning deposits $ 42 $ 2 4.8% $ 51 $ 3 5.9%
Taxable securities 7,990 430 5.4% 9,549 544 5.7%
Federal funds sold 4,600 245 5.3% 2,621 140 5.3%
Loans held for sale 9,546 879 9.2% 1,540 159 10.3%
Loans held for investment, net 49,223 4,896 9.9% 48,425 4,668 9.6%
------- ------ ------- ------
Total earning assets 71,401 6,452 9.0% 62,186 5,514 8.9%
------ ------
Non-earning assets 6,568 5,523
--------- -------
Total assets $77,969 $67,709
======= =======
Interest-bearing liabilities:
NOW and money market deposits $ 7,237 141 1.9% $ 7,578 152 2.0%
Savings 7,441 248 3.3% 4,491 147 3.3%
Time deposits 45,120 2,496 5.5% 39,768 2,125 5.3%
Other borrowings 1,017 56 5.5% 1,016 58 5.7%
-------- -------- -------- -------
Total interest-bearing liabilities 60,815 2,941 4.8% 52,853 2,482 4.7%
------- ------
Noninterest-bearing liabilities 10,978 9,247
Stockholders' equity 6,176 5,609
-------- --------
Total liabilities and
stockholders' equity $77,969 $67,709
======= =======
Net interest income before provision
for credit losses $3,511 $3,032
====== ======
Interest-rate spread 4.2% 4.2%
==== ====
Net interest margin 4.9% 4.9%
==== ====
Ratio of average earning assets to
average interest-bearing liabilities 117.4% 117.7%
====== ======
</TABLE>
30
<PAGE>
Analysis of Changes in Net Interest Income. The following tables
present the dollar amount of changes in interest income and interest expense
attributable to changes in volume and the amount attributable to changes in
rate. The combined effect in both volume and rate which cannot be separately
identified has been allocated proportionately to the change due to volume and
due to rate.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
vs. the Year Ended December 31, 1997
Increase (Decrease) Due to:
Volume/
-------------------------------------------------------------
Volume Rate Rate Total
------ ---- ---- -----
(dollars in thousands)
Earning assets:
<S> <C> <C> <C> <C>
Interest-earning deposits $ (1) $ (1) $ 1 $ (1)
Taxable securities (89) (30) 5 (114)
Federal funds sold 106 - (1) 105
Loans held for sale 827 (17) (90) 720
Loans held for investment, net 77 149 2 228
----- ---- ------ ----
Total earning assets 920 101 (83) 938
---- ---- ---- -----
Interest-bearing liabilities:
NOW and money market deposits (7) (4) - (11)
Savings 97 3 1 101
Time deposits 286 75 10 371
Other borrowings - (2) - (2)
------ ------ ------ ------
Total interest-bearing liabilities 376 72 11 459
---- ------ ----- ----
Net interest income before $ 544 $ 29 $ (94) $ 479
===== ==== ===== =====
provision for credit losses
For the Year Ended December 31, 1997
vs. the Year Ended December 31, 1996
Increase (Decrease) Due to:
-------------------------------------------------------------
Volume/
Volume Rate Rate Total
------ ---- ---- -----
(dollars in thousands)
Earning assets:
Interest-earning deposits $ (3) $ (1) $ - $ (4)
Taxable securities (25) 7 - (18)
Federal funds sold 86 - - 86
Loans held for sale (167) (12) 6 (173)
Loans held for investment, net 590 53 7 650
---- ------ ----- ------
Total earning assets 481 47 13 541
---- ------ ----- ------
Interest-bearing liabilities:
NOW and money market deposits (10) (8) - (18)
Savings 71 10 14 95
Time deposits 129 (8) (1) 120
Other borrowings (5) 2 - (3)
------ ------ -------- -------
Total interest-bearing liabilities 185 (4) 13 194
----- ------ ------ ------
Net interest income before $ 296 $ 51 $ - $ 347
===== ==== ======= =====
provision for credit losses
</TABLE>
31
<PAGE>
Interest Sensitivity. Citrus monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. A monitoring technique employed by Citrus is the measurement of Citrus'
interest sensitivity "gap," which is the positive or negative dollar difference
between assets and liabilities whose interest rates may be repriced within a
given period of time. Citrus also performs asset/liability modeling to assess
the impact varying interest rates and balance sheet mix assumptions will have on
net interest income. Citrus can manage interest rate sensitivity by repricing
assets or liabilities, selling securities available-for-sale, replacing an asset
or liability at maturity, or adjusting the interest rate during the life of an
asset or liability. Managing the amount of assets and liabilities repricing in
the same time interval helps to hedge the risk and minimize the impact on net
interest income of rising or falling interest rates. Citrus evaluates interest
sensitivity risk and then formulates guidelines regarding asset generation and
repricing, funding sources and pricing, and off-balance sheet commitments in
order to decrease interest rate sensitivity risk. The following table
illustrates Citrus' interest rate sensitivity at December 31, 1998, as well as
the cumulative gap position at December 31, 1998 and 1997 (dollars in
thousands). Footnotes listed on next page:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------
More Than
Three More Than
Three Months One Year
Months to One to Five Over Five
Or Less Year Years Years Total
------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Assets
Earning assets
Interest-earning deposits $ 9 $ - $ - $ - $ 9
Federal funds sold 9,200 - - - 9,200
Securities(1) - - 5,596 386 5,982
Loans held for sale 8,291 - - - 8,291
Loans held for investment(2) 14,945 7,206 24,359 6,478 52,988
------- -------- ------- ------- -------
Total earning assets 32,445 7,206 29,955 6,864 76,470
------- -------- ------- ------ -------
Liabilities
Interest-bearing deposits
NOW and money market deposits(1) 7,147 - - - 7,147
Savings deposits (1) 8,423 - - - 8,423
Certificates of deposit 15,235 28,784 3,721 - 47,740
------- ------- ------ ----------- -------
Total interest-bearing deposits 30,805 28,784 3,721 - 63,310
Other borrowings - - 217 - 217
------------ ------------- --------- ------------ ---------
Total interest-bearing
liabilities 30,805 28,784 3,938 - 63,527
------- --------- -------- ------------ -------
Interest-sensitive gap per period $ 1,640 $(21,578) $26,017 $ 6,864 $12,943
======= ======== ======= ======= =======
Cumulative gap at December 31, 1998 $ 1,640 $(19,938) $ 6,079 $12,943
======= ======== ======= =======
Ratio of cumulative gap to total earning
assets at December 31, 1998 2.1% (26.1)% 7.9% 16.9%
==== ======= ==== =====
Ratio of cumulative gap to total assets
at December 31, 1998 2.0% (23.7)% 7.2% 15.4%
==== ======= ==== =====
Cumulative gap at December 31, 1997 $(5,970) $ (6,643) $ 259 $ 9,314
======= ========= ======== ========
Ratio of cumulative gap to total earning
assets at December 31, 1997 (9.7)% (10.8)% 0.4% 15.1%
====== ======= ==== =====
Ratio of cumulative gap to total assets
at December 31, 1997 (8.6)% (9.6)% 0.4% 13.5%
====== ====== ==== =====
</TABLE>
32
<PAGE>
(1) Investments were scheduled through their contractual maturity dates.
Excludes noninterest-bearing deposit accounts. Money market, NOW, and
savings deposits were regarded as maturing immediately. All other time
deposits were scheduled through the maturity dates.
(2) In preparing the table above, adjustable-rate loans were included in the
period in which the interest rates are next scheduled to adjust rather than
in the period in which the loans mature. Fixed-rate loans were scheduled
according to their contractual maturities. Nonaccrual loans of $141,000
were excluded from above.
Citrus generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap and generally from decreasing market rates of
interest when it is liability sensitive. Citrus currently is liability sensitive
over the three months to one year time frame. This negative sensitivity gap of
$21.6 million results principally from the growth in six-month certificates of
deposit used to fund increases in variable-rate loans. Management anticipates
that as the mix of fixed-rate to variable-rate loans stabilizes over the next
few months, this negative gap will decline to be more consistent with historical
levels. However, Citrus' gap analysis is not a precise indicator of its interest
sensitivity position.
The analysis presents only a static view of the timing of maturities
and repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. For example,
rates paid on a substantial portion of core deposits may change contractually
within a relatively short time frame, but those rates are viewed by management
as significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits. Accordingly, management believes a liability
sensitive position is not as indicative of Citrus' true interest sensitivity as
it would be for an organization which depends to a greater extent on purchased
funds to support earning assets. Net interest income is also affected by other
significant factors, including changes in the volume and mix of earning assets
and interest-bearing liabilities.
Provision and Allowance for Credit Losses
Citrus has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem loans. Management's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events which it believes to be
reasonable, but which may or may not be valid. Thus, we cannot give assurances
that charge-offs in future periods will not exceed the allowance for credit
losses or that additional increases in the allowance for credit losses will not
be required.
Asset Classification. Commercial banks are required to review and, when
appropriate, classify their assets on a regular basis. The Comptroller of the
Currency has the authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, condition, and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as an
33
<PAGE>
asset of the institution is not warranted. If an asset or portion thereof is
classified as loss, the insured institution establishes a specific reserve for
the full amount of the portion of the asset classified as loss. All or a portion
of general credit loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining
an institution's regulatory capital, while specific valuation allowances for
credit losses generally do not qualify as regulatory capital. Assets that do not
warrant classification in the aforementioned categories, but possess weaknesses,
are classified as special mention and are monitored by Citrus.
At December 31, 1998, Citrus had 12 loans totaling $448,000 that were
classified as substandard or doubtful. At December 31, 1998, Citrus had no loss
assets to be charged-off.
Allowance for Credit Losses. The allowance for credit losses is
established through a provision for credit losses charged against income. Loans
are charged against the provision when management believes that the
collectibility of the principal is unlikely. The provision is an estimated
amount that management believes will be adequate to absorb losses inherent in
the loan portfolio based on evaluations of its collectibility. The evaluations
take into consideration certain factors including changes in the nature and
volume of the portfolio, overall portfolio quality, specific problem loans and
commitments, and current anticipated economic conditions that may affect the
borrower's ability to pay. While management uses the best information available
to recognize losses on loans, future additions to the provision may be necessary
based on changes in economic conditions.
At December 31, 1998, the allowance for credit losses amounted to
$461,000, or 0.87%, of outstanding loans held for investment. The allowance for
credit losses for loans held for investment amounted to $431,000 at December 31,
1997, or 0.87%, of loans held for investment. Citrus' provision for credit
losses was $23,000 for the year ended December 31, 1998, and $269,000 for the
year ended December 31, 1997. The provisions were made based on management's
assessment of general credit loss risk and asset quality. For 1998, the
provision includes the credit adjustment discussed in the following paragraph.
During the first quarter of 1998, Citrus settled litigation involving a
significant problem loan. As a result of this settlement, Citrus recorded a
credit provision of $96,000 for the quarter ended March 31, 1998. The
Comptroller of the Currency had previously mandated that this credit be written
down prior to resolution of Citrus' lawsuit against the borrower. While
management disagreed with the amount of the adjustment made in 1997, the effect
on financial condition and results of operations was not considered material.
No separate allowance for credit losses has been established for loans
held for sale since these loans are purchased for amounts up to 98% of the note
amount. Substantially all of these loans have take-out commitments in place at
the time purchased by Citrus, and these loans meet Citrus' guidelines.
34
<PAGE>
Citrus discontinues accrual of interest on loans when management
believes, after considering economic and business conditions and collection
efforts, that a borrower's financial condition has deteriorated to the point
that the collection of interest is doubtful. Generally, Citrus will place a
delinquent loan in nonaccrual status when the loan becomes 90 days or more past
due. At the time a loan is placed in nonaccrual status, all interest which has
been accrued on the loan but remains unpaid is reversed and deducted from
earnings as a reduction of reported interest income. No additional interest is
accrued on the loan balance until the collection of both principal and interest
becomes reasonably certain.
A potential problem loan is one in which management has serious doubts
about the borrower's future performance under the terms of the loan contract.
These loans are current as to principal and interest and, accordingly, they are
not included in nonperforming assets categories. The level of potential problem
loans is one factor used in the determination of the adequacy of the allowance
for credit losses.
The following table sets forth the information with respect to activity
in Citrus' allowance for credit losses for loans held for investment during the
periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Allowance at beginning of period $ 431 $ 354
------- -------
Charge-offs:
Real estate loans - 167
Installment loans 35 19
Credit cards and related plans 10 16
Commercial and all other loans - 10
---------- --------
Total charge-offs 45 212
-------- -------
Recoveries:
Real estate loans 43 -
Installment loans 8 15
Credit cards and related plans - 5
Commercial and all other loans 1 -
---------- ----------
Total recoveries 52 20
--------- --------
Provision for credit losses charged
to operations 23 269
--------- -------
Allowance at end of period $ 461 $ 431
======= =======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.0% 0.4%
==== ====
</TABLE>
35
<PAGE>
The following table sets forth certain information on nonaccrual loans
and real estate owned, the ratio of nonaccrual loans and real estate owned to
total assets as of the dates indicated, and certain other related information
(dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Nonaccrual loans held for investment:
Real estate loans $ - $ 601
Installment loans 2 10
Credit cards and related plans - -
Commercial and all other loans 139 172
------- -------
Total nonaccrual loans held for investment 141 783
------- -------
Accruing loans held for investment over 90 days delinquent:
Real estate loans 228 336
Installment loans 23 5
Credit cards and related plans - -
Commercial and all other loans 108 -
------- ----------
Total accrual loans held for investment
over 90 days delinquent 359 341
------- -------
Troubled debt restructurings not included above - -
---------- -----------
Total nonperforming loans held for investment 500 1,124
------- -------
Other real estate owned:
Real estate acquired by foreclosure or deed in lieu
of foreclosure 390 390
------- --------
Total nonperforming loans held for investment and
other real estate owned $ 890 $1,514
====== ======
Total nonperforming loans held for investment
as a percentage of total loans 0.9% 2.3%
==== ====
Total nonperforming loans held for investment
as a percentage of total assets 0.6% 1.6%
==== ====
Total nonperforming loans held for investment
and other real estate owned as a percentage
of total assets 1.1% 2.2%
==== ====
Troubled debt restructurings and modified loans held for investment:
Current $ 685 $1,525
Past due over 30 days and less than 90 days - -
Past due over 90 days and included above - 303
---------- --------
$ 685 $1,828
======= ======
</TABLE>
Loans on which interest was not being accrued totaled $141,000 at
December 31, 1998, and $783,000 at December 31, 1997. Had interest been accrued
on these nonaccrual loans at originally contracted rates, interest income,
before income taxes, would have been increased by approximately $13,000 at
December 31, 1998, and $100,000 at December 31, 1997.
36
<PAGE>
The nonaccrual commercial loans held for investment at December 31,
1997, totaling $172,000, were not classified impaired. Citrus' management
anticipated a settlement of litigation in early-1998 covering the single largest
nonaccrual commercial loan of $154,000, which represented approximately 90% of
the total nonaccrual commercial loans held for investment at December 31, 1997.
The settlement in excess of $154,000 was received, which resulted in Citrus
recording a credit provision of $96,000 for the quarter ended March 31, 1998, as
previously mentioned.
Of the $141,000 in nonaccrual loans held for investment at December 31,
1998, loans totaling $85,000 were classified by management as impaired. The
remaining nonaccrual loans held for investment totaling $56,000 were considered
adequately capitalized by Citrus' management and were not classified as impaired
because management expects to recover substantially all of the balances owed.
However, these loans remain on nonaccrual status in accordance with Citrus'
policy.
The following table sets forth the recorded investment in impaired
loans and the related valuation allowance for each loan category as of December
31, 1998. At December 31, 1997, no loans held for investment were classified as
impaired and for December 31, 1998 and 1997, no loans held for sale were
classified as impaired.
<TABLE>
<CAPTION>
Total Amount of
Impaired Valuation
Loans Allowance
----- ---------
December 31, 1998:
<S> <C> <C>
Commercial real estate $ - $ -
Residential real estate - -
Commercial loans 85 43
Consumer loans - -
------- ------
Total impaired loans held
for investment $ 85 $ 43
==== ====
</TABLE>
All of the impaired loans at December 31, 1998 were measured using
management's current estimate of fair value of the collateral. The average loans
held for investment classified as impaired totaled $4,000 in 1998 and $-0- in
1997. No material amounts of interest were recorded in 1998 or 1997 for impaired
loans.
The following table presents information regarding Citrus' total
allowance for credit losses on loans held for investment as well as the
allocation of specific amounts to the various categories of loans (dollars in
thousands):
37
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------
1998 1997
--------------------------------------------------
Loans Loans
to to
Total Total
Amount Loans Amount Loans
------ ----- ------ -----
<S> <C> <C> <C> <C>
Loans held for investment:
Commercial real estate loans $ 101 33% $ 103 30%
Residential real estate loans 31 35% 28 40%
Commercial loans 257 24% 218 21%
Consumer loans 72 8% 82 9%
------ ----- ------ -----
Total allowance for credit losses $ 461 100% $ 431 100%
===== ==== ===== ====
Allowance for credit losses as a
percentage of the total loans
held for investment outstanding 0.87% 0.87%
===== =====
</TABLE>
Noninterest Income and Expense
Noninterest Income. Citrus' primary source of noninterest income is
service charges on deposit accounts. Other sources of noninterest income include
bankcard fees, commissions on check sales, safe deposit box rent, wire transfer,
and official check fees.
Total noninterest income increased by $22,000 during 1998 as compared
to the same period in 1997, reflecting increased activity fees related to
increases in deposit balances. Fees and service charges were $350,000 for 1998
as compared to $327,000 for 1997, an increase of $23,000. Noninterest income for
the year ended December 31, 1997, was $399,000 as compared to $371,000 for 1996.
This increase is primarily a result of the growth in deposit account balances
and the related deposit account fees. These fees amounted to $327,000 in 1997 as
compared to $316,000 in 1996. The increase in fees and service charges is
reflected in the overall growth in deposit accounts with transaction fees.
Noninterest-bearing deposit accounts increased from $6.7 million at December 31,
1995, to $13.4 million at December 31, 1998.
Noninterest Expense. Total noninterest expense increased by $232,000
during 1998 as compared to the same period in 1997 as a result of Citrus'
continued growth. This increase includes a $186,000 increase in salary and
benefits expense, as Citrus employed additional employees and provided normal
salary and benefit increases. Occupancy-related expenses increased $92,000 in
1998 as compared with the same period in 1997, principally due to higher
maintenance expenses, depreciation, operating costs for the new courier service,
and Year 2000 expenses. All other expenses were generally flat or moderately
higher, except that a significant reduction in professional fees of $155,000 was
realized due to lower legal and professional costs associated with the
resolution of two problem credits, which contributed to the overall decrease in
other operating expenses of $46,000 from 1997 to 1998.
38
<PAGE>
Noninterest expense increased from $2.6 million for the year ended
December 31, 1996, to $2.8 million for the year ended December 31, 1997.
Salaries and benefits were up $138,000 to $1,280,000 reflecting additions to
staff for the new armored car service as well as several staff additions to
complement loan and deposit 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 other operating expense. Offsite computer
services accounted for $178,000 of the expenses and was up from $156,000 in
1996.
The following table sets forth the primary components of other
operating expenses for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Advertising and public relations $ 72 $ 69
Professional fees 133 288
Data processing 158 153
Stationery, printing, and supplies 73 58
Insurance 30 24
Telephone 50 40
Other miscellaneous expenses 481 411
--------- ---------
$ 997 $ 1,043
======== =======
</TABLE>
Income Tax Expense
The income tax provision was $338,000 for the year ended December 31,
1998, or an effective rate of 37.5%. The income tax provision for the year ended
December 31, 1997 was $137,000, an effective rate of 35.4%.
Analysis of Financial Condition
Earning Assets
Loans. Loans typically provide higher yields than the other types of
earning assets, and thus one of Citrus' goals is for loans to be the largest
category of Citrus' earning assets. At December 31, 1998 and 1997, loans
(including loans held for sale and investment) accounted for 80% of earning
assets. Management attempts to control and counterbalance the inherent credit
and liquidity risks associated with the higher loan yields without sacrificing
asset quality to achieve its asset mix goals. Loans held for investment averaged
$49.2 million during 1998, as compared to $48.4 million in 1997. Loans held for
39
<PAGE>
sale have averaged $9.5 million during 1998, as compared with $1.5 million in
1997. The growth in average loans held for sale reflects management's emphasis
on expanding Citrus' table funding loan program and a favorable market for
mortgage loan originations and refinancings during 1998. See discussion at
"Origination, Purchase, Sale and Repayment of Loans".
The following table shows the composition of the Bank's loan portfolio
by category (dollars in thousands):
<TABLE>
<CAPTION>
Composition of Loan Portfolio
At December 31,
-----------------------------------------------
1998 1997
------------------- -------------------
Percent of Percent of
Amount Total Amount Total
------ ----- ------ -----
Loans held for investment:
<S> <C> <C> <C> <C>
Commercial real estate $17,556 33% $15,008 30%
Residential real estate 18,358 35% 20,067 40%
Commercial loans 12,868 24% 10,330 21%
Consumer loans 4,347 8% 4,312 9%
--------- ------ --------- -----
53,129 100% 49,717 100%
==== ====
Deferred fees, net (120) (26)
Allowance for credit losses (461) (431)
-------- --------
Loans held for investment, net $52,548 $49,260
======= =======
Residential real estate:
Loans held for sale $ 8,291 $ 847
======= =========
</TABLE>
In the context of this discussion, a "real estate mortgage loan" is
defined as any loan, other than loans for construction purposes, secured by real
estate, regardless of the purpose of the loan. Citrus follows the common
practice of financial institutions in Citrus' market area of obtaining a
security interest in real estate whenever possible, in addition to any other
available collateral. This collateral is taken to reinforce the likelihood of
the ultimate repayment of the loan and tends to increase the magnitude of the
real estate loan portfolio component. Generally, Citrus limits its loan-to-value
ratio to 80%. Citrus' largest category of loans, residential mortgage loans,
totaled $18.4 million and represented 35% of the loan portfolio at December 31,
1998, compared to $20.1 million and 40% at December 31, 1997. A significant
portion of mortgage loans are made to finance owner-occupied real estate.
Management attempts to maintain a conservative philosophy regarding its
underwriting guidelines and believes it will reduce the risk elements of its
loan portfolio through strategies that diversify the lending mix.
40
<PAGE>
The following table reflects the contractual principal repayments
(excluding nonaccrual loans of $141,000) by period of Citrus' loan portfolio at
December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
More Than
Three More Than
Months One Year
Three to One to Five Over Five
Months Year Years Years Total
------ ---- ----- ----- -----
Loans held for investment:
<S> <C> <C> <C> <C> <C>
Commercial real estate $ 4,282 $1,009 $ 11,356 $ 909 $17,556
Residential real estate 2,682 3,707 6,858 5,111 18,358
Commercial loans 6,298 2,238 3,837 356 12,729
Consumer loans 1,683 252 2,308 102 4,345
--------- -------- --------- -------- --------
Total before unearned income $14,945 $7,206 $24,359 $6,478 $52,988
======= ====== ======= ====== =======
Loans held for sale:
Residential real estate $ 8,291 $ - $ - $ - $ 8,291
======== ========= ============ ========== ========
Loans held for investment with
maturities over one year:
Fixed rate $17,590
Variable rate 13,247
Total maturities greater than
one year - loans held for investment $30,837
=======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of our loans. The average life of loans historically has been
substantially less than their average contractual terms due to prepayments. In
addition, due-on-sale clauses on mortgage loans generally give Citrus the right
to declare a conventional loan immediately due and payable in the event, among
other things, that the borrower sells the real property secured by the mortgage
and the loan is not repaid. The average life of mortgage loans tends to
increase, however, when current mortgage loan rates are substantially higher
than rates on existing mortgage loans and, conversely, decrease when rates on
existing mortgage loans are substantially higher than current mortgage loan
rates. Of the $30.8 million in loans held for investment due after December 31,
1999, 57% of these loans have fixed interest rates and 43% have adjustable
interest rates.
Origination, Purchase, Sale, and Repayment of Loans. Citrus generally
originates loans on real estate located in Florida. Residential mortgage loan
originations by Citrus are attributable to depositors, other existing customers,
advertising, mortgage brokers, and referrals from real estate brokers and
developers. Citrus' residential mortgage loans generally are originated to
ensure compliance with documentation and underwriting standards which permit
their sale to the Federal National Mortgage Association and other investors in
the secondary market.
41
<PAGE>
Citrus also purchases loans from real estate mortgage brokers located
in Florida. These loans conform to the same underwriting guidelines as those for
loans originated by Citrus. Substantially all of these loans are purchased with
takeout commitments from unrelated third party investors and are generally sold
to these investors within 30 days of acquisition. See "Business Of Citrus -
Table Funding Loan Program".
Citrus engages in the sale of fixed-rate loans and ARM loans to provide
liquidity and funding sources for higher yielding loans. The following table
sets forth total loans purchased, originated, repaid, and sold during the
periods indicated (dollars in thousands).
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Originations - loans held for investment:
Commercial real estate loans $ 4,623 $ 8,277
Residential mortgage loans 6,571 4,427
Commercial loans 16,156 7,027
Consumer loans 3,675 3,425
---------- ---------
Total originations of loans held for investment 31,025 23,156
Less:
Principal reductions 27,613 19,936
--------- --------
Increase in total loans held for investment $ 3,412 $ 3,220
========== =========
Originations and purchases - loans held for sale $171,223 $ 25,320
Less: loans sold 163,779 29,034
--------- ---------
Increase (decrease) in total loans held for sale $ 7,444 $ (3,714)
========== ========
</TABLE>
Investment Securities. The investment securities portfolio is a
significant, although declining, component of Citrus' total earning assets.
Total securities averaged $8.0 million for 1998 and $9.5 million in 1997, as
compared to $10.0 million in 1996. This represents 11% of the average earning
assets for 1998, 15% of the average earning assets for 1997, and 18% of the
average earning assets for 1996. Citrus attempts to maintain a portfolio of high
quality, highly liquid investments with returns competitive with short term U.S.
Treasury or agency obligations. This objective is particularly important as
Citrus continues to emphasize increasing the percentage of the loan portfolio to
total earning assets. Citrus primarily invests in U.S. Treasury securities and
securities of other U.S. Government agencies with maturities up to five years.
The investment portfolio is comprised primarily of U.S. Treasury and
U.S. Government agency securities and mortgage-backed securities. According to
Financial Accounting Standards No. 115, investment portfolio is categorized as
either "held-to-maturity," "available-for-sale," or "trading." Investments
held-to-maturity represent those investments which Citrus has the positive
intent and ability to hold to maturity. These investments are carried at
amortized cost. Investments available-for-sale represent those investments which
42
<PAGE>
may be sold for various reasons including changes in interest rates and
liquidity considerations. These investments are reported at fair market value
with unrealized gains and losses being reported as a separate component of
stockholders' equity, net of income taxes. Trading securities are held primarily
for resale and are recorded at their fair values. Unrealized gains or losses on
trading securities are included immediately in earnings. At December 31, 1998
and 1997, Citrus had no securities categorized as trading.
Investment Portfolio. The following table sets forth the carrying value
of Citrus' investment portfolio (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Securities available-for-sale:
U. S. Government agency securities $ 1,618 $ 1,104
Mortgage-backed securities 2,671 4,265
Other 386 427
-------- ---------
Total $ 4,675 $ 5,796
======= =======
Securities held-to-maturity:
U. S. Government agency securities $ 481 $ 1,474
Mortgage-backed securities 826 1,762
Other - 251
----------- --------
Total $ 1,307 $ 3,487
======= =======
The following table sets forth the amortized cost of Citrus' investment
portfolio at the dates indicated (dollars in thousands):
At December 31,
---------------
1998 1997
---- ----
Securities available-for-sale:
U. S. Government agency securities $ 1,600 $ 1,101
Mortgage-backed securities 2,734 4,396
Other 386 427
--------- ---------
Total $ 4,720 $ 5,924
======= =======
Securities held-to-maturity:
U. S. Government agency securities $ 481 $ 1,474
Mortgage-backed securities 826 1,762
Other - 251
----------- ---------
Total $ 1,307 $ 3,487
======= =======
</TABLE>
43
<PAGE>
Investment Securities Maturities. The following table sets forth, by
maturity distribution, certain information pertaining to the securities held to
maturity portfolio as follows (dollars in thousands):
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less to Five Years to Ten Years Over Ten Years Total
---------------- -------------- ------------ -------------- -----
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998:
U. S. Government
agency securities $ - 0.0% $2,099 5.0%$ - 0.0%$ - 0.0% $2,099 5.0%
Mortgage-backed securities - 0.0% 560 6.2% 1,970 5.9% 967 5.2% 3,497 5.7%
Other - 0.0% - 0.0% - 0.0% 386 5.4% 386 5.4%
------- ------ ------ ------ ------
Total $ - 0.0% $2,659 5.3% $1,970 5.9% $1,353 5.2% $5,982 5.5%
======= ====== ====== ====== ======
December 31, 1997:
U. S. Government
agency securities $1,496 4.5% $ 605 6.2% $ 477 3.9%$ - 0.0% $2,578 4.8%
Mortgage-backed securities 599 5.1% 859 5.6% 197 5.8% 4,372 5.6% 6,027 5.6%
Other 251 5.2% - 0.0% - 0.0% 427 6.6% 678 6.1%
------- ------ ------ ------ ------
Total $2,346 4.7% $1,464 5.9% $ 674 4.5% $4,799 5.7% $9,283 5.4%
====== ====== ======= ====== ======
</TABLE>
Short-Term Investments. Short-term investments, which consist of
federal funds sold and securities purchased under agreements to resell and
interest-bearing deposits, averaged $4.6 million in 1998 as compared to $2.7
million in 1997 and to $1.1 million in 1996. At December 31, 1998, short-term
investments totaled $9.2 million and $2.6 million at December 31, 1997. During
1998, management has intentionally sought to increase certificates of deposit to
support expected loan growth. The additional funds generated from recent
certificate of deposit promotions will be deployed into higher earning assets
during 1999. These funds are a primary source of Citrus' liquidity and are
generally invested in an earning capacity on an overnight basis.
Deposits and Other Interest-Bearing Liabilities
Average interest-bearing liabilities grew $8.0 million, or 15%, to
$60.8 million for 1998, which reflects the general growth in Citrus Bank.
Average interest-bearing liabilities increased approximately $4.4 million, or
9%, to $52.9 million in 1997, from $48.4 million in 1996.
Deposits. Average interest-bearing deposits totaled $59.8 million for
1998, an increase of 15% over 1997. Average interest-bearing deposits increased
approximately $4.5 million, or 9%, to $51.8 million in 1997, from $47.4 million
in 1996, and end of period total noninterest-bearing deposits increased $2.6
million, or 32%, to $10.7 million in 1997 from $8.1 million in 1996. At December
31, 1998, total deposits were $76.7 million, compared to $62.6 million at
December 31, 1997, an increase of 23%.
44
<PAGE>
Deposits are attracted principally from Citrus' primary market area and
do not contain any concentrations from any one depositor or related group of
depositors. Citrus offers a broad selection of deposit instruments including
demand deposit accounts, NOW accounts, money market accounts, regular savings
accounts, term certificate accounts, and retirement savings plans. Certificate
of deposit rates are set to encourage longer maturities as cost and market
conditions will allow. Deposit account terms vary, with the primary differences
being the minimum balance required, the time period the funds must remain on
deposit and the interest rate offered.
Other Sources of Funds. In addition to deposits, the sources of funds
available for lending and other business purposes include loan repayments, loan
sales, and securities sold under agreements to repurchase. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
influenced significantly by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in
other sources, such as deposits at less than projected levels and are also used
to fund the origination of mortgage loans designated to be sold in the secondary
markets.
Citrus has emphasized commercial banking relationships in an effort to
increase demand deposits as a percentage of total deposits. Citrus' courier
service began operations in the fourth quarter of 1997. The courier service will
serve Citrus' business customers primarily in Indian River County.
Management sets the deposit interest rates weekly based on a review of
deposit flows for the previous week, and a survey of rates among direct
competitors and other financial institutions in Florida. The following table
shows the distribution of, and certain other information relating to, Citrus'
deposit accounts by type at the date indicated (dollars in thousands). Footnote
follows on next page:
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997
---- ----
Percent of Percent of
Amount Total Amount Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
Demand deposits $13,393 17.4% $10,723 17.1%
NOW deposits 4,121 5.4% 3,701 5.9%
Money market deposits 3,026 3.9% 4,095 6.5%
Savings deposits 8,423 11.0% 5,993 9.6%
--------- ------ --------- -------
Subtotal 28,963 37.7% 24,512 39.1%
-------- ------ ------- ------
Certificates of deposit:
3.00% - 3.99% 913 1.2% 192 0.3%
4.00% - 4.99% 3,490 4.6% 3,669 5.9%
5.00% - 5.99% 42,123 54.9% 33,934 54.2%
6.00% - 6.99% 1,214 1.6% 294 0.5%
--------- ------- ---------- -------
Total certificates of
deposit(1) 47,740 62.3% 38,089 60.9%
-------- ------- -------- ------
Total deposits $76,703 100.0% $62,601 100.0%
======= ====== ======= ======
</TABLE>
45
<PAGE>
(1) Includes individual retirement accounts ("IRA") totaling $3,173,000 and
$3,117,000 at December 31, 1998 and 1997, all of which are in the form
of certificates of deposit.
Core deposits, which exclude certificates of deposit of $100,000 or
more, provide a relatively stable funding source for Citrus' loan portfolio and
other earning assets. Citrus' core deposits were $66.3 million at December 31,
1998, $54.5 million at December 31, 1997, and $47.9 million at December 31,
1996. Management anticipates that a stable base of deposits will be Citrus'
primary source of funding to meet both its short-term and long-term liquidity
needs in the future.
Jumbo certificates ($100,000 and over) mature as follows
(dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Due three months or less $ 2,861 $ 2,850
Due over three months to twelve months 7,237 3,681
Due over twelve months to three years 100 1,548
Due over three years 179 -
--------- ------------
Total $10,377 $ 8,079
======= =======
Other time deposits under $100,000 mature as follows (dollars in thousands):
At December 31,
---------------
1998 1997
---- ----
Due three months or less $12,374 $ 8,803
Due over three months to twelve months 21,547 11,604
Due over twelve months to three years 2,778 9,603
Due over three years 664 -
---------- -----------
Total $37,363 $30,010
======= =======
The following table sets forth the net deposit flows of Citrus during
the periods indicated (dollars in thousands):
At December 31,
---------------
1998 1997
---- ----
Net increase before interest credited $11,319 $ 1,498
Net interest credited 2,783 2,457
-------- --------
Net deposit increase $14,102 $ 3,955
======= =======
</TABLE>
Customers with large certificates of deposit tend to be extremely
sensitive to interest rate levels, making these deposits less reliable sources
of funding for liquidity planning purposes than core deposits. Some financial
institutions fund their balance sheets in part through large certificates of
deposit obtained through brokers. These brokered deposits are generally
expensive and are unreliable as long-term funding sources. Accordingly, Citrus
does not accept brokered deposits.
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<PAGE>
Borrowings. Citrus Bank has a line of credit master agreement with the
FHLB of Atlanta that enables Citrus Bank to borrow up to $10,000,000. 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. At
December 31, 1998, there were no advances outstanding under this line. In
addition to the line of credit arrangement, Citrus Bank had fixed FHLB advances
outstanding as follows (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
Maturity Date Interest Rate 1998 1997
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
2000 5.26% $ - $ 167
2003 5.76% 217 266
------ -------
$ 217 $ 433
===== =====
</TABLE>
Interest expense on the line of credit and other FHLB advances amounted
to approximately $54,000 for 1998 and $56,000 for 1997.
Citrus' Regulatory Capital Position
Total stockholders' equity as of December 31, 1998, was $6.4 million,
an increase of $625,000 or approximately 11% compared with stockholders' equity
of $5.8 million as of December 31, 1997. This increase was attributable to net
income for the year ended December 31, 1998, of $564,000, and a $61,000, net
increase in the market value of investment securities available-for-sale.
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100%. The Federal Reserve grants an
exemption from these requirements for bank holding companies with less than $150
million in consolidated assets, and therefore Citrus' capital is currently
measured only at Citrus Bank level. Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital consists of common shareholders'
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general
allowance for credit losses except for certain limitations. An institution's
qualifying capital base for purposes of its risk-based capital ratio consists of
the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements
are 4% for Tier 1 and 8% for total risk-based capital.
Banks are also required to maintain capital at a minimum level based on
total assets, which is known as the leverage ratio. The minimum requirement for
the leverage ratio is 3%, but all but the highest rated institutions are
required to maintain ratios 100 to 200 basis points above the minimum. Citrus
Bank exceeded their minimum regulatory capital ratios as of December 31, 1998,
as reflected in the following table. The following table sets forth Citrus
Bank's regulatory capital position at December 31, 1998 (dollars in thousands):
47
<PAGE>
<TABLE>
<CAPTION>
Actual Minimum(1) Well-Capitalized(2)
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets) $ 6,476 10.71% $ 4,839 8.00% $ 6,049 10.00%
Tier 1 Capital (to Risk-Weighted Assets) $ 6,015 9.94% $ 2,420 4.00% $ 3,630 6.00%
Tier 1 Capital (to Average Assets) $ 6,015 7.33% $ 3,283 4.00% $ 4,104 5.00%
</TABLE>
(1) The minimum required for adequately capitalized purposes.
(2) To be "well-capitalized" under the FDIC's Prompt Corrective Action
regulations.
Management of Citrus' Sources and Uses of Funds
Liquidity management involves monitoring Citrus' sources and uses of
funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of a company to convert assets into
cash or cash equivalents without significant loss and to raise additional funds
by increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are under varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
very predictable and may be controlled very precisely at the time investment
decisions are made. However, net deposit inflows and outflows are far less
predictable and cannot be controlled as precisely.
Asset liquidity is provided by cash and assets which are readily
marketable, which can be pledged, or which will mature in the near future.
Liability liquidity is provided by access to core funding sources, principally
the ability to generate customer deposits in Citrus' market area. In addition,
liability liquidity is provided through the ability to borrow against approved
lines of credit (federal funds purchased) from correspondent banks and to borrow
on a secured basis through securities sold under agreements to repurchase.
Citrus' federal funds sold position, which is typically its primary
source of liquidity, averaged $4.6 million during the year ended December 31,
1998, and was $9.2 million at December 31, 1998. Citrus also maintains federal
funds purchased lines with several financial institutions, in the aggregate
amount of $1,750,000, although these have not been utilized during 1998.
Management regularly reviews the liquidity position of Citrus and has
implemented internal policies which establish guidelines for sources of
asset-based liquidity and limit the total amount of purchased funds used to
support the balance sheet and funding from non-core sources. Citrus intends to
use the net proceeds of the offering to finance the formation of two new banks.
See "Use of Proceeds". Citrus anticipates that the net proceeds of the offering
will be adequate for the establishment of these new banks and Citrus' capital
needs for the foreseeable future. However, should Citrus need additional capital
to support Citrus' growth, Citrus would likely obtain loans from third parties.
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<PAGE>
Changes in Financial Reporting Requirements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 requires the disclosure of basic earnings per share, in
replacement of primary earnings per share, and diluted earnings per share, in
replacement of fully diluted earnings per share. Primary earnings per share is
based on the weighted average number of shares of common stock outstanding and
the dilutive effect of options and other common stock equivalents. Basic
earnings per share does not consider any dilution. Diluted earnings per share is
similar to fully diluted earnings per share, which considers all potentially
dilutive securities. SFAS 128 becomes effective with annual and interim
financial statements for periods ending after December 15, 1997. Upon initial
application of SFAS 128, all earnings per share data presented for prior periods
must be restated to conform to the new standard. Citrus adopted SFAS 128 in
1998.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires an entity to report its change in equity during
the period from transactions and events other than those resulting from
investments by and distributions to owners. All items that are recognized as
comprehensive income are required to be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS 130
becomes effective with annual and interim financial statements for periods
ending after December 15, 1997. Citrus adopted SFAS 130 in 1998.
BUSINESS OF CITRUS
Citrus Financial Services
Citrus is headquartered in Vero Beach, Florida, which is the county
seat for Indian River County. Citrus operates primarily through Citrus Bank.
Citrus Mortgage Corp., a mortgage brokerage company which has not yet begun
operations, is a wholly owned subsidiary of Citrus which was established in
1995. See "Business - Non-Bank Subsidiary".
Citrus Bank
Citrus operates a traditional community banking business through its
retail banking facilities with a friendly and professional staff. Citrus staff
is committed to developing long-term relationships with customers by offering
personalized, quality service. Citrus offers a broad range of retail and
commercial banking services, including various types of deposit accounts and
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<PAGE>
loan products for small businesses and consumers. Citrus Bank offers an armored
car service to its commercial customers located in Indian River and Brevard
Counties. This service provides deposit pickup and deliveries to present and
prospective customers of Citrus. As part of its "community banking" approach,
Citrus Bank encourages its officers to actively participate in community
organizations.
The principal sources of funds for Citrus Bank's lending and investing
activities traditionally have been deposits, repayment of loans and earnings
from operations. Citrus Bank's deposits are federally insured up to applicable
limits by the FDIC under the Bank Insurance Fund. Citrus Bank's primary sources
of income are interest and fees on loans, fees on transaction accounts and other
activities, gains on sales of mortgage loans in the secondary market, and
interest and dividends on U.S. Treasury and mortgage-backed securities and other
investments. Citrus Bank's principal costs are interest paid on deposit accounts
and operating expenses.
Primary Service Area
Vero Beach is located approximately 15 miles north of Ft. Pierce and 35
miles south of Melbourne. The City of Vero Beach has a permanent population of
approximately 18,000 while the greater Vero Beach area has a population of
approximately 70,000. Indian River County has a population of approximately
100,000. The greater Vero Beach area consists of the land mass located between
the Atlantic Ocean and Interstate 95 extending from the St. Lucie/Indian River
County line approximately 10 miles north, and containing approximately 100
square miles. Citrus considers the greater Vero Beach area as one of its primary
service areas.
The greater Vero Beach area has experienced dramatic growth the last
several years, especially in the retail industry. A new regional mall opened in
Vero Beach in 1997, along with a regional manufacturer's discount mall in 1996.
The greater Vero Beach area has also experienced an influx of light industry and
small manufacturing facilities relocating or establishing themselves in the
area. This is due mainly to the high quality of life of the community. Vero
Beach's viable industry base coupled with the reemergence of the New Piper
Aircraft Company gives the area a growing manufacturing base.
Indian River County has a land area of approximately 503 square miles.
It has more than 26 miles of coastline and is served by the Melbourne Regional
Airport in Melbourne, Orlando International Airport in Orlando and Vero Beach
Airport which accommodates private and chartered flights. Indian River County is
one of the fastest growing areas in the State of Florida. The primary business
sectors in Indian River County include citrus, retail and manufacturing, as well
as service-related trades with increasing new business from computer software
companies. Based upon the latest statistical data, the median family income for
Indian River County is $29,612.
Citrus Bank's Sebastian branch is located in northern Indian River
County, Florida. Sebastian has a population of approximately 14,500 residents.
Citrus Bank's Barefoot Bay Branch is located in south Brevard County,
approximately 20 miles north of Vero Beach. Barefoot Bay has a population of
approximately 9,000 residents, most of whom are retired. Both Indian River
50
<PAGE>
County and Barefoot Bay have a seasonal fluctuation of residents. Citrus
estimates that these areas experience an approximate 30% increase in residents
during the winter months.
Citrus considers Indian River County and the southern portion of
Brevard County as its current primary market area.
Citrus' Expansion Plans Include New Banks
Citrus believes that the benefits of expanding by opening new banks
instead of branch offices of Citrus Bank in communities located more than 100
miles from Vero Beach outweigh the additional costs incurred by doing so. This
conclusion is based upon Citrus' own experience of successfully attracting
deposit and loan customers away from branches operated by out of town banks.
Other community banks have experienced similar success. There were 33
applications for new Florida state banks and 9 applications for federal savings
banks to be located in Florida, filed during 1998. Most of these applications
were filed in communities which recently experienced the loss by merger or
acquisition of a local community bank.
Citrus initially intends to expand its operations by first establishing
a new commercial bank in Highlands County, Florida. We expect to locate our
Highlands County bank in Sebring at 3900 U.S. 27 North. We have identified a
local board of directors and have selected John M. Tench to serve as the
President and Chief Executive Officer. Mr. Tench currently manages Citrus'
Sebring loan production office. In the event we do not sell more than the
minimum number of shares, Mr. Tench will continue to operate Citrus Bank's
Highlands County loan production office.
Citrus next intends to establish a new bank in Dade County, Florida,
and has hired Walter Alvarez to be its President and Chief Executive Officer.
Mr. Alvarez currently manages Citrus' loan production office in Dade County and
serves as Citrus' Miami area President. In the event we do not sell more than
the minimum number of shares, Mr. Alvarez will continue to operate Citrus Bank's
Dade County loan production office. We have not yet identified a local board of
directors. We are currently searching for a site for our Dade County bank and
are focusing on growing communities which we believe lack strong local community
banks. We will look for neighborhoods which have a progressive business climate,
a local newspaper, a strong Chamber of Commerce, and a separate municipal
government. We will also seek areas with services designed to meet community
needs, such as convenient shopping areas, good medical facilities, and schools
and facilities dedicated to the arts. We believe that locating a new bank in a
community with these attributes will provide us with the greatest opportunity
for continued success. We are currently focusing our search in the Coral Gables
area, but we will also consider other communities in Dade County.
Following is certain demographic information with respect to both
Highlands County and Dade County which has been obtained from the University of
Florida, Bureau of Economics and Business Research, and from the FDIC.
Sebring has a population of approximately 8,000 residents and is the
county seat for Highlands County. The seasonal population of Highlands County,
based upon statistical information provided by the Highlands County Chamber of
Commerce, is approximately 80,000 residents. Highlands County is one of the
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<PAGE>
fastest growing areas in the State of Florida. The primary business sectors in
greater Highlands County include the service industry, retail trade industry,
finance industry, insurance industry, real estate development and sales, and the
agriculture industry. Based upon the latest statistical data, the median
household income for Highlands County is approximately $21,600. As of June 30,
1998, there were 8 financial institutions with 27 offices operating in Highlands
County, with $1.03 billion in deposits. This represents an increase of
approximately $26.4 million from June 30, 1994.
Dade County includes, among others, the cities of Miami, Miami Beach,
Hialeah, Kendall, Key Biscayne, Coral Gables and Homestead. The population of
Dade County increased from approximately 1.9 million people in 1990 to
approximately 2.1 million in 1997, representing a 10.5% increase. Dade County is
the most populated county in Florida. Dade County's population is expected to
increase to approximately 2.24 million people by the year 2005. In 1996, the
Dade County median household income was approximately $26,700. As of June 30,
1998, there were 57 financial institutions with 515 offices operating in Dade
County, with $36.7 billion in deposits. This represents an increase of
approximately $3.7 billion from June 30, 1994.
Citrus' ability to expand into these markets will be dependent upon,
among other things, its success in assembling a local management team and local
board of directors for each proposed market.
We Operate in a Competitive Business
Citrus experiences competition for attracting deposits and making loans
from other financial institutions, including larger regional bank holding
companies, commercial banks, savings banks, and credit unions. Additional
competition for deposits comes from government securities, money market funds,
mutual fund and securities brokerage firms. The primary factors in competing for
deposits are interest rates, the range of financial services offered,
convenience of office locations, and the flexibility of office hours. The
primary factors in competing for loans include interest rates, loan fees,
flexible terms, and timely loan decisions.
Citrus competes for deposits by offering a variety of deposit programs
geared to its potential customers. We have responded to our competition by
developing strong ties in the local community and providing a high quality of
personal banking services to families, professionals, retirees, and
owner-operated businesses with an emphasis on flexibility and timely responses
to customer demands.
Since January 1996, we have placed an emphasis on originating
commercial loans. We have targeted small- to medium-sized businesses as our
potential customer base, as management believes that large out-of-state
financial institutions that have acquired several local banks have shifted the
focus of the acquired banks away from these business opportunities. We also
originate residential loans by offering various adjustable-rate and fixed-rate
mortgage loan products.
52
<PAGE>
Geographic deregulation has also had a material impact on the financial
industry. As for commercial banks, to date, all but three states have enacted
some form of interstate banking legislation. The most common form of interstate
banking statutes have either regional limitations or reciprocity requirements. A
growing number of states, however, now provide for unrestricted entry. A bank
holding company is now permitted to acquire existing banks across state lines
and may consolidate its interstate subsidiary banks into branches and merge with
a bank in another state, depending upon state laws. Florida has removed most of
the final barriers to interstate banking.
Loan Activities
General. Citrus' primary business is making commercial business, real
estate and consumer loans. Citrus also purchases loans for resale in the
secondary market. As of June 30, 1999, net loans held for investment totaled
$58.3 million, or 71.8%, of total assets. As of the same period, loans held for
sale totaled $3.7 million, or 4.5%, of total assets. See "Management's
Discussion And Analysis Of Financial Condition And Results Of Operations - Loan
Portfolio Composition and - Origination, Purchase, Sale, and Repayment of
Loans".
Loan Underwriting. Loan activities include credit evaluation under
Citrus Bank's underwriting standards and loan origination procedures prescribed
by the board of directors and management. Loan applications are obtained from
borrowers to determine the borrower's ability to repay, and the more significant
items on these applications are verified through the use of credit reports,
financial statements and confirmations. Our loan policy for real estate loans
generally requires that collateral be appraised by an independent, outside
appraiser approved by the board of directors.
Loans are approved at various management levels up to and including the
board of directors, depending on the amount of the loan. Loan approvals are made
in accordance with a chart of delegated authority approved by the board of
directors. Generally, loans of $100,000 or less may be approved by various
authorized individual officers or loan underwriters. Loans over $100,000 usually
require approval by the Loan Committee or board of directors.
General Loan Policies. For real estate loans, Citrus requires a valid
mortgage lien on real estate and a title insurance policy which insures the
validity and priority of the lien. Borrowers must also obtain hazard insurance
policies prior to closing, and when the property is in a flood prone area, flood
insurance is required.
Citrus is permitted to lend up to 100% of the appraised value of the
real property securing a mortgage loan. However, if the amount of a conventional
residential loan (including a construction loan or a combination construction
and permanent loan) purchased, originated or refinanced exceeds 90% of the
appraised value or of the purchase price, whichever is less, Citrus is required
by federal regulations to obtain private mortgage insurance on that portion of
the principal amount of the loan that exceeds 90% of the value of the property
or must secure other readily marketable collateral. Citrus will originate
single-family residential mortgage loans with up to a 90% loan-to-value ratio.
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<PAGE>
Loans over 95% loan-to-value ratio are limited to special community
support programs or one of the FHA, VA, or Farmers Home Administration ("FmHA")
guarantee or insurance programs. The loan-to-value ratio on a home secured by a
junior lien generally does not exceed 85%, including the amount of the first
mortgage on the collateral. With respect to home loans granted for construction
or combination construction/permanent financing, Citrus will lend up to 80% of
the appraised value of the property on an "as completed" basis. Citrus generally
limits the loan-to-value ratio on multi-family residential and commercial real
estate loans to 75% of value. Consumer loans are considered to be loans to
natural persons for personal, family or household purposes, and these loans may
be unsecured, secured by personal property or secured by liens on real estate
which, when aggregated with prior liens, equals or exceeds the appraised value
of the collateral property.
The maximum amount which Citrus could have loaned to one borrower and
the borrower's related entities as of June 30, 1999, was approximately $998,000
or approximately $1,664,000 for certain excepted loans. At June 30, 1999, Citrus
had no loans which exceeded the loan to one borrower limit. See "Regulation And
Supervision - Regulation of Citrus Bank".
Interest rates charged on loans are affected principally by competitive
factors, the demand for loans and the supply of funds available for lending
purposes. These factors are, in turn, affected by general economic conditions,
monetary policies of the federal government, including the Federal Reserve
Board, legislative tax policies and government budgetary matters.
Residential Loans. Citrus currently originates fixed-rate residential
mortgage loans and ARM loans for terms of up to 30 years. As of June 30, 1999,
$17.0 million, or 29.2%, of Citrus' total loan portfolio, excluding loans held
for sale, consisted of one-to-four family residential real estate loans.
Approximately $6.3 million, or 37.1%, of these loans were ARM loans.
The residential ARM loans currently being offered have interest rates
that are fixed for a period of one, three or five years and then after the
initial period the interest rate is adjusted annually based upon an index such
as the yield on treasury securities adjusted to a one-year maturity, plus a
margin. Most of Citrus' ARM programs limit the amount of any increase or
decrease in the interest rate at each adjustment and over the life of the loan.
Typical limitations are 2% for each adjustment with a limit of 6% over the life
of the loan. While Citrus usually offers an initial rate on ARM loans below a
fully indexed rate, the loan is typically underwritten based on the borrower's
ability to pay at the interest rate which would be in effect after adjustment of
the loan. ARM loans reduce the risks to Citrus concerning changes in interest
rates, but involve other risks because as interest rates increase, the
borrower's required payments increase, thus increasing the potential for
default. Marketability of real estate loans is also affected by the level of
interest rates.
Most of Citrus' fixed rate home loans are originated for 30-year
amortization terms. Borrowers requesting a term of 15 years or less are usually
granted an interest rate slightly lower than is offered for a 30-year amortizing
loan. These loans are originated in compliance with documentation and
underwriting standards in order to permit their sale in the secondary market to
institutional investors such as Fannie Mae. Fixed-rate home loans include a "Due
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<PAGE>
on Sale" clause which provides Citrus Bank with the contractual right to declare
the loan immediately due and payable in the event the borrower transfers
ownership of the property without Citrus' consent.
Table Funding Loan Program. Citrus provides funds to a limited number
of real estate mortgage brokers who make mortgage loans in its primary market
area. These loans are closed in the name of the mortgage broker and are
immediately assigned to Citrus. Citrus acquires the residential mortgage loan
for the purpose of resale to an end investor, typically a mortgage brokerage
firm. Interest and fee income from this program totaled $159,000 in 1997 and
$879,000 in 1998. For the first six months of 1999 interest and fees totaled
$324,000. These amounts represented 2.9% of total income for 1997, 13.6% for
1998 and 10.3% for the six months ended June 30, 1999.
Construction Loans. Citrus has and continues to offer adjustable and
fixed-rate residential construction loans to owners wishing to construct their
primary residence and to selected builders/developers in Citrus' primary market
area. As of June 30, 1999, construction and land development loans amounted to
$5.3 million, or less than 9.1% of loans held for investment. Construction loans
to individuals usually are originated in connection with the permanent loan on
the property. Construction-permanent loans typically provide for a construction
term of six months to one year followed by the permanent loan term of up to 30
years. Loans to builders/developers are restricted to homes that are pre-sold or
are constructed on a speculative basis. Loans to builders for the construction
of a home for which there is no immediate buyer at the time of construction are
considered spec loans. Spec loans are typically for one year and provide for
interest only payments during the loan term. The financial capacity of the
builder, the builder's experience, and the credit history of the builder, as
well as present market conditions are reviewed when considering spec loans. As
of June 30, 1999, Citrus had one spec loan totaling $192,000.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of construction cost and of the initial
estimate of the property's value upon completion. During construction, a number
of factors could result in delays and cost overruns. Repayment of Spec Loans
usually depends upon the builder successfully negotiating a sale for the
property. Sales of spec homes are affected by market conditions, interest rates,
and the supply and demand for these products.
Commercial Real Estate Loans. Commercial real estate loans are secured
primarily by office and retail business properties located in the primary market
area. These types of loans amounted to $13.0 million, or 22.3%, of net loans
held for investment as of June 30, 1999. Commercial real estate loans may be for
a term of up to 25 years, but frequently include a maturity in three to six
years. Citrus generally does not typically offer fixed-rate commercial real
estate or multi-family real estate loans.
Commercial and multi-family real estate loans are originated with a
loan-to-value ratio generally not exceeding 75%. Loans secured by this type of
collateral will continue to be a part of our future loan program. Commercial and
multi-family real estate loans are generally larger and involve a greater degree
55
<PAGE>
of risk than residential mortgage loans. Because payments on loans secured by
commercial property depend to a large degree on results of operations and
management of the properties, repayment of this type of loan may be negatively
impacted by adverse conditions in the real estate market or the economy. At June
30, 1999, the largest commercial real estate loan was $916,000 secured by a
medical office building located in Vero Beach, Florida, and was current. The
largest multi-family real estate relationship was $949,000 secured by rental
units, primarily in Melbourne, Florida, and was current.
Commercial Loans. Citrus' commercial loans are business loans that are
not secured by real estate. At June 30, 1999, the largest commercial loan was
$803,000 secured by an assignment of a mortgage. At June 30, 1999, Citrus had
outstanding Small Business Administration ("SBA") loans of $176,000. Citrus is
not a designated SBA underwriter. We will consider making additional SBA loans
when the demand for SBA loans increases in our primary market area. SBA loans,
which are guaranteed in part by the SBA, typically include a higher loan balance
relative to the value of the collateral, as opposed to loans originated without
a government guarantee.
Consumer Loans. Citrus makes various types of consumer loans, including
automobile and boat loans, but primarily home equity loans. Consumer loans are
originated in order to provide a range of financial services to customers and to
create stronger ties to its customers and because the shorter term and normally
higher interest rates on this type of loan helps maintain a profitable spread
between Citrus' average loan yield and its cost of funds. The terms of consumer
loans generally range from one to five years. Underwriting standards for
consumer loans include an assessment of the applicant's repayment history on
other debts and ability to meet existing obligations and payments on the
proposed loans.
Although the applicant's creditworthiness is a primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, to the proposed loan amount. Consumer loans generally involve
more credit risks than mortgage loans because of the type and nature of the
collateral or absence of collateral. Consumer loan repayments are dependent on
the borrower's continuing financial stability, and are likely to be adversely
affected by job loss, divorce and illness. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on consumer loans.
In most cases, any repossessed collateral will not provide an adequate source of
repayment of the outstanding loan balance. Management believes that the yields
earned on consumer loans are commensurate with the credit risk associated with
these loans. As of June 30, 1999, consumer loans amounted to $4.3 million, or
7.4%, of net loans held for investment.
Income from Lending Activities. We earn fees in connection with loan
commitments and originations, loan purchases, loan modifications, late payments,
changes of property ownership and for miscellaneous services related to loans.
Income from these activities varies from period to period with the volume and
type of loans originated, sold and purchased. Our volume is dependent upon
prevailing mortgage interest rates and their effect on the demand for loans in
our primary market area.
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Loan fees typically are charged at the time of loan origination or
purchase and may be a flat fee or a percentage of the amount of the loan. Under
current accounting standards the total amount of loan fees cannot typically be
recognized as current income and a portion of the fees are deferred and taken
into income over the contractual life of the loan, using a level yield method.
If a loan is prepaid or refinanced, all remaining deferred fees with respect to
these loans are taken into income at that time.
Nonperforming Loans and Real Estate Owned. When a borrower fails to
make a required payment on a loan, we attempt to collect the payment by
contacting the borrower. If a payment on a loan has not been received by the end
of a grace period (usually 10 days from the payment due date), notices are sent
at that time, with follow-up contacts made thereafter. In most cases,
delinquencies are cured promptly. If the delinquency exceeds 29 days and is not
cured through normal collection procedures, Citrus will institute more formal
measures to remedy the default, including the commencement of foreclosure
proceedings. Citrus will then attempt to negotiate with the delinquent borrower
to establish a satisfactory payment schedule.
If the loan is secured by real estate and foreclosure is required, the
property will be sold at a public auction in which Citrus may participate as a
bidder. If Citrus is the successful bidder, the acquired real estate property is
then included in the other real estate owned "OREO" account until it is sold.
Citrus is permitted under federal regulations to finance sales of real estate
owned with loans which may involve more favorable interest rates and terms than
generally would be granted under normal underwriting guidelines. As of June 30,
1999, Citrus had no OREO properties and $603,000 loans past due 90 days or more.
Problem Asset Classification Procedures
Commercial banks are required to review, and when appropriate, classify
their assets on a regular basis. The Comptroller of the Currency has the
authority to identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets:
substandard, doubtful and loss.
o Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not
corrected.
o Doubtful assets have the weaknesses of substandard assets with
the additional characteristic that the weaknesses make collection
or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high
possibility of loss.
o Loss assets are considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted.
If an asset or portion thereof is classified as loss, the insured
institution establishes a specific reserve for the full amount of
the portion of the asset classified as loss.
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All or a portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. Assets that do not warrant classification in one of the aforementioned
categories, but possess weaknesses, are classified as special mention and are
monitored by Citrus.
At June 30, 1999, Citrus had 14 loans classified as substandard or
doubtful totaling $471,000, and no loans classified as loss.
Allowance for Credit Losses
The allowance for credit losses is established through a provision for
loan losses charged against income. Loans are charged against the allowance when
management believes that the collectibility of the principal is unlikely. The
allowance is an estimated amount that management believes will be adequate to
absorb losses inherent in the loan portfolio based on evaluations of its
collectibility. The evaluations take into consideration factors including
changes in the nature and volume of the portfolio, overall portfolio quality,
specific problem loans and commitments, and current anticipated economic
conditions that may affect the borrower's ability to pay. While management uses
the best information available to recognize losses on loans, future additions to
the allowance may be necessary based on changes in economic conditions. At June
30, 1999, Citrus had a total allowance for credit losses of $380,000
representing 0.7% of total loans held for investment. See "Management's
Discussion And Analysis Of Financial Condition And Results Of Operations -
Credit Risk" for the table showing Citrus' allowance for credit losses.
Non-Bank Subsidiary
As of June 30, 1999, Citrus had one wholly-owned non-bank subsidiary,
Citrus Mortgage Corp. Citrus Mortgage Corp. was established on August 3, 1995,
to be a mortgage brokerage company. As of June 30, 1999, Citrus' aggregate
investment in Citrus Mortgage was less than $1,000. Citrus Mortgage is not
active.
Personnel
As of June 30, 1999, Citrus had no full-time employees and Citrus Bank
had 47 full-time employees. The employees are not represented by any collective
bargaining group. We believe our relations with our employees are good.
We currently maintain a comprehensive employee benefit program
providing, among other benefits, hospitalization and major medical insurance,
long-term disability insurance, life insurance, 401(k) and education assistance.
We believe our employee benefit programs are generally competitive with employee
benefits provided by other major employers in our primary market area.
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Legal Proceedings
There are no material pending legal proceedings to which Citrus or
Citrus Bank is a party or to which any of their property is subject.
Properties on Which We Conduct Business
The following table sets forth information with respect to Citrus'
offices as of December 31, 1998.
<TABLE>
<CAPTION>
Year
Facility Size of Facility Facility Net Book
Location Opened in Sq. Ft. Status Value
-------- ------ ---------- ------ -----
<S> <C> <C> <C> <C>
Main Office
Citrus Bank, N.A.
- -----------------
1717 Indian River Blvd., 1990 10,000 Owned $1,169,000
Ste. 100
Vero Beach, Florida
Branches
Sebastian Office
- ----------------
1020 U.S. 1 1993 2,800 Owned $433,000
Sebastian, Florida
Barefoot Bay Office
- -------------------
1020 Buttonwood Street 1996 2,160 Owned $391,000
Barefoot Bay, Florida
Loan Production Offices
Sebring
- -------
3900 U.S. 27 North 1999 1,960 Owned/ $284,984
Sebring, Florida Lease
Miami
- -----
International Corporate Park 1999 120 Lease -0-
10165 NW 19th Street
Miami, Florida
</TABLE>
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REGULATION AND SUPERVISION GOVERNING CITRUS
General
As a bank holding company registered under the BHC Act, Citrus is
regulated and supervised by the Federal Reserve. Under the BHC Act, Citrus'
activities and those of Citrus Bank are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. As a Florida corporation, Citrus is also
governed by Chapter 607, Florida Business Corporation Act ("FBC Act") and the
regulations promulgated by the Florida Department of State. Citrus Bank is
regulated by the Comptroller of the Currency.
Citrus and Citrus Bank are required to file reports with the Federal
Reserve and the Comptroller of the Currency concerning their activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions including mergers with or acquisitions of
other financial institutions. Periodic examinations are performed by the Federal
Reserve and the Comptroller of the Currency to monitor Citrus' compliance with
the various regulatory requirements. Citrus Bank's deposits are insured up to
the applicable limits by the FDIC under the Bank Insurance Fund ("BIF"). Citrus
Bank is regulated by the Federal Reserve and the Comptroller of the Currency
with respect to reserves required to be maintained against transaction deposit
accounts and certain other matters.
Regulation of Citrus
General. The BHC Act prohibits Citrus from acquiring direct or indirect
control of more than 5% of any class of outstanding voting stock or acquiring
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve. The
BHC Act also prohibits Citrus from acquiring control of any bank operating
outside the State of Florida, unless the action is specifically authorized by
the statutes of the state where the bank to be acquired is located.
Additionally, the BHC Act prohibits Citrus from engaging in or from acquiring
ownership or control of more than 5% of the outstanding voting stock of any
company engaged in a non-banking business, unless the business is determined by
the Federal Reserve to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. The BHC Act generally does
not place territorial restrictions on the activities of non-banking related
activities.
Transactions between Citrus and Citrus Bank. Citrus' authority to
engage in transactions with related parties or "affiliates," or to make loans to
certain insiders, is limited by Sections 23A and 23B of the Federal Reserve Act
which apply to all transactions by a FDIC-insured, state non-member bank or a
holding company with any affiliate. Sections 23A and 23B generally define an
"affiliate" as any company that controls or is under common control with an
institution. Subsidiaries of a financial institution, however, are generally
exempted from the definition of "affiliate." Section 23A limits the aggregate
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amount of transactions with any individual affiliate to 10% of the capital and
surplus of Citrus and also limits the aggregate amount of transactions with all
affiliates to 20% of Citrus' capital and surplus.
Certain transactions with affiliates, such as loans to affiliates or
guarantees, acceptances and letters of credit issued on behalf of affiliates,
are required to be collateralized by collateral in an amount and of a type
described in the statute. The purchase of low quality assets from affiliates is
generally prohibited. Section 23B provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In the absence of
comparable transactions, affiliate transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to non-affiliated companies.
Support of Subsidiary Depository Institutions. In accordance with
Federal Reserve policy, Citrus is expected to act as a source of financial
strength and to commit resources to support Citrus Bank. This support may be
required at times when Citrus might not be inclined to provide any support.
Support would include the infusion of additional capital into an
undercapitalized bank subsidiary in situations where an additional investment in
a troubled bank might not ordinarily be made by a prudent investor. In addition,
any capital loans by a bank holding company to any of its subsidiary banks must
be subordinate in right of payment to depositors and to certain other
indebtedness of its subsidiary banks. In the event of bankruptcy, any commitment
by a bank holding company to a federal bank regulatory agency to maintain the
capital of its subsidiary bank will be assumed by the bankruptcy trustee and
will be entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA") a subsidiary bank of a
bank holding company can be held liable by the FDIC for any loss incurred or
reasonably expected to be incurred in connection with:
o the default of a commonly controlled FDIC-insured depository
institution, or
o any assistance provided by the FDIC to any commonly controlled
FDIC-insured depository institution "in danger of default".
"Default" is defined generally as the appointment of a conservator or a
receiver. "In danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
Control of a Bank Holding Company. Federal Reserve Board Regulation Y
requires persons acting directly or indirectly or in concert with one or more
persons to give the Board of Governors of the Federal Reserve 60 days advanced
written notice before acquiring control of a bank holding company. Under the
Regulation, control is defined as the ownership or control with the power to
vote 25 % or more of any class of voting securities of the bank holding company.
The Regulation also provides for a presumption of control if a person owns,
controls, or holds with the power to vote 10% or more (but less than 25%) of any
class of voting securities, and if:
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o the bank holding company's securities are registered securities
under Section 12 of the Securities Exchange Act of 1934; or
o no other person owns a greater percentage of that class of voting
securities.
This offering contains a purchase limitation which precludes a person
individually, or together with their associates, or with persons acting in
concert, from purchasing shares which when aggregated with current holdings
would exceed 9.9% of the total number of shares outstanding at the conclusion of
the offering. Roy Lambert, a director of Citrus, is not governed by the purchase
limitation because he has already received approval to acquire up to 100% of
Citrus' shares.
Regulation of Citrus Bank
General. From time to time, various bills are introduced in the United
States Congress with respect to the regulation of financial institutions. Recent
banking legislation, particularly the FIRREA and the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), has broadened the regulatory
powers of the federal bank regulatory agencies and restructured the nation's
banking system. The following is a brief discussion of certain portions of these
laws and how they affect Citrus or Citrus Bank.
The FDICIA revised sections of the FDIA affecting bank regulation,
deposit insurance and provisions for funding of the BIF administered by the
FDIC. The FDICIA also revised bank regulatory structures embodied in several
other federal banking statutes, strengthened the bank regulators' authority to
intervene in cases of deterioration of a bank's capital level, placed limits on
real estate lending and imposed detailed audit requirements.
FDIC Regulations Requiring Prompt and Corrective Action. The FDICIA
required the federal banking regulatory agencies to set certain capital and
other criteria which would define the category under which a particular
financial institution would be classified. The FDICIA imposes progressively more
restrictive constraints on operations, management, and capital distributions
depending on the category in which an institution is classified. As required by
the FDICIA, undercapitalized institutions must submit recapitalization plans to
their respective federal banking regulatory agencies, and a company controlling
a failing institution must guarantee that institution's compliance with its plan
in order for the plan to be accepted.
The FDIC's prompt and corrective action regulations define, among other
things, the relevant capital measures for the five capital categories. For
example, a bank is deemed to be:
o "well-capitalized" if it has a total risk-based capital ratio
(total capital to risk-weighted assets) of 10% or greater, a Tier
1 risk-based capital ratio (Tier 1 capital to risk- weighted
assets) of 6% or greater, and a Tier 1 leverage capital ratio
(Tier 1 capital to adjusted total assets) of 5% or greater, and is
not operating under a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital
measure.
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o "adequately capitalized" if it has a total risk-based capital
ratio of 8% or greater, and (generally) a Tier 1 leverage capital
ratio of 4% or greater, and the bank does not meet the definition
of a "well-capitalized" institution.
o "critically undercapitalized" if it has a ratio of tangible equity
to total assets that is equal to or less than 2%.
The FDIC is authorized effectively to downgrade a bank to a lower
capital category than the bank's capital ratios would otherwise indicate. A
decision to do so would be based upon safety and soundness considerations, such
as when the bank has received a less than satisfactory examination rating for
any of the CAMELS rating categories other than Capital: i.e.
o Asset quality
o Management
o Earnings
o Liquidity
o Sensitivity to market risk
As a bank 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 bank may engage. The regulatory capital standards are
designed to bolster and protect the deposit insurance fund. Citrus Bank is
considered to be "well-capitalized" based upon its current capital.
FDIC Insurance on Deposit Accounts. In response to the requirements of
the FDICIA, the FDIC established a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The FDIC
assigns a financial institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period.
These categories consist of well-capitalized, adequately capitalized or
undercapitalized, and one of three supervisory subcategories within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the financial institution's
primary regulator, in Citrus Bank's case the Comptroller of the Currency, and
information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. A
financial institution's assessment rate depends on the capital category and
supervisory category to which it is assigned.
There are nine assessment risk classifications to which different
assessment rates are applied. BIF assessment rates range from 0 basis points on
deposits for a financial institution in the highest category, i.e.,
well-capitalized and financially sound with only a few minor weaknesses, to 31
basis points on deposits for an institution in the lowest category, i.e.,
undercapitalized and posing a substantial probability of loss to the BIF, unless
effective corrective action is taken. Citrus Bank has not been assessed a
deposit insurance premium since January 1, 1996. See "Deposit Insurance Funds
Act of 1996".
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FDIC Standards for Safety and Soundness. The FDICIA requires 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, compensation, fees and benefits and other
operational and managerial standards as the agency deems appropriate. In
addition, the federal banking regulatory agencies are required to prescribe by
regulation standards specifying:
o maximum classified assets to capital ratios;
o minimum earnings sufficient to absorb losses without impairing
capital;
o 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
o other standards relating to asset quality, earnings and valuation as
the agency deems appropriate.
Finally, each federal banking agency is required to prescribe standards
for employment contracts and other compensation arrangements of executive
officers, employees, directors and principal shareholders 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.
Limits on Loans We Can Make to One Borrower. Federal law generally
allows Citrus Bank to extend credit to any one borrower in an amount up to 15%
of its capital accounts, which are defined as unimpaired capital, surplus and
undivided profits. Up to an additional 10 percent of capital and surplus may be
extended if this amount is served by readily marketable collateral. The law
permits exemptions for loans collateralized by accounts maintained with Citrus
Bank and for loans secured by or guaranteed by U.S. obligations, and certain
Federal agencies and general obligations of a state.
Restrictions on the Payment of Dividends. While not the only source of
income, a major source of income to Citrus in the future will be dividends from
Citrus Bank. Since commencing operations in May 1989, Citrus has not received
any dividends from Citrus Bank. Citrus Bank may not pay cash dividends that
would cause the bank's capital to fall below the minimum amount required by
federal law or which are in excess of the bank's undivided profits. Otherwise,
Citrus Bank may pay a dividend out of the total of current net profits plus
retained net profits of the preceding two years to the extent it deems
expedient, except as described below. Ten percent of the net profits in the
preceding year may not be paid in dividends, but must be retained to increase
capital surplus until surplus equals the amount of common and preferred stock
issued and outstanding. The ability of Citrus Bank to pay dividends to Citrus
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depends in part on the Comptroller of the Currency capital requirements in
effect at the time, and the ability of Citrus Bank to comply with those
requirements.
Limitations on Deposits Acquired From Brokers. In accordance with the
FDICIA, the FDIC has implemented restrictions on the acceptance of brokered
deposits. In general, an "undercapitalized" institution may not accept, renew or
roll over any brokered deposits. "Adequately capitalized" institutions may
request a waiver from the FDIC to do so, while "well- capitalized" institutions
may accept, renew or roll over brokered deposits without restriction. The rule
requires registration of deposit brokers and imposes certain record keeping
requirements. Institutions that are not "well-capitalized" , even those who meet
minimum capital requirements, must comply with regulatory limits on rates of
interest they may pay on brokered and other deposits. Citrus Bank does not have
any brokered deposits.
Assessments Required by Deposit Insurance Funds Act of 1996. In 1996,
Congress passed and the President signed into law the Deposit Insurance Funds
Act of 1996 ("DIFA"). Among other things, the DIFA, and rules promulgated
thereunder by the FDIC, provide for banks and thrifts to share the annual
interest expense for the Finance Corp. Bonds which were issued in the late 1980s
to help pay the costs of the savings and loan industry restructuring. The
approximate annual interest expense is $780 million of which BIF insured banks
are expected to pay approximately $322 million, or 41%, while SAIF insured
thrifts will pay approximately $458 million or 59% of the interest expense. It
is estimated that the annual assessment for BIF insured institutions will be
approximately 1.2 cents per $100 of deposits, while SAIF insured institutions
will pay 6.5 cents per $100 of deposits. These payments begin in 1997 and run
through 1999. Beginning in the year 2000 and continuing through the year 2017,
banks and thrifts will each pay $2.43 cents per $100 of deposits. These
assessments will be in addition to any regular deposit insurance assessments
imposed by the FDIC under FDICIA. See "Regulation And Supervision Insurance on
Deposit Accounts".
Elimination of Most Restrictions on Interstate Banking. Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Efficiency
Act"), restrictions on interstate acquisitions of banks by bank holding
companies were repealed on September 29, 1995, so that any out-of-state bank
holding company would be able to acquire and consolidate any Florida-based bank,
but must comply with certain deposit percentage and other restrictions on or
after the effective date of the Efficiency Act. The legislation also provided
that, unless an individual state elected beforehand either:
o to accelerate the effective date, or
o to prohibit out-of-state banks from operating interstate branches
within its territory.
Then or after June 1, 1997, adequately capitalized and managed bank
holding companies would be able to consolidate multiple interstate banks.
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 governed by applicable
state branching laws. Florida has adopted legislation which permits interstate
acquisitions and interstate branching effective June 1, 1997. Florida law
prohibits branching by out of state banks.
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Annual Assessment Charged to Citrus by the Comptroller of the Currency.
National banks are required to pay assessments to the Comptroller of the
Currency to fund the operations of the Comptroller of the Currency. The general
assessment, to be paid semiannually, is computed upon a bank's total assets,
including consolidated subsidiaries, as reported in the bank's latest quarterly
call report. Citrus Bank's assessment was $31,000 for 1998 and $28,000 for 1997.
Reserves Required by The Federal Reserve System
Federal Reserve regulations require banks to maintain
noninterest-earning reserves against their transaction accounts which are
primarily NOW and regular checking accounts. Federal Reserve regulations
generally require that reserves of 3% must be maintained against aggregate
transaction accounts of $46.5 million or less plus 10% against that portion of
total transaction accounts in excess of $46.5 million. The first $4.9 million of
otherwise reservable balances are exempted from the reserve requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve may be used to satisfy liquidity requirements imposed by the Comptroller
of the Currency. Because required reserves must be maintained in the form of
either vault cash, a noninterest-bearing account at a Federal Reserve Bank or a
pass-through account, interest-earning assets of Citrus Bank are reduced.
Application of the Federal Securities Laws to Citrus
Citrus, in connection with this offering, filed with the Securities and
Exchange Commission a registration statement under the Securities Act for the
registration of Citrus' common stock. The registration of the common stock
issued in this offering does not cover the resale of shares. Persons who are not
affiliates of Citrus may resell shares of the common stock without further
registration. Shares purchased by an affiliate of Citrus are governed by the
resale restrictions of Rule 144. If Citrus meets the current public information
requirements of Rule 144, affiliates of Citrus who comply with the conditions of
Rule 144, may, in any three-month period, sell in the public market a number of
shares not to exceed, the greater of:
o 1% of the outstanding shares of Citrus, or
o the average weekly volume of trading in Citrus shares during the
preceding four calendar weeks.
Provision may be made in the future by Citrus to permit affiliates to
have their shares registered for sale under the Securities Act.
The scope of regulation, supervision and permissible activities of
Citrus will be affected by future federal and state legislation.
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MANAGEMENT
Directors and Executive Officers of Citrus and Citrus Bank
The board of directors of Citrus consists of eight directors and the
board of directors of Citrus Bank consists of nine directors, some of whom serve
on both boards. Citrus expects to add up to six additional directors as a result
of the proposed expansion plans. The board of directors of Citrus is currently
divided into three classes, with the members of each class serving three-year
terms. Class One directors terms expire in 2000, Class Two in 2001 and Class
Three in 1999. The directors of Citrus Bank serve one-year terms. Citrus' and
Citrus Bank's executive officers are the same three persons. The Company
confirms that it has and will maintain at least two independent directors on its
board of directors. We do not carry key man insurance on any of our executive
officers nor do we expect to in the future.
The following sets forth information regarding the directors and
executive officers of Citrus and Citrus Bank.
Walter A. Alvarez, age 49, was recently hired by Citrus to become the
President and Chief Executive Officer of the proposed Dade County bank. Prior to
joining Citrus, Mr. Alvarez served as Senior Vice-President and Chief Financial
Officer of Gulf Coast Bank and Trust Company, a $240 million state bank located
in New Orleans, Louisiana. He joined Gulf Coast in 1990. Previously, Mr. Alvarez
served as Vice-President and Senior Loan Officer with Mississippi River Bank
from 1989 to 1990 and as Vice-President and Senior Loan Officer with Orleans
Bank and Trust from 1984 to 1989.
Robert L. Brackett, age 63, a Class Two director, has served as
Chairman of the Board of Citrus and Citrus Bank since May 1990 and as a director
since May 1989. Mr. Brackett has been the Treasurer and a director of Credit
Data Services, Inc., a credit reporting firm, since 1977.
Josh C. Cox, Jr., age 56, has been a Class Three director of Citrus and
a director of Citrus Bank since October 1993. He has served as President and
Chief Executive Officer of Citrus since July 1994. He currently serves as
Vice-Chairman and CEO of Citrus Bank. Mr. Cox began his banking career in
February 1962 with the Bank of Virginia (SIGNET) in Richmond, Virginia where he
worked until August 1968. At that time he joined Southern Bank & Trust Company,
also in Richmond, where he worked until April 1971, at which time he became
President and CEO of Williamsburg National Bank. Both Southern Bank and Trust
and Williamsburg National Bank were subsidiaries of Southern Bankshares, Inc. In
January 1972 Mr. Cox joined Irwin Bank and Trust in Columbus, Indiana where he
served as Sr. Vice President and Retail Division Administrator until March 1976.
From March 1976 to March 1993, Mr. Cox served as a bank consultant to various
troubled or under achieving banks or bank holding companies throughout the
Southeast and Midwest.
S. Hallock duPont, Jr., age 62, has served as a director of Citrus Bank
since February 1996 and as President of Europa Corp. since 1962.
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Hubert Graves, Jr., age 67, has been a Class One director of Citrus and
a director of Citrus Bank since May 1989. Mr. Graves has been engaged in the
citrus business for over 30 years. Since 1965, Mr. Graves has served as
President of Hubert Graves Citrus, Inc., a citrus production company; since
1977, he has served as President of HGX, Inc., a citrus growing company since
1980.
Roy H. Lambert, age 67, has been a Class Two director of Citrus since
April 1994. Mr. Lambert has served as Chairman of Regency Windsor Capital, Inc.,
a full-service real estate company since 1974.
Earl H. Masteller, age 59, has been a Class One director of Citrus and
a director of Citrus Bank since May 1989. Mr. Masteller has served as President
of Masteller & Moler Associates, Inc., a consulting civil engineering firm,
since 1985. In addition, Mr. Masteller has served as Vice President of
Masteller, Moler and Reed, Inc., a land surveying firm, since January 1987, and
as Secretary of Walsh Environmental Services, Inc., since 1996.
John A. Purdie, age 55, has been a director of Citrus Bank since August
1997. Mr. Purdie has served as President of Regency Windsor Capital, Inc., a
full-service real estate company, since 1984.
Randy J. Riley, age 48, currently serves as Senior Vice-President of
Citrus and President and Chief Operating Officer of Citrus Bank. Mr. Riley has
been with Citrus since 1989. From May 1987 until September 1989, Mr. Riley was
Senior Vice-President of Community National Bank in Mims, Florida. Mr. Riley was
Vice-President of M&I Western State Bank in Oshkosh, Wisconsin from October 1985
until February 1987.
Louis L. Schlitt, age 62, has been a Class Three director of Citrus
since May 1989. Mr. Schlitt has served as the President of Schlitt Insurance
Services, Inc. since 1983 and Louis Schlitt, Inc., a real estate investment
company, since 1984. From 1983 to 1989, he served as the President of Schlitt
Investor Services, Inc., a securities firm. Mr. Schlitt is a registered sales
representative for Schlitt Investors, Inc.
Walter E. Smith, Jr., age 57, has been a Class One director of Citrus
and a director of Citrus Bank since March 1990. Mr. Smith has served as the
owner and operator of Unocal 76 truck stops, located in Florida and Georgia,
since 1973 and director of Travel Centers of America, Inc., since 1996.
Henry O. Speight, age 50, currently serves as Executive Vice-President
and Chief Financial Officer of Citrus and Senior Vice-President and Cashier of
Citrus Bank. Mr. Speight has been with Citrus since 1989. Mr. Speight has also
served as Secretary of Citrus since May 1990. From September 1983 until
September 1989, Mr. Speight was Senior Vice President and Cashier of Community
National Bank in Mims, Florida.
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James R. Thompson, age 69, has been a Class Two director of Citrus and
a director of Citrus Bank since March 1990. Mr. Thompson has served as a
consulting engineer for Regency Windsor Capital, Inc., a full-service real
estate company, since 1988. From 1980 to 1988, he served as President of Regency
Acquisitions, Inc., a real estate acquisition company.
Jeffrey L. Velde, age 55, has been a director of Citrus Bank since
February 1996. Mr. Velde has served as the President of Velde Ford, a car
dealership, since March 1997.
Director Compensation
Citrus compensates its directors who do not also serve on Citrus Bank's
board $500.00 for Citrus board meetings attended. Citrus Bank compensates its
directors $500.00 for each board meeting attended. Citrus paid director fees of
$3,500 and $5,500 to its directors for the twelve month periods ended December
31, 1997 and December 31, 1998 and fees of $4,500 for the six months ended June
30, 1999. Citrus Bank paid director fees of $44,500, $45,500 and $21,500 for the
same periods.
Employment Contracts
On December 14, 1998, Citrus entered into an arrangement with Walter A.
Alvarez providing for a salary of $125,000 per year, beginning on January 1,
1999, and containing provisions regarding termination of his employment without
cause or termination in the event of a sale of Citrus or any Citrus subsidiary
of which Mr Alvarez is an employee. The arrangement provides for a cash payment
by Citrus to Mr. Alvarez of an amount equal to two times his base salary in
effect immediately prior to the sale. Mr. Alvarez will receive the same cash
payment if his employment with Citrus is terminated without cause anytime during
the five year period ended December 31, 2004. In addition to the cash payments,
any stock options granted to Mr. Alvarez which have not yet vested fully will
become immediately exercisable. In the event we do not sell more than the
minimum number of shares, Mr. Alvarez will continue to operate Citrus Bank's
Dade County loan production office.
Neither Citrus nor Citrus Bank has employment agreements with any other
of its named executive officers.
Non-Qualified Stock Options
Citrus does not have a qualified incentive stock option plan. Citrus
has granted non-qualified stock options to certain of its employees in
accordance with the following schedule (rounded to whole shares and adjusted for
stock splits):
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<TABLE>
<CAPTION>
Date of No. of Exercise No. of Expiration
Officers Grant Shares Price Shares Vested Date
-------- ----- ------ ----- ------------- ----
<S> <C> <C> <C> <C> <C>
Josh Cox, Jr. December 14, 1995 26,400 6.31 26,400 July 11, 2001
Randy J. Riley April 13, 1990 9,395 6.31 9,395 April 13, 2000
July 11, 1991 8,712 6.31 8,712 July 11, 2001
Henry O. Speight April 13, 1990 9,394 6.31 9,394 April 13, 2000
July 11, 1991 8,712 6.31 8,712 July 11, 2001
Walter A. Alvarez January 1, 1999 25,000 10.00 5,000 December 31, 2008
John M. Tench July 1, 1999 25,000 10.75 5,000 June 30, 2009
</TABLE>
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, 1998.
<TABLE>
<CAPTION>
Summary Compensation 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. 1998 $160,000 None $20,285 None None
President and Chief 1997 $160,000 None $18,852 None None
Executive Officer 1996 $160,000 None $17,853 26,400(3) None
</TABLE>
(1) Mr. Cox's annual base salary for the fiscal year 1999 is $160,000. This
base salary is considered to be compensation for Mr. Cox's service to
both Citrus and Citrus Bank.
(2) Other annual compensation includes $8,447 which is the value of the
cost to Citrus of the use of a bank owned automobile, director fees of
$6,000 and annual club dues of $5,162 and miscellaneous benefits of
$676.
(3) As adjusted for stock splits.
Employee Benefit Plans
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. Citrus Bank pays 95% of the costs of this insurance.
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Bonuses: Neither Citrus nor Citrus Bank has an established bonus policy for
employees; however, based upon Citrus' operating results for 1998 and 1997,
Citrus Bank's board of directors awarded $20,500 and $9,505, respectively, in
bonuses to employees of Citrus Bank during the years ended December 31, 1998 and
1997. The payment of any bonus is at the sole discretion of the board of
directors. No bonuses were paid during the first six months of 1999.
401(k) Plan: During 1990, Citrus Bank adopted a 401(k) Plan which covers
all of the employees of Citrus 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 15% of their annual base salary to the 401(k). Citrus
Bank may match up to 100% of all employee contributions which are equal to or
less than $10,000 of base salary. In addition, Citrus Bank may elect to make
additional contributions to the 401(k) based upon the Bank's annual profit.
Contributions made by Citrus 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. Citrus Bank
contributed approximately $11,000 for a 25% match to employee contributions in
1997 to the 401(k) for the fiscal year ended December 31, 1997. Citrus Bank
expensed approximately $11,000 in 1998 for its anticipated 401(k) contribution
for the year ended December 31, 1998. No contributions were made to the plan for
the first six months of 1999.
CERTAIN RELATIONS AND RELATED PARTY TRANSACTIONS
Indebtedness of Management
Citrus' directors and executive officers and their immediate family
members are also customers of Citrus Bank. It is anticipated that some or all of
these persons will continue to be customers of Citrus Bank in the future. All
transactions between Citrus Bank and Citrus' directors, executive officers and
their immediate family members, and any principal shareholders, including those
listed below with respect to insurance services, were made, and all future
transactions will be made, in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with non-affiliated persons. In addition,
these transactions have been and will be approved or ratified by a majority of
Citrus Bank's independent directors who do not have an interest in the
transactions and who have access, at Citrus Bank's expense, to Citrus Bank's or
independent counsel. These transactions, in the opinion of management, did not
and will not involve more than the normal risk of collectibility or present
other unfavorable features. As of June 30, 1999, loans to directors, executive
officers and their immediate family members represented approximately $3.8
million, or 3.5%, of total loans held for investment.
Schlitt Insurance Services, Inc. serves as one of the insurance agents
for Citrus. Citrus purchases all general commercial insurance policies, as well
as employee benefit insurance policies since December 1, 1997, through Schlitt
Insurance Services. Citrus paid Schlitt Insurance Services premiums amounting to
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approximately $51,000 during the 1997 fiscal year and approximately $142,000
during 1998. Louis L. Schlitt, a director of Citrus, is the Chief Executive
Officer of Schlitt Insurance Services.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table indicates certain information regarding the current
beneficial ownership of common stock by each of Citrus' directors and executive
officers, and all of the directors and executive officers as a group. As
required by Rule 13d-3, under the Securities Act of 1933, the number and
percentage of shares held by each person reflects the number of shares that
person currently owns plus the number of shares that person has the right to
acquire within the next 60 days as provided in currently outstanding options or
warrants. Citrus anticipates that Citrus' executive officers, directors and
proposed Highlands County directors will purchase 175,000 shares in the
offering, but there has been no formal commitment to purchase any shares as of
the date of this prospectus. Ultimate purchases by these persons may be more or
less than indicated depending upon individual circumstances.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Number of Right to % of % if % if
Shares Owned Acquire Beneficial Minimum Maximum
Name (1) (2) Ownership Sold Sold
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Walter A. Alvarez 0 5,000 0.5 0.3 0.2
Robert L. Brackett 87,372 23,907 11.4 5.6 5.1
Josh C. Cox, Jr. 158 26,400 2.7 1.3 1.2
S. Hallock duPont, Jr. 83,063 29,288 11.4 5.7 5.1
Hubert Graves, Jr. 91,080 58,577 14.8 7.4 6.8
Roy H. Lambert (3) 123,922 95,978 21.0 10.7 9.8
Earl H. Masteller 25,530 19,532 4.6 2.3 2.1
John A. Purdie 31,680 22,229 5.5 2.7 2.5
Randy Riley 585 18,406 2.0 1.0 0.9
Louis L. Schlitt 14,252 57,876 7.1 3.6 3.3
Walter E. Smith, Jr. 65,434 55,797 12.0 6.0 5.5
Henry O. Speight 427 18,405 1.9 1.0 0.9
James R. Thompson (4) 125,348 97,089 21.2 10.9 9.9
Jeffrey L. Velde 1,320 None 0.1 0.1 0.1
- -----------------------------------------------------------------------------------------------------------------------------
All Directors and
Executive Officers as a 526,407 437,506 69.4% 49.4% 37.2%
Group (14 persons) (5)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares for which the named person:
o has sole voting and investment power
o has shared voting and investment power with a spouse, or
o holds in an IRA or other retirement plan program, unless otherwise
indicated in these footnotes. Does not include shares that may be
acquired: o by exercising stock options, or o under stock purchase
warrants.
[Footnotes continued on next page]
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(2) Includes shares that may be acquired within the next 60 days:
o by exercising vested stock options, or
o under presently exercisable stock purchase warrants granted in
connection with Citrus' initial stock offering.
(3) Includes 123,764 shares owned by the Revocable Trust of Roy H. Lambert
of which Mr. Lambert is the beneficiary, and 158 shares owned by Mr.
Lambert individually.
(4) Includes 123,764 shares owned by the Revocable Trust of Roy H. Lambert,
of which Mr. Thompson is the sole Trustee and for which Mr. Thompson
disclaims beneficial ownership. Includes 1,584 shares owned jointly by
Mr. Thompson and his wife. Includes 1,111 shares which Mr. Thompson may
acquire under presently exercisable stock purchase warrants granted in
connection with Citrus' initial offering.
(5) Table computed on 526,407 shares actually owned, plus 364,893 shares
which may be acquired under presently exercisable stock purchase
warrants granted in connection with Citrus' initial stock offering, and
72,613 shares which may be acquired under presently exercisable stock
options.
PRINCIPAL HOLDERS OF VOTING SECURITIES
As of June 30, 1999, no persons or apparent group of persons, other
than officers and directors of Citrus, are known by management to own
beneficially five percent or more of the outstanding shares of Citrus' common
stock. After this offering, we anticipate that he will continue to have a
significant influence on the election of members of the board of directors and
other shareholder matters. Mr. Lambert, through the Revocable Trust of Roy H.
Lambert, beneficially owns the single largest voting block of Citrus' common
stock. Mr. Lambert has received regulatory approval to own up to 100% of Citrus'
common stock.
DESCRIPTION OF CAPITAL STOCK
Citrus has authorized 11,000,000 shares of authorized capital stock,
consisting of 10,000,000 shares of common stock, par value $3.15 per share, and
1,000,000 shares of preferred stock, par value of $5.00 per share. As of June
30, 1999, 952,296 shares of common stock were issued and outstanding and 537,385
shares could have been issued under outstanding options and warrants. No shares
of preferred stock were issued. Citrus will not, in the future, issue preferred
stock to insiders on terms more favorable than to others.
Common Stock
Each share of Citrus common stock has the same relative rights and is
identical in all respects with every other share of common stock. The holders of
common stock are entitled to elect the members of the board of directors of
Citrus and the holders are entitled to vote as a class on all matters required
or permitted to be submitted to the shareholders of Citrus. No holder of any
class of stock of Citrus has preemptive rights with respect to the issuance of
shares of that or any other class of stock and the common stock is not entitled
to cumulative voting rights with respect to the election of directors.
The holders of common stock are entitled to dividends and other
distributions if, as, and when declared by the board of directors out of assets
legally available therefor. Upon the liquidation, dissolution or winding up of
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Citrus, the holder of each share of common stock is entitled to share equally in
the distribution of Citrus' assets. The holders of common stock are not entitled
to the benefit of any sinking fund provision. The shares of common stock are not
limited by any redemption provisions, nor are they convertible into any other
security or property of Citrus. All shares of common stock outstanding are fully
paid and non-assessable.
Preferred Stock
Citrus is authorized to issue 1,000,000 shares of preferred stock. The
board of directors may issue the preferred stock in series and fix the
particular designation of and the rights, preferences, privileges and
restrictions granted to and imposed upon each series, all without approval of
the shareholders. In certain cases, the rights and preferences of preferred
stock issued by Citrus could adversely affect the voting power of the holder of
common stock. Citrus has no plans at this time to issue any of the preferred
stock authorized and will not issue preferred stock to insiders on terms more
favorable than to others.
Outstanding Warrants
Each organizer, founder, and proposed director who purchased stock
during Citrus' initial offering period received warrants which were exercisable
one year following commencement of operations by Citrus Bank. These warrants
entitle the holder to purchase additional shares of common stock at the initial
offering price. The number of warrants issued were equal to 50% of the total
number of shares outstanding upon the completion of the initial offering. There
are 469,772 warrants outstanding as of the date of this prospectus.
SUMMARY OF ARTICLES OF INCORPORATION OF CITRUS
The following is a summary of the material provisions of the articles
of incorporation of Citrus. Interested persons may obtain the full text of the
articles of incorporation without charge. In order to obtain a copy of the
articles of incorporation interested persons should contact, Henry O.
Speight, Senior Vice President at (561) 778-4100.
The power to issue additional shares of common stock rests with the
board of directors of Citrus, which may help delay or deter a change in control
by increasing the number of shares needed to gain control. The following
provisions of Citrus' articles of incorporation may also have the effect of
preventing, discouraging or delaying any change in control of Citrus.
Staggered Terms for Directors
Citrus' articles of incorporation provide that directors shall be
elected to three-year terms with terms divided into three classes. The number of
directors in each class shall be as nearly equal as possible. Only one class of
directors is elected by the shareholders each year at Citrus' annual meeting.
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Requirements for Super Majority Approval of Transactions
The articles of incorporation of Citrus contain provisions requiring
super majority shareholder approval to effect certain extraordinary corporate
transactions which are not approved by the board of directors. The articles of
incorporation require the affirmative vote or consent of the holders of at least
two-thirds of the shares of each class of common stock entitled to vote in
elections of directors to approve any merger, consolidation, disposition of all
or a substantial part of the assets of Citrus or a subsidiary of Citrus,
exchange of securities requiring shareholder approval or liquidation of Citrus,
if any person who together with his affiliates and associates owns beneficially
5% or more of any voting stock of Citrus is a party to the transaction; provided
that three quarters of the disinterested directors of Citrus have not approved
the transaction.
In addition, the articles of incorporation require the separate
approval by the holders of a majority of the shares of each class of stock
entitled to vote in elections of directors which are not beneficially owned,
directly or indirectly, by an interested shareholder, of any merger,
consolidation, disposition of all or a substantial part of the assets of Citrus
or a subsidiary of Citrus, or exchange of securities requiring shareholder
approval, if an interested shareholder is a party to a business combination
transaction; provided, that shareholder approval is not required if:
o the consideration to be received by the holders of Citrus stock
meets certain minimal levels determined by a formula contained in
Citrus' articles. Generally the consideration must equal the highest
price paid by the Interested Shareholder for any shares acquired;
o there has been no reduction in the average dividend rate from that
which was obtained prior to the time the Interested Shareholder
became a shareholder; and
o the consideration to be received by the shareholders who are not
interested shareholders shall be paid in cash or in the same form as
the interested shareholder previously paid for shares of each class
of stock.
This article, as well as the article establishing a classified board of
directors, may be amended, altered, or repealed only by the affirmative vote or
consent of the holders of at least 75% of the shares of each class of stock
entitled to vote in elections of directors.
Acquisition Offers
The board of directors, when evaluating any offer of another person to:
o make a tender or exchange offer for any equity security of Citrus;
o merge or consolidate Citrus with another corporation or entity; or
o purchase or otherwise acquire all or substantially all of the
properties and assets of Citrus,
shall, in connection with the exercise of its business judgment in determining
what is in the best interest of Citrus, give due consideration to all relevant
factors, including, without limitation:
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o the consideration being offered;
o the social and economic effect of acceptance of the offer on Citrus'
present and future customers and employees and those of its
subsidiaries, as well as on the communities in which Citrus and its
subsidiaries operate or are located;
o the ability of Citrus to fulfill its corporate objectives as a
financial institution holding company;
o the desirability of maintaining independence from any other business
entity;
o the long term prospects and interests of the corporation and its
shareholders; and
o the other effects on the corporation's employees, suppliers, or
customers.
The consideration of these factors may result in board of director
action which may not be in the best financial interests of Citrus' shareholders.
Control Share Acquisitions
Our articles of incorporation do not exempt us from the Florida
Statutes governing control- share acquisitions. Generally, under the statute, a
person intending to acquire 20% or more of our shares must give us notice of
their intent and request approval of the acquisition by the board of directors.
If the board of directors fails to approve the acquisition then the persons may
request a meeting of the shareholders at which shareholders will have an
opportunity to vote on whether the shares to be acquired shall have full voting
rights. Refusal by the shareholders to accord full voting rights would result in
the proposed acquiror obtaining shares which could not be voted on any matters
to come before the shareholders. Certain acquisitions are exempt from the
effects of the statute, including mergers, business combinations or other
acquisitions which have been approved by the board of directors, as well as
acquisitions of shares issued by Citrus in its original offering or in
subsequent offerings approved by the Board.
The effect of all of the above provisions is to make it more difficult
for a person, entity or group to effect a change in control of Citrus through
the acquisition of a large block of Citrus' voting stock.
Indemnification of Directors, Officers and Employees Against Liability
The FBC Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding, other than an action by, or in the right
of, the corporation, by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with any
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
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not be made if the person seeking indemnification is adjudged liable, unless the
court in which the action was brought determines that the person is fairly and
reasonably entitled to indemnification.
The indemnification provisions of the FBC Act require indemnification
if a director or officer has been successful on the merits or otherwise in
defense of any action, suit or proceeding to which he or she was a party by
reason of the fact that he or she is or was a director or officer of the
corporation. The indemnification authorized under Florida law is not exclusive
and is in addition to any other rights granted to officers and directors under
the articles of incorporation or bylaws of the corporation or any agreement
between officers and directors and the corporation. A corporation may purchase
and maintain insurance or furnish similar protection on behalf of any officer or
director against any liability asserted against the director or officer and
incurred by the director or officer in his or her capacity, or arising out of
the status, as an officer or director, whether or not the corporation would have
the power to indemnify him or her against the liability under the FBC Act.
Citrus' bylaws provide for the indemnification of directors and
executive officers to the maximum extent permitted by Florida law as authorized
by the board of directors and for the advancement of expenses incurred in
connection with the defense of any action, suit or proceeding that the director
or executive officer was a party to by reason of the fact that he or she is or
was a director of Citrus upon the receipt of an agreement to repay funds
advanced, unless it is ultimately determined that the director is not entitled
to indemnification.
SALES AGENT RETAINED FOR THIS OFFERING
Citrus has entered into a Sales Agency Agreement with Banc Stock
Financial Services, Inc. Banc Stock Financial has agreed to offer and sell to
the public as Citrus' agent a minimum of 560,000 shares of common stock on a
"best efforts, all or none" basis, and an additional 640,000 shares of common
stock on a "best efforts" basis. Banc Stock Financial is required to use its
best efforts through the expiration date to sell the shares. Banc Stock
Financial and Citrus have agreed that Citrus will not pay a commission to Banc
Stock Financial with respect to shares purchased by current directors or
shareholders who purchase their prorata portion (expected to aggregate 100,000
shares). Citrus has agreed to pay Banc Stock Financial a commission equal to
2.5% of the aggregate price of shares purchased by certain persons introduced to
Banc Stock Financial by Citrus including proposed directors of the Highlands
County and Dade County banks. Banc Stock Financial's commission is 7% on all
other shares it sells in the offering. Banc Stock Financial may select other
dealers who are members of the National Association of Securities Dealers, Inc.
to sell shares and who will receive a selling concession for shares sold in the
offering. Banc Stock Financial focuses on working with community-based financial
institutions. In the past two years, Banc Stock Financial has participated as a
selected dealer in five public offerings and as a sales agent in six public
offerings during this time. Banc Stock Financial does not intend to sell shares
to any discretionary account in the offering.
Citrus has agreed to reimburse Banc Stock Financial for its reasonable
out-of-pocket expenses incurred in connection with the engagement including (a)
the filing and legal fees associated with securing the review of the NASD of the
terms of the offering; and (b) reasonable out-of-pocket expenses incurred in
connection with Banc Stock Financial's engagement, including legal fees,
advertising, promotion, syndication and travel expenses. Unless approved in
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writing by Citrus, legal fees and disbursements related solely to the
underwriting process may not exceed $30,000 and Banc Stock Financial's
out-of-pocket expenses may not exceed $40,000. Legal work for blue sky and NASD
filings may not exceed $35,000.
Banc Stock Financial has the right to terminate the Sales Agency
Agreement under certain circumstances, for example, if conditions exist in the
over-the-counter market which cause Banc Stock Financial to believe that no
favorable public market exists for the sale of the shares. If terminated by Banc
Stock Financial, certain of Citrus' officers and directors may make offers and
sales of shares on behalf of Citrus or Citrus may engage one or more other
broker/dealers to make sales on its behalf. Citrus does not, however, currently
have any other arrangements for the sale of its shares in place. Banc Stock
Financial or Citrus will promptly transmit all subscription funds received to
the escrow agent until the minimum number of shares have been sold.
The Sales Agency Agreement provides for reciprocal indemnification
between Citrus and Banc Stock Financial against liabilities under the Securities
Act of 1933. Insofar as the Sales Agency Agreement permits indemnification for
liabilities arising under the Securities Act, Citrus has been advised that in
the opinion of the Securities and Exchange Commission, indemnification is
against public policy as expressed by the Securities Act and is, therefore,
unenforceable.
Prior to the date of this prospectus, there has been no public market
for the shares. The offering price of the shares was established by Citrus,
after discussions with Banc Stock Financial, based upon its assessment of the
capital needs and the commercial potential of Citrus. Citrus has had discussions
with Banc Stock Financial regarding the establishment and maintenance of a
market for the shares after the offering. Following the offering we expect the
common stock to be traded on the OTC Bulletin Board under the trading symbol
"CFHC". Banc Stock Financial has advised Citrus that upon completion of the
offering it intends to act as a "market maker" in the common stock. The
development of a public trading market depends, however, on the existence of
willing buyers and sellers, the presence of which is not within the control of
Citrus, Banc Stock Financial, or any market maker. In general, if a secondary
market develops, the shares can be transferred or assigned without restriction
and nonaffiliate shareholders may sell any number of shares in the secondary
market. In addition, factors including the degree to which the secondary market
is active, will determine the willingness of the market makers to continue to
maintain the secondary market. Citrus and its officers and directors have agreed
with Banc Stock Financial not to sell any shares for a period of two years after
the date of this prospectus without the prior written consent of Banc Stock
Financial. For purposes of state registration, Citrus and the officers and
directors have agreed not to sell approximately 30% of their existing common
stock, or common stock they may acquire under warrants or options, for a period
of two years after the date of the completion of the offering.
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THE OFFERING
Purchase Limitations
The minimum number of shares of common stock any person may purchase in
the offering is 100 shares. Except for Roy H. Lambert, who already owns in
excess of 9.9% of Citrus' common stock, no person may purchase, individually or
together with persons acting in concert, shares of common stock which, when
aggregated would exceed 193,000 shares or 9.9% of the total number of shares
outstanding at the conclusion of the offering, unless the person or persons has
received prior regulatory approval.
Under Federal Reserve Board regulations a rebuttable presumption of
concerted action will occur, but is not limited to these situations:
(1) a person is presumed to be acting in concert with the
members of the person's immediate family. Federal Reserve
Board regulations define immediate family as a person's
spouse, father, mother, step-parent, children,
step-children, brothers, stepbrothers, sisters, step-sisters
and grandchildren; the father, mother, brother and sisters
of the person's spouse; and the spouse of the foregoing);
(2) in addition, the following persons are presumed to be acting
in concert:
o a company and any controlling shareholder, partner, trustee, or
management official of Citrus, if both Citrus and the person own
voting securities of the state member bank or bank holding company;
o companies under common control;
o persons that are parties to any agreement, contract, understanding,
relationship, or other arrangement, whether written or otherwise,
regarding the acquisition, voting, or transfer of control of voting
securities of a state member bank or bank holding company, other
than through a revocable proxy as described in ss.225.42(a)(5);
o persons that have made, or propose to make, a joint filing under
sections 13 or 14 of the Securities Exchange Act of 1934 (15 U.S.C.
78m or 78n), and the rules promulgated thereunder by the Securities
and Exchange Commission; and
o a person and any trust for which the person serves as trustee.
79
<PAGE>
Procedures for Subscribing for Common Stock
Persons participating in the offering must deliver to the escrow agent
a properly completed and executed order form, together with payment of the
aggregate subscription price for the shares of common stock subscribed for.
Payment must be by check or money order payable to:
"IBBF as Escrow Agent for Citrus"
Payment may also be made by wire transfer of funds to the escrow agent.
Payment must be made sufficiently in advance of the expiration of the offering
period to ensure that payment is received and clears by the expiration date. The
order form and payment of the subscription price should be delivered as:
Independent Bankers' Bank of Florida
Attention: Customer Service Department
615 Crescent Executive Court, Suite 400
Lake Mary, FL 32746-2109
Subscribers may not revoke subscriptions for the common stock which are
received and accepted by Citrus.
Intention of Directors and Executive Officers
None of Citrus' directors or officers, existing or proposed, has
entered into any agreement or arrangement that obligates them to purchase any
shares of common stock. However, the directors and executive officers of Citrus
as a group (20 persons) have indicated to Citrus that they intend to subscribe
for, in the aggregate, 125,000 shares of common stock in the offering. Our
executive officers and directors, existing or proposed, or affiliates of Banc
Stock Financial, may purchase up to 100% of the shares in the offering if
necessary to help Citrus achieve the minimum subscription level necessary to
release subscription proceeds from escrow. Individuals who purchase shares in
excess of their original indications are purchasing them for investment and not
with a view to the resale of the shares. Because purchases by these persons may
be substantial, investors should not place any reliance on the sales of a
specified minimum offering amount as an indication of the merits of this
offering.
Expiration Date of the Offering
The offering will expire at 5:00 p.m., local time, on April 30, 2000,
unless the offering is terminated beforehand at the sole discretion of the board
of directors.
80
<PAGE>
Conditions to Consummation of the Offering
Citrus will not consummate the offering and the escrow agent will
promptly return all subscription funds with interest if the minimum offering is
not sold by the expiration of the offering period.
Citrus' Right and Flexibility
for Allocation Preference if the Offering is Oversubscribed
If the offering is oversubscribed, Citrus may, but will not be
required, to allocate shares among subscribers. Citrus will then give a
preference to existing shareholders to the extent of one share in the offering
for each share the subscribing shareholder currently owns. Finally, Citrus may
give a preference to non-shareholders to purchase shares on a prorata basis,
however, Citrus may take into account any other factors it considers relevant.
These factors would include the order in which subscriptions are received, a
subscriber's potential to do business with, or to direct customers to, Citrus
and Citrus' desire to have a broad distribution of stock ownership.
Issuance of Common Stock
Provided that the conditions necessary to consummate the offering are
satisfied, Citrus will cause stock certificates to be delivered to purchasers as
soon as practical after the expiration date of the minimum offering.
Transfer Agent and Registrar
Prior to the offering, Citrus served as its own transfer agent for the
common stock. Citrus has retained Continental Stock Transfer and Trust Company,
2 Broadway, 19th Floor, New York, New York, 10004 to handle stock transfers,
stock record keeping, and mailing of all proxy materials.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Citrus will have 1,512,296 shares of
common stock outstanding assuming the sale of the minimum offering and 2,152,296
assuming the sale of the maximum offering. Citrus shareholders may trade their
shares without restriction or further registration under the Securities Act,
except for shares held or purchased by "affiliates" of Citrus. Affiliates are
defined in Rule 144 to mean a person who directly or indirectly through the use
of one or more intermediaries controls, is controlled by, or is under common
control with Citrus.
Citrus' executive officers and directors, certain directors of Citrus
Bank, and the proposed directors of the Highlands County bank, holding in the
aggregate, 526,407 shares of common stock or 1,088,913 shares assuming full
exercise of their warrants, options and intended purchases in this offering have
agreed to restrict the sale of their shares as described herein. After this
81
<PAGE>
restricted period, these individuals may sell their shares in the public market,
as long as they comply with the volume and other limitations on sale imposed by
Rule 144. These same persons may also sell their shares without complying with
Rule 144 restrictions if the shares are registered under the Securities Act or
are sold under an exemption from the registration requirements.
In general, under Rule 144, a person or affiliates whose shares are
aggregated, would be entitled to sell within any three month period that number
of shares which does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding or
19,523 shares based on the minimum offering and 21,523 shares based
on the maximum offering; or
o the average weekly trading volume of the common stock during the
four calendar weeks preceding such sale.
Sales in reliance on Rule 144 must also comply with certain manner of
sale provisions, notice requirements and the availability of current public
information about Citrus. A person or persons whose shares are aggregated who is
not deemed to have been an affiliate of Citrus at any time during the 90 days
preceding a sale would be entitled to sell their shares under Rule 144(k)
without regard to the requirements described above.
LEGAL MATTERS PERTAINING TO THE OFFERING
Certain legal matters, including, among other things, the validity of
the shares of common stock have been passed upon by Igler & Dougherty, P.A.,
Tallahassee, Florida, counsel to Citrus. In addition, Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia will pass upon certain legal matters in
connection with the offering for Banc Stock.
CERTAIN EXPERTS RETAINED BY CITRUS
The consolidated financial statements of Citrus set forth herein as of
December 31, 1997 and 1996, and for each of the years in the two-year period
ended December 31, 1997, have been included herein and in the registration
statement in reliance upon the report of Stevens, Sparks & Company, P.A.
(formerly Stevens, Thomas, Schemer & Sparks, P.A.) appearing elsewhere herein,
and upon the authority of this firm as experts in accounting and auditing.
AVAILABLE INFORMATION ABOUT CITRUS
Citrus is required to comply with the informational requirements of the
Securities Exchange Act of 1934. We file financial reports, proxy statements and
other information electronically with the Securities and Exchange Commission
through the EDGAR system. Interested persons may inspect and copy our financial
reports, proxy statements and other information at the public reference
facilities maintained by the Securities and Exchange Commission at:
82
<PAGE>
o 450 Fifth Street, N.W., Washington, D.C. , and
o 3475 Lenox Road, NE, Suite 1000, Atlanta, GA, or
o Securities and Exchange Commission's Web Site at www.sec.gov
Information on the operation of the public reference facilities may be
obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330.
We have filed electronically with the Securities and Exchange
Commission through EDGAR a registration statement on Form SB-2 in accordance
with the requirements of the Securities Act of 1933. This prospectus does not
contain all of the information set forth in the registration statement and in
the exhibits attached thereto. Certain items were omitted in accordance with the
rules and regulations of the Securities and Exchange Commission. Anyone may
inspect the registration statement without charge at the above locations.
Statements contained in this prospectus which refer to a document filed as an
exhibit to the registration statement are qualified in their entirety by
reference to the copy of the document filed with the Securities and Exchange
Commission. Additional information about Citrus Bank can be found on our
internet website located at www.citrusbank.com.
We have filed various applications with the Office of the Comptroller of
the Currency, the Federal Reserve Bank of Atlanta and the FDIC. You should only
rely on information in this prospectus and in our related registration statement
in making an investment decision. If other available information is inconsistent
with information in this prospectus, including information in public files or
provided by the Comptroller of the Currency, the Federal Reserve Bank and the
FDIC, such other information is superseded by the information in this
prospectus. Projections appearing in the applications to such agencies were
based on assumptions that the organizers believed were reasonable at the time,
but which may have changed or which may otherwise be wrong. Citrus Financial
specifically disclaims all projections for purposes of this prospectus and
cautions prospective investors against placing reliance on them for purposes of
making an investment decision.
83
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
For the periods June 30, 1999 (unaudited) and June 30, 1998
PAGE
NUMBER
------
Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998 F - 1
Consolidated Statements of Operations and Comprehensive Income
For the Three Months and the Six Months Ended June 30, 1999
and 1998 (Unaudited) F - 2
Consolidated Condensed Statements of Cash Flows for the Three
Months and the Six Months Ended June 30, 1999 and 1998 (Unaudited) F - 3
Consolidated Statement of Changes in
Stockholders' Equity (Unaudited) F - 4
Notes to Consolidated Financial Statements (Unaudited) F - 5 - F - 8
84
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999
(Unaudited) December 31, 1998
----------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,165 $ 3,940
Federal funds sold 4,400 9,200
------- -------
Total cash and cash equivalents 7,565 13,140
Interest-bearing deposits in other banks 1 9
Securities available-for-sale at fair value 5,754 4,675
Securities held-to-maturity (market value of
$1,099 for 1999 and $1,273 for 1998) 1,163 1,307
Loans held for investment less allowance for credit losses 58,294 52,548
Loans held for sale 3,686 8,291
Facilities 2,894 2,884
Other real estate owned - 390
Deferred income taxes 369 233
Accrued interest receivable 449 343
Other assets 1,017 231
-------- --------
TOTAL $ 81,192 $ 84,051
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 11,517 $ 13,393
NOW accounts 3,825 4,121
Money market accounts 2,843 3,026
Savings accounts 9,674 8,423
Time, $100,000 and over 8,607 10,377
Other time deposits 31,781 37,363
------ ------
Total deposits 68,247 76,703
------ ------
Other borrowings 6,042 217
Accrued interest payable on deposits 177 297
Accounts payable and accrued liabilities 53 387
-------- --------
Total liabilities 74,519 77,604
------ ------
Commitments and contingencies - -
----------- -----------
Stockholders' equity:
Preferred stock - -
Common stock 3,007 3,007
Additional paid-in capital 3,149 3,149
Retained earnings 569 324
Accumulated other comprehensive income:
Net unrealized holding losses on securities (52) (33)
--------- ---------
Total stockholders' equity 6,673 6,447
------- -------
TOTAL $ 81,192 $ 84,051
====== ======
Book value per common share $ 7.01 $ 6.77
======== ========
Common shares outstanding 952,296 952,296
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended June 30, For the Six Months Ended June 30,
-----------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Interest and fees on loans held for investment $ 1,307 $ 1,214 $ 2,518 $ 2,426
Interest and fees on loans held for sale 147 239 324 346
Investment and dividend income on investment securities
and interest-bearing deposits in other banks 83 107 161 232
Federal funds sold 49 14 151 53
-------- -------- ------- --------
Total interest income 1,586 1,574 3,154 3,057
------ ------ ------ ------
Interest on deposits 645 661 1,361 1,286
Other 17 24 20 30
-------- -------- -------- --------
Total interest expense 662 685 1,381 1,316
------- ------- ------ ------
Net interest income before provision
for credit losses 924 889 1,773 1,741
Provision for credit losses (2) 47 20 (49)
-------- -------- -------- -------
Net interest income after provision
for credit losses 926 842 1,753 1,790
------- ------- ------ ------
Fees and service charges 113 94 220 187
Other income 10 15 17 22
-------- -------- -------- --------
Total other income 123 109 237 209
------- ------- ------- -------
Other expenses:
Salaries and employee benefits 445 370 833 711
Expenses of bank premises and fixed assets 162 127 303 255
Other operating expenses 245 245 461 481
------- ------- ------- -------
Total other expenses 852 742 1,597 1,447
------- ------- ------ ------
Income before provision for income taxes 197 209 393 552
Provision for income taxes 74 78 148 207
-------- -------- ------- -------
Net income 123 131 245 345
Other comprehensive income, net of income taxes:
Unrealized holding gains (losses)
arising during period (19) 12 (17) 34
Less: reclassification adjustments
for gains included in
net income for the period (2) (3) (2) (3)
-------- -------- --------- --------
Total other comprehensive income,
net of income taxes (21) 9 (19) 31
------- --------- -------- --------
Comprehensive income $ 102 $ 140 $ 226 $ 376
====== ======= ======= =======
Earnings Per Share Information
Primary $ 0.13 $ 0.14 $ 0.26 $ 0.36
==== ==== ==== ====
Fully diluted $ 0.10 0.11 $ 0.21 $ 0.30
==== ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net income $ 123 $ 131 $ 245 $ 345
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for credit losses (2) 22 20 (49)
Depreciation and amortization 89 21 168 83
Net premium amortization and
discount accretion 5 - 10 -
(Increase) decrease in other assets (154) 27 (525) (92)
Increase (decrease) in other liabilities (403) 107 (374) 246
Origination of loans held for sale (31,831) (53,112) (62,389) (78,806)
Proceeds on sale of loans held for sale 33,579 45,626 66,994 66,220
------ ------ ------ -------
Net cash provided (used) by
operating activities 1,406 (7,178) 4,149 (12,053)
------- ------- ------- -------
Cash flows from investing activities:
Net (increase) decrease in:
Investment securities (1,181) 614 (976) 1,178
Interest-bearing deposits in other banks 22 - 8 56
Loans (3,111) 361 (5,867) 466
Purchases of bank premises and equipment, net (67) (84) (178) (167)
--------- -------- -------- --------
Net cash provided (used) by
investing activities (4,337) 891 (7,013) 1,533
------- -------- ------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (3,756) 4,637 (8,456) 8,038
Proceeds from other borrowings,
net of repayments 5,758 3,469 5,745 3,439
------- ------- ------- --------
Net cash provided (used) by
financing activities 2,002 8,106 (2,711) 11,477
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents (929) 1,819 (5,575) 957
Cash and cash equivalents at beginning of period 8,494 5,380 13,140 6,242
------- ------- ------ --------
Cash and cash equivalents at end of period $ 7,565 $ 7,199 $ 7,565 $ 7,199
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Net
Unrealized
Holding
Additional Gains Total
Common Stock Paid-in Retained (Losses)on Stockholders'
Shares Amount Capital Earnings Securities Equity
------ ------ ------- -------- ---------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 952,296 $ 3,007 $ 3,149 $ 324 $ (33) $ 6,447
Comprehensive income:
Net income - - - 245 - -
Net change in unrealized holding
gains (losses) on securities
less reclassification for realized
gains - - - - (19) 226
------------- ----------- ----------- ---------- ------- ---------
Balance, June 30, 1999 952,296 $ 3,007 $ 3,149 $ 569 $ (52) $ 6,673
======= ======= ======= ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Citrus Financial
Services, Inc. ("Citrus") and its wholly owned subsidiary Citrus Bank, N.A.
("Citrus Bank"). The consolidated financial statements for the three and six
months ended June 30, 1999 and 1998, have not been audited and do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of management, the
accompanying consolidated financial statements contain all adjustments, which
are of a normal recurring nature, necessary for a fair presentation. The results
of operations for the interim periods are not necessarily indicative of the
results which may be expected for an entire year. The accounting policies
followed by Citrus are set forth in Note 1 to Citrus' consolidated financial
statements contained in the 1998 Annual Report to Stockholders and are
incorporated herein by reference.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review Citrus
Bank's allowances for losses on loans and foreclosed real estate. Such agencies
may require Citrus Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Management does not anticipate that the allowances for credit losses on loans
and foreclosed real estate will change materially in the near term.
Fair Value of Financial Instruments
Financial instruments of Citrus consist of cash, due from banks, federal funds
sold, investment securities, loans receivable, accrued interest receivable,
deposits, federal funds purchased, other borrowings, accrued interest payable,
and off-balance sheet commitments such as commitments to extend credit and
standby letters of credit. On an interim basis, management considers the cost of
providing estimated fair values by each class of financial instrument to exceed
the benefits derived. In management's opinion, the carrying amount of financial
instruments approximates fair value.
F-5
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 2 - COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share amounts are computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are computed by dividing net earnings by the weighted average
number of shares and all dilutive potential shares outstanding during the
period. The following information was used in the computation of earnings per
share on both a basic and diluted basis for the three and six months ended June
30, 1999 and 1998 (in thousands except per share data):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------------- -------- -------
<S> <C> <C> <C> <C>
Basic EPS computation:
Numerator - Net income $ 123 $ 131 $ 245 $ 345
Denominator - Weighted average shares outstanding 952 952 952 952
------- ------- ------- -------
Basic EPS $ 0.13 $ 0.14 $ 0.26 $ 0.36
====== ====== ====== ======
Diluted EPS computation:
Numerator - Net income $ 123 $ 131 $ 245 $ 345
------ ------ ------ ------
Denominator - Weighted average shares outstanding 952 952 952 952
Stock options and warrants 227 196 227 196
------- ------- ------- -------
1,179 1,148 1,179 1,148
------ ------ ------ ------
Diluted EPS $ 0.10 $ 0.11 $ 0.21 $ 0.30
====== ====== ====== ======
NOTE 3 - LOANS HELD FOR INVESTMENT
Loans consisted of (dollars in thousands):
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Real estate $41,282 $35,914
Commercial and agriculture 12,985 12,868
Installment and other loans 4,415 4,347
-------- --------
Total loans, gross 58,682 53,129
Unearned income and deferred fees ( 8) (120)
Allowance for credit losses (380) (461)
--------- ---------
Net loans $58,294 $52,548
======= =======
</TABLE>
F-6
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 4 - LOANS HELD FOR SALE
Loans held for sale include residential real estate loans held for sale to FNMA
and outstanding loans originated by third-party brokers, assigned to Citrus
Bank, and held by Citrus Bank pending transfer to investors with take-out
commitments. At June 30, 1999, and December 31, 1998, such loans totaled
$3,686,000 and $8,291,000, respectively. These loans are carried at cost, which
is lower than market.
Citrus Bank does not originate any significant amounts of loans specifically for
resale. Loans originated by Citrus Bank and sold principally to FNMA generally
represent less than 3% of all loans originated. The only servicing income
received by Citrus Bank comes from the servicing of loans sold principally to
FNMA, which is not considered to be material.
NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
Citrus' Board of Directors monitors the loan portfolio quarterly in order to
enable it to evaluate the adequacy of the allowance for credit losses.
Management has implemented a risk system that identifies potential problem
credits as early as possible, categorizes the credits as to risk, and puts a
reporting process in place to monitor the progress of the credits.
Citrus maintains the allowance for credit losses at a level sufficient to absorb
all estimated losses inherent in the loan portfolio. Activity in the allowance
for credit losses follows (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended June 30, Ended December 31,
1999 1998
-------- -------
<S> <C> <C>
Balance, beginning of period $ 461 $ 431
----- -----
Recoveries
Real estate loans - 43
Installment loans - 8
Credit card and related plans - -
Commercial and all other loans - 1
--------- --------
- 52
--------- -------
Charge-offs
Real estate loans - -
Installment loans 6 35
Credit card and related plans 5 10
Commercial and all other loans 90 -
------- ---------
101 45
------ -------
Provision charged to operations 20 23
------- -------
Balance, end of period $ 380 $ 461
===== =====
</TABLE>
During the first quarter of 1998, Citrus settled litigation involving a
significant problem credit. As a result of this settlement, Citrus recorded a
credit provision of $96,000 for the quarter ended March 31, 1998. During the
remainder of 1998, Citrus recorded a provision for credit losses of $119,000 to
recognize the potential credit losses associated with one borrower. Three loans
totaling $85,000 to this borrower were charged off in 1999. At June 30, 1999,
Citrus had $30,000 in loans classified as loss. This loss was fully reserved.
F-7
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Citrus is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Those commitments
involve, to varying degrees, elements of credit, and interest rate risk in
excess of the amounts recognized in the balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Financial instruments at June 30, 1999, consisted of commitments to extend
credit approximating $8.5 million and letters of credit of $126,000.
NOTE 7 - PUBLIC STOCK OFFERING
Citrus' Registration Statement on Form SB-2 ("Registration Statement") was
declared effective by the Securities and Exchange Commission on May 3, 1999.
Citrus has commenced its public offering of between 1,000,000 and 1,200,000
shares of its common stock. The proceeds are expected to be used to complete the
opening of two new banks as further discussed in the Registration Statement. As
of June 30, 1999, approximately $1.1 million had been deposited in an escrow
account held with Independent Bankers' Bank of Florida subject to an Escrow
Agreement as described in the Registration Statement. None of the escrow
deposits have been recorded by Citrus and the costs of raising these funds
incurred by Citrus through June 30, 1999, have been recorded as other assets. As
of July 30, 1999, approximately $1.8 million had been deposited in the escrow
account.
F-8
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
For the periods December 31, 1998 and 1997
PAGE
NUMBER
------
FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-1
Consolidated Statements of Operations and Comprehensive Income
for the Years Ended December 31, 1998 and 1997 F-2
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-3
Consolidated Statement of Changes in Stockholders' Equity F-4
Notes to Consolidated Financial Statements F-5 - F-21
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Citrus Financial Services, Inc. and Subsidiary
Vero Beach, Florida
We have audited the accompanying consolidated balance sheets of Citrus Financial
Services, Inc. and Subsidiary ("Citrus") as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income, cash
flows, and changes in stockholders' equity for the years then ended. These
consolidated financial statements are the responsibility of Citrus's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the consolidated financial position of Citrus as of
December 31, 1998 and 1997, and the consolidated results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ STEVENS, SPARKS & COMPANY, P.A.
STEVENS, SPARKS & COMPANY, P.A.
January 22, 1999
Jacksonville, Florida
F-10
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
(Dollars in Thousands, Except Per Share Data)
ASSETS
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 3,940 $ 3,742
Federal funds sold 9,200 2,500
----------- -----------
Total cash and cash equivalents 13,140 6,242
Interest-bearing deposits in other banks 9 61
Securities available-for-sale 4,675 5,796
Securities held-to-maturity (market value of
$1,273 for 1998 and $3,426 for 1997) 1,307 3,487
Loans held for investment less allowance for credit losses 52,548 49,260
Loans held for sale 8,291 847
Facilities 2,884 2,471
Other real estate owned 390 390
Deferred income taxes 233 36
Accrued interest receivable 343 292
Other assets 231 216
----------- ----------
Total assets $ 84,051 $ 69,098
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 13,393 $ 10,723
Demand deposits 4,121 3,701
Money market accounts 3,026 4,095
Savings accounts 8,423 5,993
Time, $100,000 and over 10,377 8,079
Other time deposits 37,363 30,010
----------- ----------
Total deposits 76,703 62,601
----------- ----------
Other borrowings 217 433
Accrued interest payable on deposits 297 195
Accounts payable and accrued liabilities 387 47
----------- ------------
Total liabilities 77,604 63,276
--------- ---------
Commitments and contingencies - -
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $5.00 par value, authorized and
unissued 1,000,000 shares in 1997 and 1998 - -
Common stock, $3.15 par value, authorized 10,000,000 shares,
issued 952,296 shares in 1998 and 865,829 shares in 1997 3,007 3,007
Additional paid-in capital 3,149 3,149
Retained earnings (deficit) 324 (239)
Accumulated other comprehensive income
Net unrealized holding losses on securities (33) (95)
---------- -----------
Total stockholders' equity 6,447 5,822
---------- ----------
Total liabilities and stockholders' equity $ 84,051 $ 69,098
========= =========
Book value per common share $ 6.77 $ 6.11
========== ==========
Common shares outstanding, adjusted for stock split 952,296 952,296
========= =========
</TABLE>
See notes to financial statements.
F-1
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997
---- ----
(Dollars in Thousands, Except Per Share Data)
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans held for investment $ 4,896 $ 4,668
Interest and fees on loans held for sale 879 159
Interest and dividend income from investment securities
and interest-bearing deposits in other banks 432 547
Federal funds sold 245 140
---------- ----------
Total interest income 6,452 5,514
--------- ----------
INTEREST EXPENSE
Interest on deposits 2,885 2,424
Other 56 58
----------- -----------
Total interest expense 2,941 2,482
--------- ----------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES 3,511 3,032
PROVISION FOR CREDIT LOSSES 23 269
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 3,488 2,763
--------- ----------
OTHER INCOME
Service charges on deposit accounts 350 327
Other fees for customer service and other income 71 72
---------- -----------
Total other income 421 399
---------- ----------
OTHER EXPENSES
Salaries and employee benefits 1,466 1,280
Expenses of bank premises and fixed assets 544 452
Other operating expenses 997 1,043
---------- ----------
Total other expenses 3,007 2,775
--------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 902 387
PROVISION FOR INCOME TAXES 338 137
---------- ----------
NET INCOME 564 250
---------- ----------
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:
Unrealized holding gains on securities arising during period 65 63
Less: reclassification adjustment for gains included in
net income for the period (3) -
---------- ------------
Total other comprehensive income, net of income taxes 62 63
----------- -----------
COMPREHENSIVE INCOME $ 626 $ 313
========== ==========
EARNINGS PER SHARE
Basic earnings per share $ 0.59 $ 0.26
========== =========
Diluted earnings per share $ 0.48 $ 0.21
========== =========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997
---- ----
(Dollars in Thousands, Except Per Share Data)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 564 $ 250
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for credit losses 23 269
Depreciation and amortization of facilities 279 226
Net premium amortization and discount accretion 20 18
Gain on sale of securities (3) -
Deferred income taxes (200) 49
Cash paid for purchases of loans held for sale (171,223) (25,320)
Cash received for sales of loans held for sale 163,779 29,034
(Increase) decrease in assets:
Accrued interest and other assets (66) 64
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 442 (46)
----------- -----------
Net cash provided by (used in) operating activities (6,385) 4,544
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchases (1,605) (661)
Proceeds from maturities 2,176 239
Proceeds from sales 604 -
Securities held-to-maturity:
Proceeds from maturities 2,173 713
Decrease in interest-bearing deposits in other banks 52 45
Increase in loans held for investment (3,311) (3,420)
Purchases of facilities (692) (147)
----------- ------------
Net cash used in investing activities (603) (3,231)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits:
Noninterest-bearing 2,670 2,587
Interest-bearing 11,432 1,368
Repayments of FHLB advances (216) (1,122)
Net decrease in federal funds purchased - (500)
Proceeds from stock options exercised - 82
------------- ------------
Net cash provided by financing activities 13,886 2,415
--------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,898 3,728
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,242 2,514
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,140 $ 6,242
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash received during the year for interest and dividends $ 6,401 $ 5,594
========= =========
Cash paid during the year for interest $ 2,839 $ 2,515
========= =========
Cash paid during the year for income taxes $ 131 $ 75
========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Retained Holding
Par Additional Earnings Gains Total
Value Paid-in (Accumulated (Losses) on Stockholders'
Shares (Rounded) Amount Capital Deficit) Securities Equity
------ --------- ------ ------- -------- ---------- ------
(Dollars in Thousands, Except Par Value Per Share)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 853,967 $ 3.47 $ 2,966 $ 3,108 $ (489) $ (158) $ 5,427
Stock options exercised 11,862 - 41 41 - - 82
Comprehensive income:
Net income - - - - 250 -
Net change in unrealized holding
gains on securities - - - - - 63
Total comprehensive income - - - - - - 313
------- -------- -------- -------- ------- ------ --------
Balance, December 31, 1997 865,829 3.47 3,007 3,149 (239) (95) 5,822
Stock issued for stock split and par
value reduction (rounded) 86,467 (0.32) - - (1) - (1)
Comprehensive income:
Net income - - - - 564 -
Net change in unrealized holding
gains on securities - - - - - 62
Total comprehensive income - - - - - - 626
------- -------- -------- -------- ------- ------ --------
Balance, December 31 1998 952,296 $ 3.15 $ 3,007 $ 3,149 $ 324 $ (33) $ 6,447
======= ======== ======== ======== ======= ======= ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 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. ("Citrus") and its wholly-owned subsidiary,
Citrus Bank, National Association ("Citrus Bank"). All significant intercompany
accounts and transactions have been eliminated in consolidation. For financial
statement presentation, Citrus Mortgage Corp., a wholly-owned inactive company,
has been excluded from the consolidation.
Citrus Bank provides a wide range of banking services to individual and
corporate customers primarily in Indian River County, Florida.
Citrus and Citrus 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 Citrus 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 credit 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 credit
losses and foreclosed real estate, management obtains independent appraisals for
significant properties.
Management believes that the allowance for credit 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 ("SFAS 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
and losses excluded from earnings and reported as a separate component of
stockholders' equity.
F-5
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
Citrus 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.
Loans Held for Investment:
Loans held for investment are stated at unpaid principal balances, less the
allowance for credit losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.
Interest on loans held for investment is accounted for on the accrual basis.
Generally, Citrus' policy is to discontinue the accrual of interest on loans
delinquent over ninety days unless fully secured and in the process of
collection. The accrued and unpaid interest is reversed from current income and
thereafter interest is recognized only to the extent payments are received. A
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, Citrus adopted Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan ("SFAS 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 SFAS 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.
Loans Held for Sale:
Citrus Bank originates and purchases residential mortgage loans for sale to the
Federal National Mortgage Association ("FNMA") and other investors in the
secondary market. Substantially all such loans are purchased through a program
that provides table funding for mortgage loans originated by third party
mortgage brokers that are held for securitization or sale to an end investor in
exchange for Citrus' purchase of an undivided 100% interim interest on a
loan-by-loan basis.
F-6
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
Under this program, the originating broker closes a mortgage loan that has been
pre-approved by Citrus Bank as conforming with Citrus Bank's pre-determined
lending guidelines and secondary market conditions, assigns the mortgage loan
and the purchase and rate-lock commitments to Citrus Bank, and receives up to
98% of the mortgage note amount. Citrus Bank is not shown on the closing
statements as lender but is assigned a 100% interest in the mortgage loan. The
discount from the mortgage note amount ("holdback") and the purchase and
rate-lock commitments limit market risks. The advance approval of these
conforming mortgage loans as well as the holdback limit credit risks and since
these mortgage loans are conforming, Citrus Bank can sell these mortgage loans
in the secondary market to FNMA or other investors. Citrus Bank is not obligated
to table fund all mortgage loans provided by a broker and the agreement with the
broker can be canceled with 30 days notice. Typically, Citrus Bank works with
three to four brokers and the end investors used by the brokers to purchase
these mortgage loans approximates ten. The holdback is returned to the broker at
the time of settlement with the end investor, net of interest and fees earned by
Citrus Bank. No servicing rights are purchased or servicing performed by Citrus
Bank. Substantially all mortgage loans are conforming and have been pre-sold to
the end investor at the time of table funding. Loans held for sale are carried
at cost, which is lower than market in all material respects.
Loans originated for sale to FNMA were not material in 1998 or 1997.
Interest and Fee Income from Table Funding Loan Program:
Citrus Bank accounts for interest on the loans held for sale on the accrual
basis. A processing fee is charged for each loan purchased under the table
funding loan program, and this fee is recorded into fee income, when the loan is
sold. This fee income is included in the Statements of Operations caption,
"Interest and fees on loans held-for-sale".
Allowance for Credit Losses:
The provision for credit losses charged to operating expenses is based upon
management's judgment of the adequacy of the allowance giving consideration to
its credit loss experience and an evaluation of the current loan portfolio. Such
provisions, less net charge-offs, comprise the allowance, which is deducted from
loans and is available for future charge-offs.
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 Citrus 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.
F-7
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
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 SFAS No.
109, Accounting for Income Taxes.
Computation of Per Share Earnings:
Basic earnings per share ("EPS") amounts are computed by dividing net earnings
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share are computed by dividing net earnings by the weighted
average number of shares and all dilutive potential shares outstanding during
the period. The average number of shares and dilutive potential shares have been
restated for the 10% stock split on April 27, 1998. The following information
was used in the computation of earnings per share on both a basic and diluted
basis for years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
---- ----
(In thousands except per share data)
<S> <C> <C>
Basic EPS computation:
Numerator - Net income $ 564 $ 250
Denominator - Weighted average shares outstanding 952 948
------ ------
Basic EPS $ 0.59 $ 0.26
====== ======
Diluted EPS computation:
Numerator - Net income $ 564 $ 250
------ ------
Denominator - Weighted average shares outstanding 952 948
Stock options and warrants 227 220
------- -------
1,179 1,168
Diluted EPS $ 0.48 $ 0.21
====== ======
</TABLE>
Statement of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts on deposit in noninterest- bearing accounts with other commercial
banks, and federal funds sold.
Reclassification of Accounts:
Certain items in the consolidated financial statements for 1997 have been
reclassified to conform to the classifications used for the current year.
F-8
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Securities available-for-sale:
<S> <C> <C> <C> <C>
U.S. Government agencies $ 1,600 $ 18 $ - $ 1,618
Mortgage-backed securities 2,734 - 63 2,671
Other 386 - - 386
--------- --------- --------- ---------
$ 4,720 $ 18 $ 63 $ 4,675
======= ======== ======= =======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Securities held-to-maturity:
U.S. Government agencies $ 481 $ - $ 35 $ 446
Mortgage-backed securities 826 2 1 827
Other - - - -
----------- --------- ---------- -----------
$ 1,307 $ 2 $ 36 $ 1,273
======= ======== ======== =======
The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 1997, are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
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
======= ======== ====== =======
</TABLE>
F-9
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
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 $ 1,474 $ - $ 45 $ 1,429
Mortgage-backed securities 1,762 - 15 1,747
Other 251 - 1 250
--------- --------- --------- ---------
$ 3,487 $ - $ 61 $ 3,426
======= ======== ======= =======
</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, 1998, of $33,000
(net of deferred income taxes of $30,000) 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, 1998, no securities were pledged
to secure deposits and for other operating purposes.
At December 31, 1998 and 1997, the carrying value of collateralized mortgage
obligations included in securities available- for-sale and securities
held-to-maturity was approximately $2,446,000 and $3,998,000, respectively.
No investment securities were sold during 1997 and gains on sales of investment
securities in 1998 totaled $3,000.
The cost and estimated fair value of debt and equity securities at December 31,
1998, 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>
<CAPTION>
Securities Securities
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 $ - $ - $ - $ -
Due from one to five years 1,600 1,618 1,041 1,006
Due from five to ten years 1,737 1,705 266 267
Due after ten years 997 966 - -
Other 386 386 - -
-------- --------- ----------- -----------
$ 4,720 $ 4,675 $ 1,307 $ 1,273
======= ======= ======= =======
</TABLE>
F-10
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 3 - LOANS HELD FOR INVESTMENT
Loans held for investment are classified as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Commercial and agricultural $ 12,868 $ 10,316
Real estate 35,914 35,075
Installment and other loans 4,347 4,326
--------- ---------
Total loans 53,129 49,717
Less, unearned income (120) (26)
Less, allowance for credit losses (461) (431)
--------- ---------
$ 52,548 $ 49,260
======== ========
The following is a summary of the transactions in the allowance for credit
losses:
December 31,
1998 1997
---- ----
(In Thousands)
Balance, beginning of year $ 431 $ 354
Provisions charged to operating expenses 23 269
Loans charged-off (45) (212)
Recoveries 52 20
------- -------
Balance, end of year $ 461 $ 431
===== =====
</TABLE>
Loans on which interest was not being accrued totaled $141,000 at December 31,
1998, and $783,000 at December 31, 1997. Had interest been accrued on these
nonaccrual loans at originally contracted rates, interest income, before income
taxes, would have been increased by approximately $13,000 and $100,000 at
December 31, 1998 and 1997, respectively.
A loan is considered impaired when, according to the contractual terms of the
contract, it is probable that Citrus Bank will be unable to collect all amounts
due. Of the $141,000 in nonaccrual loans held for investment at December 31,
1998, loans totaling $85,000 were classified by management as impaired. The
remaining nonaccrual loans held for investment totaling $56,000 were not
classified as impaired because management expects to recover substantially all
of the balances owed.
However, these loans remain on nonaccrual status in accordance with Citrus'
policy.
F-11
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 3 - LOANS HELD FOR INVESTMENT (Continued)
The following table sets forth the recorded investment in impaired loans and the
related valuation allowance for each loan category as of December 31, 1998. At
December 31, 1997, no loans held for investment were classified as impaired and
for December 31, 1998 and 1997, no loans held for sale were classified as
impaired.
<TABLE>
<CAPTION>
Total Amount of
Impaired Valuation
Loans Allowance
----- ---------
<S> <C> <C>
December 31, 1998
Commercial real estate $ - $ -
Residential real estate - -
Commercial loans 85 43
Consumer loans - -
------- ------
Total impaired loans held
for investment $ 85 $ 43
==== ====
</TABLE>
All of the impaired loans at December 31, 1998, were measured using management's
current estimate of fair value of the collateral. The average loans held for
investment classified as impaired totaled $4,000 in 1998 and $-0- in 1997. No
material amounts of interest were recorded in 1998 or 1997 for impaired loans.
NOTE 4 - LOANS HELD FOR SALE
Loans held for sale include residential real estate loans held for sale to FNMA
and outstanding loans originated by third-party brokers, assigned to Citrus
Bank, and held by Citrus Bank pending transfer to investors with take-out
commitments. At December 31, 1998 and 1997, such loans totaled $8,291,000 and
$847,000, respectively. These loans are carried at cost, which is lower than
market.
Citrus Bank does not originate any significant amounts of loans specifically for
resale. Loans originated by Citrus Bank and sold principally to FNMA totaled
less than 1% and 3% of all loans originated during 1998 and 1997, respectively.
The only servicing income received by Citrus Bank comes form the servicing of
loans sold principally to FNMA. Servicing income recorded totaled $22,000 and
$21,000 for the years ended December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
NOTE 5 - FACILITIES
Facilities are summarized as follows:
Accumulated Estimated
Depreciation and Net Book Useful
Cost Amortization Value Lives
---- ------------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Land and land improvements $ 278 $ - $ 278
Bank building and improvements 2,219 504 1,715 31.5 years
Furniture, fixtures, and equipment 1,647 756 891 2 - 15 years
-------- --------- ---------
$ 4,144 $ 1,260 $ 2,884
======= ======= =======
</TABLE>
F-12
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NOTE 5 - FACILITIES (Continued)
Accumulated Estimated
Depreciation & Net Book Useful
Cost Amortization Value Lives
---- ------------ ----- -----
(In Thousands)
December 31, 1997
<S> <C> <C> <C> <C>
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
======= ======= =======
</TABLE>
Other expenses for the years ended December 31, 1998 and 1997, included
depreciation and amortization of facilities of $279,000 and $226,000,
respectively.
NOTE 6 - FHLB ADVANCES
Citrus Bank has a line of credit master agreement with the FHLB of Atlanta that
enables Citrus Bank to borrow up to $10,000,000 with no expiration date. These
advances are collateralized by Citrus Bank's FHLB stock and a blanket floating
lien consisting of wholly-owned residential (1-4 units) first mortgage loans. No
amounts were outstanding at December 31, 1998 and 1997, under this line of
credit. In addition to the line of credit arrangement, Citrus Bank had fixed
FHLB advances outstanding as follows (dollars in thousands):
<TABLE>
<CAPTION>
Maturity Date Interest Rate 1998 1997
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
2000 5.26% $ - $ 167
2003 5.76% $ 217 $ 266
</TABLE>
Interest expense on the line of credit and other FHLB advances amounted to
approximately $54,000 and $56,000 for the years ended December 31, 1998 and
1997, respectively.
NOTE 7 - TIME DEPOSITS
Time deposits at December 31, 1998, totaled $47,740,000. Maturities of such
deposits are as follows:
<TABLE>
<CAPTION>
Time, $100,000 Other Time
And Over Deposits
-------- --------
(In Thousands)
<S> <C> <C>
Three months or less $ 2,861 $ 12,374
Over three through twelve months 7,237 21,547
Over twelve months through three years 100 2,778
Over three years 179 664
----------- -----------
$ 10,377 $ 37,363
======== ========
</TABLE>
Interest expense on certificates of deposit of $100,000 or more for 1998 and
1997 were approximately $569,000 and $504,000, respectively.
F-13
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
NOTE 8 - INCOME TAXES
The provision for income taxes on income is summarized as follows:
December 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Current:
Federal $ 457 $ 87
State 78 1
-------- ---------
535 88
------- --------
Deferred:
Federal (168) 41
State (29) 8
----- --------
197 49
------ -------
Total income tax provision $ 338 $ 137
===== =====
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:
December 31,
1998 1997
---- ----
(In Thousands)
Tax computed at statutory rate $ 307 $ 132
Increase (decrease) resulting from:
Utilization of net operating loss carryforwards - (2)
Other 31 7
-------- --------
Income tax provision $ 338 $ 137
===== =====
The components of the deferred income tax assets are as follows:
December 31,
1998 1997
---- ----
(In Thousands)
Deferred tax asset:
Federal $ 212 $ 111
State 36 19
------- -------
248 130
------ -------
Deferred tax liability:
Federal (13) (80)
State ( 2) (14)
-------- -------
(15) (94)
------- ------
Net deferred tax asset $ 233 $ 36
===== ======
</TABLE>
F-14
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - INCOME TAXES (Continued)
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Net unrealized holding losses on securities $ 30 $ 33
Depreciation (15) (94)
Allowance for credit losses 173 97
Other 45 -
------- -------
Net deferred tax asset $ 233 $ 36
====== ======
</TABLE>
NOTE 9 - DEFINED CONTRIBUTION PLAN
Citrus sponsors a 401(k) Profit Sharing Plan (the "Plan") that covers
substantially all employees. Citrus, 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.
For 1998 and 1997, Citrus expensed approximately $11,000 and $12,000,
respectively.
NOTE 10 - 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>
<CAPTION>
December 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Commitments to extend credit $ 11,156 $ 7,098
Standby letters of credit $ 126 $ 75
Commercial letters of credit $ 100 $ 100
</TABLE>
Citrus 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.
Citrus 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.
At December 31, 1998, Citrus Bank had $1,750,000 unfunded lines-of-credit
available from other banks for the purchase of federal funds.
F-15
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 11 - CONCENTRATIONS OF CREDIT
Substantially all of Citrus 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 12 - RELATED PARTIES
Citrus Bank holds loans and engages in transactions in the ordinary course of
business with certain of the directors and senior officers of Citrus Bank. Total
loans to such persons and their affiliates amounted to $3,468,000 and $3,543,000
at December 31, 1998 and 1997, respectively.
Following is a summary of activity for 1997 and 1998 for such loans:
<TABLE>
<CAPTION>
Beginning End of
of Year Year
Balance Additions Reductions Balance
------- --------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
1997 $ 2,230 $ 1,973 $ 660 $ 3,543
1998 $ 3,543 $ 1,882 $ 1,957 $ 3,463
</TABLE>
NOTE 13 - STOCKHOLDERS' EQUITY
Citrus has authorized 11,000,000 shares of authorized capital stock, consisting
of 10,000,000 shares of common stock, par value $3.15 (as adjusted for stock
splits) per share, and 1,000,000 shares of preferred stock, par value of $5.00
per share. As of December 31, 1998, 952,296 shares of common stock were issued
and outstanding and 532,385 shares were subject to issuance pursuant to options
and warrants. No shares of preferred stock were issued.
A summary of changes from the original issue of $5.00 par value and $10.00
option price follows:
<TABLE>
<CAPTION>
Option
Record Date Action Par Value (Rounded) Price (Rounded)
- ----------- ------ ------------------- ---------------
<S> <C> <C> <C>
April 13, 1990 Initial Offering $5.00 $10.00
March 15, 1995 20% Stock Split (.83) (1.67)
January 15, 1997 20% Stock Split (.70) (1.39)
May 8, 1998 10% Stock Split (.32) (.63)
-------- --------
December 31, 1998 $3.15 $6.31
===== =====
</TABLE>
In connection with Citrus' 1990 offering, organizers were granted warrants to
purchase 469,772 shares of common stock at $6.31 per share (as adjusted for
stock splits). The warrants are exercisable for a ten-year period commencing
April 13, 1990.
F-16
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 13 - STOCKHOLDERS' EQUITY (Continued)
As part of an employment agreement, in 1990 Citrus 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 $6.31 (as adjusted for stock splits) per share. On May 15, 1997, all of
these options were exercised.
In addition to stock options granted to the director, Citrus 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 $6.31 (as
adjusted for stock splits) per share starting with the fifth anniversary of Bank
operations and expire on the tenth anniversary.
Citrus has also entered into stock option agreements with its officers providing
for the granting of 39,840 non-statutory stock options. Such options are
exercisable at $6.31 (as adjusted for stock splits) per share.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), became effective in 1996. SFAS 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 1998 and 1997.
However, Citrus must comply with certain additional disclosures under SFAS No.
123. The following is a summary of the activity relating to the options:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares(1) Price
--------- -----
<S> <C> <C>
Outstanding at December 31, 1996 68,783(2) $ 7.47(2)
Exercised (11,862)(2) $ 6.94(2)
--------
Outstanding at December 31, 1997 56,921(2) $ 6.94(2)
========
Outstanding at December 31, 1998 62,613(3) $ 6.31(3)
========
</TABLE>
(1) No options were granted during 1997 or 1998.
(2) Unadjusted for 1998 10% Stock Split.
(3) Adjusted for 1998 10% Stock Split.
<TABLE>
<CAPTION>
The following is a summary of the status of the plans at December 31, 1998:
Weighted Weighted
Average Average
Exercise Remaining Exercise
Price Number Contractual Life Price
----- ------ ---------------- -----
<S> <C> <C> <C> <C>
$ 6.31 18,789 16 months $ 6.31
$ 6.31 43,824 31 months $ 6.31
</TABLE>
All outstanding options were fully vested and exercisable at December 31, 1998.
F-17
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 13 - STOCKHOLDERS' EQUITY (Continued)
The ability of Citrus to pay dividends to stockholders depends primarily on
dividends received by Citrus from Citrus Bank. Citrus Bank's ability to pay
dividends is limited by federal banking regulations based upon Citrus Bank's
profitability and other factors. At December 31, 1998, approximately $674,000 of
retained earnings of Citrus Bank was available for payment of dividends to
Citrus without prior regulatory approval.
On April 27, 1998, Citrus' board of directors declared a stock split payable at
a rate of 10% of shares issued and outstanding to stockholders of record on May
8, 1998, payable May 31, 1998. Cash in lieu of fractional shares was paid at the
rate of $6.38 per share. The total cash paid in lieu of fractional shares
amounted to less than $1,000. The majority of Citrus' shareholders are either
directors, officers, or employees, and there is a presumption that these parties
have intimate knowledge of the affairs of Citrus. Since Citrus is a closely-held
registrant, and the Board of Directors has clearly stated that this distribution
is a stock split and their intent is such, the need to transfer retained
earnings does not exist. Accordingly, this stock split was not accounted for as
a stock dividend as is generally the case for stock splits less than 20% to 25%.
NOTE 14 - NONINTEREST OPERATING EXPENSES
Other operating expenses were as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Advertising and public relations $ 72 $ 69
Professional fees 133 288
Data processing 158 153
Stationary, printing, and supplies 73 58
Insurance 30 24
Telephone 50 40
Other miscellaneous expenses 481 411
--------- ---------
$ 997 $ 1,043
======== =======
</TABLE>
F-18
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 15 - 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:
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 Citrus Bank's financial instruments at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------ -----
(In Thousands)
Financial Assets
<S> <C> <C>
Cash and deposits in other banks $ 3,949 $ 3,949
Federal funds sold 9,200 9,200
Investment securities 5,982 5,948
Loans held for investment 52,548 52,841
Loans held for sale 8,291 8,457
--------- ---------
Total assets valued $ 79,970 $ 80,395
======== ========
Financial Liabilities
Deposits $ 76,703 $ 76,462
FHLB advances 217 217
----------- -----------
Total liabilities valued $ 76,920 $ 76,679
======== ========
</TABLE>
F-19
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that, were Citrus to have
disposed of such items at December 31, 1998, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1998, should not necessarily be considered to apply at subsequent dates.
NOTE 16 - 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 1 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, 1998, the most recent notification from the FDIC, Citrus 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 1 risk-based, and Tier 1 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>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Greater than or Equal to Greater than or Equal to
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Risk-Based Capital
(To Risk-Weighted Assets) $ 6,476 10.71% $ 4,839 8.00% $ 6,049 10.00%
Tier 1 Capital
(To Risk-Weighted Assets) $ 6,015 9.94% $ 2,420 4.00% $ 3,630 6.00%
Tier 1 Capital
(To Adjusted Total Assets) $ 6,015 7.33% $ 3,283 4.00% $ 4,104 5.00%
</TABLE>
F-20
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are condensed financial statements for Citrus Financial
Services, Inc. (parent only):
<TABLE>
<CAPTION>
Condensed Balance Sheets as of December 31: 1998 1997
---- ----
(In Thousands)
Assets
<S> <C> <C>
Cash and cash equivalents $ 135 $ 264
Investment in subsidiary bank, net 5,982 5,333
Other assets 330 225
--------- --------
Total $ 6,447 $ 5,822
======= =======
Liabilities and Stockholders' Equity
Liabilities $ - $ -
Stockholders' equity 6,447 5,822
-------- --------
Total $ 6,447 $ 5,822
======= =======
Condensed Statements of Operations and Stockholders' Equity
Years Ended December 31: 1998 1997
---- ----
(In Thousands)
Equity in net income of subsidiary bank $ 587 $ 273
Other income 101 43
Other expenses (124) (66)
-------- --------
Net income 564 250
Stockholders' Equity:
Beginning of year 5,822 5,427
Stock options exercised and rounding (1) 82
Net change in unrealized holding gains on
securities in subsidiary bank 62 63
---------- ---------
End of year $ 6,447 $ 5,822
======= =======
Condensed Statements of Cash Flows
Years Ended December 31: 1998 1997
---- ----
(In Thousands)
Operating Activities
Net income $ 564 $ 250
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary (587) (273)
Deferred income taxes (184) 68
Other 78 (126)
-------- --------
Net Cash Used In Operating Activities (129) (81)
-------- ---------
Net Cash Provided by Financing Activities:
Proceeds from stock options exercised - 82
----------- ----------
Cash and cash equivalents:
Beginning of year 264 263
--------- ---------
End of year $ 135 $ 264
======== ========
</TABLE>
F-21
<PAGE>
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus or
information that we have referred to you. We have not authorized anyone to
provide you with other or different information. Although information contained
in this prospectus was, to the best of our knowledge, correct when it was
printed, some of the information will change because Citrus continues to engage
in its usual and customary business activities. The accidental or improper
delivery of this prospectus to persons to whom it is unlawful to make an offer,
because of state securities laws, shall not constitute an offer to buy the
securities. All dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS:
- --------------------------------------------------------------------------------
Prospectus Summary.............................2
Risk Factors...................................6
Use of Proceeds................................9
Capitalization of Citrus......................10
No Established Market
for Citrus' Common Stock..................11
Selected Consolidated Financial Data..........13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................15
Business of Citrus............................51
Regulation and Supervision Governing Citrus...62
Management....................................69
Executive Compensation........................72
Certain Relations and Related
Party Transactions........................73
Beneficial Ownership of Common Stock..........74
Description of Capital Stock..................75
Summary of the
Articles of Incorporation of Citrus.......76
Sales Agent Retained For This Offering........79
The Offering..................................81
Shares Eligible for Future Sale...............83
Legal Matters Pertaining To The Offering......84
Certain Experts Retained By Citrus............84
Available Information About Citrus............84
Index to Financial Statements.................86
================================================================================
================================================================================
Minimum 560,000 Shares
Maximum 1,200,000 Shares
[GRAPHIC OMITTED]
------------------------
PROSPECTUS
------------------------
November ___, 1999
[GRAPHIC OMITTED]
---------------------------------------------------------
<PAGE>
PART-II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24: Indemnification of Directors and Officers
As provided under Florida law, the Company's directors shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of duty of care or any other duty owed to the Company as a director,
unless the breach of or failure to perform those duties constitutes: (i) a
violation of criminal law, unless the director had reasonable cause to believe
his conduct was lawful, or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director received an improper
personal benefit; (iii) for unlawful corporate distributions; or (iv) an act or
omission which involves a conscious disregard for the best interests of the
Corporation or which involves willful misconduct; or (v) an act of recklessness
or an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety,
or property.
Article IX of the Company's Bylaws provides that the Company shall
indemnify a director who has been successful in the defense of any proceeding to
which he was a party or in defense of any claim, issue or matter therein because
he is or was a director of the Company, against reasonable expenses incurred by
him in connection with such defense.
The Company's Bylaws also provide that the Company is required to
indemnify any director, officer, employee or agent made a party to a proceeding
because he is or was a director, employee or agent against liability incurred in
the proceeding if he acted in a manner he believed in good faith or to be in or
not opposed to the best interests of the Company and, in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Determination concerning whether or not the applicable standard of
conduct has been met can be made by: (i) a disinterested majority of the Board
of Directors; (ii) a majority of a committee of disinterested directors; (iii)
independent legal counsel; or (iv) an affirmative vote of a majority of shares
held by disinterested stockholders.
<PAGE>
Item 25: Other Expenses of Issuance and Distribution
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the sales agent's commissions assuming a maximum offering
price of $11.50. All of the amounts shown are estimated except for the
registration fees of the Commission.
SEC Registration Fees............................. $ 3,836
NASD Filing Fee................................... 1,880
Blue Sky Registration Fees & Expenses............. 10,000
Legal fees and expenses........................... 102,000
Accounting Fees................................... 45,000
Printing and Engraving expenses................... 20,000
Transfer Agent and Registration Fees and Expenses. 4,000
Escrow Fees....................................... 5,000
Advertising....................................... 3,000
Miscellaneous..................................... 5,284
----------
Total...................................... $200,000
========
Item 26: Recent Sales of Unregistered Securities.
On December 14, 1995, the Company granted its President, Josh C. Cox, Jr.,
an option to purchase 25,000 shares of the Company's common stock adjusted to
26,400 shares following the 10% stock split. The grant was made in reliance upon
the exemption contained in Section 4(2) of the Securities Act.
On January 1, 1999, the Company granted Walter Alvarez, Citrus Bank's Miami
area President, an option to purchase 25,000 shares of the Company's common
stock. The grant was made in reliance upon the exemption contained in Section
4(2) of the Securities Act.
On July 1, 1999, the Company granted John M. Tench, Citrus Bank's Highlands
County area President an option to purchase 25,000 shares of the Company's
common stock. The grant was made in reliance upon the exemption contained in
Section 4(2) of the Securities Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment No. 1 to Form SB-2
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Vero Beach, State of Florida, on the 28th day of
October, 1999.
CITRUS FINANCIAL SERVICES, INC.
By: /s/ Josh C. Cox, Jr.
Josh C. Cox, Jr., President
and Chief Executive Officer
By: /s/ Henry O. Speight
Henry O. Speight,
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Josh C. Cox, Jr., and Henry O. Speight their true
and lawful attorneys-in-fact and agent, with full power of substitution and
resubstitution for him in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post effective amendments) to this
Registration Statement, and to file same, with all exhibits thereto, and other
documents in connection therewith, with the SEC, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the 33 Act, this Registration Statement
has been signed by the following persons in the capacities and as of the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* /s/ Josh C. Cox, Jr. Chairman of the Board October 28, 1999
- -------------------------------------------------
Robert L. Brackett
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
Josh C. Cox, Jr.
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
Hubert Graves, Jr.
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
Roy H. Lambert
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
Earl H. Masteller
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
Louis L. Schlitt
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
Walter E. Smith, Jr.
* /s/ Josh C. Cox, Jr. Director October 28, 1999
- -------------------------------------------------
James R. Thompson
</TABLE>
* Pursuant to Power of Attorney filed November 20, 1998 and February 16,
1999, authorizing Josh C. Cox, Jr. and Henry O. Speight, or either of
them, as the true and lawful attorneys-in-fact to sign all amendments
to the Form SB-2 Registration Statement.
<PAGE>
Item 27: Exhibits and Financial Statement Schedules
The following exhibits are filed as part of this Post-Effective Amendment
No. 2 to Form SB-2 Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C> <C>
*1.1 Form of Sales Agency Agreement with Banc Stock Financial Services, Inc.
1.2 Form of First Amendment to Sales Agency Agreement
**3.1 Articles of Incorporation of the Company
**3.2 By-Laws of the Company
3.3 Amendments to Bylaws adopted March 16, 1995 (1995 1st Quarter 10Q)
*4.1 Specimen Common Stock Certificate
*4.2 Form of Escrow Agreement with Independent Bankers' Bank of Florida
*5.1 Opinion of Igler & Dougherty, P.A.
*10.5 Employment Letter with Walter A. Alvarez
*21.1 Subsidiaries of the Company
*23.1 Consent of Igler & Dougherty, P.A., included in the Opinion Letter
23.2 Consent of Stevens, Sparks & Company, P.A.
*24.1 Power of Attorney (included in signature page to this Registration Statement)
***27.1 Financial Data Schedule
- ------------------------------------
</TABLE>
* Denotes previously filed as part of this Registration Statement, File
No. 333-67613.
** Denotes previously filed as part of the Company's S-18 Registration
Statement, File No. 33-29696-A.
*** Denotes previously EDGAR filed as part of the Company's Form 10-QSB on
August 13, 1999.
<PAGE>
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (ss. 230.424[b] of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ACCOUNTANTS' CONSENT
Citrus Financial Services, Inc. and Subsidiary
Vero Beach, Florida
We consent to the use of our report dated January 22, 1999, on the consolidated
balance sheets of Citrus Financial Services, Inc. and Subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of operations and
comprehensive income, and cash flows and changes in stockholders' equity for the
years then ended, included in the post-effective amendment No. 2 to the
Registration Statement of Citrus Financial Services, Inc. on Form SB-2 and to
the reference to our firm under the heading "Certain Experts Retained by
Citrus."
/s/ Stevens, Sparks & Company, P.A.
STEVENS, SPARKS & COMPANY, P.A.
Jacksonville, Florida
October 27, 1999
FORM OF
FIRST AMENDMENT TO SALES AGENCY AGREEMENT
THIS FIRST AMENDMENT TO Sales Agency Agreement (hereinafter referred to
as the "Amendment"), made and entered into as of the ____ day of October, 1999,
by and between BANK STOCK FINANCIAL SERVICES, INC. ("Sales Agent") and CITRUS
FINANCIAL SERVICES, INC.
("Company").
WHEREAS, Sales Agent and Company entered into that certain Sales Agency
Agreement, dated as of June 9, 1999, pursuant to which Sales Agent agreed to
sell between 1,000,000 and 1,200,000 shares of the Company's common stock on a
best efforts basis (the "Agreement"); and
WHEREAS, the Agreement is scheduled to terminate on October 30, 1999
unless the parties mutually agree upon a later termination date; and
WHEREAS, the Company and the Sales Agent desire to reduce the minimum
number of shares required in the offering from 1,000,000 shares to 560,000
shares; and
WHEREAS, the parties desire to revise the commissions payable to the
Sales Agent;
WHEREAS, the parties desire to extend the term of the Agreement until
April 30, 2000;
WHEREAS, the Company has filed a post-effective amendment to both
extend the offering and reduce the minimum;
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) in hand paid, the mutual covenants herein contained, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
1. Definitions. Unless otherwise defined in this Amendment, all
capitalized terms herein contained shall have the meanings ascribed to them in
the Agreement.
2. Employment of Sales Agent and Delivery of Shares. Section 3(a) of
the Agreement is deleted in its entirety and replaced with the following
paragraph 3(a):
(a) The Sales Agent will act as exclusive agent for the Company on a
"best efforts" basis to sell for the account of the Company a minimum
of 560,000 Shares and a maximum of 1,200,000 Shares at a price of
$10.75 per Share, and the Sales Agent agrees to use it commercially
reasonable best efforts to effect such sales on the terms (including
the conditions) described in the Prospectus. However, the Sales Agent
makes no commitment to purchase all or any of the Shares. The Sales
Agent's engagement
<PAGE>
hereunder will terminate on the earlier of (a) April 30, 2000 or such
later date as shall be mutually agreed upon by the Company and the
Sales Agent; (b) the sale of all of the Shares; or (c) termination of
the Sales Agent's engagement by the Company in accordance with the
provisions of Section 10 hereof. The period from the date the
post-effective amendment is declared effective by the SEC to the
termination of the Sales Agent's engagement shall be referred to as the
"Offering Period."
3. Employment of Sales Agent and Delivery of Shares. Section 3(b) of
the Agreement is deleted in its entirety and replaced with the following
paragraph 3(b):
(b) As compensation for its efforts, and subject to the release to the
Company of subscription proceeds for the Shares by the Escrow Agent (as
defined in Section 3(c)), the Sales Agent shall be paid by the Company
a commission of 7.0% of the proceeds of the Shares sold, except that
(i) the Sales Agent shall receive no commission for Shares sold to
existing directors of the Company or the Bank or sold to existing
shareholders of the Company who purchase their pro-rata portion in the
Offering; and (ii) the Sales Agent shall be paid by the Company a
commission of 2.5% of the aggregate price of Shares purchased by
certain individuals designated "friends of the Board" to a maximum of
$4,000,000 (the Company will provide the Sales Agent a list designating
the "friends of the Board," which will include existing shareholders of
the Company who purchase more than their pro-rata portion in the
Offering and proposed directors for the Miami and Sebring de novo
banks). The Company agrees that existing directors of the Company will
not sell Shares for a period of not less than 24 months from the date
of the Offering. Regardless of whether the offering is consummated, the
Company will also reimburse the Sales Agent, upon request, for its
out-of-pocket expenses incurred in connection with its engagement
hereunder, including, without limitation, legal fees, advertising,
promotion, syndication, and travel expenses. The Sales Agent shall
document such expenses to the reasonable satisfaction of the Company.
The underwriter's legal fees will not exceed $30,000 for legal counsel
work and the underwriter's out-of-pocket expenses will not exceed
$40,000. Legal work by the underwriter's counsel for blue sky and NASD
filings will not exceed $35,000.
4. Miscellaneous.
(a) Ratification of Agreement. Sales Agent and Company hereby ratify
and confirm all of the terms and conditions of the Agreement, as amended hereby,
and as modified, amended or supplemented by this Amendment, and all of the terms
and provisions of the Agreement shall remain in full force and effect.
(b) Binding Effect. The terms of this Amendment shall be binding upon
Sales Agent and Company and their respective successors and assigns.
(c) Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall constitute an original, and all of which, when
taken together, shall constitute but one and the same instrument.
<PAGE>
(d) Facsimiles. Each party shall be authorized to accept, and may rely
upon, a facsimile transmission of this Amendment executed by the other party and
such document shall be binding upon the executing party.
IN WITNESS WHEREOF, Sales Agent and Company have caused this First
Amendment to Sales Agency Agreement to be executed by their respective duly
authorized representatives as of the day and year first above written.
COMPANY:
CITRUS FINANCIAL SERVICES, INC
By:
Josh C. Cox, Jr., President and CEO
SALES AGENT:
BANK STOC FINANCIAL SERVICES, INC.
By:
Michael E. Guirlinger
Vice President
