UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 000-26145
---------
-----------------------------------------------------------
CITRUS FINANCIAL SERVICES, INC.
-------------------------------
(Exact Name of registrant as specified in its charter)
Florida 65-0136504
- ------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 Indian River Boulevard
Suite 100
Vero Beach, Florida 32960
- ------------------- -----
(Address of Principal Executive Offices) (Zip Code)
----------------------------------------------------------
(561) 778-4100
--------------
(Registrant's telephone number including area code)
------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____.
-----
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock as of the latest practicable date:
Class Outstanding as of May 10, 2000
- --------------- ------------------------------
Common Stock 1,423,392
Par Value $3.15 per share
<PAGE>
CITRUS FINANCIAL SERVICES, INC.
INDEX
PAGE
NUMBER
REPORT OF INDEPENDENT ACCOUNTANTS 3
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Condensed Balance Sheets as of March 31,
2000 (Unaudited)and December 31, 1999 4
Consolidated Statements of Operations and Comprehensive
Income for the Three Months Ended March 31, 2000 and
1999 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 6
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II: OTHER INFORMATION 20
Signatures 21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee
Citrus Financial Services, Inc. and Subsidiary
Vero Beach, Florida
We have reviewed the accompanying consolidated condensed balance sheets of
Citrus Financial Services, Inc., and its wholly-owned subsidiary ("Citrus"),
Citrus Bank, N.A. ("Citrus Bank"), as of March 31, 2000, and the related
consolidated statements of operations and comprehensive income and consolidated
condensed statements of cash flows for the three month periods ended March 31,
2000 and 1999, and the related consolidated statement of stockholders' equity
for the three month period ended March 31, 2000. These consolidated financial
statements are the responsibility of Citrus' management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of operations and comprehensive income, cash flows, and
changes in stockholders' equity for the year then ended (not presented herein);
and in our report dated January 21, 2000, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated condensed balance sheet as of December
31, 1999, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
STEVENS, SPARKS & COMPANY, P.A.
Jacksonville, Florida
May 10, 2000
- 3 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000
(Unaudited) December 31, 1999
-------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,631 $ 4,040
Federal funds sold 3,250 3,550
----------- -----------
Total cash and cash equivalents 6,881 7,590
Interest-bearing deposits in other banks 66 32
Securities available-for-sale at fair value 5,564 5,636
Securities held-to-maturity (market value of
$945 for 2000 and $953 for 1999) 992 1,039
Loans held for investment less allowance for credit losses 71,911 67,349
Loans held for sale 919 1,963
Facilities 2,809 2,802
Other real estate owned 88 --
Other assets 1,662 1,648
----------- -----------
TOTAL $ 90,892 $ 88,059
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 12,743 $ 12,092
NOW accounts 3,682 4,639
Money market accounts 4,055 4,287
Savings accounts 9,223 9,105
Time, $100,000 and over 9,323 9,747
Other time deposits 42,725 39,221
----------- -----------
Total deposits 81,751 79,091
----------- -----------
Other borrowings 154 237
Accounts payable and accrued liabilities 343 364
----------- -----------
Total liabilities 82,248 79,692
----------- -----------
Commitments and contingencies -- --
----------- -----------
Stockholders' equity:
Preferred stock -- --
Common stock 4,241 4,125
Additional paid-in capital 4,388 4,271
Retained earnings 104 47
Accumulated other comprehensive income
Net unrealized holding losses on securities (89) (76)
----------- -----------
Total stockholders' equity 8,644 8,367
----------- -----------
TOTAL $ 90,892 $ 88,059
=========== ===========
Book value per common share $ 6.43 $ 6.40
=========== ===========
Common shares outstanding 1,344,164 1,307,167
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------
2000 1999
---- ----
(Dollars in Thousands)
<S> <C> <C>
Interest and fees on loans held for investment $ 1,559 $ 1,211
Interest and fees on loans held for sale 31 177
Investment income on investment securities
and interest-bearing deposits in other banks 95 78
Federal funds sold 63 102
------- -------
Total interest income 1,748 1,568
------- -------
Interest on deposits 780 716
Other 3 3
------- -------
Total interest expense 783 719
------- -------
Net interest income before provision for credit losses 965 849
Provision for credit losses 74 22
------- -------
Net interest income 891 827
------- -------
Fees and service charges 103 107
Other income 7 7
------- -------
Total other income 110 114
------- -------
Other expenses:
Salaries and employee benefits 472 388
Expenses of bank premises and fixed assets 176 141
Other operating expenses 263 216
------- -------
Total other expenses 911 745
------- -------
Income before provision for income taxes 90 196
Provision for income taxes 33 74
------- -------
Net income 57 122
Other comprehensive income, net of income taxes:
Unrealized holding gains arising during period (13) 2
------- -------
Comprehensive income $ 44 $ 124
======= =======
Earnings Per Share
Basic earnings per share $ 0.04 $ 0.13
======= =======
Diluted earnings per share $ 0.04 $ 0.10
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------
2000 1999
---- ----
(Dollars in Thousands)
<S> <C> <C>
Net income $ 57 $ 122
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for credit losses 74 22
Depreciation and amortization 90 79
Net premium amortization and discount accretion (6) 5
(Increase) decrease in other assets 120 (371)
Increase (decrease) in other liabilities (21) 29
Origination of loans held for sale (7,177) (30,558)
Proceeds on sale of loans held for sale 8,221 33,415
-------- --------
Net cash provided by operating activities 1,358 2,743
-------- --------
Cash flows from investing activities: Net (increase) decrease in:
Investment securities 148 205
Interest-bearing deposits in other banks (34) (14)
Loans (4,661) (2,756)
Purchases of bank premises and equipment, net (97) (111)
-------- --------
Net cash used by investing activities (4,644) (2,676)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 2,660 (4,700)
Repayments of FHLB advances, net (83) (13)
-------- --------
Net cash provided (used) by financing activities 2,577 (4,713)
-------- --------
Decrease in cash and cash equivalents (709) (4,646)
Cash and cash equivalents at beginning of period 7,590 13,140
-------- --------
Cash and cash equivalents at end of period $ 6,881 $ 8,494
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Net
Common Stock Unrealized
--------------------------- Holding
Par Additional Gains Total
Value Paid-in Retained (Losses) on Stockholders'
Shares (Rounded) Amount Capital Earnings Securities Equity
------ --------- ------ ---------- -------- ----------- -------------
(Dollars in Thousands, Except Par Value Per Share)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 1,307,167 $ 3.15 $ 4,125 $ 4,271 $ 47 $ (76) $ 8,367
Warrants exercised 36,997 -- 116 117 -- -- 233
Comprehensive income:
Net income -- -- -- -- 57 --
Net change in unrealized holding
gains on securities -- -- -- -- -- (13)
Total comprehensive income -- -- -- -- -- -- 44
--------- ------ ------- ------- ----- -------
Balance, March 31, 2000 1,344,164 $ 3.15 $ 4,241 $ 4,388 $ 104 $ (89) $ 8,644
========= ====== ======= ======= ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 7 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Citrus Financial
Services, Inc., and its wholly owned subsidiary, Citrus Bank, N.A. The
consolidated financial statements for the three months ended March 31, 2000 and
1999, have not been audited and do not include information or footnotes
necessary for a complete presentation of financial condition, results of
operations and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of management, the accompanying consolidated
financial statements contain all adjustments, which are of a normal recurring
nature, necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results which may be
expected for an entire year. The accounting policies followed by Citrus are set
forth in Note 1 to Citrus' consolidated financial statements contained in the
1999 Annual Report to Stockholders and are incorporated herein by reference.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review Citrus
Bank's allowances for losses on loans and foreclosed real estate. Such agencies
may require Citrus Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Management does not anticipate that the allowances for credit losses on loans
and foreclosed real estate will change materially in the near term.
Fair Value of Financial Instruments
Financial instruments of Citrus consist of cash, due from banks, federal funds
sold, investment securities, loans receivable, accrued interest receivable,
deposits, federal funds purchased, other borrowings, accrued interest payable,
and off-balance sheet commitments such as commitments to extend credit and
standby letters of credit. On an interim basis, management considers the cost of
providing estimated fair values by each class of financial instrument to exceed
the benefits derived. In management's opinion, the carrying amount of financial
instruments approximates fair value.
- 8 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 2 - COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share amounts are computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are computed by dividing net earnings by the weighted average
number of shares and all dilutive potential shares outstanding during the
period. The following information was used in the computation of earnings per
share on both a basic and diluted basis for the three months ended March 31,
2000 and 1999 (in thousands except per share data):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------
2000 1999
------ ------
<S> <C> <C>
Basic EPS computation:
Numerator - Net income $ 57 $ 122
Denominator - Weighted average shares outstanding 1,329 952
------ ------
Basic EPS $ 0.04 $ 0.13
====== ======
Diluted EPS computation:
Numerator - Net income $ 57 $ 122
------ ------
Denominator - Weighted average shares outstanding 1,329 952
Stock options and warrants 64 227
------ ------
1,393 1,179
------ ------
Diluted EPS $ 0.04 $ 0.10
====== ======
</TABLE>
NOTE 3 - LOANS HELD FOR INVESTMENT
Loans consisted of (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- -------
<S> <C> <C>
Real estate $ 53,182 $ 49,486
Commercial and agriculture 14,707 13,881
Installment and other loans 4,473 4,385
-------- --------
Total loans, gross 72,362 67,752
Unearned income and deferred fees (1) (2)
Allowance for credit losses (450) (401)
-------- --------
Net loans $ 71,911 $ 67,349
======== ========
</TABLE>
- 9 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
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 March 31, 2000, and December 31, 1999, such loans totaled
$919,000 and $1,963,000, respectively. These loans are carried at cost, which is
lower than market.
Citrus Bank does not originate any significant amounts of loans specifically for
resale. Loans originated by Citrus Bank and sold principally to FNMA generally
represent less than 3% of all loans originated. The only servicing income
received by Citrus Bank comes form the servicing of loans sold principally to
FNMA, which is not considered to be material.
NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
Citrus' Board of Directors monitors the loan portfolio quarterly in order to
enable it to evaluate the adequacy of the allowance for credit losses.
Management has implemented a risk system that identifies potential problem
credits as early as possible, categorizes the credits as to risk, and puts a
reporting process in place to monitor the progress of the credits.
Citrus maintains the allowance for credit losses at a level sufficient to absorb
all estimated losses inherent in the loan portfolio. Activity in the allowance
for credit losses follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended March 31, Ended December 31,
2000 1999
------ ------
<S> <C> <C>
Balance, beginning of period $401 $461
---- ----
Recoveries
Real estate loans -- --
Installment loans 1 --
Credit card and related plans 1 1
Commercial and all other loans -- 32
---- ----
2 33
---- ----
Charge-offs
Real estate loans -- --
Installment loans 5 153
Credit card and related plans 7 28
Commercial and all other loans 15 587
---- ----
27 768
---- ----
Provision charged to operations 74 675
---- ----
Balance, end of period $450 $401
==== ====
</TABLE>
- 10 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Citrus is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Those instruments
involve, to varying degrees, elements of credit, and interest rate risk in
excess of the amounts recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement Citrus has in
particular classes of financial instruments.
Financial instruments at March 31, 2000, consisted of commitments to extend
credit approximating $8.8 million and letters of credit of $126,000.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
NOTE 7 - 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 March 31, 2000, 1,344,164 shares of common stock were issued
and outstanding and 155,517 shares were subject to issuance pursuant to vested
options and warrants. No shares of preferred stock were issued.
Stock Warrants:
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 first quarter of 2000, warrants for 36,997 shares
were exercised, leaving a total of 77,904 warrants outstanding at March 31,
2000. In April 2000, 60,439 warrants were exercised leaving 17,465, or less than
4%, of the original warrants unexercised.
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. No options were exercised in the first quarter of 2000, leaving 112,613
options outstanding at March 31, 2000 (of which 77,613 options were vested). In
April 2000, 18,789 options were exercised leaving 93,824 options outstanding at
April 30, 2000 (of which 58,824 options were vested).
- 11 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Citrus Financial Services, Inc., is a registered bank holding company under the
federal Bank Holding Company Act of 1956, as amended, and owns 100% of the
issued and outstanding common stock of Citrus Bank, N.A., Vero Beach, Florida.
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. The holding company provides flexibility for expansion of
Citrus' banking business through acquisition of other financial institutions and
provision of additional banking-related services which the traditional
commercial bank may not provide under present laws.
Citrus Bank commenced business operations on April 13, 1990, in a permanent
facility located at the corner of Indian River Boulevard and 17th Street, Vero
Beach, Florida. The facility is a three-story office condominium, the first
floor of which is owned by Citrus Bank. Citrus Bank operates a branch office at
1020 U.S. 1, Sebastian, Florida, which commenced operations in February 1993 and
another branch office located at 1020 Buttonwood Street, Barefoot Bay, Florida,
which commenced operations in September 1996.
Forward-looking Statements
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in Citrus' market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in Citrus' market
area and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Citrus wishes
to caution readers not to place undue reliance on any such forward-looking
statements, which speak only as to the date made. Citrus wishes to advise
readers that the factors listed above could affect Citrus' financial performance
and could cause Citrus' actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements. Citrus does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
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 March 31, 2000,
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.
Future Accounting Requirements
In September 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which addresses the accounting for
derivative instruments and provides for matching the timing of gain or loss
recognition on the hedging instrument. Guidance on identifying derivative
instruments is also provided as well as additional disclosures. SFAS 133 has
been deferred to become effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. 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.
- 12 -
<PAGE>
Impact of Inflation
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurements of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of Citrus
are monetary in nature. As a result, interest rates have a more significant
impact on Citrus' performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services, since such prices are affected by
inflation to a larger extent than interest rates. As discussed herein,
management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
Results of Operations
Net Income
Citrus' net income decreased $65,000 for the three months ended March 31, 2000,
over the comparable period in 1999. This decline for the three months of 2000
versus 1999 reflects the increased provision for credit losses of $52,000,
increased operating costs associated with the start-up of loan production
offices in Miami and Sebring, Florida, and declines experienced in the
origination of loans under Citrus Bank's funding program. The increase in
average earning assets of 7.3% for the first quarter of 2000 versus the same
period in 1999 along with an increase of approximately 30 basis points in the
average yield on earning assets produced a net increase in total interest income
of 11.5% in the first three months of 2000 as compared to the first three months
of 1999. For the three months ended March 31, 2000, as compared with the
comparable period in 1999, increases in total interest income of $180,000 were
partially offset by increases in interest expense of $64,000. Noninterest
expense in the first three months of 2000 as compared to the first three months
of 1999 rose at a pace of 22.3% to $911,000 from $745,000. The loan production
offices started in 1999 contributed to substantially all of this increase. The
return on average assets for the three months ended March 31, 2000, was 0.26%
annualized as compared with the return of average assets of negative 0.33% for
1999.
Net Interest Income
The largest component of net income for Citrus is net interest income, which is
the difference between the income earned on assets and interest paid on deposits
and borrowings used to support such assets. Net interest income is determined by
the rates earned on Citrus' interest-earning assets and the rates paid on its
interest-bearing liabilities, the relative amounts of interest-earning assets
and interest-bearing liabilities, and the degree of mismatch and the maturity
and repricing characteristics of its interest-earning assets and
interest-bearing liabilities.
Net interest income was $965,000 for the three months ended March 31, 2000, as
compared to $849,000 for the three months ended March 31, 1999. The substantial
average growth of Citrus' total loan portfolio between these periods of almost
$9.0 million, or 14.7%, partially offset by a moderate increase in the yield on
interest-bearing liabilities of 10 basis points, contributed to the improvement
in the net interest margin in 2000 versus 1999. Net interest spread, the
difference between the yield on earning assets and the rate paid on
interest-bearing liabilities, was 3.9% for the three months ended March 31,
2000, as compared to 3.7% for the three months ended March 31, 1999. Net
interest margin (which is net interest income divided by average
interest-earning assets) increased to 4.8% for the three months ended March 31,
2000, as compared to 4.5% for the three months ended March 31, 1999.
Average Balances, Income and Expenses, and Rates. The following table depicts,
for the periods indicated, certain information related to Citrus' average
balance sheet and its average yields on assets and average costs of liabilities.
Such yields are derived by dividing income or expense by the average balance of
the corresponding assets or liabilities. Average balances have been derived from
daily averages.
- 13 -
<PAGE>
Average Balances, Income and Expenses, and Rates (dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
2000 1999
---------------------------------- --------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Interest-earning deposits $ 28 $ -- 4.5% $ 23 $ -- 4.8%
Taxable securities 6,661 95 5.7% 5,927 78 5.3%
Federal funds sold 4,544 63 5.5% 8,715 102 4.7%
Loans held for sale 1,269 31 9.8% 7,304 177 9.7%
Loans held for investment, net 68,656 1,559 9.1% 53,664 1,211 9.0%
------ ----- ------ -----
Total earning assets 81,158 1,748 8.6% 75,633 1,568 8.3%
----- -----
Non-earning assets 7,218 6,114
------ ------
Total assets $88,376 $81,747
======= =======
Interest-bearing liabilities:
NOW and money market deposits $ 8,391 49 2.3% $ 6,470 28 1.7%
Savings 8,864 72 3.2% 9,172 73 3.2%
Time deposits 49,231 659 5.4% 46,394 615 5.3%
Other borrowings 179 3 6.7% 211 3 5.7%
----- ----- ------ -----
Total interest-bearing liabilities 66,665 783 4.7% 62,247 719 4.6%
----- -----
Noninterest-bearing liabilities 13,194 12,996
Stockholders' equity 8,517 6,504
------ ------
Total liabilities and
stockholders' equity $88,376 $81,747
======= =======
Net interest income $ 965 $ 849
======= =======
Interest-rate spread 3.9% 3.7%
==== ====
Net interest margin 4.8% 4.5%
==== ====
Ratio of average earning assets to
average interest-bearing liabilities 121.7% 121.5%
====== ======
</TABLE>
- 14 -
<PAGE>
Provision and Allowance for Credit Losses
Citrus has developed policies and procedures for evaluating the overall quality
of its credit portfolio and the timely identification of potential problem
loans. Management's judgment as to the adequacy of the allowance is based upon a
number of assumptions about future events which it believes to be reasonable,
but which may or may not be valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for credit losses or
that additional increases in the credit loss allowance will not be required.
Asset Classification. Commercial banks are required to review and, when
appropriate, classify their assets on a regular basis. The OCC has the authority
to identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful and
loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, condition, and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes a specific reserve for the full amount of the portion of
the asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not warrant classification in the
aforementioned categories, but possess weaknesses, are classified as special
mention and are monitored by Citrus.
At March 31, 2000, Citrus had 13 loans classified as substandard, doubtful, or
loss totaling $1.1 million. At December 31, 1999, Citrus had loans totaling
$656,000 in the same categories. Substantially all of the increase is
attributable to two borrowers and their affiliated companies. Management
believes the underlying loans are well-secured. At both March 31, 2000, and
December 31, 1999, Citrus had no material loss assets to be charged-off. Loans
classified by management as impaired totaled $362,000 and $368,000 at March 31,
2000, and December 31, 1999, respectively.
Nonperforming loans include loans that have been placed on nonaccrual status by
Citrus and loans past due for ninety days or more. Some of these nonperforming
loans are well-collateralized, posing no significant risk of loss, and have not
been classified as substandard, doubtful, or loss. A summary of nonperforming
loans and assets follows:
[Page intentionally left blank.]
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
March 31, December 31,
2000 1999
-------- -------
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans held for investment:
Real estate loans $ -- $ 88
Installment loans 195 201
Credit cards and related plans -- --
Commercial and all other loan 167 167
------ ------
Total nonaccrual loans held for investment 362 456
------ ------
Accruing loans held for investment over 90 days delinquent:
Real estate loans -- --
Installment loans -- --
Credit cards and related plans -- 2
Commercial and all other loans -- --
------ ------
Total accrual loans held for investment over 90 days delinquent -- 2
------ ------
Troubled debt restructurings not included above -- --
------ ------
Total nonperforming loans held for investment 362 458
------ ------
Other real estate owned:
Real estate acquired by foreclosure or deed in lieu
of foreclosure 88 --
------ ------
Total nonperforming loans held for investment and
other real estate owned $ 450 $ 458
====== ======
Total nonperforming loans held for investment
as a percentage of total loans held for investment 0.50% 0.68%
====== ======
Total nonperforming loans held for investment
as a percentage of total assets 0.40% 0.52%
====== ======
Total nonperforming loans held for investment
and other real estate owned as a percentage of total assets 0.50% 0.52%
====== ======
Troubled debt restructurings and modified loans held for investment:
Current $ 941 $1,585
Past due over 30 days and less than 90 days -- 60
Past due over 90 days and included above -- 88
------ ------
$ 941 $1,733
====== ======
</TABLE>
Nonperforming loans at March 31, 2000, declined from the quarter ended March 31,
1999, total of $859,000, and the December 31, 1999, total of $458,000. However,
other real estate owned was $88,000 at March 31, 2000, as compared with no other
real estate owned at December 31, 1999.
Allowance for Credit Losses. The allowance for credit losses is established
through a provision for loan losses charged against income. Loans are charged
against the provision when management believes that the collectibility of the
principal is unlikely. The provision is an estimated amount that management
believes will be adequate to absorb losses inherent in the loan portfolio based
on evaluations of its collectibility. The evaluations take into consideration
such factors as changes in the nature and volume of the portfolio, overall
portfolio quality, specific problem loans and commitments, and current
anticipated economic conditions that may affect the borrower's ability to pay.
While management uses the best information available to recognize losses on
loans, future additions to the provision may be necessary based on changes in
economic conditions.
- 16 -
<PAGE>
Activity in the allowance for credit losses follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
March 31, December 31,
2000 1999
-------- -------
<S> <C> <C>
Allowance at beginning of period $401 $461
---- ----
Recoveries:
Real estate loans -- --
Installment loans 1 --
Credit cards and related plans 1 1
Commercial and all other loans -- 32
---- ----
Total recoveries 2 33
---- ----
Charge-offs:
Real estate loans -- --
Installment loans 5 153
Credit cards and related plans 7 28
Commercial and all other loans 15 587
---- ----
Total charge-offs 27 768
---- ----
Provision for credit losses charged to operations 74 675
---- ----
Allowance at end of period $450 $401
==== ====
Ratio of net charge-offs during the period to average
loans (including loans held for sale) outstanding
during the period 0.14% 1.15%
==== ====
</TABLE>
At March 31, 2000, the allowance for credit losses amounted to $450,000, or
0.62% of outstanding loans held for investment. At December 31, 1999, the
allowance for credit losses amounted to $401,000, or 0.59% of outstanding loans
held for investment. Citrus' provision for credit losses was $74,000 for the
three months ended March 31, 2000. For the same three months period in 1999, the
provision for credit losses was $22,000. The provision was made based on
management's assessment of general credit loss risk and asset quality. The
increase in the allowance for credit losses as a percentage of outstanding loans
reflects recent increases in the level of net charge-offs experienced in
late-1999 and increases in classified loans.
Noninterest Income and Expense
Noninterest Income. Citrus' primary source of noninterest income is service
charges on deposit accounts. In addition, Citrus originates mortgage loans,
which are closed in the name of a third party, for which Citrus receives a fee.
Other sources of noninterest income include bankcard fees, commissions on check
sales, safe deposit box rent, wire transfer, and official check fees.
Total noninterest income decreased by $4,000 during the three months ended March
31, 2000, as compared to the same period in 1999. Fees and service charges were
$103,000 for the three months ended March 31, 2000, as compared to $107,000 for
the comparable periods in 1999, a decrease of 3.7%. A decline in NSF fees of
approximately $5,000 accounted for this decrease.
Noninterest Expense. Total noninterest expense increased by $166,000, or 22.3%,
during the three months ended March 31, 2000, as compared to the same period in
1999, as a result of Citrus' continued growth. For the first three months in
2000, this increase included an increase in salary and benefits expense of
$84,000,. or 21.7%, as Citrus provided normal salary and benefit increases and
employed additional employees to service its new loan production offices.
Occupancy-related expenses increased $35,000, or 24.8%, in the first three
months of 2000 as compared with the same period in 1999, principally due to the
new loan production offices started in 1999. Increases in professional fees and
operating costs associated with the new loan production offices contributed to
the rise in other operating expenses of $47,000, or 21.8%, in the first three
months of 2000 versus 1999.
- 17 -
<PAGE>
Income Tax Expense
The income tax provision was $33,000 for the three months March 31, 2000, or an
effective rate of 36.7%. This compares with an effective rate of 37.8% for the
same period in 1999.
Financial Condition
Citrus' total assets at March 31, 2000, were $90.9 million, an increase of $2.8
million from $88.1 million at December 31, 1999. Increases in total loans of
$3.5 million were offset by declines in cash and cash equivalents of $709,000
since December 31, 1999. Deposits increased approximately $2.7 million, with
higher costing certificates of deposit contributing $3.1 million in total
increases.
Total stockholders' equity as of March 31, 2000, was $8.6 million, an increase
of $277,000, or approximately 3.3%, compared with stockholders' equity of $8.4
million as of December 31, 1999. This increase was attributable to net income
for the three months of 2000 of $57,000 and $233,000 in additional capital from
the exercise of the warrants, partially offset by a decrease of $13,000 in the
market value (net of deferred income taxes) of investment securities
available-for-sale.
The following table shows selected ratios for the periods ended or at the dates
indicated (annualized for the three months ended March 31, 2000):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Return on average assets 0.26% -0.33%
Return on average equity 2.68% -4.09%
Interest-rate spread during the period 3.90% 4.10%
Net interest margin 4.80% 4.70%
Allowance for credit losses to period end loans held for investment 0.62% 0.59%
Net charge-offs to average loans held for investment 0.15% 1.26%
Nonperforming assets to period end loans held for investment
and foreclosed property 0.62% 0.68%
Nonperforming assets to period end total assets 0.50% 0.52%
</TABLE>
Liquidity and Capital Resources
Liquidity Management. Liquidity management involves monitoring Citrus' sources
and uses of funds in order to meet its day-to-day cash flow requirements while
maximizing profits. Liquidity represents the ability of a company to convert
assets into cash or cash equivalents without significant loss and to raise
additional funds by increasing liabilities. Liquidity management is made more
complicated because different balance sheet components are subject to varying
degrees of management control. For example, the timing of maturities of the
investment portfolio is very predictable and subject to a high degree of control
at the time investment decisions are made. However, net deposit inflows and
outflows are far less predictable and are not subject to the same degree of
control. Asset liquidity is provided by cash and assets which are readily
marketable, which can be pledged, or which will mature in the near future.
Liability liquidity is provided by access to core funding sources, principally
the ability to generate customer deposits in Citrus' market area.
In addition, liability liquidity is provided through the ability to borrow
against approved lines of credit (federal funds purchased) from correspondent
banks and to borrow on a secured basis through securities sold under agreements
to repurchase.
Short-Term Investments. Short-term investments, which consist of federal funds
sold and securities purchased under agreements to resell and interest-bearing
deposits, averaged $4.6 million in the first three months of 2000 as compared to
$8.7 million in the same period of 1999. At March 31, 2000, and December 31,
1999, short-term investments totaled $3.3 million and $3.6 million,
respectively. These funds are a primary source of Citrus' liquidity and are
generally invested in an earning capacity on an overnight basis.
Management regularly reviews the liquidity position of Citrus and has
implemented internal policies which establish guidelines for sources of
asset-based liquidity and limit the total amount of purchased funds used to
support the balance sheet and funding from non-core sources.
- 18 -
<PAGE>
Deposits and Other Sources of Funds. In addition to deposits, the sources of
funds available for lending and other business purposes include loan repayments,
loan sales, and securities sold under agreements to repurchase. Loan repayments
are a relatively stable source of funds, while deposit inflows and outflows are
influenced significantly by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in
other sources, such as deposits at less than projected levels and are also used
to fund the origination of mortgage loans designated to be sold in the secondary
markets.
Core Deposits. Core deposits, which exclude certificates of deposit of $100,000
or more, provide a relatively stable funding source for Citrus' loan portfolio
and other earning assets. Citrus' core deposits were $72.4 million at March 31,
2000, and $69.3 million at December 31, 1999. Management anticipates that a
stable base of deposits will be Citrus' primary source of funding to meet both
its short-term and long-term liquidity needs in the future.
Customers with large certificates of deposit tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions fund
their balance sheets in part through large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, Citrus does not accept
brokered deposits.
Borrowings. Citrus Bank has a line of credit master agreement with the FHLB of
Atlanta that enables Citrus Bank to borrow up to $10,000,000. These advances are
collateralized by Citrus Bank's FHLB stock and a blanket floating lien
consisting of wholly-owned residential (1-4 units) first mortgage loans. At
March 31, 2000, there were no advances outstanding under this line. In addition
to the line of credit arrangement, Citrus Bank had fixed FHLB advances
outstanding as follows (dollars in thousands):
<TABLE>
<CAPTION>
At March 31, At December 31,
Maturity Date Interest Rate 2000 1999
- ------------- ------------- ---- ----
<S> <C> <C> <C>
2003 5.76% $ 154 $ 167
===== =====
</TABLE>
During the first quarter of 2000, Citrus repaid other borrowings of $70,000 from
Central Illinois Bank under its revolving line of credit agreement in the amount
of $500,000.
Capital. The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100% (the Federal Reserve grants an
exemption from these requirements for bank holding companies with less than $150
million in consolidated assets, and therefore Citrus' capital is currently
measured only at Citrus Bank level). Under the risk-based standard, capital is
classified into two tiers. Tier 1 capital consists of common stockholders'
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general
allowance for credit losses subject to certain limitations. An institution's
qualifying capital base for purposes of its risk-based capital ratio consists of
the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements
are 4% for Tier 1 and 8% for total risk-based capital.
Bank holding companies and banks are also required to maintain capital at a
minimum level based on total assets, which is known as the leverage ratio. The
minimum requirement for the leverage ratio is 3%, but all but the highest rated
institutions are required to maintain ratios 100 to 200 basis points above the
minimum. Citrus and Citrus Bank exceeded their minimum regulatory capital ratios
as of March 31, 2000, as reflected in the following table.
The following table sets forth Citrus Bank's regulatory capital position
(dollars in thousands):
<TABLE>
<CAPTION>
Actual Minimum(1) Well-Capitalized(2)
Amount % Amount % Amount %
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets) $8,542 11.75% $5,818 8.00% $7,272 10.00%
Tier I Capital (to Risk-Weighted Assets) $8,092 11.13% $2,909 4.00% $4,363 6.00%
Tier I Capital (to Average Assets) $8,092 9.22% $3,511 4.00% $4,389 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>
- 19 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes In Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
---------
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K.
--------------------
None.
- 20 -
<PAGE>
CITRUS FINANCIAL SERVICES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registered has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Citrus Financial Services, Inc.
Date: May 10, 2000 /s/ Josh C. Cox, Jr.
------------ --------------------
Josh C. Cox, Jr.
President and Chief Executive Officer
Date: May 10, 2000 /s/ Randy J. Riley
------------ ------------------
Randy J. Riley
Senior Vice President and Credit Administrator
- 21 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,631
<INT-BEARING-DEPOSITS> 66
<FED-FUNDS-SOLD> 3,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,564
<INVESTMENTS-CARRYING> 992
<INVESTMENTS-MARKET> 945
<LOANS> 72,361
<ALLOWANCE> 450
<TOTAL-ASSETS> 90,892
<DEPOSITS> 81,751
<SHORT-TERM> 0
<LIABILITIES-OTHER> 343
<LONG-TERM> 154
0
0
<COMMON> 4,241
<OTHER-SE> 4,403
<TOTAL-LIABILITIES-AND-EQUITY> 90,892
<INTEREST-LOAN> 1,590
<INTEREST-INVEST> 95
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 1,748
<INTEREST-DEPOSIT> 780
<INTEREST-EXPENSE> 783
<INTEREST-INCOME-NET> 965
<LOAN-LOSSES> 74
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 911
<INCOME-PRETAX> 90
<INCOME-PRE-EXTRAORDINARY> 90
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
<YIELD-ACTUAL> 4.80
<LOANS-NON> 362
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,096
<ALLOWANCE-OPEN> 401
<CHARGE-OFFS> 27
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 450
<ALLOWANCE-DOMESTIC> 450
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
