As filed with the Securities and Exchange Commission
on October 15, 1999 File No. 333-67613
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
------------------------------------
WASHINGTON, D.C. 20549
Post-Effective Amendment No. 1
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------------------------------------------
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.
s===============================================================================
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
SUPPLEMENT NO. 2
TO PROSPECTUS DATED MAY 3, 1999
Citrus Financial Services, Inc. began offering its shares to the public
on May 3, 1999. The initial offering period expired on August 1, 1999, unless we
extended the period 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. As of the date of
this supplement, we still have not sold the minimum number of shares required to
break escrow. We are approximately $7.6 million short of the $10,750,000 needed.
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.
We have the corporate authority to extend the offering beyond the
original 180 day period and to otherwise amend the offering. To do so, however,
we must return subscription funds received during the offering.
Our board of directors voted on October 7, 1999 to amend our
registration statement no. 333- 67613 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 our management to refund all
subscription proceeds plus prorata interest. Finally, the board voted to provide
each subscriber with a copy of this prospectus supplement along with a new
subscription offer form. Included with this supplement are our unaudited
financial statements for the six months ended June 30, 1999 which were contained
in our Form 10-QSB filed with the Securities and Exchange Commission on August
13, 1999. Our third quarter Form 10-QSB, containing September 30th financial
statements, will be filed with the Securities and Exchange Commission on or
before November 14, 1999. Once filed, the Form 10- QSB can be found on the
internet at www.sec.gov or may be obtained by contacting Citrus.
USE OF PROCEEDS
We will use the new minimum net proceeds, estimated to be $5,552,912
after subtracting offering costs estimated to be $177,000 and estimated sales
commissions of $290,088, to capitalize our proposed Highlands County, Florida,
bank. We have received preliminary approvals from the office of the Comptroller
of the Currency and the Federal Reserve Board to open this bank. We anticipate
receiving FDIC approval by October 31, 1999. We propose to locate our Highlands
County bank at 3900 US 27 North, Sebring, Florida, and expect to open this bank
before year end if the minimum number of shares is sold by November 30, 1999.
Otherwise we plan to open the bank approximately one month after we complete the
sale of the minimum number of shares. In the event we do not sell more than the
minimum number of shares, Walter A. Alvarez, our proposed Dade County bank
president, will continue to operate Citrus Bank's Dade County loan production
office.
1
<PAGE>
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. 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. If we do not raise $10,000,000 or more, but raise sufficient
net proceeds to open a Dade County office, Walter A. Alvarez will continue to
serve as Citrus Bank's Miami area president. Other banking centers would be
opened in Melbourne, Florida, and Vero Beach, Florida, at locations yet to be
determined.
In the event we raise net capital equal to or in excess of $10,000,000,
we would follow our original plan to open a new bank in Dade County, Florida,
instead of opening branch offices of Citrus Bank.
<TABLE>
<CAPTION>
CAPITALIZATION
As Adjusted As Adjusted
for Minimum for Maximum
Actual Offering Offering
------ -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Borrowings:
FHLB advances 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 6,938 11,320
Retained earnings 569 569 569
Net unrealized holding losses on securities (52) (52) (52)
------------ ----------- ------------
Total stockholders' equity $ 6,673 $ 12,226 $ 18,624
========== ========== ==========
Total capitalization $ 12,715 $ 18,268 $ 24,666
========= ========== ==========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DILUTION IN BOOK VALUE PER SHARE
Minimum Maximum
Offering Offering
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial public offering price per share $10.75 $10.75
$ 7.01 $ 7.01
Book value per share at June 30, 1999 1.07 1.64
---- ----
8.08 8.65
-------- --------
Increase per share attributable to new investors $ 2.67 $ 2.10
======= =======
Pro forma book value per share after the offering
Dilution per share to new investors
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>
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' 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.
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.
3
<PAGE>
ADDITIONAL INFORMATION
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.
This supplement no. 2 supercedes and replaces supplement no. 1, and
also amends and shall be considered a part of the prospectus. To the extent any
information set forth in this supplement is inconsistent with or contrary to the
information set forth in the prospectus, the information set forth herein shall
supersede the information contained in the prospectus. This supplement does not
contain a complete description of the terms of the offering and information
relating to the company. Prospective investors should read the prospectus and
this supplement no. 2 in their entirety prior to subscribing or re-subscribing
for shares of the common stock. If you would like a copy of the original
prospectus, please contact Henry O. Speight at Citrus, (561) 778-4100.
Alternatively, a copy of the prospectus can be found on Banc Stock Financial
Services' website at www.ipodepot.com.
The date of this supplement is October 15, 1999.
4
<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>
(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 Financial.
5
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Citrus Financial Services, Inc. ("Citrus") is a bank holding company registered
under the Bank Holding Company Act of 1956. Citrus owns 100% of the issued and
outstanding common stock of Citrus Bank, N.A., Vero Beach, Florida ("Citrus
Bank"). Citrus was incorporated on May 19, 1989, to enhance Citrus Bank's
ability to serve its future customers' requirements for financial services. The
holding company provides flexibility for expansion of Citrus' banking business
through acquisition of other financial institutions and provision of additional
banking-related services which the traditional commercial bank may not provide
under present laws.
Citrus Bank commenced business operations on April 13, 1990, in a permanent
facility located at the corner of Indian River Boulevard and 17th Street, Vero
Beach, Florida. The facility is a three-story office condominium, the first
floor of which is owned by Citrus Bank. Citrus Bank operates a branch office at
1020 U.S. 1, Sebastian, Florida, which commenced operations in February 1993 and
another branch office located at 1020 Buttonwood Street, Barefoot Bay, Florida,
which commenced operations in September 1996.
Forward-looking Statements
When used in this Form 10-QSB, 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
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.
6
<PAGE>
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
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.
7
<PAGE>
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 credit provision for credit 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 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.
(This section left blank intentionally.)
8
<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
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
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>
9
<PAGE>
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.
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, 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.
10
<PAGE>
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.
A summary of nonperforming loans by type follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Real estate $ 129 $ 228
Installment loans 79 25
Credit cards and related plans 4 -
Commercial and all other loans 391 247
------ ------
$ 603 $ 500
===== =====
</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.
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.
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.
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%.
11
<PAGE>
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.
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.
12
<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.
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.
13
<PAGE>
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. Loans held-for-sale have
declined $4.6 million during the period from December 31, 1998, to June 30,
1999. 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. 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.
14
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
Financial Statements:
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1999
(Unaudited) December 31, 1998
----------- -----------------
(In Thousands, Except Per Share Data)
ASSETS
<S> <C> <C>
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>
<TABLE>
<CAPTION>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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
------------------- -------- -------
Basic EPS computation:
<S> <C> <C> <C> <C>
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>
NEW SUBSCRIPTION OFFER
[Citrus Financial Services, Inc. logo]
- --------------------------------------------------------------------------------
Citrus Financial Services, Inc. has amended the terms of its common stock
offering. The amendment was contained in our Prospectus supplement dated October
[OPEN], 1999. Citrus Financial considers the amendment to be a material change
in the offering and, therefore, has refunded the subscription proceeds that have
been received prior to the date of the supplement with interest. A person who
wants to resubscribe for shares may do so by signing and returning this form by
mail to Citrus Financial at the address below or by facsimile to (561) 567-8301.
The undersigned hereby acknowledges that I/we wish to resubscribe for
_________ shares of Citrus Financial common stock.
By signing below, the undersigned accepts the amendment to extend the
offering and to reduce the minimum number of shares to 558,000 as disclosed in
supplement No. 2, receipt of which is hereby acknowledged. The undersigned has
enclosed a check representing the price of the shares to be purchased.
Total Number of Shares: At $10.75 per share = $
--------- -------
Name:
-----------------------------
Name:
-----------------------------
Signed this day of ________________, 1999.
------
-----------------------------
Subscriber
-----------------------------
Subscriber
- ------------------------------------
Label
- ------------------------------------
Please return this new subscription offer form in the enclosed
self-addressed envelope or by facsimile at (561) 567-8301
before November 30, 1999.
- --------------------------------------------------------------------------------
1717 Indian River Boulevard, Vero Beach, Florida 32960-5626
<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 15th 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 15, 1999
- -------------------------------------------------
Robert L. Brackett
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
Josh C. Cox, Jr.
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
Hubert Graves, Jr.
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
Roy H. Lambert
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
Earl H. Masteller
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
Louis L. Schlitt
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
Walter E. Smith, Jr.
* /s/ Josh C. Cox, Jr. Director October 15, 1999
- -------------------------------------------------
James R. Thompson
* 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.
</TABLE>
<PAGE>
Exhibits Schedule
The following exhibits are filed as part of this Post-Effective Amendment No. 1
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.
**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
- ------------------------------------
* Denotes previously EDGAR 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.
</TABLE>
