SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File No. 000-26145
CITRUS FINANCIAL SERVICES, INC.
A Florida Corporation (IRS Employer Identification No. 65-0136504)
1717 Indian River Boulevard, Suite 100
Vero Beach, Florida 32960
(561) 778-4100
Securities Registered Pursuant to Section 12(b) of the
Securities Exchange Act of 1934:
NONE
Securities Registered Pursuant to Section 12(g) of the
Securities Exchange Act of 1934:
Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenues for the fiscal year ended December 31, 1999: $ 7,003,000
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (467,626 shares) on February 29, 2000, was
approximately $4,676,260. As of such date, no organized trading market existed
for the common stock of the Registrant. The aggregate market value was computed
by reference to the highest known recent trade of the common stock of the
Registrant at $10.00 per share. For the purposes of this response, directors,
officers and holders of 5% or more of the Registrant's common stock are
considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's Common Stock, as of
February 29, 2000: 1,332,118 shares of $3.15 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Shareholders for the Fiscal Year ended
December 31, 1999. (Part II )
2. Portions of Proxy Statement for the 2000 Annual Meeting of Shareholders.
(Part III)
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND AFFILIATES ("CITRUS")
TABLE OF CONTENTS
NOTE: Certain information required by Form 10-KSB is incorporated by reference
from the 1999 Annual Report and 2000 Annual Meeting Proxy Statement as indicated
below. Only that information expressly incorporated by reference is deemed filed
with the Commission.
PART I Page Number
-----------
Item 1 Business of Citrus 3
Item 2 Properties 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of
Security Holders 14
PART II
Item 5 Market for Common Equity and Related
Stockholder Matters 15
Item 6 Management's Discussion and Analysis
of Financial Condition and Results of Operations 15(1)
Item 7 Financial Statements and Supplementary Data 15(1)
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
PART III
Item 9 Directors and Executive Officers of the Registrant 16(2)
Item 10 Executive Compensation 16(2)
Item 11 Security Ownership of Certain Beneficial Owners
and Management 16(2)
Item 12 Certain Relationships and Related Transactions 16
Item 13 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 19
- --------------------------------------------------------------
(1) These items are incorporated by reference from Citrus' 1999 Annual
Report pursuant to Instruction E.3. of Form 10-KSB.
(2) The material required by Items 9 through 11 is hereby incorporated by
reference from Citrus' definitive proxy statement pursuant to
Instruction E.3. of Form 10-KSB.
<PAGE>
PART I
ITEM 1. 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 of Citrus - 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
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 72,000. Indian River County has a population of approximately
105,000. 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 $40,285.
Citrus Bank's Sebastian branch is located in northern Indian River
County, Florida. Sebastian has a population of approximately 15,000 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 9,100 residents, most
3
<PAGE>
of whom are retired. Both Indian River 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' Addition of Loan Production Offices
Citrus has expanded its loan originations by establishing new loan
production offices in Miami and Sebring, Florida. We had initially chosen Miami
for a new bank, but we have withdrawn those plans for the near term and opted to
keep the office open to produce new loans for Citrus Bank. By the end of January
2000 this office had generated $1.8 million in new loans. In an additional
effort to open another new bank in Sebring, we opened a loan production office
in Sebring in June 1999. Like Miami, we have decided to continue to run this
office as a loan production office at the current time. The Sebring office has
produced $3.8 million in new loans since June 1999. Continued loan originations
are expected from these offices in 2000.
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.
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 December 31, 1999, net loans held for investment totaled
$67.3 million, or 76.5%, of total assets. As of the same period, loans held for
sale totaled $2.0 million, or 2.2%, of total assets.
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.
4
<PAGE>
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.
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 December 31, 1999, was approximately
$1,263,000 or approximately $2,104,100 for certain excepted loans. At December
31, 1999, the maximum amount loaned to one borrower and related entities,
including guarantees of loans with and without recourse, totaled approximately
$991,224, which was within the applicable legal lending limit of $2,104,100. See
"Regulation And Supervision Governing Citrus."
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 December 31,
1999, $23.2 million, or 34.2%, of Citrus' total loan portfolio, excluding loans
held for sale, consisted of one-to-four family residential real estate loans.
Approximately $7.6 million, or 32.8%, 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
5
<PAGE>
in the secondary market to institutional investors such as Fannie Mae.
Fixed-rate home loans include a "Due 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 $537,000 in 1999 and
$879,000 in 1998. These amounts represented 8.3% of total interest income for
1999 and 13.6% for 1998.
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 December 31, 1999, construction and land development loans amounted
to $6.8 million, or less than 10.1%, 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 December 31, 1999, Citrus had three spec loans totaling $470,326.
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 $26.3 million, or 38.8%, of loans held
for investment as of December 31, 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
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
December 31, 1999, the largest commercial real estate loan was $1,000,000
secured by commercial real estate, and was current. The largest multi-family
real estate relationship was $613,468 secured by duplex rental units, and was
current.
Commercial Loans. Citrus' commercial loans are business loans that are
not secured by real estate. At December 31, 1999, the largest commercial loan
was $888,397 for a floorplan line of credit secured by yachts. At December 31,
1999, Citrus had outstanding Small Business Administration ("SBA") loans of
$173,157. 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
6
<PAGE>
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 December 31, 1999, consumer loans amounted to $4.4 million,
or 6.5%, 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.
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 December
31, 1999, Citrus had no OREO properties and $2,000 in 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.
7
<PAGE>
All or a portion of general credit 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 December 31, 1999, Citrus had 11 loan relationships classified as
substandard or doubtful totaling $656,000, and no loans classified as loss.
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 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
December 31, 1999, Citrus had a total allowance for credit losses of $401,000,
representing 0.6% of total loans held for investment.
Non-Bank Subsidiary
As of December 31, 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 December 31, 1999,
Citrus' aggregate investment in Citrus Mortgage was less than $1,000. Citrus
Mortgage is not active.
Personnel
As of December 31, 1999, Citrus had no full-time employees and Citrus
Bank had 48 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.
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
8
<PAGE>
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.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed
into law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas
of financial services regulation. The law permits the creation of new financial
services holding companies that can offer a full range of financial products
under a regulatory structure based on the principle of functional regulation.
The legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
The law also provides financial organizations with the opportunity to structure
these new financial affiliations through a holding company structure or a
financial subsidiary. The new law reserves the role of the Federal Reserve Board
as the supervisor for bank holding companies. At the same time, the law provides
a system of functional regulation which is designed to utilize the various
existing federal and state regulatory bodies.
The law also includes a minimum federal standard of financial privacy.
Financial institutions are required to have written privacy policies that must
be disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act also
provides for the functional regulation of bank securities activities. The law
repeals the exemption that banks were afforded from the definition of "broker,"
and replaces it with a set of limited exemptions that allow the continuation of
some historical broker activities performed by banks. In addition, the act
amends the securities laws to include banks within the general definition of
dealer. Regarding new bank products, the law provides a procedure for handling
products sold by banks that have securities elements.
In the area of CRA activities, the law generally requires that
financial institutions address the credit needs of low-to-moderate income
individuals and neighborhoods in the communities in which they operate. Bank
regulators are required to take the CRA ratings of a bank or of the bank
subsidiaries of a holding company into account when acting upon certain branch
and bank merger and acquisition applications filed by the institution. Under the
law, financial holding companies and banks that desire to engage in new
financial activities are required to have satisfactory or better CRA ratings
when they commence the new activity.
Most of the provisions of the law took effect on March 11, 2000, with
other provisions being phased in over a one to two year period thereafter. It is
anticipated that the effects of the law, while providing additional flexibility
to bank holding companies and banks, may result in additional affiliations of
different financial services providers, as well as increased competition,
resulting in lower prices, more convenience, and greater financial products and
services available to consumers.
The foregoing is necessarily a general description of certain
provisions of federal and state law and does not purport to be complete.
Proposals to change the laws and regulations governing the banking industry are
frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such changes
and the impact such changes might have on the Bank cannot be determined at this
time.
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
9
<PAGE>
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 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:
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.
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.
10
<PAGE>
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.
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
11
<PAGE>
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.
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
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
12
<PAGE>
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. 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
of Citrus Bank - FDIC 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, 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.
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 Citrus Bank's latest
quarterly call report. Citrus Bank's assessment was $33,000 for 1999 and $31,000
for 1998.
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 $49.3 million or less plus 10% against that portion of
total transaction accounts in excess of $49.3 million. The first $5.0 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. 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.
Statistical Profile and Other Financial Data
Reference is hereby made to the statistical and financial data
contained in the section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations," for statistical and financial
data providing a review of Citrus' business activities.
13
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth information with respect to Citrus'
offices as of December 31, 1999.
<TABLE>
<CAPTION>
Year Size of
Facility 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., Ste. 100 ..... 1990 10,000 Owned $1,118,133
Vero Beach, Florida
Branches
Sebastian Office
1020 U.S. 1 ........................... 1993 2,800 Owned $ 431,399
Sebastian, Florida
Barefoot Bay Office
1020 Buttonwood Street ................ 1996 2,160 Owned $ 382,497
Barefoot Bay, Florida
Loan Production Offices
Miami Loan Production Office
International Corporate Park .......... 1999 120 Lease 0
10165 NW 19th Street
Miami, Florida
Sebring Loan Production Office
3900 U.S. 27 North .................... 1999 1,960 Lease 0
Sebring, Florida
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Citrus or Citrus Bank
is a party or of which any of their properties are subject; nor are there
material proceedings known to Citrus to be contemplated by any governmental
authority; nor are there material proceedings known to Citrus, pending or
contemplated, in which any director, officer, affiliate or any principal
security holder of Citrus, or any associate of any of the foregoing is a party
or has an interest adverse to Citrus or Citrus Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During the period covered by this report and to date, there has been no
established public trading market for Citrus' Common Stock.
As of February 29, 2000, the number of holders of record of Citrus' Common Stock
was 411.
To date, Citrus has not paid any dividends on its Common Stock. It is the
present policy of the Board of Directors of Citrus to reinvest earnings to fund
the growth and expansion activity of Citrus and of Citrus Bank. There are no
current plans to initiate payment of cash dividends, and future dividend policy
will depend on Citrus Bank's earnings, capital requirements, financial condition
and other factors considered relevant by the Board of Directors of Citrus.
Citrus Bank is restricted in its ability to pay dividends under the national
banking laws and by regulations of the Comptroller. Pursuant to 12 U.S.C. 56, a
national bank may not pay dividends from its capital. All dividends must be paid
out of net profits then on hand, after deducting losses and bad checks. Payment
of dividends out of net profits is further limited by 12 U.S.C. 60(a), which
prohibits a bank from declaring a dividend on its shares of common stock until
its surplus equals its stated capital, unless there has been transferred to
surplus not less than 1/10 of Citrus Bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). Pursuant to
12 U.S.C. 60 (b), the approval of the Comptroller is required if the total of
all dividends declared by Citrus Bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
In December 1990, the Comptroller promulgated regulations which affect the level
of allowable dividend payments by national banks. The intended effect of the
regulations is to make the calculation of national banks' dividend-paying
capacity consistent with generally accepted accounting principles (GAAP). In
this regard, the allowance for loan and lease losses will not be considered an
element of either "undivided profits then on hand" or "net profits." Further, a
national bank may be able to use a portion of its capital surplus account as
"undivided profits then on hand," depending on the composition of that account.
In addition, the regulations clarify that dividends on preferred stock are not
subject to the limitations of 12 U.S.C. 56, while explicitly making such
dividends subject to the constraints of 12 U.S.C. 60. The regulations do not
diminish or impair a well-capitalized bank's ability to make cash payments to
its shareholders in the form of a return of capital.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Citrus hereby incorporates by reference the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 5 through 30 of the 1999 Annual Report to Shareholders for the year ended
December 31, 1999, filed as an Exhibit under Item 13 herein.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Citrus hereby incorporates by reference the Report of the Independent Auditors
and the Consolidated Financial Statements contained in the 1999 Annual Report to
Shareholders for the year ended December 31, 1999, filed as an Exhibit under
Item 13 herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
None.
15
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Citrus hereby incorporates by reference the sections entitled "Election of
Directors" and "Board of Directors Meetings" contained at pages 2 through 4 of
the Proxy Statement filed as an Exhibit under Item 13 herein.
ITEM 10. EXECUTIVE COMPENSATION
Citrus hereby incorporates by reference the section entitled "Executive
Compensation" contained at pages 5 through 6 of the Proxy Statement filed as an
Exhibit under Item 13 herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Citrus hereby incorporates by reference the sections entitled
"Election of Directors" and "Certain Shareholders" contained at
pages 2 through 4 of the Proxy Statement filed as an Exhibit under
Item 13 herein.
(b) Security Ownership of Management
Citrus hereby incorporates by reference the section entitled
"Election of Directors" contained at pages 2 through 4 of the
Proxy Statement filed as an Exhibit under Item 13 herein.
(c) Changes in Control
Citrus is not aware of any arrangements, including any pledge by
any person of securities of Citrus, the operation of which may at
a subsequent date result in a change of control of Citrus.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Citrus Bank has outstanding loans to certain of Citrus directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans were made in the ordinary
course of business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons not affiliated with Citrus or Citrus Bank and did not
involve more than the normal risk of collectibility or present other unfavorable
features.
Set forth on the following page is certain information as of December
31, 1999 concerning loans made by Citrus Bank to each of its directors,
executive officers and their immediate families whose aggregate indebtedness to
Citrus Bank exceeded $60,000 at anytime since January 1, 1999.
[Intentionally left blank]
16
<PAGE>
<TABLE>
<CAPTION>
Largest
Amount Balance
Maturity Outstanding as of
Date of Date of from January December Interest
Name Loan Loan 1, 1999 31, 1999 Rate Type
- ---- ---- ---- ------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Robert L. Brackett 5/97 6/02 $ 245,000 $ 0 8.50% Commercial
6/97 6/02 332,247 318,439 9.00% Commercial
3/98 1/08 110,620 0 8.00% Commercial
3/99 4/14 573,552 560,414 7.875% Commercial
7/99 7/01 245,000 200,000 8.50% Line of Credit
4/90 N/A 13,390 1,308 13.44% Credit Card
------------ ------------
$ 1,519,809 $ 1,080,161
============ ============
S. Hallock duPont, Jr 11/98 11/06 $ 25,000 $ 0 9.50% Line of Credit
12/98 1/02 390,000 342,492 9.50% Commercial
Europa Corp. 3/98 3/00 250,000 242,000 8.50% Commercial
4/99 5/02 260,202 110,706 10.00% Commercial
4/99 7/13 46,303 45,740 8.25% Real Estate
Recourse Loans Var. Var. 62,511 11,914 Var. Consumer
----------- -----------
$ 1,034,016 $ 752,582
=========== ===========
Hubert Graves, Jr 1/92 N/A $ 5,000 $ 2,467 13.44% Credit Card
Hubert Graves &
Alice Julia Graves 1/92 2/22 94,919 93,078 8.625% Real Estate
----------- -----------
$ 99,919 $ 95,545
=========== ===========
Earl H. Masteller 2/95 2/10 $ 64,985 $ 0 9.75% Real Estate
9/93 10/08 139,290 0 6.75% Real Estate
2/99 3/14 200,000 193,482 6.625% Real Estate
1/00 2/10 7,738 297 9.00% Line of Credit
4/90 N/A 15,067 0 13.44% Credit Card
Masteller & Moler, Inc. 7/99 7/01 18,815 18,815 9.50% Commercial
5/97 6/00 3,428 1,001 9.25% Commercial
6/97 6/99 982 0 9.25% Commercial
9/97 9/99 1,535 0 9.25% Commercial
11/99 11/04 33,750 33,287 7.875% Consumer
4/91 N/A 5,111 2,887 13.44% Credit Card
4/91 N/A 5,068 273 13.44% Credit Card
1/94 N/A 1,593 0 15.00% Credit Card
5/97 N/A 2,007 188 15.00% Credit Card
Masteller, Moler & 11/95 11/00 36,905 17,814 9.50% Commercial
Reed, Inc. 3/99 9/01 10,044 7,267 8.25% Commercial
7/99 7/01 15,962 0 9.50% Commercial
7/96 7/99 1,809 0 9.00% Commercial
10/96 10/99 6,573 0 9.00% Commercial
7/97 7/00 5,624 2,175 9.00% Commercial
Walsh Environmental 12/99 1/01 18,338 18,256 10.00% Commercial
Services, Inc. 12/99 12/04 32,409 32,409 9.50% Commercial
7/97 N/A 5,000 4,408 13.44% Credit Card
6/98 6/02 10,508 7,789 8.75% Commercial
12/99 1/00 5,500 5,500 9.50% Commercial
----------- -----------
$ 648,041 $ 345,848
=========== ===========
Louis L. Schlitt 11/98 12/00 $ 44,598 $ 41,234 9.50% Line of Credit
10/90 N/A 5,217 676 13.44% Credit Card
CFC Unit 201 Corp. 5/98 5/02 515,842 508,874 8.50% Real Estate
Schlitt Insurance 6/99 6/01 44,264 44,264 9.00% Commercial
Services, Inc. 10/90 N/A 5,011 4,685 13.44% Credit Card
----------- -----------
$ 614,932 $ 599,733
=========== ===========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Largest
Amount Balance
Maturity Outstanding as of
Date of Date of from January December Interest
Name Loan Loan 1, 1999 31, 1999 Rate Type
- ---- ---- ---- ------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Walter E. Smith, Jr. 3/94 3/99 $ 199,000 $ 189,000 8.50% Commercial
7/90 N/A 50,000 1,957 13.44% Credit Card
Sherry Smith & 1/92 N/A 6,000 1,443 13.44% Credit Card
Walter Smith
Walter Smith & 10/90 N/A 8,000 0 13.44% Credit Card
Sheila Gallira
Southeast Interstate 6/95 N/A 10,336 436 13.44% Credit Card
Services 6/95 N/A 9,296 3,312 13.44% Credit Card
6/95 N/A 8,148 3,702 13.44% Credit Card
6/95 N/A 5,000 4,387 13.44% Credit Card
6/95 N/A 5,000 4,291 13.44% Credit Card
8/91 N/A 5,000 2,820 13.44% Credit Card
7/90 N/A 5,000 0 13.44% Credit Card
4/99 10/06 760,000 714,083 8.50% Commercial
7/99 7/01 277,141 102,141 9.00% Real Estate
----------- -----------
$ 1,347,921 $ 1,027,572
=========== ===========
</TABLE>
18
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denoted by an
asterisk (*) were previously filed as a part of, and are hereby
incorporated by reference from either (i) a Registration Statement on
Form -18 under the Securities Act of 1933 for Citrus, as filed with
the Securities and Exchange Commission on June 30, 1989, Registration
No. 33-29696-A (referred to as "S-18"), (ii) an Annual Report on Form
10-KSB (10-K), (iii) the quarterly report filed on Form 10-QSB for the
quarter ended March 31, 1995 (10-Q) or (iv) a Registration Statement
on Form SB-2 filed under the Securities Act of 1933 for Citrus, as
filed with the Securities and Exchange Commission on October 28, 1999,
Registration No. 333-67613. The exhibit numbers correspond to the
exhibit numbers in the referenced documents.
Exhibit No. Description of Exhibit
*3.1 Articles of Incorporation dated May 19, 1989 (S-18)
*3.2 By-laws adopted June 29, 1989 (S-18)
*3.3 Amendments to bylaws adopted March 16, 1995 (1995 10-Q)
*4.1 Specimen Common Stock Certificate (1999 SB-2)
*10.3 Employment Agreement dated July 11, 1991 between Registrant and
Randy J. Riley (1992 10-K)
*10.4 Employment Agreement dated July 11, 1991 between Registrant and
Henry O. Speight (1993 10-K)
*10.5 Employment letter with Walter A. Alvarez (1999 SB-2).
22.1 Citrus' 2000 Annual Meeting Proxy Statement.
22.2 Citrus' 1999 Annual Report for the year ended December 31, 1999.
23.1 Consent of Independent Auditors
(b) Reports on Form 8-K.
--------------------
No current reports on Form 8-K were filed by Citrus during the last
fiscal quarter covered by this report.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CITRUS FINANCIAL SERVICES, INC.
Dated: March 24, 2000 By: /s/ Josh C. Cox, Jr.
--------------------
Josh C. Cox, Jr.
President and Chief Executive Officer
Dated: March 24, 2000 By: /s/ Henry O. Speight
--------------------
Henry O. Speight
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ Robert L. Brackett March 24, 2000
- ----------------------
ROBERT L. BRACKETT
Class II Director
/s/ Josh C. Cox, Jr. March 24, 2000
- -------------------
JOSH C. COX, JR.
President, Chief Executive Officer
and Class III Director
/s/ S. Hallock duPont, Jr. March 24, 2000
- -------------------------
S. HALLOCK duPONT, JR.
Class III Director
/s/ Hubert Graves, Jr. March 24, 2000
- ---------------------
HUBERT GRAVES, JR.
Class I Director
/s/ Roy H. Lambert March 24, 2000
- -------------------
ROY H. LAMBERT
Class II Director
/s/ Earl H. Masteller March 24, 2000
- ----------------------
EARL H. MASTELLER
Class I Director
/s/John A. Purdie March 24, 2000
- ------------------
JOHN A. PURDIE
Class I Director
/s/ Louis L. Schlitt March 24, 2000
- -------------
LOUIS L. SCHLITT
Class III Director
20
<PAGE>
/s/ Walter E. .Smith, Jr. March 24, 2000
- -------------------------
WALTER E. SMITH, JR.
Class I Director
/s/ James R. Thompson March 24, 2000
- ----------------------
JAMES R. THOMPSON
Class II Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as of the
date of filing this report. An annual report and proxy materials will be
furnished to security holders subsequent to the filing of this Annual Report on
Form 10- KSB. Citrus' Proxy Statement and 1999 Annual Report are included as
Exhibits 22.1 and 22.2 of this filing.
21
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We agree to the incorporation by reference into this Form 10-KSB of our report,
dated January 21, 2000, of our audit of the consolidated financial statements of
Citrus Financial Services, Inc. and Subsidiary included in the Citrus Annual
Report for the year ended December 31, 1999.
/s/ STEVENS, SPARKS & COMPANY, P. A.
STEVENS, SPARKS & COMPANY, P. A.
Jacksonville, Florida
March 20, 2000
22
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
1717 Indian River Boulevard
Vero Beach, Florida 32960
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 24, 2000
Solicitation and Voting of Proxies
This proxy statement and the accompanying proxy card are being
furnished to shareholders of Citrus Financial Services, Inc. ("Citrus" or the
"Company") in connection with the solicitation of proxies by the Board of
Directors to be used at the company's annual meeting of shareholders ("annual
meeting") or any adjournment thereof. The annual meeting will be held on Monday,
April 24, 2000, at 5:00 p.m., local time, at the Corporate Office, 1717 Indian
River Boulevard, Suite 100, Vero Beach, Florida.
Regardless of the number of shares of common stock owned, it is
important that shareholders be represented by proxy or in person at the annual
meeting. Shareholders are requested to vote by completing the enclosed proxy
card and returning it signed and dated in the enclosed postage prepaid envelope.
Shareholders are urged to indicate the way they wish to vote in the space
provided on the proxy card. Proxies solicited by the Board of Directors of the
company will be voted in accordance with the directions given therein. Where no
instructions are indicated, proxies will be voted "FOR" the management director
nominees set forth below; "FOR" the ratification of Stevens, Sparks & Company,
P.A., as the independent auditors of Citrus for the fiscal year ending December
31, 2000; and if necessary, "FOR" approval to adjourn the annual meeting to
further solicit proxies.
Revocation of Proxy
A shareholder's presence at this annual meeting will not automatically
revoke his or her proxy. Shareholders may revoke a proxy at any time prior to
its exercise by filing with the Secretary of the company a written notice of
revocation, by delivering to the company a duly executed proxy bearing a later
date, or by attending the annual meeting and voting in person.
Voting Securities
The securities which may be voted at this annual meeting consist of
shares of common stock of Citrus ("common stock") with each share entitling its
owner to one vote for the election of directors and any other matters that may
come before the annual meeting. The close of business on March 10, 2000, has
been fixed by the Board of Directors as the record date ("record date") for the
determination of shareholders entitled to notice of and to vote at this annual
meeting and any adjournment thereof. The total number of shares of the company's
common stock outstanding on the record date was 1,332,118 shares which are held
by approximately 411 shareholders.
<PAGE>
The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of common stock is necessary to constitute a
quorum at the annual meeting. In the event there are not sufficient votes for a
quorum to approve any proposal at the time of the annual meeting, this annual
meeting may be adjourned in order to permit further solicitation of proxies.
Certain Shareholders
As of March 10, 2000, no persons or apparent groups of persons, other
than officers or directors of the company and Citrus Bank, N.A. (the "Bank"),
are known by management to own beneficially five percent or more of the
outstanding shares of Citrus' common stock.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of Citrus, as proposed herein, will be composed
of ten members. The Board of Directors is divided into three classes and the
terms of each class are staggered so that approximately one-third of the
directors are elected each year. Terms for directors are three years. Currently
there are four Class I directors, three Class II directors, and three Class III
directors. Four Class I directors have been nominated by the Board to stand for
election at this annual meeting.
Management's nominees to fill the three-year terms are Hubert Graves,
Jr., Earl H. Masteller, Walter E. Smith, Jr. and John A. Purdie, all of whom
are presently directors of Citrus.
It is intended that the proxies solicited by the Board of Directors
will be voted "FOR" the election of said nominees unless otherwise indicated. If
any nominee is unable to serve, the shares represented by all valid proxies will
be voted for the election of such substitute as the Board may recommend. At this
time the Board of Directors knows of no reason why any nominee might not be able
to serve.
The Board of Directors recommends that shareholders vote
"FOR" election of the nominees.
The following table describes the period that each nominee has served
as a director of Citrus, his position and offices held with the company, his
principal occupation or employment, and further contains information as of March
10, 2000, with respect to the beneficial ownership (as such term is defined
under the Rules and Regulations of the Securities Exchange Commission) of the
company's common stock held by each nominee, each director, plus the number of
shares that person has the right to acquire within the next 60 days, and all
directors as a group.
2
<PAGE>
<TABLE>
<CAPTION>
Name, age, principal Current Number Percent of
occupation, directorships and Director Term of Shares Right to Beneficial
business experience Since Expires Owned(1) Acquire(2) Ownership(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management's nominees for three-year term:
Class I Directors
Hubert Graves, Jr., age 69. 1989 2000 149,657 0 11.23%
President of Hubert Graves Citrus,
Inc. since 1965. President of HGX,
Inc. since 1977.
Earl H. Masteller, age 61. 1989 2000 45,062 0 3.38%
President of Masteller & Moler
Associates, Inc., since 1985. Vice
President of Masteller, Moler and
Reed, Inc., since 1987.
Walter E. Smith, Jr., age 59. 1990 2000 120,231 0 9.03%
Owner and operator of Travel
Centers of America in Florida,
Georgia and Tennessee since 1973.
John A. Purdie, age 57. 1999 2000 53,909 0 4.05%
President of Regency Windsor
Capital, Inc. since 1984.
Continuing directors:
Class II Directors
Robert L. Brackett, age 65. 1989 2001 111,279 0 8.35%
Chairman of the Board of the
company and the Bank since 1990.
Treasurer and Director of Credit
Data Services, Inc. since 1997.
Roy H. Lambert, age 69.(4) 1994 2001 219,900 0 16.51%
Chairman of Regency Windsor, Inc.
since 1974.
James R. Thompson, age 71.(5) 1990 2001 222,437 0 16.70%
Consulting Engineer for Regency
Windsor Capital, Inc. since 1988.
President of Regency Acquisitons,
Inc. from 1980 to 1988. Advisor to
Chairman of Regency Windsor
Management Co. since 1996.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name, age, principal Current Number Percent of
occupation, directorships and Director Term of Shares Right to Beneficial
business experience Since Expires Owned(1) Acquire(2) Ownership(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class III Directors
Josh C. Cox, Jr., Age 58. 1993 2002 158 26,400 1.95%
President and Chief Executive
Officer of the company since June
1994. Vice Chairman and Chief
Executive Officer of the Bank
currently. Bank Consultant since
1976. President and Chief Executive
Officer of First Guaranty Bank,
Hammond, Louisiana from 1986 to
1991.
Louis L. Schlitt, Age 64. 1989 2002 72,245 0 5.42%
Past President of Schlitt Insurance
Services, Inc. and Louis Schlitt, Inc.
with 43 years experience in
insurance and investments.
Currently retired and managing personal
real estate investments.
S. Hallock duPont, Jr., age 64. 1999 2002 83,063 29,288 8.25%
President and CEO of Europa Corp since
1962.
All Directors & Executive Officers 864,492 102,499 67.40%
as a group (16 persons)
- -----------------------------------
<FN>
(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.
(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) Table computed on 864,492 shares actually owned, plus 29,886 shares which
may be acquired under presently exercisable stock purchase warrants
granted in connection with Citrus' initial stock offering, 72,613 shares
which may be acquired under presently exercisable stock options and
1,332,118 total shares, all as outstanding on the record date.
(4) Includes 219,742 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.
(5) Includes 219,742 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 2,695 shares owned jointly by Mr. Thompson
and his wife.
</FN>
</TABLE>
Board of Directors Meetings
Citrus conducts its business through meetings of the Board of Directors.
During the fiscal year ended December 31, 1999, the Board of Directors held five
meetings. No director of the Company attended fewer than 75% of the total
meetings of the Board of Directors.
4
<PAGE>
Committees of the Board of Directors
The Board of Directors of the Company does not have standing Committees.
Directors' Compensation
Citrus paid director fees of $10,000 to its Directors for the period ended
December 31, 1999, and Citrus Bank paid director fees of $46,000 to its
Directors for the same period.
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):
<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 5, 1999 25,000 10.75 5,000 July 5, 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, 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
- --------------------------------------------------------------------------------------------------------
Annual Compensation Long-term compensation
Name and Other annual All other
principal position Year Salary Bonus compensation Stock options compensation
- ------------------ ---- ------------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Josh C. Cox, Jr. 1999 $160,000(1) None $21,558(2) None None
President and Chief 1998 $160,000 None $20,285 None None
Executive Officer since 1997 $160,000 None $18,852 None None
July 1, 1994
Walter A. Alvarez 1999 $125,000 $12,500(3) None 5,000 None
President of the Bank's
Miami Region since
January 1, 1999
[Footnotes follow this page]
5
<PAGE>
<FN>
(1) Mr. Cox's annual base salary for the fiscal year 2000 is $160,000. This
base salary is considered to be compensation for Mr. Cox's service as
President and Chief Executive Officer of the Company and Vice Chairman and
Chief Executive Officer of the Bank.
(2) Other annual compensation includes $8,466 which is the value of the cost to
Citrus of the use of a Bank owned automobile, director fees of $6,000,
annual club dues of $6,152 and miscellaneous employee benefits of $940.
(3) Mr. Alvarez's bonus is for the opening of the loan production office in
Miami. Another $12,500 is to be awarded when the LPO becomes a de novo
bank.
</FN>
</TABLE>
Benefits
Insurance: Citrus Bank's full-time officers and employees are provided
hospitalization, major medical, short and long-term disability, dental
insurance, and term life insurance under group plans on generally the same basis
to all full-time employees. The Bank pays 95% of the costs of this insurance.
Bonuses: Neither the Company nor the Bank has an established bonus policy
for employees; however, the Bank's Board of Directors awarded $7,000 in bonuses
to employees of the Bank during the year ended December 31, 1999, in addition to
the $12,500 bonus awarded to Mr. Alvarez for opening the Miami LPO and the
$7,000 signing bonus awarded to Mr. Tench. The payment of any bonus is at the
sole discretion of the Board of Directors.
401(k) Plan: During 1990 Citrus Bank adopted a 401(k) Plan (the "Plan")
which covers all of the employees of the Bank who have completed at least one
year of service and who are at least 20 years of age. The effective date of the
Plan was January 1, 1990. Eligible employees who choose to participate in the
Plan may contribute from 1% to 15% of their annual base salary to the Plan. The
Bank may match up to 100% of all employee contributions which are equal to or
less than $10,000 of base salary. In addition, the Bank may elect to make
additional contributions to the Plan based upon the Bank's annual profit.
Contributions made by the Bank do not vest in an individual employee until that
employee has 2 years of service, at which time 25% of contributions made are
earned. For each additional year of service, an employee will earn another 25%
until the end of year five when an employee will be 100% vested. The Bank
contributed $11,000 to match 25% of employees' 1998 contributions to the Plan
for the fiscal year ended December 31, 1998. There was no Bank contribution for
the year ended December 31, 1999.
PROPOSAL II - APPOINTMENT OF AUDITORS
FOR FISCAL YEAR ENDING DECEMBER 31, 2000
Citrus' independent auditors for the fiscal year ended December 31,
1999, were Stevens, Sparks & Company, P.A. The Board of Directors appointed
Stevens, Sparks & Company, P.A. to be its independent auditors for the fiscal
year ending December 31, 2000, subject to shareholder approval. A member of the
firm will be present at the annual meeting to respond to shareholders questions
and will have the opportunity to make a statement if he so desires.
The Board of Directors recommends that shareholders vote
"FOR" the ratification of the appointment of Stevens, Sparks
& Company, P.A. as independent auditors for the fiscal year
ending December 31, 2000.
6
<PAGE>
PROPOSAL III - ADJOURNMENT OF ANNUAL MEETING
The Board of Directors of Citrus seeks your approval to adjourn the
annual meeting in the event that the number of proxies sufficient to approve
Proposals I and II are not received by April 25, 2000. In order to permit
proxies that have been received by Citrus at the time of the annual meeting to
be voted, if necessary, for adjournment, Citrus is submitting the question of
adjournment to permit further solicitation of proxies as a separate matter for
your consideration. If it is necessary to adjourn the annual meeting and the
adjournment is for a period of less than 30 days, no notice of the time and
place of the adjourned meeting need be given the shareholders, other than an
announcement made at the annual meeting.
The Board of Directors recommends that shareholders
vote "FOR" approval to adjourn the Meeting.
Solicitation
The cost of soliciting proxies on behalf of the Board of Directors for
the annual meeting will be borne by Citrus. Proxies may be solicited by
directors, officers, or regular employees of the company or Citrus Bank in
person or by telephone, telegraph or mail. Citrus will request persons, firms
and corporations holding shares in their names, or in the names of their
nominees, which are beneficially owned by others, to send proxy materials to and
obtain proxies from such beneficial owners, and will reimburse such holders for
their reasonable out-of-pocket expenses in doing so.
Shareholder Proposals
In order to be eligible for inclusion in Citrus' proxy material for
next year's annual meeting of shareholders, any shareholder proposal to take
action at such annual meeting must be received at the corporate office of the
company, 1717 Indian River Boulevard, Suite 100, Vero Beach, Florida 32960, on
or before January 22, 2001. Proposals must comply with the provisions of 17
C.F.R. Section 240.14a-8 ("Rule 14a") of the rules and regulations of the
Securities and Exchange Commission in order to be included in the company's
proxy materials.
New business may be taken up at the annual meeting, provided the
proposal is stated in writing and filed with the Secretary of the company at
least five days before the annual meeting. Any shareholder may make any other
proposal at the annual meeting and the same may be discussed and considered, but
unless stated in writing and filed with the company's Secretary by the above
date, such proposal shall be laid over for action at an adjourned annual meeting
or at a Special Meeting taking place 30 or more days thereafter. This provision
does not prevent the consideration and approval or disapproval at the annual
meeting of reports of officers, directors, and committees; but in connection
with such reports, no new business shall be acted upon at such annual meeting
unless stated and filed as provided herein.
Financial Statements
A copy of the Annual Report for the fiscal year ended December 31,
1999, accompanies this proxy statement. The Annual Report includes financial
statements, which information is incorporated herein by reference.
7
<PAGE>
Report on Form 10-KSB
Shareholders of Citrus can obtain a copy of the company's Annual Report
for the fiscal year ended December 31, 1999, on Form 10-KSB as filed with the
Securities and Exchange Commission by making a written request therefor to the
company, Attention: Henry O. Speight, Executive Vice President and Chief
Financial Officer, 1717 Indian River Boulevard, Suite 100, Vero Beach, Florida
32960. Copies of exhibits and basic documents filed with that report or
referenced therein will be furnished to shareholders of record upon request.
Copies may also be obtained from the Securities and Exchange Commission's
Internet web site located at www.sec.gov.
Other Matters
The Board of Directors knows of no other matters to be brought before
the annual meeting. However, if other matters should come before the annual
meeting, it is the intention of the persons named in the enclosed form of proxy
to vote the proxy in accordance with their judgment of what is in the best
interest of the company.
Citrus Financial Services, Inc.
Vero Beach, Florida
March 27, 2000
8
<PAGE>
1
Corporate Profile
Citrus Financial Services, Inc. (Citrus), the parent company of Citrus Bank,
National Association, has three full-service banking offices and two loan
production offices. Two of the full-service offices are located in Indian River
County, one in Vero Beach and one in Sebastian. The third full-service location
is in Barefoot Bay, which is in adjacent Brevard County. The loan production
offices are located in Sebring and Miami, Florida. Citrus has $88 million in
consolidated assets. The principal business activities for Citrus Bank include
offering a wide range of FDIC-insured deposit products and commercial, real
estate and consumer loans, as well as full service mortgage banking activities.
In addition, Citrus offers armored car services for its commercial clientele.
Citrus' stock is closely held and not traded on any national market.
Contents
To Our Stockholders and Friends.................. 2
Consolidated Financial Highlights................ 3
What's New with Services and Markets............. 4
Management's Discussion and Analysis............. 5
Independent Auditors' Report..................... 31
Consolidated Financial Statements................ 32
Notes to Consolidated Financial Statements....... 36
Board of Directors............................... 53
Officers......................................... 55
Shareholder Information.......................... 56
<PAGE>
To Our Stockholders and Friends
Preparing for the Future, Sometimes a Bumpy Road: Late in 1998, your Board of
Directors and Management filed a registration statement with the Securities and
Exchange Commission to offer additional shares of Citrus common stock to the
public. Our plan was to use the additional capital to expand the Company's reach
by establishing new banks and branches in other Florida communities. We engaged
professional investment bankers to sell the stock and begin to make plans and
employ staff to fund our new expansion. By the time our offering passed
regulatory review and could be offered for sale, the market for community bank
stock had softened and sales lagged expectations. In December, we determined
that the issue had languished too long; its ultimate success was unlikely and we
terminated the public offering. As a result, the costs related to the offering
of $337,000 and the organizational expenses of the proposed Sebring bank of
$79,000 were expensed for a total of $416,000.
Several problem loans surfaced during the year that reflected in $735,000 in net
loan losses. These losses necessitated a provision for loan losses of $675,000.
Most of the losses related to five loan relationships with the largest
relationship filing bankruptcy resulting in a loss of $323,000. While we are
hopeful that we can successfully recover a portion of these losses, we have
adjusted our reserve for loan losses and charged off all or that portion of the
loans for which we cannot readily identify collateral value. Putting these
events together in the same year further reduced our earnings and left us with a
net loss of $276,000 for 1999.
Investing for the Future: In December, Citrus' organizers exercised their
warrants early and contributed $2,239,000 in capital. The Board of Directors and
other organizers wanted to show their support for the future of the Company in
spite of a disappointing year. While our plans and aspirations have not
materialized for 1999, our hopes are now on the future as we return to
profitability and put the difficulties of 1999 behind us.
Our investment in new technology paid off in 1999 as we passed through to the
new century without any of the highly touted Year 2000 problems. In October
1998, management established in-house computer operations utilizing
state-of-the-art computer services to our customers and processing all customer
accounts internally. This investment has provided the Bank with the latest in
banking technology, as well as the flexibility to meet customer demands for
quality banking services.
Thank You: The support we have received from our stockholders and our local
community has been an important ingredient in our growth. On behalf of your
Staff, Officers, and Board of Directors, thank you.
Sincerely,
Robert L. Brackett, Chairman of the Board Josh C. Cox, Jr., President & CEO
2
<PAGE>
Consolidated Financial Highlights: Citrus Financial Services, Inc.
SUMMARY OF FINANCIAL DATA
(Dollars in thousands, except per share figures)
<TABLE>
<CAPTION>
At or For the Period Ended
--------------------------
December 31,
------------
At the Period End: 1999 1998
---- ----
<S> <C> <C>
Assets.......................................................................... $ 88,059 $ 84,051
Loans held for investment....................................................... $ 67,750 $ 53,009
Loans held for investment, net of allowance for credit losses................... $ 67,349 $ 52,548
Deposits........................................................................ $ 79,091 $ 76,703
Stockholders' equity............................................................ $ 8,367 $ 6,447
Book value per share............................................................ $ 6.40 $ 6.77
Shares outstanding.............................................................. 1,307,167 952,296
Outstanding warrants to purchase one share of
common stock................................................................. 114,901 469,772
Vested stock options outstanding................................................ 72,613 62,613
Equity-to-assets ratio.......................................................... 9.50% 7.67%
Nonperforming assets-to-total assets ratio...................................... 0.52% 1.06%
For the Period: Year Ended December 31,
- --------------- -----------------------
1999 1998
---- ----
Total interest income........................................................... $ 6,500 $ 6,452
Net interest income before provision............................................ $ 3,596 $ 3,511
Net income (loss)............................................................... $ (276) $ 564
Return on average assets........................................................ -0.33% 0.72%
Return on average equity........................................................ -4.09% 9.13%
Average equity-to-average assets ratio.......................................... 8.12% 7.92%
Noninterest expenses to average assets.......................................... 4.66% 3.86%
Yield and Rates:
Loans held for investment....................................................... 9.1% 9.9%
Securities...................................................................... 5.5% 5.4%
Other interest-earning assets................................................... 7.3% 7.9%
All interest-earning assets..................................................... 8.6% 9.0%
Deposits........................................................................ 4.5% 4.8%
Other borrowed funds............................................................ 5.4% 5.5%
Net interest margin............................................................. 4.7% 4.9%
</TABLE>
3
<PAGE>
What's New with Services and Markets
Loan Production Offices: In January 1999 Citrus Bank opened its first loan
production office in Miami, Florida. This Miami location was in anticipation of
opening a full-service de novo bank later in 1999. That new bank has been
postponed but the loan production office continues to generate loans. By the end
of January 2000, the Miami Office has generated $1.8 million in new loans. To
accommodate another de novo bank opening in Sebring, Florida, Citrus purchased
land and other assets from The Commercial Bank of Highlands County (In
Organization) and opened a loan production office in June 1999. Plans for a de
novo bank at this location have been postponed although the loan production
office continues. The facility now employs three full time employees and is well
served by a local board of directors. Since June this loan production office has
produced $3.8 million in new loans.
Pickups and Deliveries: The Company completed its second year of its uniquely
competitive, fully staffed, professional armored car service designed to cater
to commercial clientele. Additional corporate clients have been added that
include small retail clients up to large "entertainment center" clients. The
armored car service continues to be multi-faceted, meeting the needs of the
small family business as well as the large corporate client. Our corporate focus
has been, since our inception, to be a full service commercial banking
enterprise, specializing in small to medium business, and our armored car
service clearly demonstrates that commitment.
Developing Our Existing Markets: Our Barefoot Bay Center, opened in late 1996,
provides full service banking to this retirement community. By the end of 1999,
this Center had garnered $20 million in deposits. Our Sebastian Center, which
opened a few years earlier, had deposits of $16 million at the end of December
1999. Our Vero Beach Center reached $43 million at the end of the year. These
Centers provide the source of funding for our loan programs in the local
community. The local residents have been very supportive of these Centers and
have welcomed Citrus Bank into their marketplace.
What's in the Future? In the new century, a dynamic organization will be a
prerequisite for continued success. Our Company is no different. To ensure our
success, Citrus has put $2 million in new capital into Citrus Bank. This new
capital will help Citrus Bank develop a progressive future with expansive goals
that will encompass growth in investments, in deposits, and in profitability.
While market factors stalled our public offering in 1999, additional capital
from our warrant holders has provided adequate capitalization for the expansion
of Citrus Bank. Our future, like the future of all service industries, relies on
the vision of its leadership and the delivery of quality service. At Citrus, we
deliver both.
Thanks to You: No business, regardless of its size, is an island unto itself.
The commitment of our Staff, Management and Board of Directors is only part of
our success. Our shareholders have been there from the beginning through it all.
Thank you for your continued support.
4
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
for Citrus Financial Services, Inc.
Management's discussion and analysis of earnings and related financial data are
presented herein to assist investors in understanding the financial condition of
Citrus at, and the results of operations of Citrus, for the years ended,
December 31, 1999 and 1998. This discussion should be read in conjunction with
the consolidated financial statements and related footnotes of Citrus presented
elsewhere herein.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total interest income $ 6,500 $ 6,452 $ 5,514 $ 4,973 $ 4,830
Total interest expense 2,904 2,941 2,482 2,288 2,398
Net interest income before
provision for credit losses 3,596 3,511 3,032 2,685 2,432
Provision for credit losses 675 23 269 352 100
Net interest income after
provision for credit losses 2,921 3,488 2,763 2,333 2,332
Noninterest income 503 421 399 371 328
Noninterest expense 3,867 3,007 2,775 2,573 2,090
Provision for income taxes (167) 338 137 46 (94)
Net income (loss) (276) 564 250 85 664
Balance Sheet Data:
Total assets $ 88,059 $84,051 $69,098 $66,416 $ 61,498
Earning assets 79,516 76,470 61,599 59,901 56,708
Investment securities 6,675 5,982 9,283 9,499 10,318
Loans held for investment 67,750 53,009 49,691 46,463 41,841
Allowance for credit losses 401 461 431 354 373
Loans held for sale 1,963 8,291 847 4,561 1,559
Deposit accounts 79,091 76,703 62,601 58,646 53,803
Stockholders' equity 8,367 6,447 5,822 5,427 5,371
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Share Data:
Basic earnings per share $ (0.29) $ 0.59 $ 0.26 $ 0.09 $ 0.71
Book value per share (period end) 6.40 6.77 6.11 5.77 5.71
Weighted average shares outstanding 953 952 948 940 940
Performance Ratios:
Return on average assets -0.33% 0.72% 0.37% 0.14% 1.13%
Return on average equity -4.09% 9.13% 4.46% 1.55% 13.79%
Interest-rate spread during period 4.10% 4.20% 4.17% 4.19% 4.08%
Net interest margin 4.70% 4.92% 4.88% 4.54% 4.41%
Efficiency 94.34% 76.53% 80.88% 84.20% 75.72%
Asset Quality Ratios:
Allowance for credit losses to period
end loans held for investment 0.59% 0.87% 0.87% 0.76% 0.89%
Net charge-offs to average loans
held for investment 1.26% (0.01)% 0.40% 0.84% 0.07%
Nonperforming assets to period
end loans held for investment
and foreclosed property 0.68% 1.67% 3.02% 3.08% 1.68%
Nonperforming assets to period
end total assets 0.52% 1.06% 2.19% 2.17% 1.15%
Capital and Liquidity Ratios (Citrus Bank)
Average equity to average assets 8.12% 7.92% 8.28% 8.96% 8.17%
Leverage (4% minimum required) 9.34% 7.33% 7.93% 8.07% 8.49%
Risk-based capital:
Tier I 11.34% 9.94% 10.82% 10.82% 11.88%
Total 11.91% 10.71% 11.68% 11.56% 12.76%
</TABLE>
6
<PAGE>
Overview
Citrus is a bank holding company which 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 also leases portions of the
second floor at this location for loan administration and operations. 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. In
addition, Citrus Bank operates two loan production offices. One of these offices
is located in International Corporate Park, 10165 NW 19th Street, Miami, Florida
and the other at 3900 U.S. 27 North, Sebring, Florida.
We have grown over the last two years:
<TABLE>
<CAPTION>
December 31,
------------
1999 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Assets $ 88,059 $ 69,098
Loans held for investment 67,750 49,260
Loans held for sale 1,963 847
Deposits 79,091 62,601
Stockholders' equity 8,367 5,822
</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 report.
Results of Operations
Net Income: Citrus experienced a net loss for the period ended December 31,
1999, of $276,000 or $.29 per share. While net interest income increased $85,000
from last year, it was not adequate to fund $675,000 in loan loss provisions
required during the year. Credit weaknesses discovered in late 1999 required
this large provision for loan losses. These charges reduced net interest income
after provision for loan losses to $2,921,000, down $567,000 from $3,488,000 in
1998. Increases in other income of $82,000 or 19% gave limited support. Other
expenses increased from $3,007,000 in 1998 to $3,867,000 in 1999 or $860,000.
The largest part of the increased expense reflects the costs associated with the
Company's terminated stock offering of $337,000 and organizational expenses of
$79,000 for the Sebring acquisition. Salaries and benefits for the loan
production offices in Sebring and Miami accounted for $266,000 in increased
salary expenses. Bank premises and fixed asset expenses increased $143,000
primarily from occupancy expenses of the loan production offices of $53,000 and
increased depreciation expenses of $63,000.
7
<PAGE>
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, the degree
of mismatch and the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities.
Net interest income was $2.9 million for the year ended December 31, 1999, as
compared to $3.5 million for the year ended December 31, 1998. The reduction of
$567,000 or 16.3% reflects the increase in the provision for loan losses of
$675,000. The net interest spread, the difference between the yield on earning
assets and the rate paid on interest-bearing liabilities, was 4.1% and was
comparable to a spread of 4.2% for 1998. The net interest margin, net interest
income divided by average interest-earning assets, was 4.7% for 1999 compared to
4.9% for 1998. The yield on average earning assets was 8.6% for 1999 compared to
9% for 1998 while at the same time the cost of interest-bearing liabilities was
4.5% compared to 4.8% for 1998. The net difference of these changes accounted
for the small reduction in the net interest margin for the year. The reduction
on the yield on earning assets was reflective of the reduction in loans held for
sale during the year that averaged $4 million. While the reduction in these
loans was replaced by loans held for investment that grew $9 million during the
period, the yield on loans held for sale was slightly greater at 9.7% for the
year compared to the loans held for investment at 9.1%. The reduction in the
cost of interest-bearing liabilities reflected the growth of less costly
deposits. Average NOW, money market, and savings deposits were up $2.5 million
while more costly time deposits increased only $.8 million. In addition, the
cost of time deposits was reduced from 5.5% to 5.2%.
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 non-accrual loans have been included in net loans held for
investment.
8
<PAGE>
Average Balances, Income and Expenses, and Rates
dollars in thousands and yields rounded)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
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 $ 26 $ 1 3.8% $ 42 $ 2 4.8%
Taxable securities 6,404 351 5.5% 7,990 430 5.4%
Federal funds sold 5,449 271 5.0% 4,600 245 5.3%
Loans held for sale 5,557 537 9.7% 9,546 879 9.2%
Loans held for investment, net 58,549 5,340 9.1% 49,223 4,896 9.9%
------ ------ ------ -----
Total earning assets 75,985 6,500 8.6% 71,401 6,452 9.0%
------ -----
Non-earning assets 7,048 6,568
------ ------
Total assets $83,033 $77,969
======= =======
Interest-bearing liabilities:
NOW and money market deposits $ 7,685 168 2.2% $ 7,237 141 1.9%
Savings 9,456 306 3.2% 7,441 248 3.3%
Time deposits 45,932 2,379 5.2% 45,120 2,496 5.5%
Other borrowings 947 51 5.4% 1,017 56 5.5%
------ ------- ------ -----
Total interest-bearing liabilities 64,020 2,904 4.5% 60,815 2,941 4.8%
------- -----
Noninterest-bearing liabilities 12,270 10,978
Stockholders' equity 6,743 6,176
------ ------
Total liabilities and stockholders' equity $83,033 $77,969
======= =======
Net interest income before provision
for credit losses $ 3,596 $ 3,511
======== ======
Interest-rate spread 4.1% 4.2%
==== ====
Net interest margin 4.7% 4.9%
==== ====
Ratio of average earning assets to
average interest-bearing liabilities 118.7% 117.4%
====== ======
9
</TABLE>
<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, 1999
vs. the Year Ended December 31, 1998
Increase (Decrease) Due to:
Volume/
Volume Rate Rate Total
--------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Earning assets:
Interest-earning deposits $ (1) $ -- $ -- $ (1)
Taxable securities (86) 8 (1) (79)
Federal funds sold 45 (14) (5) 26
Loans held for sale (367) 48 (23) (342)
Loans held for investment, net 923 (394) (85) 444
----- ----- ----- -----
Total earning assets 514 (352) (114) 48
----- ----- ----- -----
Interest-bearing liabilities:
NOW and money market deposits 9 22 (4) 27
Savings 66 (7) (1) 58
Time deposits 45 (135) (27) (117)
Other borrowings (4) (1) -- (5)
----- ----- ----- -----
Total interest-bearing liabilities 116 (121) (32) (37)
----- ----- ----- -----
Net interest income before $ 398 $ (231) $ (82) $ 85
===== ===== ===== =====
provision for credit losses
</TABLE>
10
<PAGE>
<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)
<S> <C> <C> <C> <C>
Earning assets:
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
</TABLE>
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 table on the following
page illustrates Citrus' interest rate sensitivity at December 31, 1999, as well
as the cumulative gap position at December 31, 1999 and 1998 (dollars in
thousands).
11
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------
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 $ 32 $ -- $ -- $ -- $ 32
Federal funds sold 3,550 -- -- -- 3,550
Securities(1) -- 327 3,490 2,858 6,675
Loans held for sale 1,963 -- -- -- 1,963
Loans held for investment(2) 16,061 8,353 34,721 8,161 67,296
-------- -------- ------- ------- -------
Total earning assets 21,606 8,680 38,211 11,019 79,516
-------- -------- ------- ------- -------
Liabilities
Interest-bearing deposits
NOW and money market deposits(1) 8,926 -- -- -- 8,926
Savings deposits (1) 9,105 -- -- -- 9,105
Certificates of deposit 16,573 27,127 4,130 1,138 48,968
-------- -------- ------- ------- -------
Total interest-bearing deposits 34,604 27,127 4,130 1,138 66,999
Other borrowings -- 70 167 -- 237
-------- -------- ------- ------- -------
Total interest-bearing
liabilities 34,604 27,197 4,297 1,138 67,236
-------- -------- ------- ------- -------
Interest-sensitive gap per period $(12,998) $(18,517) $33,914 $ 9,881 $12,280
========= ======== ======= ======= =======
Cumulative gap at December 31, 1999 $(12,998) $(31,515) $ 2,399 $12,280
========= ======== ======= =======
Ratio of cumulative gap to total earning
assets at December 31, 1999 (16.3)% (39.6)% 3.0% 15.4%
========= ======= ======= =======
Ratio of cumulative gap to total assets
at December 31, 1999 (14.8)% (35.8)% 2.7% 13.9%
========= ======= ======= =======
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%
========= ======= ======= =======
<FN>
(1) For purposes of this illustration, 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. Non-accrual loans of $456,000
were excluded from above.
</FN>
</TABLE>
12
<PAGE>
Citrus generally would benefit from increasing market rates of interest when it
has an asset-sensitive gap and would generally benefit from decreasing market
rates of interest when it is liability sensitive. Citrus currently is liability
sensitive through the one year time frame. This negative sensitivity gap of
$31.5 million results principally from the reduction of loans held for sale and
federal funds sold in favor of loans held for investment with longer periods to
rate adjustments and the increase in shorter term deposits such as: NOW, money
market and savings. Management anticipates that as the mix of fixed-rate to
variable-rate loans stabilizes over the next few months in favor of
variable-rate loans, this negative gap will decline to be more consistent with
historical levels. However, this illustration of 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.
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, questionable values
and the 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
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, 1999, Citrus had loan relationships totaling $656,000 that were
classified as substandard or doubtful. At December 31, 1999, 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. 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.
13
<PAGE>
At December 31, 1999, the allowance for credit losses amounted to $401,000, or
0.59%, of outstanding loans held for investment. The allowance for credit losses
for loans held for investment amounted to $461,000 at December 31, 1998, or
0.87%, of loans held for investment. Citrus' provision for credit losses was
$675,000 for the year ended December 31, 1999, and $23,000 for the year ended
December 31, 1998. The provisions were made based on management's identification
of specific loans with credit weaknesses and an assessment of general credit
loss risk and asset quality of the remaining loan portfolio.
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.
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 which is still performing but one which
management has serious doubts about the borrower's future performance under the
terms of the loan contract. Because these loans are current as to principal and
interest, 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.
14
<PAGE>
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,
---------------
1999 1998
---- ----
<S> <C> <C>
Allowance at beginning of period $ 461 $ 431
-------- ------
Charge-offs:
Real estate loans - -
Installment loans 153 35
Credit cards and related plans 28 10
Commercial and all other loans 587 -
--------- ----------
Total charge-offs 768 45
--------- --------
Recoveries:
Real estate loans - 43
Installment loans - 8
Credit cards and related plans 1 -
Commercial and all other loans 32 1
---------- ---------
Total recoveries 33 52
---------- --------
Provision for credit losses charged
to operations 675 23
--------- --------
Allowance at end of period $ 401 $ 461
======== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 1.15% 0.0%
===== ====
</TABLE>
15
<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,
---------------
1999 1998
---- ----
<S> <C> <C>
Nonaccrual loans held for investment:
Real estate loans $ 88 $ -
Installment loans 201 2
Credit cards and related plans - -
Commercial and all other loans 167 139
---- ----
Total nonaccrual loans held for investment 456 141
---- ----
Accruing loans held for investment over 90 days delinquent:
Real estate loans - 228
Installment loans - 23
Credit cards and related plans 2 -
Commercial and all other loans - 108
---- ----
Total accrual loans held for investment
over 90 days delinquent 2 359
---- ----
Troubled debt restructurings not included above - -
---- ----
Total nonperforming loans held for investment 458 500
---- ----
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 $ 458 $ 890
==== ====
Total nonperforming loans held for investment
as a percentage of total loans held for investment 0.7% 0.9%
==== ====
Total nonperforming loans held for investment
as a percentage of total assets 0.5% 0.6%
==== ====
Total nonperforming loans held for investment
and other real estate owned as a percentage
of total assets 0.5% 1.1%
==== ====
Troubled debt restructurings and modified loans held for investment:
Current $1,585 $ 685
Past due over 30 days and less than 90 days 60 140
Past due over 90 days and included above 88 228
---- ----
$1,733 $1,053
====== ======
</TABLE>
16
<PAGE>
Loans on which interest was not being accrued totaled $456,000 at December 31,
1999, and $141,000 at December 31, 1998. Had interest been accrued on these
nonaccrual loans at originally contracted rates, interest income, before income
taxes, would have been increased by approximately $30,000 at December 31, 1999,
and $26,000 at December 31, 1998.
Of those $456,000 in nonaccrual loans held for investment on December 31, 1999,
all were classified by management as impaired. These impaired loans were,
however, considered by management to have a reasonable likelihood of being
collected in full.
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 and
1999. No loans held for sale were classified as impaired.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------- ---------------------------
Total Amount of Total Amount of
Impaired Valuation Impaired Valuation
Loans Allowance Loans Allowance
<S> <C> <C> <C> <C>
Commercial real estate $ - $ - $ - $ -
Residential real estate - - - -
Commercial loans 167 11 85 43
Consumer loans 201 3 - -
------ ------- -------- --------
Total impaired loans held
for investment $ 368 $ 14 $ 85 $ 43
====== ===== ====== ======
</TABLE>
All of the impaired loans at December 31, 1999 were measured using management's
current estimate of fair value of the collateral. The average loans held for
investment classified as impaired totaled $324,000 in 1999 and $265,000 in 1998.
No material amounts of interest were recorded in 1999 or 1998 for impaired
loans.
17
<PAGE>
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):
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
-----------------------------------------------
Loans Loans
to to
Total Total
Amount Loans Amount Loans
<S> <C> <C> <C> <C>
Loans held for investment:
Commercial real estate loans $ 49 12% $ 101 33%
Residential real estate loans 36 9% 31 35%
Commercial loans 277 69% 257 24%
Consumer loans 39 10% 72 8%
------- ----- ------- ------
Total allowance for credit losses $ 401 100% $ 461 100%
===== ==== ===== ====
Allowance for credit losses as a
percentage of the total loans
held for investment outstanding 0.59% 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 $82,000 during 1999 as compared to the
same period in 1998, reflecting the overall growth in deposit accounts with
transaction fees. Fees and service charges were $422,000 for 1999 as compared to
$350,000 for 1998, an increase of $72,000.
Noninterest Expense: Total noninterest expense increased by $860,000 during 1999
as compared to the same period in 1998 as a result of several changes. This
increase includes a $326,000 increase in salary and benefits expense with
$266,000 of the increase used for staffing costs for the Miami and Sebring loan
production offices. The remaining $60,000 or 4% increase was the result of
adding additional employees and providing normal salary and benefit increases.
Occupancy-related expenses increased $143,000 in 1999 as compared with the same
period in 1998, principally due to higher maintenance expenses, depreciation on
new computer equipment, and operating costs for the new loan production offices
in Miami and Sebring. Other expenses increased $391,000 reflecting the costs of
the terminated public offering of $337,000 and $79,000 in organizational
expenses of the Sebring acquisition. Other recurring expenses were reduced
$25,000 when compared to the same period in 1998.
18
<PAGE>
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,
------------
1999 1998
---- ----
<S> <C> <C>
Advertising and public relations $ 117 $ 72
Assessments and insurance 80 68
Courier, postage, and freight 70 88
Data processing 69 158
Directors' fees 56 51
Dues, subscriptions, and memberships 40 37
Meetings and travel 43 42
Organizational expenses 79 -
Professional fees 118 133
Stationery, printing, and supplies 82 73
Telephone 47 50
Terminated public offering 337 -
Other miscellaneous expenses 250 225
--------- ------
$ 1,388 $ 997
======= =====
</TABLE>
Income Tax Expense: The income tax provision was a $167,000 credit for the year
ended December 31, 1999, an effective rate of 37.7%. The income tax provision
for the year ended December 31, 1998 was $338,000, an effective rate of 37.5%.
19
<PAGE>
Analysis of Financial Condition
Earning Assets
Loans: Loans typically provide higher yields than the other types of earning
assets. Thus one of Citrus' goals is for loans to be the largest category of
Citrus' earning assets. At December 31, 1999 and 1998, loans (including loans
held for sale and investment) accounted for 87% of earning assets. Management
recognizes that the inherent credit and liquidity risks associated with
increases in its loan portfolio must be considered so as to avoid sacrificing
asset quality to achieve its asset mix goals. Loans held for investment averaged
$58.5 million during 1999, as compared to $49.2 million in 1998. Loans held for
sale have averaged $5.6 million during 1999, as compared with $9.5 million in
1998. The growth in average loans held for investment reflects management's
emphasis on expanding Citrus' loans held for investment and a favorable market
for commercial and commercial real estate loans during 1999. See discussion at
"Origination, Purchase, Sale and Repayment of Loans."
The following table shows the composition of Citrus' loan portfolio by category
(dollars in thousands):
<TABLE>
<CAPTION>
Composition of Loan Portfolio:
At December 31,
---------------
1999 1998
---- ----
Percent of Percent of
Amount Total Amount Total
<S> <C> <C> <C> <C>
Loans held for investment:
Commercial real estate $26,326 39% $17,556 33%
Residential real estate 23,160 34% 18,358 35%
Commercial loans 13,881 21% 12,868 24%
Consumer loans 4,385 6% 4,347 8%
--------- ------ --------- ------
67,752 100% 53,129 100%
==== ====
Deferred fees, net (2) (120)
Allowance for credit losses (401) (461)
--------- ---------
Loans held for investment, net $67,349 $52,548
======= =======
Loans held for sale:
Residential real estate $ 1,963 $ 8,291
======== ========
</TABLE>
In the context of this discussion, a "real estate" 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 or real estate loans
to 80%. Citrus' largest category of loans, commercial real estate loans, totaled
$26.3 million and represented 39% of the loan portfolio at December 31, 1999,
compared to $17.6 million and 33% at December 31, 1998. 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.
20
<PAGE>
The following table reflects the contractual principal repayments (excluding
nonaccrual loans of $456,000) by period of Citrus' loan portfolio at December
31, 1999 (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
<S> <C> <C> <C> <C> <C>
Loans held for investment:
Commercial real estate $ 4,779 $ 2,378 $17,663 $ 1,506 $26,326
Residential real estate 2,560 2,910 11,309 6,293 23,072
Commercial loans 7,124 2,783 3,495 312 13,714
Consumer loans 1,598 282 2,254 50 4,184
--------- ------- ------- ------- --------
$16,061 $ 8,353 $34,721 $ 8,161 $62,296
======= ======= ======= ======= =======
Loans held for sale:
Residential real estate $ 1,963 $ - $ - $ - $ 1,963
======== ======= ======= ======= =======
Loans held for investment with maturities over one year:
Fixed rate $18,735
Variable rate 24,147
-------
Total maturities greater than one year - loans held for investment $42,882
=======
</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
$42.9 million in loans held for investment due after December 31, 2000, 44% of
these loans have fixed interest rates and 56% have adjustable interest rates. Of
the fixed-rate loans maturing after December 31, 2000, approximately $13.4
million, or 72%, mature by December 31, 2004.
Origination, Purchase, Sale and Repayment of Loans: Citrus generally originates
loans on real estate located in its primary market area. Residential mortgage
loans originated by Citrus generally are acquired from 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.
21
<PAGE>
Citrus also purchases loans from real estate mortgage brokers located in
Florida. These purchased 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.
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,
------------
1999 1998
---- ----
<S> <C> <C>
Originations - loans held for investment:
Commercial real estate loans $ 6,784 $ 4,623
Residential mortgage loans 6,530 6,571
Commercial loans 20,139 16,156
Consumer loans 2,470 3,675
--------- ---------
Total originations of loans held for investment 35,923 31,025
Less:
Total principal reductions 21,300 27,613
--------- ---------
Increase in total loans held for investment $ 14,623 $ 3,412
========= =========
Originations and purchases - loans held for sale $ 108,226 $ 171,223
Less: loans sold 114,554 163,779
--------- ---------
Increase (decrease) in total loans held for sale $ (6,328) $ 7,444
========== =========
</TABLE>
Investment Securities: The investment securities portfolio is a significant but
declining component of Citrus' total earning assets. Total securities averaged
$6.4 million for 1999 and $8.0 million in 1998. This represents 8% of the
average earning assets for 1999 and 11% of the average earning assets for 1998.
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.
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, the 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
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, 1999
and 1998, Citrus had no securities categorized as trading.
22
<PAGE>
Investment Portfolio: The following table sets forth the carrying value of
Citrus' investment portfolio (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Securities available-for-sale:
U. S. Treasury and Government agency securities $ 3,000 $ 1,618
Mortgage-backed securities 2,177 2,671
Other 459 386
-------- -------
Total $ 5,636 $ 4,675
======== =======
Securities held-to-maturity:
U. S. Government agency securities $ 485 $ 481
Mortgage-backed securities 554 826
Other - -
-------- -------
Total $ 1,039 $ 1,307
======== =======
</TABLE>
The following table sets forth the amortized cost of Citrus' investment
portfolio at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Securities available-for-sale:
U. S. Treasury and Government agency securities $ 3,032 $ 1,600
Mortgage-backed securities 2,251 2,734
Other 459 386
-------- -------
Total $ 5,742 $ 4,720
======== =======
Securities held-to-maturity:
U. S. Government agency securities $ 485 $ 481
Mortgage-backed securities 554 826
Other - -
-------- -------
Total $ 1,039 $ 1,307
======== =======
</TABLE>
23
<PAGE>
Investment Securities Maturities: The following table sets forth, by maturity
distribution, certain information pertaining to the securities 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, 1999:
U. S. Government agency
securities $ - 0.0% $3,485 5.9% $ - 0.0% $ - 0.0% $3,485 5.9%
Mortgage-backed securities 327 6.1% 5 10.2% 1,740 5.9% 659 6.0% 2,731 6.0%
Other - 0.0% - 0.0% - 0.0% 459 7.1% 459 7.1%
----- ------ ------ ------ ------
Total $ 327 6.1% $3,490 5.9% $1,740 5.9% $1,118 6.5% $6,675 6.0%
===== ====== ====== ====== ======
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%
===== ====== ====== ====== ======
</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 $5.5 million in 1999 as compared to $4.6 million in 1998. At
December 31, 1999, short-term investments totaled $3.6 million and $9.2 million
at December 31, 1998. During 1999, Management has intentionally sought to
decrease short-term investments while increasing lower cost deposits such as
NOW, money market, savings as well as certificates of deposit. Both increasing
deposits and decreasing short-term investment were used to support loan growth.
The additional funds generated from recent certificate of deposit promotions
will be deployed into higher earning assets during 2000. These short-term
investments are a primary source of Citrus' liquidity and are generally invested
on an overnight basis.
Deposits and Other Interest-Bearing Liabilities: Average interest-bearing
liabilities grew $3.2 million, or 5%, to $64 million for 1999, which reflects
the general growth in Citrus Bank. Average interest-bearing liabilities
increased approximately $8.0 million, or 15%, to $60.8 million in 1998.
Deposits: Average interest-bearing deposits totaled $63.1 million for 1999, an
increase of 5.5% over 1998. Average interest-bearing deposits increased 15%, to
$59.8 million in 1998. At December 31, 1999, total deposits were $79.1 million
compared to $76.7 million at December 31, 1998, an increase of 3%.
24
<PAGE>
Deposits are attracted principally from Citrus' primary market area. 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 serves 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
including other financial institutions in our markets. The table on the
following page shows the distribution of, and certain other information relating
to, Citrus' deposit accounts by type at the date indicated (dollars in
thousands).
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
---- ----
Percent of Percent of
Amount Total Amount Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
Demand deposits $12,092 15.3% $13,393 17.4%
NOW deposits 4,639 5.9% 4,121 5.4%
Money market deposits 4,287 5.4% 3,026 3.9%
Savings deposits 9,105 11.5% 8,423 11.0%
------- ------ ------- ------
Subtotal 30,123 38.1% 28,963 37.7%
------- ------ ------- ------
Certificates of deposit:
3.00% - 3.99% 1,097 1.4% 913 1.2%
4.00% - 4.99% 12,351 15.6% 3,490 4.6%
5.00% - 5.99% 32,373 40.9% 42,123 54.9%
6.00% - 6.99% 2,499 3.2% 1,214 1.6%
7.00% - 7.99% 271 0.3% - -
8.00% - 8.99% 377 0.5% - -
------- ------ ------- ------
Total(1) 48,968 61.9% 47,740 62.3%
------- ------ ------- ------
Total deposits(2) $79,091 100.0% $76,703 100.0%
======= ====== ======= ======
<FN>
(1) Includes individual retirement accounts ("IRA") totaling $3,163,000 and
$3,173,000 at December 31, 1999 and 1998, all of which are in the form of
certificates of deposit.
(2) The deposit portfolio does not contain a concentration from any one
depositor or related group of depositors.
</FN>
</TABLE>
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 $69.3 million at December 31, 1999,
and $66.3 million at December 31, 1998. 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.
<TABLE>
<CAPTION>
Jumbo certificates ($100,000 and over) mature as follows (dollars in thousands):
At December 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Due three months or less $ 3,775 $ 2,861
Due over three months to twelve months 5,335 7,237
Due over twelve months to three years 421 100
Due over three years 216 179
-------- --------
Total $ 9,747 $ 10,377
======== ========
</TABLE>
<TABLE>
<CAPTION>
Other time deposits under $100,000 mature as follows (dollars in thousands):
At December 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Due three months or less $12,798 $ 12,374
Due over three months to twelve months 21,792 21,547
Due over twelve months to three years 3,709 2,778
Due over three years 922 664
------- --------
Total $39,221 $ 37,363
======= ========
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the net deposit flows of Citrus during the
periods indicated (dollars in thousands):
At December 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Net increase (decrease) before interest credited $ (491) $ 11,319
Net interest credited 2,879 2,783
------- -------
Net deposit increase (decrease) $ 2,388 $ 14,102
======= =======
</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 a long-term funding sources. Accordingly, Citrus does not accept
brokered deposits.
26
<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 covering our
residential (1-4 units) first mortgage loans. At December 31, 1998 and 1999,
there were no advances outstanding under this line; however, average outstanding
amounts totaled approximately $707,000 and $612,000 during 1999 and 1998,
respectively. In addition to the line of credit arrangement, Citrus Bank had
fixed-rate FHLB advances outstanding as follows (dollars in thousands):
<TABLE>
<CAPTION>
At December 31,
---------------
Maturity Date Interest Rate 1999 1998
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
2003 5.76% $ 167 $ 217
</TABLE>
Interest expense on the line of credit and other FHLB advances amounted to
approximately $48,000 for 1999 and $54,000 for 1998.
At December 31, 1999, Citrus had borrowed $70,000 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.
Interest expenses on this line of credit amounted to approximately $2,000 for
the year ended December 31, 1999.
Citrus' Regulatory Capital Position: Total stockholders' equity as of December
31, 1999, was $8.4 million, an increase of $1,920,000 or approximately 30%
compared with stockholders' equity of $6.4 million as of December 31, 1998. This
increase was attributable to the issuance of stock pursuant to the exercise of
warrants issued in connection with Citrus' 1990 stock offering. During the
fourth quarter of 1999, warrants for 354,871 shares were exercised, leaving a
total of 114,901 warrants outstanding at December 31, 1999. The exercise, at
$6.31 per share, resulted in an increase in total capital of $2,239,236.
$2,000,000 of these proceeds was used by Citrus to increase the capital in
Citrus Bank at December 31, 1999. The remaining warrants expire on April 13,
2000.
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, 1999, as reflected in
the following table.
27
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth Citrus Bank's regulatory capital position at
December 31, 1999 (dollars in thousands):
Actual Minimum(1) Well-Capitalized(2)
Amount % Amount % Amount %
------ ------ ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets) $ 8,417 11.91% $ 5,654 8.00% $ 7,067 10.00%
Tier 1 Capital (to Risk-Weighted Assets) $ 8,016 11.34% $ 2,827 4.00% $ 4,240 6.00%
Tier 1 Capital (to Average Assets) $ 8,016 9.34% $ 3,434 4.00% $ 4,293 5.00%
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%
<FN>
(1) The minimum required for adequately capitalized purposes.
(2) To be "well-capitalized" under the FDIC's Prompt Corrective Action
regulations.
</FN>
</TABLE>
28
<PAGE>
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, can
be pledged or 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 $5.4 million during the year ended December 31, 1999, and
was $3.6 million at December 31, 1999. Citrus also maintains federal funds
purchased lines with several financial institutions, in the aggregate amount of
$2,250,000, although these lines averaged only $13,000 during 1999.
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. Management
anticipates that current liquidity is adequate to fund its expected needs.
Future Accounting Requirements: In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (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 provided as well as additional disclosures. SFAS 133
becomes effective for all fiscal quarters of all fiscal years beginning after
September 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 on Our Operations: The consolidated financial statements and
related data presented herein have been prepared in accordance with Generally
Accepted Accounting Principles 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
these prices are affected by inflation to a larger extent than interest rates.
As discussed previously, 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.
29
<PAGE>
Contingencies and Uncertainties - Year 2000 Compliance Matters
During the periods leading up to January 1, 2000, Citrus addressed the potential
problems associated with the possibility that the computers that control or
operate Citrus' information technology system and infrastructure may not have
been programmed to read four-digit date codes and, upon arrival of the year
2000, may have recognized the two-digit code "00" as the year 1900, causing
systems to fail to function or generate erroneous data.
Citrus expended approximately $55,000 through the periods ended December 31,
1999, in connection with its Year 2000 compliance program. Citrus experienced no
significant problems related to its information technology systems upon arrival
of the Year 2000, nor was there any reported interruption in service to its
customers of any kind.
Citrus could incur losses if Year 2000 issues adversely affect its depositors or
borrowers. Such problems could include delayed loan payments due to Year 2000
problems affecting any significant borrowers or impairing the payroll systems of
large employers in Citrus' primary market areas. Because Citrus' loan portfolio
is highly diversified with regard to individual borrowers and types of
businesses, Citrus does not expect, and to date has not realized, any
significant or prolonged difficulties that will affect net earnings or cash
flow.
30
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
Citrus Financial Services, Inc. and Subsidiary
Vero Beach, Florida
We have audited the consolidated balance sheets of Citrus Financial Services,
Inc. and Subsidiary ("Citrus") as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, cash flows, and
changes in stockholders' equity for each of the two years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of Citrus' 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the two years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.
STEVENS, SPARKS & COMPANY, P.A.
Jacksonville, Florida
January 21, 2000
31
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
(Dollars in Thousands, Except Per Share Data)
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 4,040 $ 3,940
Federal funds sold 3,550 9,200
----------- -----------
Total cash and cash equivalents 7,590 13,140
Interest-bearing deposits in other banks 32 9
Securities available-for-sale 5,636 4,675
Securities held-to-maturity (market value of
$953 for 1999 and $1,273 for 1998) 1,039 1,307
Loans held for investment less allowance for credit losses 67,349 52,548
Loans held for sale 1,963 8,291
Facilities 2,802 2,884
Other real estate owned - 390
Accrued interest receivable 441 343
Deferred income taxes 348 233
Other assets 859 231
----------- -----------
Total assets $ 88,059 $ 84,051
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 12,092 $ 13,393
Demand deposits 4,639 4,121
Money market accounts 4,287 3,026
Savings accounts 9,105 8,423
Time, $100,000 and over 9,747 10,377
Other time deposits 39,221 37,363
----------- -----------
Total deposits 79,091 76,703
----------- -----------
Other borrowings 237 217
Accrued interest payable on deposits 271 297
Accounts payable and accrued liabilities 93 387
----------- -----------
Total liabilities 79,692 77,604
----------- -----------
Commitments and contingencies - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $5.00 par value, authorized and
unissued 1,000,000 shares in 1999 and 1998 - -
Common stock, $3.15 par value, authorized 10,000,000 shares,
issued 1,307,167 shares in 1999 and 952,296 shares in 1998 4,125 3,007
Additional paid-in capital 4,271 3,149
Retained earnings 47 324
Accumulated other comprehensive income
Net unrealized holding losses on securities (76) (33)
----------- -----------
Total stockholders' equity 8,367 6,447
----------- -----------
Total liabilities and stockholders' equity $ 88,059 $ 84,051
=========== ===========
Book value per common share $ 6.40 $ 6.77
=========== ===========
Common shares outstanding, adjusted for stock split 1,307,167 952,296
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---------- ----------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans held for investment $ 5,340 $ 4,896
Interest and fees on loans held for sale 537 879
Interest and dividend income from investment securities
and interest-bearing deposits in other banks 352 432
Federal funds sold 271 245
--------- ---------
Total interest income 6,500 6,452
--------- ---------
INTEREST EXPENSE
Interest on deposits 2,853 2,885
Other 51 56
--------- ---------
Total interest expense 2,904 2,941
--------- ---------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES 3,596 3,511
PROVISION FOR CREDIT LOSSES 675 23
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 2,921 3,488
--------- ---------
OTHER INCOME
Service charges on deposit accounts 422 350
Other fees for customer service and other income 81 71
--------- ---------
Total other income 503 421
--------- ---------
OTHER EXPENSES
Salaries and employee benefits 1,792 1,466
Expenses of bank premises and fixed assets 687 544
Other operating expenses 1,388 997
--------- ---------
Total other expenses 3,867 3,007
--------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (443) 902
PROVISION FOR INCOME TAXES (167) 338
--------- ---------
NET INCOME (LOSS) (276) 564
--------- ---------
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:
Unrealized holding gains (losses) on securities arising during period (43) 65
Less: reclassification adjustment for gains included in
net income for the period - (3)
--------- ---------
Total other comprehensive income, net of income taxes (43) 62
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ (319) $ 626
========= =========
EARNINGS PER SHARE
Basic earnings per share $ (0.29) $ 0.59
========= =========
Diluted earnings per share $ (0.27) $ 0.48
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (276) $ 564
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for credit losses 675 23
Depreciation and amortization of facilities 342 279
Net premium amortization and discount accretion 17 20
Gain on sale of securities - (3)
Loss on sale of other real estate owned 27 -
Deferred income taxes (100) (200)
Cash paid for purchases of loans held for sale (108,226) (171,223)
Cash received for loans held for sale 114,554 163,779
(Increase) decrease in assets:
Accrued interest receivable and other assets (726) (66)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (320) 442
----------- ------------
Net cash provided (used) by operating activities 5,967 (6,385)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchases (3,043) (1,605)
Proceeds from maturities 2,010 2,176
Proceeds from sales - 604
Securities held-to-maturity:
Purchases (73) -
Proceeds from maturities 338 2,173
Increase (decrease) in interest-bearing deposits in other banks (23) 52
Increase in loans held for investment (15,476) (3,311)
Proceeds from the sale of other real estate 363 -
Purchases of facilities, net (260) (692)
----------- ------------
Net cash used in investing activities (16,164) (603)
--------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits:
Noninterest-bearing (1,301) 2,670
Interest-bearing 3,689 11,432
Proceeds from other borrowings 70 -
Repayments of FHLB advances (50) (216)
Proceeds from stock warrants exercised 2,239 -
----------- ------------
Net cash provided by financing activities 4,647 13,886
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,550) 6,898
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,140 6,242
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,590 $ 13,140
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash received during the year for interest and dividends $ 6,402 $ 6,401
=========== ============
Cash paid during the year for interest $ 2,930 $ 2,839
=========== ============
Cash paid during the year for income taxes $ 514 $ 131
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Net
Common Stock Unrealized
------------ 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, 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
Stock warrants exercised 354,871 - 1,118 1,122 (1) - 2,239
Comprehensive income:
Net income - - - - (276) -
Net change in unrealized holding
gains on securities - - - - - (43)
Total comprehensive income - - - - - - (319)
--------- ------- ------- ------- -------- ------- -------
Balance, December 31, 1999 1,307,167 $ 3.15 $ 4,125 $ 4,271 $ 47 $ (76) $ 8,367
========= ======= ======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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. The accounting and reporting policies
of Citrus and Citrus Bank conform with generally accepted accounting principles
and with general practices within the banking industry.
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.
Use of Estimates:
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.
Cash and Due From Banks:
Citrus Bank is required to maintain reserve funds in cash or on deposit with the
Federal Reserve Bank. The required reserve at December 31, 1999 and 1998, was
approximately $188,000 and $279,000, respectively.
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.
36
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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.
Citrus has 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 Bank's purchase of an undivided 100% interim interest on a
loan-by-loan basis.
37
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 1999 or 1998.
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 Consolidated Statements of Operations
and Comprehensive Income 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.
38
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)
Employee Benefits:
Profit sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
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. The
principal temporary differences are depreciation and amortization, provision for
credit losses, and unrealized holding gains (losses) on securities. 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, 1999 and 1998.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1999 1998
-------- -------
(In thousands except per share data)
<S> <C> <C>
Basic EPS computation:
Numerator - Net income (loss) $ (276) $ 564
Denominator - Weighted average shares outstanding 953 952
------ ------
Basic EPS $(0.29) $ 0.59
====== ======
Diluted EPS computation:
Numerator - Net income $ (276) $ 564
------ ------
Denominator - Weighted average shares outstanding 953 952
Stock options and warrants 66 227
------ ------
1,019 1,179
Diluted EPS $(0.27) $ 0.48
====== ======
</TABLE>
Statements of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts on deposit in non-interest bearing accounts with other commercial
banks, and federal funds sold.
Advertising and Public Relations:
Citrus expenses advertising and public relations costs as incurred. Advertising
and public relations costs for 1999 and 1998 as included in other operating
expenses were $117,000 and $72,000, respectively.
Reclassification of Accounts:
Certain items in the consolidated financial statements for 1998 have been
reclassified to conform to the classifications used for the current year.
39
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of instruments in debt and equity
securities are as follows:
December 31, 1999 December 31, 1998
----------------- -----------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
(Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Government agencies $3,032 $ - $( 32) $ 3,000 $ 1,600 $ 18 $ - $ 1,618
Mortgage-backed securities 2,251 - ( 74) 2,177 2,734 - (63) 2,671
Other 459 - - 459 386 - - 386
------ ------ ------ ------- ------- ------ ------ -------
Total available-for-sale 5,742 - ( 106) 5,636 4,720 18 (63) 4,675
------ ------ ------ ------- ------- ------ ------ -------
Held-to-Maturity
U.S. Government agencies 485 - ( 74) 411 481 - (35) 446
Mortgage-backed securities 554 - ( 12) 542 826 2 (1) 827
Other - - - - - - - -
------ ------ ------ ------- ------- ------ ------ -------
Total held-to-maturity 1,039 - ( 86) 953 1,307 2 ( 36) 1,273
------ ------ ------ ------- ------- ------- ------ -------
Total investment securities $6,781 $ - $( 192) $ 6,589 $ 6,027 $ 20 $ ( 99) $ 5,948
====== ====== ====== ======= ======= ======= ====== =======
</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, 1999, of $76,000
(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, 1999, no securities were pledged
to secure deposits and for other operating purposes.
At December 31, 1999 and 1998, the carrying value of collateralized mortgage
obligations included securities available-for-sale and securities
held-to-maturity was approximately $1,998,000 and $2,446,000, respectively.
The cost and estimated fair value of debt and equity securities at December 31,
1999, 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 to be
Available-for-sale Held-to-Maturity
------------------ ----------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 327 $ 324
Due from one to five years 3,032 3,000 490 415
Due from five to ten years 1,568 1,518 222 214
Due after ten years 683 659 - -
Other 459 459 - -
---------- ---------- -------- ---------
$ 5,742 $ 5,636 $ 1,039 $ 953
========== ========== ======== =========
</TABLE>
40
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - LOANS HELD FOR INVESTMENT
<TABLE>
<CAPTION>
Loans held for investment are classified as follows:
December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Commercial and agricultural $ 13,881 $ 12,868
Real estate 49,486 35,914
Installment and other loans 4,385 4,347
-------- --------
Total loans 67,752 53,129
Less, unearned income (2) (120)
Less, allowance for credit losses (401) (461)
-------- --------
$ 67,349 $ 52,548
======== ========
</TABLE>
<TABLE>
<CAPTION>
The following is a summary of the transactions in the allowance for credit
losses:
Year Ended December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of year $ 461 $ 431
Provisions charged to operating expenses 675 23
Loans charged-off (768) (45)
Recoveries 33 52
------- -------
Balance, end of year $ 401 $ 461
======= =======
</TABLE>
Loans on which interest was not being accrued (nonaccrual loans) totaled
$456,000 at December 31, 1999, and $141,000 at December 1998. Had interest been
accrued on these nonaccrual loans at originally contracted rates, interest
income, before income taxes, would have been increased by approximately $30,000
and $26,000 at December 31, 1999 and 1998, 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. The following table sets forth the recorded investment in impaired and
nonaccrual loans held for investment and the related valuation allowance for
each loan category as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Total Impaired Amount of Amount Total Impaired Amount of Amount
and Nonaccrual Valuation Without Any and Nonaccrual Valuation Without Any
Loans Allowance Allowance Loans Allowance Allowance
----- --------- --------- ----- --------- ---------
(Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate secured loans $ 88 $ - $ 91 $ - $ - $ -
Installment and credit card loans 167 3 164 2 - 2
Commercial and all other loans 201 11 187 139 43 96
------- -------- ------- -------- -------- --------
Totals $ 456 $ 14 $ 442 $ 141 $ 43 $ 98
======= ======== ========= ======== ======== ========
</TABLE>
41
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - LOANS HELD FOR INVESTMENT (Continued)
At December 31, 1999, all nonaccrual loans held for investment were also
classified by management as impaired. In the fourth quarter of 1999, Citrus Bank
took a direct charge off of $199,000 against two loan relationships and the
remaining loan balances for these relationships are included as nonaccrual and
impaired loans at December 31, 1999. However, no additional allowance has been
provided for these loans.
Of the $141,000 in nonaccrual loans held for investment at December 31, 1998,
loans totaling $85,000 were classified by management as impaired with a
valuation allowance of $43,000. The remaining nonaccrual loans held for
investment totaling $56,000 were not classified as impaired because management
expected to recover substantially all of the balances owed.
All of the impaired and nonaccrual loans held for investment at December 31,
1999 and 1998, were measured using management's current estimate of fair value
of the collateral. The average loans held for investment classified as impaired
and nonaccrual totaled $324,000 in 1999 and $265,000 in 1998. No material
amounts of interest were recorded in 1999 or 1998 for impaired and nonaccrual
loans.
Other real estate owned with a carrying value of $390,000 was sold during 1999.
Expenses incurred in carrying foreclosed real estate (including the loss on sale
of real estate in 1999 of $27,000) totaled $43,000 and $9,000 in 1999 and 1998,
respectively. No loans were transferred to foreclosed real estate during 1999 or
1998.
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, 1999 and 1998, such loans totaled $1,963,000 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 totaled
less than 1% of all loans originated during 1999 and 1998. The only servicing
income received by Citrus Bank comes form the servicing of loans sold
principally to FNMA. Servicing income recorded totaled $18,000 and $22,000 for
the years ended December 31, 1999 and 1998, respectively.
NOTE 5 - FACILITIES
<TABLE>
<CAPTION>
Facilities are summarized as follows:
Accumulated Estimated
Depreciation and Net Book Useful
Cost Amortization Value Lives
---- ------------ ----- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
December 31, 1999
Land and land improvements $ 278 $ - $ 278
Bank building and improvements 2,230 576 1,654 10 - 31.5 years
Furniture, fixtures, and equipment 1,980 1,110 870 2 - 10 years
-------- -------- --------
$ 4,488 $ 1,686 $ 2,802
======= ======= ========
</TABLE>
42
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - FACILITIES (Continued)
<TABLE>
<CAPTION>
Facilities are summarized as follows:
Accumulated Estimated
Depreciation and Net Book Useful
Cost Amortization Value Lives
---- ------------ ----- -----
(Dollars 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 10 - 31.5 years
Furniture, fixtures, and equipment 1,647 756 891 2 - 10 years
------- -------- --------
$ 4,144 $ 1,260 $ 2,884
======= ======= ========
</TABLE>
Other expenses for the years ended December 31, 1999 and 1998, included
depreciation and amortization of facilities of $342,000 and $279,000,
respectively.
NOTE 6 - FHLB ADVANCES AND OTHER 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 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, 1999 and 1998, under this line of
credit; however, average outstanding amounts totaled approximately $707,000 and
$612,000 during 1999 and 1998, respectively. In addition to the line of credit
arrangement, Citrus Bank had fixed-rate FHLB advances outstanding at December
31, 1999 and 1998, follows (dollars in thousands):
<TABLE>
<CAPTION>
Maturity Date Interest Rate 1999 1998
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
2003 5.76% $ 167 $ 217
</TABLE>
Interest expense on the line of credit and other FHLB advances amounted to
approximately $48,000 and $54,000 for the years ended December 31, 1999 and
1998, respectively.
At December 31, 1999, Citrus had borrowed $70,000 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.
Interest expenses on this line of credit amounted to approximately $2,000 for
the year ended December 31, 1999.
43
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - TIME DEPOSITS
<TABLE>
<CAPTION>
Time deposits at December 31, 1999, totaled $48,968,000. Maturities of such
deposits are as follows:
Time, $100,000 Other Time
And Over Deposits
-------- --------
(Dollars In Thousands)
<S> <C> <C>
Three months or less $ 3,775 $ 12,798
Over three through twelve months 5,335 21,792
Over twelve months through three years 421 3,709
Over three years 216 922
-------- --------
$ 9,747 $ 39,221
======== ========
</TABLE>
Interest expense on certificates of deposit of $100,000 or more for 1999 and
1998 were approximately $514,000 and $569,000, respectively.
NOTE 8 - INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes on income is summarized as follows:
Year Ended December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Current:
Federal $ (218) $ 457
State (38) 78
------- ------
(256) 535
------- ------
Deferred:
Federal 76 (168)
State 13 (29)
------- ------
89 197
------- ------
Total income tax provision $ (167) $ 338
======= ======
</TABLE>
<TABLE>
<CAPTION>
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:
Year Ended December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Tax computed at statutory rate $ (151) $ 307
Increase (decrease) resulting from:
Other (16) 31
------- ------
Income tax provision $ (167) $ 338
====== ======
</TABLE>
44
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
The components of the deferred income tax assets are as follows:
December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Deferred tax asset:
Federal $ 491 $ 212
State 84 36
------ -------
575 248
------- -------
Deferred tax liability:
Federal (194) (13)
State (33) ( 2)
------ -------
(227) (15)
------ -------
Net deferred tax asset $ 348 $ 233
====== =======
</TABLE>
<TABLE>
<CAPTION>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Net unrealized holding losses on securities $ 46 $ 30
Depreciation 228 (15)
Allowance for credit losses 37 173
Net operating losses 81 -
Other (44) 45
------ --------
Net deferred tax asset $ 348 $ 233
====== ========
</TABLE>
At December 31, 1999, Citrus had an estimated net operating loss for tax
purposes of $642,000, which is available for carryback or carryover. Net
operating losses of $426,000 were utilized for book purposes by Citrus in 1999.
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 1999 and 1998, Citrus expensed approximately $2,000 and $11,000,
respectively.
45
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Citrus' consolidated financial statements do not reflect various commitments and
contingent liabilities that arise in the normal course of business and involve
elements of credit risk, interest rate risk, and liquidity risk. These
commitments and contingent liabilities of Citrus Bank, which include unfunded
commitments to related parties, are commitments to extend credit and commercial
and standby letters of credit. A summary of Citrus Bank's commitments and
contingent liabilities at December 31, 1999 and 1998, follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Commitments to extend credit $ 9,445 $ 11,156
Standby letters of credit $ 26 $ 126
Commercial letters of credit $ 100 $ 100
</TABLE>
Commitments to extend credit and letters of credit all include exposure to some
credit loss in the event of non-performance of the customer. Citrus Bank's
credit policies and procedures for credit commitments and financial guarantees
are the same as those for extension of credit instruments that are recorded in
the consolidated financial statements. In the opinion of management, these
instruments do not generally present any significant liquidity risk to Citrus
Bank. Citrus Bank's experience has been that substantially all loan commitments
are drawn upon by customers. Citrus Bank did not incur any losses on its
commitments in either 1999 or 1998.
Citrus is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position of Citrus.
At December 31, 1999, Citrus Bank had $2,250,000 unfunded lines-of-credit
available from other banks for the purchase of federal funds.
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 $4,309,000 and $3,468,000
at December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Following is a summary of activity for 1998 and 1999 for such loans:
Beginning End of
of Year Year
Balance Additions Reductions Balance
------- --------- ---------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
1998 $ 3,543 $ 1,882 $ 1,957 $ 3,468
1999 $ 3,468 $ 2,475 $ 1,634 $ 4,309
</TABLE>
46
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - STOCKHOLDERS' EQUITY
Authorized 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 (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, 1999, 1,307,167 shares of common stock were issued
and outstanding and 177,514 shares were subject to issuance pursuant to options
and warrants. No shares of preferred stock were issued.
<TABLE>
<CAPTION>
A summary of changes from the original issue of $5.00 par value and $10.00
option price follows:
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, 1999 $ 3.15 $ 6.31
====== =======
</TABLE>
Stock Warrants and Stock Options:
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. During the fourth quarter of 1999, warrants for 354,871 shares
were exercised, leaving a total of 114,901 warrants outstanding at December 31,
1999. $2,000,000 of the proceeds from the exercising of the warrants was used by
Citrus to increase the capital in Citrus Bank at December 31, 1999. At December
31, 1999, the remaining contractural life for these warrants was less than four
months.
Executive Officer Stock Options:
Citrus has also entered into stock option agreements with its executive officers
providing for the granting of 112,613 non-statutory stock options. Such options
are exercisable between $6.31 (as adjusted for stock splits) and $10.75 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 1999 and 1998.
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 Price
<S> <C> <C>
Outstanding at December 31, 1997 56,921 $ 6.94
1998 10% Stock Split 5,692
------
Outstanding at December 31, 1998 62,613 $ 6.31
Stock options granted in 1999 50,000 $ 10.38
------
Outstanding at December 31, 1999 112,613 $ 8.11
=======
</TABLE>
47
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
The following is a summary of the status of the option agreements at December
31, 1999:
Weighted Weighted
Average Average Vested
Date of Options Remaining Exercise Options at
Grant Granted Contractual Life Price December 31, 1999
----- ------- ---------------- ----- -----------------
<S> <C> <C> <C> <C> <C>
1990 18,789 3.5 months $ 6.31 18,789
1991 17,424 18.5 months $ 6.31 17,424
1995 26,400 18.5 months $ 6.31 26,400
1999 25,000 108 months $ 10.00 5,000
1999 25,000 114 months $ 10.75 5,000
------- ------
112,613 72,613
======= ======
</TABLE>
Dividends:
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, 1999, approximately $861,000 of
retained earnings of Citrus Bank was available for payment of dividends to
Citrus without prior regulatory approval.
Stock Split:
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
<TABLE>
<CAPTION>
Other operating expenses were as follows:
December 31,
1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Advertising and public relations $ 117 $ 72
Assessments and insurance 80 68
Courier, postage, and freight 70 88
Data processing 69 158
Directors' fees 56 51
Dues, subscriptions, and memberships 40 37
Meetings and travel 43 42
Organizational expenses - Sebring 79 -
Professional fees 118 133
Stationary, printing, and supplies 82 73
Telephone 47 50
Terminated public offering 337 -
Other miscellaneous expenses 250 225
------- -------
$ 1,388 $ 997
======= =======
</TABLE>
48
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 Cash Equivalents:
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.
Other Borrowings:
Since this borrowing is at a recent market interest rate, the carrying
amount is a reasonable estimate of fair value.
<TABLE>
<CAPTION>
The estimated fair values of Citrus Bank's financial instruments at December 31,
1999, are as follows:
Carrying Fair
Amount Value
------ -----
(Dollars In Thousands)
<S> <C> <C>
Financial Assets
Cash and deposits in other banks $ 4,072 $ 4,072
Federal funds sold 3,550 3,550
Investment securities 6,675 6,589
Loans held for investment 67,349 67,130
Loans held for sale 1,963 1,963
--------- ---------
Total assets valued $ 83,609 $ 83,304
========= =========
Financial Liabilities
Deposits $ 79,091 $ 79,110
Other borrowings 237 237
--------- ---------
Total liabilities valued $ 79,328 $ 79,347
========= =========
</TABLE>
49
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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, 1999, 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,
1999, should not necessarily be considered to apply at subsequent dates.
NOTE 16 - REGULATORY CAPITAL
The Federal Reserve Board and other bank regulatory agencies have adopted
risk-based capital guidelines for banks and bank holding companies. The main
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of banking organizations and to take into
account the different risks among banking organizations' assets, liabilities,
and off-balance sheet items. Bank regulatory agencies have supplemented the
risk-based capital standard with a leverage ratio for Tier I capital to total
reported assets.
Failure to meet the capital adequacy guidelines and the framework for prompt
corrective actions could initiate actions by the regulatory agencies, which
could have a material effect on the financial statements.
As of December 31, 1999, 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 I risk-based, and Tier I leverage ratios
as disclosed in the table below. There are no conditions or events since the
most recent notification that management believes have changed the prompt
corrective action category.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio > Amount > Ratio > Amount > Ratio
------ ----- - ------ - ----- - ------ - -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Risk-Based Capital
(To Risk-Weighted Assets) $ 8,417 11.91% $ 5,654 8.00% $ 7,067 10.00%
Tier I Capital
(To Risk-Weighted Assets) $ 8,016 11.34% $ 2,827 4.00% $ 4,240 6.00%
Tier I Capital
(To Adjusted Total Assets) $ 8,016 9.34% $ 3,434 4.00% $ 4,293 5.00%
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 I Capital
(To Risk-Weighted Assets) $ 6,015 9.94% $ 2,420 4.00% $ 3,630 6.00%
Tier I Capital
(To Adjusted Total Assets) $ 6,015 7.33% $ 3,283 4.00% $ 4,104 5.00%
</TABLE>
50
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Presented below are condensed financial statements for Citrus Financial
Services, Inc. (parent only):
Condensed Balance Sheets as of December 31: 1999 1998
---- ----
(Dollars In Thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 3 $ 135
Investment in subsidiary bank, net 7,940 5,982
Other assets 559 330
---------- --------
Total $ 8,502 $ 6,447
========== ========
Liabilities and Stockholders' Equity
Liabilities $ 135 $ -
Stockholders' equity 8,367 6,447
---------- --------
Total $ 8,502 $ 6,447
========== ========
Condensed Statements of Operations and Stockholders' Equity
Years Ended December 31: 1999 1998
---- ----
(Dollars In Thousands)
Equity in net income of subsidiary bank $ 1 $ 587
Other income 45 101
Other expenses (322) (124)
---------- --------
Net income (loss) (276) 564
Stockholders' Equity:
Beginning of year 6,447 5,822
Stock warrants exercised and rounding 2,239 (1)
Net change in unrealized holding gains on
securities in subsidiary bank (43) 62
---------- --------
End of year $ 8,367 $ 6,447
========== ========
Condensed Statements of Cash Flows
Years Ended December 31: 1999 1998
---- ----
(Dollars In Thousands)
Operating Activities
Net income (loss) $ (276) $ 564
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary ( 1) (587)
Deferred income taxes - (184)
Other (94) 78
---------- --------
Net Cash Used In Operating Activities (371) (129)
Net Cash Used by Investing Activities:
Capital contribution to Citrus Bank (2,000) -
Net Cash Provided by Financing Activities:
Proceeds from stock warrants exercised 2,239 -
---------- --------
Net Decrease in Cash and Cash Equivalents (132) (129)
Cash and Cash Equivalents:
Beginning of year 135 264
---------- --------
End of year $ 3 $ 135
========== ========
</TABLE>
51
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 18 - PUBLIC STOCK OFFERING
On December 30, 1999, Citrus filed an application for withdrawal of its
Registration Statement on Form SB-2 ("Registration Statement"). As a result of
terminating the public offering, Citrus expensed costs totaling approximately
$337,000 that were incurred in connection with the Registration Statement and
the public offering. Also, in connection with the organization of the proposed
Sebring bank (as discussed in the Registration Statement), Citrus has expensed
approximately $79,000 in organizational costs.
52
<PAGE>
Board of Directors
Citrus Financial Services, Inc.
Citrus Bank, National Association
Robert L. Brackett
Chairman of the Board, Citrus Financial Services, Inc. and Citrus
Bank, N.A.
Treasurer and Director, Credit Data Services, Inc.
Real Estate Investments
Josh C. Cox, Jr.
President and Chief Executive Officer, Director, Citrus Financial
Services, Inc.
Chief Executive Officer, Vice-Chairman of the Board, Citrus Bank, N.A.
S. Hallock duPont, Jr.
Director, Citrus Financial Services, Inc. and Citrus Bank, N.A.
President, Europa Corp.
Hubert Graves, Jr.
Director, Citrus Financial Services, Inc. and Citrus Bank, N.A.
President, Hubert Graves Citrus, Inc.
President, HGX, Inc.
Roy H. Lambert
Director, Citrus Financial Services, Inc.
Chairman, Regency Windsor Companies
Earl H. Masteller
Director, Citrus Financial Services, Inc. and Citrus Bank, N.A.
President, Masteller, Moler & Associates, Inc.
Vice President, Masteller, Moler & Reed, Inc.
John A. Purdie
Director, Citrus Financial Services, Inc. and Citrus Bank, N.A.
President, Regency Windsor Capital, Inc.
53
<PAGE>
Louis L. Schlitt
Director, Citrus Financial Services, Inc. and Citrus Bank, N.A.
Past President, Schlitt Insurance Services, Inc.
Past President, Louis Schlitt, Inc.
Walter E. Smith, Jr.
Director, Citrus Financial Services, Inc.
Owner/Operator, Travel Centers of America (Four)
James R. Thompson
Director, Citrus Financial Services, Inc. and Citrus Bank, N.A.
Consulting Engineer, Regency Windsor Capital, Inc.
Jeffrey L. Velde
Director, Citrus Bank, N.A.
President, Velde Ford
William B. Schuh
Director, Citrus Bank, N.A.
Retired. Past Community Development Manager, Citrus Bank, N.A.
54
<PAGE>
Officers
Citrus Financial Services, Inc.
Citrus Bank, National Association
Josh C. Cox, Jr.
President and Chief Executive Officer, Citrus Financial Services, Inc.
Vice Chairman and Chief Executive Officer, Citrus Bank, N.A.
Randy J. Riley
Senior Vice President and Credit Administrator, Citrus Financial Services,
Inc.
President and Chief Operating Officer, Citrus Bank, N.A.
Henry O. Speight
Executive Vice President, Chief Financial Officer, Citrus Financial Services,
Inc.
Senior Vice President and Chief Financial Officer, Citrus Bank, N.A.
Walter A. Alvarez
President, Miami Region, Citrus Bank, N.A.
John M. Tench
President, Sebring Region, Citrus Bank, N.A.
Joanna Brown
Vice President, Operations Manager,
Citrus Bank, N.A.
Barbara S. Camarigg
Vice President, Banking Center Administrator,
Citrus Bank, N.A.
Diana R. Best
Assistant Vice President, Banking Support Manager,
Citrus Bank, N.A.
E. Angel Brown
Assistant Vice President, Manager
Vero Beach Banking Center Manager, Citrus Bank, N.A.
Michele L. Schenarts
Assistant Vice President, Mortgage Funding Manager,
Citrus Bank, N.A.
Marion H. Tupek
Assistant Vice President, Finance Officer,
Citrus Bank, N.A.
55
<PAGE>
Shareholder Information
Shareholder Assistance: Shareholders requiring a change of address, records or
information about lost /missing certificates should contact:
Continental Stock Transfer and Trust Company
2 Broadway
New York, New York 10004
(212) 509-4000
Information: Analysts, investors and others seeking financial data or general
information are asked to contact:
Josh C. Cox, Jr., President and CEO
Telephone: (561) 778-4100
Publications: Requests for printed materials including annual and quarterly
reports, proxy statements, 10-KSB and 10-QSB reports should be directed to
CFSI's Finance Officer:
Citrus Financial Services, Inc.
P.O. Box 2560
Vero Beach, FL 32961-2560
Telephone: (561) 778-4100
Annual Meeting: Citrus' 2000 annual meeting of shareholders will be held at 5:00
p.m. on Monday, April 24, 2000, at the Corporate Office, 1717 Indian River
Boulevard, Suite 100, Vero Beach, Florida.
Independent Auditors:
Stevens, Sparks & Company, P.A.
6273 DuPont Station Court
Jacksonville, Florida 32217-2513
Telephone: (904) 731-1366
Legal Counsel:
Igler & Dougherty, P.A.
1501 Park Avenue East
Tallahassee, Florida 32301
(850) 878-2411
56
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,040
<INT-BEARING-DEPOSITS> 32
<FED-FUNDS-SOLD> 3,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,636
<INVESTMENTS-CARRYING> 1,039
<INVESTMENTS-MARKET> 953
<LOANS> 69,713
<ALLOWANCE> 401
<TOTAL-ASSETS> 88,059
<DEPOSITS> 79,091
<SHORT-TERM> 70
<LIABILITIES-OTHER> 364
<LONG-TERM> 167
0
0
<COMMON> 4,125
<OTHER-SE> 4,242
<TOTAL-LIABILITIES-AND-EQUITY> 88,059
<INTEREST-LOAN> 5,877
<INTEREST-INVEST> 352
<INTEREST-OTHER> 271
<INTEREST-TOTAL> 6,500
<INTEREST-DEPOSIT> 2,853
<INTEREST-EXPENSE> 2,904
<INTEREST-INCOME-NET> 3,596
<LOAN-LOSSES> 675
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,867
<INCOME-PRETAX> (443)
<INCOME-PRE-EXTRAORDINARY> (443)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.27)
<YIELD-ACTUAL> 4.73
<LOANS-NON> 456
<LOANS-PAST> 2
<LOANS-TROUBLED> 656
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 461
<CHARGE-OFFS> 768
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 401
<ALLOWANCE-DOMESTIC> 401
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
