Dear Shareholders,

As you know, the Nation is in an extraordinary business cycle that is dishing out tough economic lessons for many, while at the same time creating opportunity for others.  There are deep-rooted structural problems in our economy that began with frenzied speculation and over-building of the residential housing market.  This unfounded euphoria worked its way through Wall Street’s securitization markets and proliferated throughout the global economy adversely impacting the majority of private and institutional investors alike.  The Government deserves some accountability too and in many aspects they were serving the liquor.  

The consequences have resulted in unemployment at its highest level in decades, deficits rising at record rates and GDP’s increasing negative trends each quarter.  Compounding matters for the banking industry is a critical media coupled with Washington DC venting their frustration over a perceived unwillingness to lend, broad brushing banks as the culprit for this Country’s predicament.

And while their view may seemingly make sense, it is incorrect.  Although there are isolated circumstances where individual banks may not be in a position to lend, the data acknowledges as a whole that the industry’s collective loan portfolio grew in 2008.  First Citrus Bank’s loan portfolio increased as well despite a smaller pool of borrowers that have an ability to repay debt.  Business journalists and cable news anchors generally fail to correctly assess circumstances because we are in unchartered territory and, frankly, these issues are highly complex.  The reality is that banks have been disintermediated from many lines of lending for the last 20 years and it is the secondary markets drying up that have largely created the credit vacuum.  While it is unrealistic to ask banks to fill the void vacated by the non-bank lenders, requests are mounting.
 
If you believe, as I do, that excessive leverage was the genesis of our economic problems, then you must conclude that unbridled additional debt is not the answer.

Another common misunderstanding in the media, Congress and others is the incorrect belief that the purpose of credit is to create business growth.  Credit availability is to support business growth, not to create it.  And while it is absolutely essential that credit pro-actively be readily available to meet responsible prudent borrowing needs, the difficult and highly unpopular solution to the Nation’s economic problems is not increasing leverage but rather higher capitalized investing achieved through increased savings.
 
It is in accepting the above stated mindset that I believe will re-ignite our Nation’s stability and return America to long term economic competitiveness and prosperity.

As we have seen throughout history, sometimes what is best for the American people and the political solution Congress provides are in conflict.  For instance, a need exists to let the market economy sort itself out and allow capitalism to work rather than continuing the binge of fiscal spending, ballooning the deficit to possibly unsustainable levels.  No business or country has ever successfully demonstrated the ability to spend its way back to prosperity.

The aforementioned sentiments are shared as a backdrop for my stockholder letter to you.

Perhaps there is no better affirmation of a financial institution’s strategy and philosophy than how it performs during a recession.  First Citrus Bank earned $228,125 in pre-tax profits and one of very few banks to turn in a profit for the year.  And while we are not happy with the level of profitability, we are not displeased with how the bank continues to perform during this magnified economic downturn.
 
While we continue to process a minority of loan workouts, the bank’s loss exposure has not been significant relative to the industry and peer group.  Additionally, the bank remains highly capitalized, and again in the top category, by regulatory standards.

Historically, one of the industry’s biggest challenges was finding new deposits to fund asset growth on the balance sheet.  As a result of what may be a developing trend in our Country, deposit growth outpaced loan growth for the first time in several years, increasing $13 million dollars or 8% to $181.5 million.  Keeping your money in an FDIC insured bank account is still the safest investment on the planet.  This increased deposit growth is an acknowledgment of client sentiments and bank reputation.

During a period when there are fewer qualified borrowers, it is worthy to note the Bank funded over $38 million dollars in new loans during 2008.  The bank’s loan portfolio grew $3.9 million dollars to $192 million.   We have been in a steepening economic downturn and are not displeased with maintaining profitability while concurrently increasing both total loans and deposits outstanding for the year.   In 2009, we forecast more static balance sheet and earnings growth rates as we manage through the back end of this recession by bolstering the loan reserve further
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The bank is being managed in a way that protects and maximizes First Citrus Bank’s long term franchise value.  As such, from a capital planning standpoint, the Board will revisit its stock repurchase and dividend policy once a satisfactory level of profitability is achieved on a recurring basis.

There is a dearth of stocks, much less bank stocks, nationwide that actually appreciated in book value during 2008.  Your investment in First Citrus is one of them and that statement should make you feel good.  The book value of your stock grew .31 cents per share to $13.22 from $12.91 at fiscal year-end 2007.
  
Where is the industry going?  From a regulatory standpoint we will experience significantly increased deposit insurance expense to replenish the FDIC’s insurance fund starting in 2009.  While I do not believe Government should allow the banking industry to be vulnerable to systemic risk, I do believe if you are going to allow it, it should be regulated and welcome new systemic risk regulation amongst investment banks, mortgage brokers and the financial services industry as a whole.  And while the community banking industry did little to contribute to this situation, we again continue to suffer the market consequences through reduced profitability, asset devaluation and increased deposit insurance premiums as well as other compliance costs.
 
During the late 80’s and early 90’s, over 700 bank failures occurred.  I believe the industry will see increased consolidation over the next 18 months, some due to roll-ups and others to failure.  First Citrus Bank will benefit with market share gains due to this industry consolidation.  In markets where competition lessens, opportunities can increase.
 
Contributing to the industry’s long term competitive advantage is a return to risk-based loan pricing in contrast to market-based loan pricing.  Thus we look forward to restored net interest margins which should meaningfully contribute to profitability going forward as the cost of credit rises relative to funding expense.
    
Also supporting new deposit growth could be a new class of investors that may permanently abandon the equity markets for the safety and peace of mind of an FDIC insured bank deposit.  Today there is $250,000 in deposit insurance per account and an unlimited FDIC insurance on all non-interest bearing deposits.  To reiterate, there is no safer place in the world to keep your money than in an FDIC insured bank deposit and preferably a First Citrus Bank account.

To capitalize on these market shifts, we are expanding in 2009 and opening our fifth location in the Westshore business district.  In a time when the industry is shedding locations and personnel, we are proud to swim against the tide not only with profitability but with a new branch bank adding jobs for Tampa Bay!  Please stop in and visit us this summer at our new Kennedy Boulevard office conveniently located between Lois and Westshore. 

Our business plan is based on fundamentals.  The objective for 2009 remains to get through this period with as little economic impact as possible and capitalize on the opportunities that flow from the market disruption that will continue to occur at the regional and money center level.  We will continue executing on three bank priorities which are soundness, profitability and growth, in that order.

While we have seen incredible change over the past year, one thing that will never change is our commitment to delivering exceptional client experiences and long term value to you as a shareholder.  Banking is still very special and I believe the next ten years will be the decade for community banks, more specifically First Citrus Bank.  On behalf of your Board and management team, I want to thank my colleagues in the bank and you especially for your continued trust and confidence.

Sincerely,

John M. Barrett
President and
Chief Executive Officer