<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
MARK ONE
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
----------- -----------
Commission File Number: 0-21347
ILLINOIS COMMUNITY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Illinois 37-1361560
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 E. Fayette Avenue, Effingham, Illinois 62401-3613
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code:
(217) 347-7127
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Securities registered pursuant to Section 12(b) of the Act:
None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
Indicate by check mark whether the registrant (l) 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
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Transitional small business disclosure format (check one): YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein. [X]
State issuer's revenues for its most recent fiscal year (year ended June
30, 1997): $3.8 million.
The registrant's voting stock is listed on the National Daily Quotation System
"Pink Sheets" published by the National Quotation Bureau, Inc. The aggregate
market value of the voting stock held by nonaffiliates of the registrant, based
on the $13.75 per share closing sales price of the registrant's common stock as
quoted on the "Pink Sheets" on September 15, 1997, was $5,579,654. For purposes
of this calculation, it is assumed that directors and officers of the registrant
are affiliates. As of September 15, 1997, the registrant had 502,550 shares of
common stock outstanding, of which 96,757 were held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1997. (Parts I, II and IV)
2. Portions of Proxy Statement for the 1997 Annual Meeting of
Stockholders. (Part III)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL
The Company. Illinois Community Bancorp, Inc. (the "Company"), an
Illinois corporation, was organized by Illinois Guarantee Savings Bank, FSB
("Illinois Guarantee") to be a savings institution holding company. The Company
was organized at the direction of the Bank in June 1996 to acquire all of the
capital stock of the Bank upon the consummation of the reorganization of the
Bank into the holding company form of ownership, (the "Reorganization") which
was completed on September 27, 1996, and the Company's Common Stock became
registered under the Securities Exchange Act of 1934 on September 27, 1996.
After the reorganization the Company invested in two newly formed corporations.
These corporations are Illinois Leasing Corporation (ILC) and Illinois Financial
Corporation (IFC). Illinois Leasing Corporation was formed to provide leasing
services to the Bank's market area and Illinois Financial Corporation will
provide financial services in the future. The Company has no significant assets
other than the corporate stock of the Bank, ILC, IFC and $100,000 retained by
the Company after the Reorganization. For that reason, substantially all of the
discussion in this Form 10-KSB relates to the operations of the Bank and its
subsidiary.
The executive offices of the Company are located at 210 E. Fayette
Avenue, Effingham, Illinois 62401-3613 and the telephone number is (217) 347-
7127.
The Bank. Illinois Community Bank (" Illinois Community" or the " Bank")
is a state chartered commercial bank with two offices in Effingham, Illinois.
The predecessor to the Bank, Illinois Guarantee, was founded on April 7, 1893 as
an Illinois state-chartered savings and loan association, and its deposits have
been federally insured since 1959. The institution has been a member of the
Federal Home Loan Bank ("FHLB") of Chicago since 1949. In February 1990,
Illinois Guarantee converted from a state-chartered savings and loan association
to a federally chartered savings bank under its current name. The Bank completed
its conversion from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank (the "Conversion") on September 28, 1995
(the "Conversion Date") through the sale and issuance of 502,550 shares of Bank
Common Stock at a price of $10.00 per share for gross proceeds of $5,025,500 and
proceeds, net of Conversion expenses, of $4,563,000. Illinois Guarantee then
converted to Illinois Community Bank, an Illinois state-chartered commercial
bank on April 21, 1997.
The Bank's main office is located at 210 E. Fayette Avenue, Effingham,
Illinois 62401-3613, and its telephone number is (217) 347-7127. The Bank
considers its primary market area to be its home county of Effingham. The Bank
serves its market area through its main office and the Mid-America branch
office, both in Effingham, Illinois.
The Bank emphasizes the origination of adjustable rate loans and short
term (5 year or less) fixed rate loans, in order to manage interest rate
sensitivity of its interest earning assets. The principal lending activity of
the Bank is the origination of single-family residential mortgage loans. This
includes financing for the construction and acquisition of residential property
as well as home improvement and home equity loans. Fixed rate residential real
estate loans are qualified and generally sold in the secondary mortgage market
to avoid exposure to interest rate fluctuations. Other types of lending that
have contributed significantly to loan portfolio growth are small business and
commercial real estate loans, automobile loans, and consumer loans. At June 30,
1997, loans with adjustable rates or terms of five years or less totaled an
estimated $33.2 million, or 72.8% of the Bank's total loans.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to applicable limits for each depositor. The FHLB of
Chicago, of which the Bank is a member, is one of the 12 district banks
comprising the FHLB System. The Bank is subject to comprehensive examination,
supervision and regulation by the Illinois Office of Banks and Real Estate
("OBRE") and the Federal Deposit Insurance Corporation ("FDIC"). Such regulation
is intended primarily for the protection of depositors.
1
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CHANGES IN KEY MANAGEMENT PERSONNEL
Effective April 18, 1995, President and Chief Executive Officer Donald
J. Wente resigned from his positions of employment with the Bank, and was
replaced by Chairman of the Board Gerald E. Ludwig, who was also appointed to
serve as Chief Executive Officer of the Bank. On June 20, 1995, the Board
promoted Vice President of Lending Douglas A. Pike to the positions of President
and Chief Operating Officer of the Bank. On June 12, 1995, the Bank hired Ronald
R. Schettler as Senior Vice President in charge of administration and
investments. In May 1996, the Bank hired John H. Leonard as Senior Vice
President and Chief Credit Officer to assist in expanding and managing the
Bank's lending activities. Mr. Leonard has been involved in commercial and
consumer lending since 1975, and was previously employed with a commercial bank
located in Effingham, Illinois. Mr. Leonard's activities have resulted in
increased loan originations for the Bank, particularly the origination of
commercial real estate and small business operating loans. Other segments of the
Bank's loan portfolio, including residential real estate and consumer loans,
continue to experience steady growth.
NEW BUSINESS STRATEGIES
New management joined the Bank in 1995 and the managerial structure has
developed in accordance with new business strategies intended to increase
presence, new market segment penetration, and overall market share in its
primary market area of Effingham County, Illinois ("Primary Market Area"). These
new strategies, under the guidance and implementation of the newly formed
management team, have increased lending activities, non-traditional banking
service activities, and sources of fee income. New business development
strategies include (i) hiring experienced commercial banking personnel including
a new Chief Credit Officer, Chief Administrative Officer, Controller, and a
Trust and Investment Management Officer; (ii) instituting a manager call program
encouraging direct contact with local businesses, property developers, realtors,
home builders, auto dealers and others; (iii) improving customer service,
educating staff, and developing a sales culture bankwide. Illinois Leasing
Corporation, Inc., a subsidiary of the holding company, provides enhanced
services in the form of commercial equipment leasing and alternatives to
traditional commercial lending. The Bank's Trust and Investment Management
Center began operations in April, 1997. Full service brokerage and investment
management services, offered at the bank through PRIMEVEST Financial Services,
allows the Bank to serve customers' investment and financial planning needs.
MARKET AREA
The Bank's offices are located in the city of Effingham, Effingham
County, Illinois. The Bank considers its Primary Market Area to be its home
county of Effingham. The population of Effingham County is 31,704 (based on the
1990 Census). Effingham is located in central Illinois, at the "crossroads" of
I-57 (major North-South interstate) and I-70 (major East-West interstate), being
97 miles east from St. Louis, Missouri, 141 miles west of Indianapolis, Indiana,
and 211 miles south of Chicago, Illinois. Employment in Effingham County is
reliant on the local manufacturing and distribution industries, with agriculture
and agribusiness serving as important elements of the economy. The major
employers in the Effingham area are Fedders USA, with approximately 1,200
employees, Crossroads Press, with 919 employees, Petty Company, with 690
employees and St. Anthony's Memorial Hospital, with 679 employees. Other major
employers include Three Z Printing, Consolidated Communications and Stevens
Industries, Inc.
LENDING ACTIVITIES
GENERAL. The Bank emphasizes the origination of adjustable rate loans
and short term (15 years or less) fixed rate loans, in order to manage the
interest rate sensitivity of its interest-earning assets. The principal lending
activity of the Bank is the origination of adjustable rate mortgage loans for
the purpose of financing the construction and acquisition of single-family
residential properties. The Bank also originates construction and permanent
loans on multi-family and commercial real estate, as well as automobile loans,
home improvement loans and other consumer loans.
2
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At June 30, 1997, loans with adjustable rates or terms of five years or less
totaled $33.2 million, or 72.8% of the Bank's total loans.
In May 1996, the Bank hired new Senior Vice President and Chief Credit
Officer, John H. Leonard to assist in expanding and managing the Bank's lending
activities. Mr. Leonard has been involved in commercial and consumer lending
since 1975 and was previously employed with a commercial bank located in
Effingham, Illinois. He is actively engaged in calling on business and
professional clients while being affiliated with a number of local small
business organizations. These activities have resulted in increased loan
originations for the Bank, particularly the origination of commercial real
estate and small business operating loans. Other segments of the Bank's loan
portfolio, including residential real estate and consumer loans, continue to
experience steady growth.
The Bank's five largest loans to one borrower, outstanding as of June
30, 1997, ranged from $462,000 to $1.0 million. See "Regulation --Limits on
Loans to One Borrower ."
LOAN PORTFOLIO. Set forth below is selected data relating to the
composition of the Bank's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-----------------------------------
1997 1996
----------------- ----------------
Amount % Amount %
------- -------- ------- -------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Real estate loans --
One- to four-family residential.. $25,984 56.98% $22,952 63.18%
Multi-family residential......... 1,293 2.84 1,036 2.85
Agricultural..................... 338 0.74 1,839 5.06
Commercial....................... 8,542 18.73 3,604 9.92
Construction
One to four residential......... 152 0.33 1,015 2.79
Multi-family.................... -- -- 292 0.80
------- ------ ------- ------
36,309 79.62 30,738 84.60
------- ------ ------- ------
Commercial business............... 2,403 5.27 1,181 3.26
Commercial leasing................ 498 1.09 -- --
Consumer loans --
Automobiles...................... 4,509 9.89 3,800 10.46
Other............................ 1,882 4.13 610 1.68
------- ------ ------- ------
9,292 20.38 5,591 15.40
------- ------ ------- ------
Total............................. 45,601 100.00% 36,329 100.00%
------- ====== ------- ======
Less:
Loans in process................. -- 6
Deferred loan fees............... 31 27
Allowance for loan losses........ 351 227
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Total, net..................... $45,219 $36,069
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</TABLE>
During the year ended June 30, 1997, the Bank made nine loans in excess
of $250,000 for a total of $4.1 million. Four of these loans have adjustable
rates ranging from 7.25% to 9.00% with outstanding balances of $423,000 for one-
to four-family dwelling, $190,000 commercial operating line of credit, and
$727,000 commercial real estate at June 30, 1997. The remaining five loans are
fixed rate with terms from six months to five years with interest rates ranging
from 8.25% to 9.25% with outstanding balances of $862,000 for multi-family
dwellings and $665,000 for commercial real estate at June 30, 1997.
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ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. The primary
emphasis of the Bank's lending activity is the origination of conventional
mortgage loans on one- to four-family residential dwellings. Most loans are
originated in amounts up to $100,000 on single-family properties located in the
Bank's primary market area of Effingham County. As of June 30, 1997, loans on
one- to four-family residential properties accounted for 56.98% of the Bank's
loan portfolio. The Bank's mortgage loan originations are for terms of from 10
years to up to 30 years, amortized on a monthly basis with interest and
principal due each month. Residential real estate loans often remain outstanding
for significantly shorter periods than their contractual terms as borrowers may
refinance or prepay loans at their option, without penalty. Conventional
residential mortgage loans granted by the Bank customarily contain "due-on-sale"
clauses which permit the Bank to accelerate the indebtedness of the loan upon
transfer of ownership of the mortgaged property.
The Bank uses standard Federal Home Loan Mortgage Corporation ("FHLMC")
documents, to allow for the sale of loans in the secondary mortgage market. The
Bank's lending policies generally limit the maximum loan-to-value ratio on
mortgage loans secured by owner-occupied properties to 95% of the lesser of the
appraised value or purchase price of the property, with the condition that
private mortgage insurance is required on loans with a loan-to-value ratio in
excess of 80%. The majority of loans in the Bank's loan portfolio have loan-to-
value ratios of 80% or less.
The Bank offers adjustable-rate mortgage loans with terms of up to 30
years. Adjustable rate loans offered by the Bank include loans which reprice
annually or provide for an initial three year term, and then reprice annually.
Adjustable rate loans provide for an interest rate which is 2.5% above the
interest rate paid on U.S. Treasury securities of a corresponding term. The Bank
offers initial discounted interest rates, but borrowers are qualified based on
the loan status following the first interest rate adjustment.
At the present time, the Bank retains all adjustable rate mortgages it
originates, which helps reduce the Bank's exposure to changes in interest rates.
The Bank's adjustable rate mortgages include caps on increases or decreases of
2.50% per year, and 6% over the life of the loan. The Bank also originates
second mortgage loans on owner-occupied, single family and one- to four- family
residential real estate. Such loans are generally subject to the same loan-to-
value ratios (when combined with existing loans), as any other residential real
estate loan, at adjustable rates, and over a term generally not to exceed 20
years.
The primary purpose for offering adjustable rate loans is to increase
the interest rate sensitivity of the Bank's loan portfolio. However, because the
interest income earned on adjustable rate loans varies with prevailing interest
rates, cash flows from such loans are not as predictable as cash flows from
fixed-rate loans. Further, the annual and lifetime adjustment limits on the
Bank's adjustable rate mortgage loans have the effect of limiting the
sensitivity of those loans to changes in market interest rates and this is
particularly true with respect to loans with initially discounted interest rates
in the event of increases in market rates. The Bank's policy of offering
initially discounted interest rates results in the Bank initially earning
reduced income from such loans. Additionally, there are unquantifiable credit
risks resulting from potential increased costs to the borrower as a result of
repricing of adjustable rate mortgage loans. It is possible that during periods
of rising interest rates, the risk of default on adjustable rate mortgage loans
may increase due to the upward adjustment of interest cost to the borrower.
During the year ended June 30, 1997, the Bank originated $5.4 million,
in adjustable rate mortgage loans and $6.0 million in fixed-rate mortgage loans.
Approximately 27.4% of all loan originations during the year ended June 30, 1997
were refinancings of loans already in the Bank's loan portfolio. At June 30,
1997, the Bank's loan portfolio included $13.4 million in adjustable rate one-to
four-family residential mortgage loans or 29.4% of the Bank's loan portfolio,
and $12.6 million in fixed-rate one-to four-family residential mortgage loans,
or 27.6% of the Bank's loan portfolio.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. At June 30, 1997, the
Bank's multi-family and commercial real estate loan portfolio consisted of $10.2
million, or 22.3% of total loans. The Bank originated $5.2
4
<PAGE>
million in such loans during the year ended June 30, 1997 and $3.9 million in
such loans during the year ended June 30, 1996. The Bank's commercial real
estate loans are secured by office buildings, small retail establishments, small
apartment buildings, raw land and farm land, all located in Effingham County,
Illinois. The Bank's largest loan had an outstanding balance of $723,000 at June
30, 1997 and was secured by land.
Multi-family and commercial real estate loans generally are originated
in amounts up to 80% of the appraised value of the property for terms of 10 to
20 years. Appraisals are performed by independent fee appraisers. The interest
rate on these loans generally is subject to adjustment on an annual bases and is
calculated by adding a margin to the appropriate index (usually the weekly
average one-year U.S. Treasury Bill index or a prime lending rate index).
Commercial and agricultural real estate lending, as well as multi-family
residential real estate lending entails significant additional risks compared
with one- to four-family residential lending. For example, commercial real
estate loans and multi-family residential real estate loans typically involve
large loan balances to single borrowers or groups of related borrowers, the
payment experience on such loans typically is dependent on the successful
operation of the real estate project, and these risks can be significantly
impacted by supply and demand conditions in the market for commercial office,
retail and warehouse space or multi-family residential units. Agricultural real
estate loans involve a greater degree of risk as payments on such loans depend,
to a larger degree, on the results of operations of the related farm. Consistent
with these increased risks, during the economic slowdown in the late 1980s and
early 1990s the Bank experienced increases in its non-performing commercial real
estate loans and real estate acquired in settlement of such loans. As of June
30, 1997, two of the Bank's commercial real estate loans were not performing.
These loans were for $119,000 with management anticipating no loss on this loan.
CONSTRUCTION LOANS. The Bank, from time to time has engaged in
construction lending to qualified borrowers for construction of one- to four-
family residential, multi-family residential, and commercial properties. Such
loans have converted to permanent financing upon completion of construction.
These properties are located in the Bank's Primary Market Area. At June 30,
1997, the Bank had three construction loans outstanding with balances ranging
from $33,000 to $69,000 at that date. Borrowers seeking construction loans must
satisfy all credit requirements which would apply to the Bank's permanent
mortgage loan financing for the subject property.
As part of the Bank's new business strategies, the Bank expects to be
active in the origination of both construction loans and the succeeding
permanent loans on single-family and multi-family residential real estate and
commercial real estate in the Bank's primary market area. The Bank's new
management has contacted various builders who have experience in constructing
and developing single-family and multi-family residential real estate (four to
eight unit apartment buildings) and commercial real estate in the Bank's Primary
Market Area.
Construction financing generally is considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with collateral having a value which is insufficient to
assure full repayment. The Bank has sought to minimize this risk by limiting
construction lending to qualified borrowers (i.e., borrowers who satisfy all
credit requirements and whose loans satisfy all other underwriting standards
which would apply to the Bank's permanent mortgage loan financing for the
subject property) in the Bank's Primary Market Area. In engaging in lending for
the construction of multi-family residential properties, the Bank would be
subject to each of these risks, as well as the risks noted above for multi-
family real estate lending.
COMMERCIAL BUSINESS LOANS. The Bank originates commercial business loans
to local retail establishments and other businesses. These loans are generally
secured by equipment. Such loans totaled $2.9 million, or 6.4% of total loans,
at June 30, 1997 and were all performing at that date.
5
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Commercial business loans involve a greater degree of risk than other
types of lending as payments on such loans are often dependent on successful
operation of the business involved which may be subject to a greater extent to
adverse conditions in the economy. The Bank seeks to minimize this risk through
its underwriting guidelines, which require that the loan be supported by
adequate cash flow of the borrower, profitability of the business and
collateral. The maximum loan to value ratio on a commercial business loan is
75%.
CONSUMER LENDING. The Bank's consumer loans consist of savings account
loans, home improvement loans, automobile loans and other consumer loans,
including (from time to time) unsecured lines of credit. At June 30, 1997, the
consumer loan portfolio totaled $6.4 million, or 14.0%, of total loans. Consumer
loans are generally offered for terms of up to five years at fixed interest
rates. Management expects to continue to promote consumer loans as part of its
strategy to provide a wide range of personal financial services to its customers
and as a means to increase the yield on the Bank's loan portfolio.
The Bank makes loans for automobiles, both new and used, directly to the
borrowers. The loans are generally limited to 80% of the purchase price or the
wholesale value listed by the National Automobile Dealers Association. The terms
of the loans are determined by the age and condition of the collateral.
Collision insurance policies are required on all these loans. At June 30, 1997,
the total amount of automobile loans was $4.5 million. As of June 30, 1997, five
of the Bank's consumer loans were not performing. The total outstanding balance
of these loans was $84,000, with management currently anticipating losses in the
amount of $6,000.
As part of the Bank's business strategies, the Bank may engage in
indirect lending on automobiles through arrangements with automobile dealers in
Effingham, Illinois and surrounding area. Such loans would be for the purchase
of used automobiles, would have loan to value ratios of up to 100%, and would
provide for terms of up to five years. During the year ended June 30, 1997, the
Bank originated $1.8 million in indirect loans on automobiles.
The Bank also makes loans secured by deposits up to 90% of the amount of
the depositor's savings or certificate of deposit accounts balance. The Bank
makes other consumer loans, which may or may not be secured. The term of the
loans usually depends on the collateral. Unsecured loans usually do not exceed
$20,000, and have a term not to exceed one year.
The Bank intends to continue the origination of consumer loans, and as
indicated above, may increase its origination of such loans. Consumer loans tend
to be originated at higher interest rates than mortgage loans and for shorter
terms. However, consumer loans generally involve more risk than one- to four-
family residential real estate loans. Repossessed collateral for a defaulted
loan (especially for automobile loans) may not provide an adequate source of
repayment of the outstanding loan balance as a result of damage, loss or
depreciation (especially for automobiles), and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower. In
addition, loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Further, the application of various
state and federal laws, including federal and state bankruptcy and insolvency
law, may limit the amount which may be recovered. In underwriting consumer
loans, the Bank considers the borrower's credit history, an analysis of the
borrower's income and ability to repay the loan, and the value of the
collateral. The Bank's risks associated with consumer loans have been further
limited by the modest amount of consumer loans made by the Bank. Despite the
risks noted above, the Bank's level of consumer loan delinquencies generally has
been low. No assurance can be given, however, that the Bank's delinquency rate
on consumer loans will continue to remain low in the future, or that the Bank
will not incur future losses on these activities.
LOAN COMMITMENTS. The Bank makes a 30-day loan commitment to borrowers.
At June 30, 1997, the Bank had four fixed rate loan commitments for $2.6 million
outstanding for the origination of commercial and residential real estate loans.
6
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LOAN SOLICITATION AND PROCESSING. Loan originations are derived from a
number of sources, including the Bank's existing customers, referrals, realtors,
advertising and "walk-in" customers at the Bank's office. The Bank does not use
loan brokers.
Upon receipt of a loan application from a prospective borrower, a credit
report and verifications are ordered to verify specific information relating to
the loan applicant's employment, income and credit standing. For all mortgage
loans, an appraisal of real estate intended to secure the proposed loan is
obtained from an independent fee appraiser who has been approved by the Bank's
Board of Directors. Fire and casualty and earthquake insurance are required on
all loans secured by improved real estate. Insurance on other collateral is
required unless waived by the loan committee. The Board of Directors of the Bank
has the responsibility and authority for the general supervision over the loan
policies of the Bank. The Board has established written lending policies for the
Bank.
Loan applications are accepted at the Bank's office. The Bank's
President may approve secured loans up to $150,000 and unsecured loans up to
$50,000. The Bank's Loan Committee, which is composed of two non-employee
directors and the Bank's President, may approve all types of loans up to 5% of
withdrawable capital for secured loans and 2% of withdrawable capital for
unsecured loans, provided such loans conform to the Bank's lending policies. All
other loans must be approved by the full Board of Directors. In addition, the
full Board of Directors reviews on a monthly basis, all loans originated by the
Bank.
INTEREST RATES AND LOAN FEES. In addition to earning interest on loans,
the Bank also receives income from, among other sources, loan origination fees,
charges on certain deposits and fees related to late payments, loan
modifications and miscellaneous services related to loans. These fees do not
constitute a significant portion of the Bank's income from operations. Interest
rates charged by the Bank on all loans are primarily determined by competitive
loan rates offered in its market area. The Bank charges a 1% loan origination
fee on new fixed-rate mortgage loans, and a fee of $250 for adjustable rate
loans. The origination fees, net of direct origination costs, are deferred and
amortized into income over the life of the loan. At June 30, 1997, the amount of
deferred loan origination fees was $31,000.
LOAN MATURITY SCHEDULE. The following table sets forth certain
information at June 30, 1997 regarding the dollar amount of loans maturing in
the Bank's portfolio based on their contractual terms to maturity. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
Due After Due after
Due During the 1 through 5 years
Year Ending 5 years after after
June 30, 1998 June 30, 1997 June 30, 1997 Total
-------------- ------------- ------------- ---------
(In thousands)
<S> <C> <C> <C> <C>
One- to four-family residential.. $ 9,088 $ 7,474 $ 9,574 $26,136
Multi-family, commercial real
estate and agricultural........ 4,078 5,466 629 10,173
Commercial....................... 1,646 1,255 -- 2,901
Consumer and other............... 1,523 4,854 14 6,391
------- ------- ------- -------
Total........................ $16,335 $19,049 $10,217 $45,601
======= ======= ======= =======
</TABLE>
7
<PAGE>
The next table sets forth at June 30, 1997, the dollar amount of all
loans due one year or more after June 30, 1997 which have predetermined interest
rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rate Adjustable Rates
------------- ----------------
(In thousands)
<S> <C> <C>
One-to four-family residential........ $ 12,648 $ 4,400
Multi-family, commercial real estate
and agricultural..................... 4,156 1,939
Commercial............................ 1,255 --
Consumer and other.................... 4,868 --
---------- ----------
Total.............................. $ 22,927 $ 6,339
========== ==========
</TABLE>
ORIGINATIONS, PURCHASES AND SALES OF LOANS. The following table sets
forth information with respect to originations and sales of loans during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996
--------- --------
<S> <C> <C>
(In thousands)
Loans originated:
Real estate loans:
One- to four-family..... $11,444 $10,985
Multi-family............ -- 285
Commercial.............. 5,153 3,629
Commercial business....... 3,246 1,874
Commercial leasing........ 568 --
Consumer loans and other.. 5,546 3,948
------- -------
Total loans originated.. $25,957 $20,721
======= =======
Loans purchased:
Participation loan........ $ -- $ --
Whole loans............... -- 500
------- -------
Total loans purchased.. $ -- $ 500
======= =======
Loans sold:
Whole loans............... $ 1,768 $ --
Participation loans....... 100 --
------- -------
Total loans sold....... $ 1,868 $ --
======= =======
</TABLE>
Historically, the Bank has sold less than 10% of the loans it has
originated. In January 1995, the Bank sold $51,000 in education loans to the
Student Loan Marketing Association. The Bank may sell loans in whole or a
portion of the loan if it exceeds its legal lending limit. In recent years, the
Bank has not purchased any whole loans and has no plans to do so in the future.
The Bank sold $1.8 million in fixed-rate residential mortgage loans in the
secondary mortgage market to FHLMC and participated to another Bank $100,000 in
loans, for the year ended June 30, 1997.
NON-PERFORMING ASSETS, ASSET CLASSIFICATION AND ALLOWANCES FOR LOSSES.
Loans are reviewed on a regular basis and are placed on a non-accrual status
when, in the opinion of management, the collection of principal and interest are
doubtful.
8
<PAGE>
Real estate acquired by the Bank as a result of foreclosure is
classified as real estate owned until such time as it is sold. When such
property is acquired, it is recorded at the lower of the unpaid principal
balance or its fair value. Any required write-down of the loan to its fair value
is charged to the allowance for loan losses.
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:(1)
Real Estate:
Residential........................................ $ 53 $ 23
Commercial......................................... 19 19
Consumer and other................................... 6 --
-------- --------
Total............................................. $ 78 $ 42
======== ========
Accruing loans which are contractually past
due 90 days or more: (1)
Real estate:
Residential........................................ $ 23 $ 262
Commercial......................................... 72 45
Consumer and other................................... 3 2
-------- --------
Total............................................. $ 98 $ 309
======== ========
Total of non-accrual and 90 days past due loans... $ 176 $ 351
======== ========
Percentage of total loans.......................... 0.39% 0.96%
======== ========
Other non-performing assets (2).................... $ 45 $ 49
======== ========
</TABLE>
- ----------------------
(1) Non-accrual status denotes loans on which, in the opinion of
management, the collection of additional interest is unlikely.
Payments received on a non-accrual loan are applied to the
outstanding principal balance. The Bank reserves interest on all
loans 90 days past due, for which, in the opinion of management,
the collection of this interest is questionable. When payments are
received on these loans, the payments are applied to reserved
interest first with any excess applied to principal.
(2) Other non-performing assets represents property acquired by the
Bank through foreclosure or repossession or accounted for as a
foreclosure in substance. This property is carried at the lower of
its fair market value or the principal balances of the related
loan, is classified as real estate held for sale and is not
included in the Bank's capital calculations.
At June 30, 1997, the Bank had $78,000 in non-accrual loans, and $98,000
in accruing loans 90 days or more past due. Other non-performing assets at June
30, 1997 represents undeveloped lots held for sale, valued at a total of
$45,000, which the Bank held, pending improvement in the local real estate
market. One lot was sold in 1997.
During the year ended June 30, 1997, gross interest income of $9,000
would have been recorded on loans accounted for on a non-accrual basis if the
loans had been current throughout these periods.
9
<PAGE>
At June 30, 1997, loans which were not classified as non-accrual, 90
days past due or restructured but where known information about possible credit
problems of borrowers caused management to have serious concerns as to the
ability of the borrowers to comply with present loan repayment terms and may
result in disclosure as non-accrual, 90 days past due or restructured amounted
to $195,000.
Included in these totals at June 30, 1997 and classified as
"substandard," all in the Bank's market area, were no loans on single-family
residences, two loans on commercial properties totaling $109,000 classified due
to delinquency or past credit history, and eight consumer and commercial
business loans totaling $76,000. Also included in this total and classified as
"substandard," were the lots held by the Bank as real estate held for sale at
June 30, 1997 in the amount of $45,000. The Bank determined to hold this
property as "real estate owned", pending improvement in the local real estate
market. Management considered all of the above items in calculating the Bank's
allowance for loan losses. Assets classified as "loss" consisted of one consumer
loan.
In originating loans, the Bank recognizes that credit losses will occur
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. It is management's policy to maintain an adequate
general allowance for loan losses based on, among other things, the Bank's and
the industry's historical loan loss experience, evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality.
Further, after properties are acquired following loan defaults, additional
losses may occur with respect to such properties while the Bank is holding them
for sale. The Bank increases its allowances for loan losses and losses on real
estate owned by charging provisions for possible losses against the Bank's
income. Specific reserves also are recognized against specific assets when
warranted. The Bank added additional provisions for loan losses of $141,000 and
$81,000, respectively, during the years ended June 30, 1997 and 1996, due to the
new business strategies of multi-family, commercial real estate and consumer
lending being pursued by the Bank, which types of lending carry increased risks
for the Bank in comparison to one- to four-family residential lending.
As a result of the declines in regional real estate market values and
the significant losses experienced by many financial institutions, there has
been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
the institution by federal or state regulators. Results of recent examinations
indicate that these regulators may be applying more conservative criteria in
evaluating real estate market values, requiring significantly increased
provisions for potential loan losses. While the Bank believes it has established
its existing allowances for loan losses in accordance with generally accepted
accounting principles, there can be no assurance that regulators, in reviewing
the Bank's loan portfolio, will not request the Bank to significantly increase
its allowance for loan losses, thereby negatively affecting the Bank's financial
condition and earnings.
The following table analyzes activity in the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Balance at beginning of period.......... $ 227 $ 175
-------- --------
Loans charged-off:
Commercial - unsecured................. -- 19
Consumer.............................. 17 10
Total loans charged-off................. 17 29
-------- --------
Provision for loan losses............... 141 81
-------- --------
Balance at end of period................ $ 351 $ 227
======== ========
Ratio of net charge-offs to average
loans outstanding during the period.... 0.04% 0.10%
======== ========
</TABLE>
10
<PAGE>
The Bank evaluates the allowance for loan losses on a regular basis. At
June 30, 1997, the allowance was 0.77% of total loans, compared to 0.63% of
total loans at June 30, 1996. In lieu of the Bank's increased originations of
multi-family and commercial real estate loans, and consumer loans, the Bank
expects that its provisions for loan losses will increase in future periods to
account for the additional risks inherent in these types of lending.
The following table sets forth a breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. These
allocations are not necessarily indicative of future losses and do not restrict
the use of the allowance to absorb losses in any loan category.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------
1997 1996
------------------------- -------------------------
Percent Percent
of Loans of Loans
in Category in Category
to Total to Total
Amount Loans Amount Loans
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Real estate - mortgage:
Residential................. $ 66 59.82% $ 44 66.00%
Commercial.................. 136 19.47 22 15.00
Construction................ -- 0.33 -- 3.60
Commercial business........... 37 5.27 10 3.25
Commercial leasing............ 4 1.09 -- --
Consumer...................... 83 14.02 20 12.15
Unallocated................... 25 -- 131 --
----------- ----------- ----------- -----------
Total allowance for loan
losses.................. $ 351 100.00% $ 227 100.00%
=========== =========== =========== ===========
</TABLE>
INVESTMENT ACTIVITIES
GENERAL. The general objectives of the Bank's investment policy are to
assure the safe and sound investment of the assets of the Bank, to provide
sufficient liquidity to meet operating and funding needs, and to comply with
regulatory liquidity requirements. All securities and investments are recorded
on the books of the Bank in accordance with generally accepted accounting
principles. All purchases of securities and investments conform to the Bank's
interest rate risk policy. The type of investments allowed under the investment
policy are only those which qualify as liquid investments under current
regulations. The Bank's mutual fund investment represents an interest in a money
market fund and an adjustable rate mortgage loan fund, neither of which are
insured. Bank investments also include the demand, overnight and certificate of
deposit accounts at the FHLB of Chicago. Investments may be made in certificates
of deposit and savings accounts in other financial institutions insured by the
FDIC so long as the total investment with accrued interest does not exceed the
$100,000 insurance limit per each institution. Other investments allowed consist
of direct U.S. Government obligations and other government agencies that have
the full faith and credit backing of the U.S. Government.
11
<PAGE>
INVESTMENTS. The following table sets forth the carrying value of the
Bank's investment securities portfolio, short-term investments, and FHLB of
Chicago stock at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
AVAILABLE FOR SALE
Investment securities:
U.S. Government and Agency securities........ $3,801 $2,956
State and municipal obligations.............. 388 204
Mutual funds................................. 1,497 1,488
Equities..................................... 419 257
FHLB stock.................................... 398 214
------ ------
Total available for sale investments....... $6,503 $5,119
====== ======
HELD TO MATURITY
Investment securities:
U.S. Government and Agency securities........ $ -- $ --
State and municipal obligations.............. -- --
Other........................................ 633 299
Interest-bearing deposits and mutual fund..... 767 1,129
------ ------
Total held to maturity investments......... $1,400 $1,428
====== ======
</TABLE>
12
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for the Bank's investment securities at
June 30, 1997.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Portfolio
----------------- ----------------- ----------------- ------------------- --------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Yield Value Yield Value Value Yield
-------- ------- -------- ------- -------- ------- -------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Available for Sale (1, 2)
Investment securities:
U.S. Government and
Agency securities..... $400 6.15% $2,905 6.71% $500 8.00% $ -- --% $3,805 $3,801 6.82%
State and municipal
obligations (2)....... 78 4.52 197 4.74 110 5.25 -- -- 385 388 4.84%
Mutual funds............ -- -- -- -- -- -- 1,500 6.05 1,500 1,497 6.05%
Equities................ -- -- -- -- -- -- 410 8.02 410 817 8.02%
---- ------ ---- ------ ------ ------
Total................. $478 5.88% $3,102 6.58% $610 7.50% $1,910 6.47% $6,100 $6,503 6.57%
==== ====== ==== ====== ====== ======
</TABLE>
- --------------------
(1) This schedule uses contractual maturity dates. Some of the securities
have call date options.
(2) For financial reporting these securities are valued at estimated fair
market value.
13
<PAGE>
The only investment classified as held to maturity as of June 30, 1997
is an interest in a limited partnership, Boston Capital Corporation Tax Credit
Fund V of $633,000. The Bank purchased a one unit investment in this Fund of
Class A limited partnership interests. The one unit cost was $788,000 with the
first installment paid with the purchase. The April 1, 1997 payment was
partially requested by the partnership. The balance is due as follows:
<TABLE>
<CAPTION>
Amount
(1,000's)
---------
<S> <C>
April 1, 1997 $ 44
October 1, 1997 95
----
$139
====
</TABLE>
It is the intent of the partnership to invest in qualified affordable
housing programs to generate Federal Housing Tax Credits. The Bank intends to
account for this investment using the amortized cost method. This method
requires amortizing the excess of the carrying value over its estimated residual
value at the close of the tax credit realization. Annual amortization is
proportional to the realization of the tax credits. The limited partnership
files a tax return on a calendar basis. Based on the limited partnership 1996
tax year, the Bank was entitled to $25,000 of tax credits and record
amortization of the investment carrying value of $16,000
The Bank had $568,000 in interest bearing deposits and $199,000 in money
market mutual funds at June 30, 1997 at rates of 5.98% and 5.16%, respectively.
MORTGAGE-BACKED SECURITIES. The Bank invests excess funds in mortgage-
backed securities, as well as other investments and may increase its investment
in this type of security in the future. At June 30, 1997, the total investment
in mortgage-backed securities was $1.4 million, with $363,000 in adjustable rate
securities, $1.0 million in fixed-rate securities and an average yield of 7.76%.
The Bank invests in mortgage-backed securities originated by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the FHLMC.
Prepayments in the Bank's mortgage-backed securities portfolio may be
affected by declining and rising interest rate environments. In a low and
falling interest rate environment, prepayments would be expected to increase. In
such an event, the Bank's fixed-rate securities subscribed for at a premium
price could result in actual yields to the Bank that are lower than anticipated
yields. The Bank's floating rate securities would be expected to generate lower
yields as a result of the effect of falling interest rates on the indexes for
determining payment of interest. Additionally, the increased principal payments
received may be subject to reinvestment at lower rates. Conversely, in a period
of rising rates, prepayments would be expected to decrease, which would make
less principal available for reinvestment at higher rates. In a rising rate
environment, floating rate instruments would generate higher yields to the
extent that the indexes for determining payment of interest did not exceed the
life-time interest rate caps on the Bank's mortgage-backed securities.
The Bank has historically invested in mortgage-backed securities as an
alternative investment to supplement its lending efforts. Mortgage-backed
securities may also be used as collateral for borrowings and through repayments,
as a source of liquidity. The Bank transferred all the mortgage-backed
securities from held to maturity to available for sale in December 1995.
The Bank purchases securities through any registered broker or dealer
and requires that the securities be delivered to the safekeeping agent of the
Savings & Community Bankers Trust Company before the funds are transferred to
the broker or dealer. Illinois Guarantee purchases investment securities
pursuant to an investment policy established by the Board of Directors.
14
<PAGE>
The following table sets forth the carrying value of the Bank's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------
1997 1996
------ ------
(In thousands)
<S> <C> <C>
GNMA................ $ 776 $ 945
FNMA................ 241 252
FHLMC............... 405 576
------ ------
$1,422 $1,773
====== ======
</TABLE>
15
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for the Bank's mortgage-backed
securities at June 30, 1997.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Portfolio
---------------- ----------------- ----------------- ------------------- --------------------------
Cost Average Cost Average Cost Average Cost Average Cost Market Average
Value Yield Value Yield Value Yield Value Yield Value Value Yield
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GNMA.................. $ -- -- % $753 8.31% $ -- -- % $ -- -- % $ 753 $ 776 8.31%
FNMA.................. -- -- -- -- 238 7.42 -- -- 238 241 7.42
FHLMC................. 335 6.62 71 8.40 -- -- -- -- 406 405 6.93
---- ---- ---- ---- ------ ------
Total............. $335 6.62% $824 8.32% $238 7.42% $ -- -- % $1,397 $1,422 7.76
==== ==== ==== ==== ====== ======
</TABLE>
16
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from principal repayments and interest payments on loans and investments as well
as other sources arising from operations in the production of net earnings. Loan
prepayments and interest payments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources, or
on a longer term basis for general business purposes.
DEPOSITS. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad selection of deposit
instruments, including passbook savings, NOW accounts, money market accounts and
certificates of deposit. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.
The Bank's policies are designed primarily to attract deposits from
local residents rather than to solicit deposits from areas outside of its
primary market. The Bank generally does not accept deposits from brokers due to
the volatility and rate sensitivity of such deposits. Interest rates paid,
maturity terms, service fees and withdrawal penalties are established by the
Bank on a periodic basis. Determination of rates and terms are predicated upon
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
For more information on the Bank's deposit accounts, see Note F of Notes
to Consolidated Financial Statements.
The following table sets forth the Bank's certificates of deposit
accounts classified by actual rates at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------
1997 1996
------- -------
<S> <C> <C>
(In thousands)
2 - 3.99%......... $ 121 $ 8
4 - 5.99%......... 21,926 24,599
6 - 7.99%......... 3,617 2,384
8 - 9.99%......... 42 42
------- -------
$25,706 $27,033
======= =======
</TABLE>
The following table sets forth the amount and maturities of certificates
of deposit accounts in actual rate categories at June 30, 1997.
<TABLE>
<CAPTION>
Amount Due
----------------------------------------
Less Than After
Rate One Year 1-2 Years 2-3 Years 3 Years Total
- ---- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
(In thousands)
3 - 3.99%.................... $ 100 $ -- $ -- $ 21 $ 121
4 - 4.99%.................... 582 -- -- -- 582
5 - 5.99%.................... 15,084 4,720 869 671 21,344
6 - 6.99%.................... 248 1,473 1,408 488 3,617
7 - 7.99%.................... -- -- -- -- --
8 - 8.99%.................... -- -- -- -- --
9 - 9.99%.................... 42 -- -- -- 42
------- ------ ------ ------ -------
$16,056 $6,193 $2,277 $1,180 $25,706
======= ====== ====== ====== =======
</TABLE>
17
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity at June 30, 1997.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposit
--------------- ------------
(In thousands)
<S> <C>
Three months or less................ $ 345
Over three through six months....... --
Over six through twelve months...... 1,114
Over twelve months.................. 964
------
Total............................ $2,423
======
</TABLE>
The following table sets forth the average balances and interest rates
based on monthly balances for transaction accounts and certificates of deposit
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1997 1996
--------------------- ---------------------
Interest- Interest-
Bearing Bearing
Demand Time Demand Time
Deposits Deposits Deposits Deposits
---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average balance........ $10,248 $28,074 $7,685 $25,679
Average rate........... 3.80% 5.36% 3.74% 5.35%
</TABLE>
The following table sets forth the change in dollar amount of interest-
bearing deposits in the various types of accounts offered by the Bank between
the dates indicated (in thousands).
<TABLE>
<CAPTION>
Increase
Balance at (Decrease) Balance at
June 30, % from June June 30, %
1997 Deposits 30, 1996 1996 Deposits
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NOW, Super NOW and other
transaction accounts......... $ 2,076 5.03% $ 776 $ 1,300 3.64%
Money market deposit accounts.. 2,457 5.96 26 2,431 6.81
Passbook savings............... 11,004 26.68 6,093 4,911 13.77
Certificates:
6 months or less............. 5,457 13.23 (2,283) 7,740 21.70
6 months through 1 year...... 4,617 11.20 (1,510) 6,127 17.17
1 year through 3 years....... 13,884 33.66 3,658 10,226 28.66
More than 3 years............ 1,748 4.24 (1,192) 2,940 8.24
------- ------ ------- ------- ------
Total..................... $41,243 100.00% $ 5,568 $35,675 100.00
======= ====== ======= ======= ======
</TABLE>
18
<PAGE>
The following table sets forth deposit activities of the Bank for the
years indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------
1997 1996
-------- ---------
(In thousands)
<S> <C> <C>
Deposits.......................................... $115,803 $ 58,051
Withdrawals....................................... 110,535 (55,541)
-------- --------
5,268 2,510
Interest credited................................. 1,846 1,335
-------- --------
Net increase (decrease) in savings deposits.. $ 7,114 $ 3,845
======== ========
</TABLE>
Management attributes the net increase in deposits for 1997 to increased
presence in the Bank's market area. The Bank has adopted new business strategies
to increase its presence which was also enhanced by the stock conversion in
September 1995.
BORROWINGS. Savings deposits historically have been the primary source
of funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from the
FHLB of Chicago to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB are secured by the Bank's stock
in the FHLB and a portion of the Bank's mortgage loans. The Bank had $8.0
million in advances from the FHLB as of June 30, 1997, which consisted of one
fixed rate advance maturing February 21, 2000 at 5.48% rate of interest, payable
monthly, in the amount of $1.5 million. An additional fixed rate advance
maturing July 15, 1997 at 5.72% rate of interest, payable monthly, in the amount
of $1.5 million. The Bank's daily advance from the FHLB amounted to $5.0 million
at 5.76% average monthly rate of interest which can adjust daily.
The FHLB of Chicago functions as a central reserve bank providing credit
for savings institutions and certain other financial institutions. As a member,
the Bank is required to own capital stock in the FHLB and is authorized to apply
for advances on the security of such stock and certain of its home mortgages and
other assets (principally, securities which are obligations of, or guaranteed by
the United States) provided certain standards related to creditworthiness have
been met.
SUBSIDIARY ACTIVITIES
ILLINOIS LEASING CORPORATION. Illinois Leasing Corporation ("ILC") is a
subsidiary incorporated to conduct leasing and lease brokering activities
outside of the banking activities of Illinois Community Bank. ILC is wholly
owned by the Company and was incorporated during the year ended June 30, 1997.
The operations of ILC are currently insignificant in comparison to the retail
operations of the Company. During the year ended June 30, 1997, ILC originated
thirteen commercial leases, primarily operating leases, in the total among of
$567,000. ILC generated $5,000 in net consolidated income for the year ended
June 30, 1997. The operations of ILC have been consolidated into those of the
Company.
ILLINOIS FINANCIAL CORPORATION. Illinois Financial Corporation (IFC) is
a subsidiary incorporated to render financial services in the Bank's market
area. IFC is wholly owned by the Company and was incorporated during the year
ended June 30, 1997. IFC did not have any operational activities in the year
ended June 30, 1997.
ILLINOIS GUARANTEE SERVICE CORPORATION. The Bank has one service
corporation, Illinois Guarantee Service Corporation. The primary purpose of the
corporation is to provide credit insurance products to existing Bank borrowers.
The Bank's investment in this service corporation was $26,000 at June 30, 1997,
with no commitments for further
19
<PAGE>
investment, and the service corporation generated $5,000 in net income for the
Bank during the year ended June 30, 1997.
COMPETITION
The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition for savings deposits primarily comes from other commercial banks and
savings institutions located in or near the Bank's primary market area.
Additional significant competition for savings deposits comes from credit
unions, money market funds and brokerage firms. The primary factors in competing
for loans are interest rates and loan origination fees and the range of services
offered by the various financial institutions. Competition for origination of
real estate loans normally comes from other commercial banks, thrift
institutions, mortgage bankers, mortgage brokers and insurance companies.
Management considers the Bank's competitors in its market area to consist of six
commercial banks and one savings institution located outside of its market area.
Overall, management believes that the Bank is the smallest of the financial
institutions competing for deposits and loans in its market area.
The Bank is able to compete effectively in its primary market by
offering competitive interest rates and loan fees, providing a wide variety of
deposit products, and by emphasizing personal customer service. Management
believes that, as a result of the Bank's commitment to varied products and
personal service, the Bank has developed a solid base of core deposits and the
Bank's loan origination quality is among the leaders in the Bank's market area.
REGULATION
REGULATION OF THE COMPANY
GENERAL. The Company is a bank holding company within the meaning of the
Bank Holding Company Act ("BHCA"). As such, the Company is registered with the
Federal Reserve Board and subject to Federal Reserve Board regulation,
examination, supervision and reporting requirements. As a bank holding company,
the Company is required to furnish to the Federal Reserve Board annual and
quarterly reports of its operations at the end of each period and to furnish
such additional information as the Federal Reserve Board may require pursuant to
the BHCA. The Company is also subject to regular examination by the Federal
Reserve Board.
Under the BHCA, a bank holding company must obtain the prior approval of
the Federal Reserve Board before (i) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") allows the Federal Reserve Board
to approve an application of an adequately capitalized and adequately managed
bank holding company to acquire control of, or acquire all or substantially all
of the assets of, a bank located in a state other than such holding company's
home state, without regard to whether the transaction is prohibited by the laws
of any state. The Federal Reserve Board may not approve the acquisition of bank
that has not been in existence for the minimum time period (not exceeding five
years) specified by the statutory law of the host state. The Riegle-Neal Act
also prohibits the Federal Reserve Board from approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. The Riegle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state which may
be held or controlled by a bank or bank
20
<PAGE>
holding company to the extent such limitation does not discriminate against out-
of-state banks or bank holding companies. Individual states may also waive the
30% state-wide concentration limit contained in the Riegle-Neal Act.
Additionally, beginning on June 1, 1997, the federal banking agencies
were authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Riegle-Neal Act by adopting a law
after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997
which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. Interstate acquisitions of branches
are permitted only if the law of the state in which the branch is located
permits such acquisitions. Interstate mergers and branch acquisitions are also
be subject to the nationwide and statewide insured deposit concentration amounts
described above.
The Riegle-Neal Act authorizes the Office of Comptroller of the Currency
("OCC") and FDIC to approve interstate branching de novo by national and state
banks, respectively, only in states which specifically allow for such branching.
The Riegle-Neal Act also requires the appropriate federal banking agencies to
prescribe regulations by June 1, 1997 which prohibit any out-of-state bank from
using the interstate branching authority primarily for the purpose of deposit
production. These regulations include guidelines to ensure that interstate
branches operated by an out-of-state bank in a host state are reasonably helping
to meet the credit needs of the communities which they serve.
The BHCA also prohibits, with certain exceptions, a bank holding company
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of a company that is not a bank or a bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The activities of the Company are subject to these legal
and regulatory limitations under the BHCA and the Federal Reserve Board's
regulations thereunder. Notwithstanding the Federal Reserve Board's prior
approval of specific nonbanking activities, the Federal Reserve Board has the
power to order a holding company or its subsidiaries to terminate any activity,
or to terminate its ownership or control of any subsidiary, when it has
reasonable cause to believe that the continuation of such activity or such
ownership or control constitutes a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that holding company.
CAPITAL ADEQUACY. The Federal Reserve Board has adopted guidelines
regarding the capital adequacy of bank holding companies, which require bank
holding companies to maintain specified minimum ratios of capital to total
assets and capital to risk-weighted assets. See "--Regulation of the Bank --
Capital Adequacy."
DIVIDENDS AND DISTRIBUTIONS. The Federal Reserve Board has the power to
prohibit dividends by bank holding companies if their actions constitute unsafe
or unsound practices. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.
Bank holding companies are required to give the Federal Reserve Board
notice of any purchase or redemption of their outstanding equity securities if
the gross consideration for the purchase or redemption, when combined with the
net consideration paid for all such purchases or redemptions during the
preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve Board order, directive, or any condition imposed by,
or written agreement with, the Federal Reserve Board. Bank holding companies
whose capital ratios exceed the thresholds for "well capitalized" banks on a
consolidated basis are exempt from the foregoing requirement if they were rated
composite 1 or 2 in their most recent inspection and are not the subject of any
unresolved supervisory issues.
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REGULATION OF THE BANK
GENERAL. The Bank is an Illinois state chartered commercial bank, a
member of the FHLB of Chicago and its deposits are insured by the FDIC through
the SAIF. The lending activities and other investments of the Bank must comply
with various state and federal regulatory requirements. The Bank is subject to
extensive governmental regulation and periodic regulatory reporting
requirements. The regulations by various governmental entities, as well as
Federal and State laws of general application affect the Bank in many ways
including but not limited to: requirements to maintain reserves against
deposits, payment of FDIC insurance, restrictions on investments, establishment
of lending limits and payment of dividends. The Bank is primarily supervised and
examined by OBRE, and specifically the Illinois Commissioner of Banks and Real
Estate (the "Commissioner") and the FDIC. The FDIC as well as the State of
Illinois have the authority to conduct special examinations of the Bank because
its deposits are insured by the SAIF (up to the legal maximum of $100,000 for
each insured depositor). The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board. This supervision and
regulation is intended primarily for the protection of depositors. Certain of
these regulatory requirements are referred to below or discussed elsewhere
herein.
CAPITAL ADEQUACY. The Federal Reserve Board has established guidelines
with respect to the maintenance of appropriate levels of capital by bank holding
companies and state member banks, such as the Bank. The regulations impose two
sets of capital adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the
maintenance of specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve Board require bank holding
companies and state member banks to maintain a minimum leverage ratio of "Tier 1
capital" (as defined in the risk-based capital guidelines discussed in the
following paragraphs) to total assets of 3.0%. Although setting a minimum 3.0%
leverage ratio, the capital regulations state that only the strongest bank
holding companies and banks, with composite examination ratings of 1 under the
rating system used by the federal bank regulators, would be permitted to operate
at or near such minimum level of capital. All other bank holding companies and
banks are expected to maintain a leverage ratio of at least 1% to 2% above the
minimum ratio, depending on the assessment of an individual organization's
capital adequacy by its primary regulator. Any bank or bank holding company
experiencing or anticipating significant growth would be expected to maintain
capital well above the minimum levels. In addition, the Federal Reserve Board
has indicated that whenever appropriate, and in particular when a bank holding
company is undertaking expansion, seeking to engage in new activities or
otherwise facing unusual or abnormal risks, it will consider, on a case-by-case
basis, the level of an organization's ratio of tangible Tier 1 capital (after
deducting all intangibles) to total assets in making an overall assessment of
capital.
The risk-based capital rules of the Federal Reserve Board require bank
holding companies and state member banks to maintain minimum regulatory capital
levels based upon a weighting of their assets and off-balance sheet obligations
according to risk. The risk-based capital rules have two basic components: a
core capital (Tier 1) requirement and a supplementary capital (Tier 2)
requirement. Core capital consists primarily of common stockholders' equity,
certain perpetual preferred stock (which must be noncumulative with respect to
banks), and minority interests in the equity accounts of consolidated
subsidiaries; less all intangible assets, except for certain purchased mortgage
servicing rights and purchased credit card relationships. Supplementary capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify as Tier 1
capital and long-term preferred stock with an original maturity of at least 20
years from issuance; hybrid capital instruments, including perpetual debt and
mandatory convertible securities; and subordinated debt and intermediate-term
preferred stock.
The risk-based capital regulations assign balance sheet assets and
credit equivalent amounts of off-balance sheet obligations to one of four broad
risk categories based principally on the degree of credit risk associated with
the obligor. The assets and off-balance sheet items in the four risk categories
are weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets. The risk-based capital regulations require all banks and
bank holding companies to maintain a minimum ratio of total capital to total
risk-weighted assets of 8%, with at least 4% as
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core capital. For the purpose of calculating these ratios: (i) supplementary
capital will be limited to no more than 100% of core capital; and (ii) the
aggregate amount of certain types of supplementary capital will be limited. In
addition, the risk-based capital regulations limit the allowance for loan losses
includable as capital to 1.25% of total risk-weighted assets.
The table below provides information with respect to the Bank's
compliance with its regulatory capital requirements at June 30, 1997.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Capital (to Risk Weighted Assets).................. $6,478 16.51% $3,140 8.0% $3,924 10.0%
Tier 1 Capital (to Risk Weighted Assets)................. 6,176 15.74 1,570 4.0 2,355 6.0
Tier 1 Capital (to Average Assets)....................... 6,176 10.74 2,301 4.0 2,876 5.0
<CAPTION>
(1)Reconciliation from GAAP capital to tangible capital:
(In thousands)
GAAP capital.......................................... $6,499
Real estate held for investment....................... 45
Unrealized gains on available-for-sale securities..... 278
------
$6,176
======
</TABLE>
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions
on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restriciting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring the
senior executive officers or directors by dismissed; prohibiting the institution
from accepting deposits from correspondent banks; requiring the institution to
divest certain subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
Additionally, institutions insured by the FDIC may be liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with the default of commonly controlled FDIC insured depository
institutions or any assistance provided by the FDIC to commonly controlled FDIC
insured depository institutions in danger of default.
At June 30, 1997, the Bank exceeded all regulatory minimum capital
requirements.
DIVIDEND RESTRICTIONS. Under the Illinois Banking Act, Illinois-
chartered banks, such as the Bank, may not pay, without prior regulatory
approval, dividends in excess of their net profits. The payment of dividends by
any financial institution is affected by the requirements to maintain adequate
capital pursuant to applicable capital adequacy guidelines and regulations, and
a financial institution generally is prohibited from paying any dividends if,
following payment thereof, the institution would be undercapitalized. As
described above, the Bank exceeded its minimum capital requirements under
applicable guidelines as of June 30, 1997. Notwithstanding the availability of
funds for dividends,
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however, the federal banking regulators may prohibit the payment of any
dividends by the Bank if they determine such payment would constitute an unsafe
or unsound practice.
SUPERVISORY ASSESSMENTS. Illinois banks are required to pay supervisory
fees to the Commissioner to fund the operations of that state agency. The amount
of such supervisory fees is based upon each institution's total assets,
including consolidated subsidiaries, as reported to the agency. The amount of
such fees was not material to the Bank's operations during the year ended June
30, 1997.
DEPOSIT INSURANCE. Because the Bank was a savings association prior to
the Bank Conversion, its deposits continue to insured by the SAIF rather than by
the Bank Insurance Fund ("BIF") which generally insured the deposits of
commercial banks. The Bank is required to pay semi-annual assessments based on a
percentage of its insured deposits to the FDIC for insurance of its deposits by
the SAIF. Under the Federal Deposit Insurance Act, the FDIC is required to set
semi-annual assessments for SAIF-insured institutions to maintain the designated
reserve ratio of the SAIF at 1.25% of estimated insured deposits or at a higher
percentage of estimated insured deposits that the FDIC determines to be
justified for that year by circumstances raising a significant risk of
substantial future losses to the SAIF.
Under the risk-based deposit insurance assessment system adopted by the
FDIC, the assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory evaluations. Based
on the data reported to regulators for the date closest to the last day of the
seventh month preceding the semi-annual assessment period, institutions are
assigned to one of three capital groups-- "well capitalized," "adequately
capitalized" or "undercapitalized." Within each capital group, institutions are
assigned to one of three subgroups on the basis of supervisory evaluations by
the institution's primary supervisory authority and such other information as
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance fund.
For the past several semi-annual periods, institutions with SAIF-
assessable deposits, like the Bank, have been required to pay higher deposit
insurance premiums than institutions with deposits insured by the BIF. In order
to recapitalize the SAIF and address the premium disparity, the recently-enacted
Deposit Insurance Funds Act of 1996 authorized the FDIC to impose a one-time
special assessment on institutions with SAIF-assessable deposits based on the
amount determined by the FDIC to be necessary to increase the reserve levels of
the SAIF to the designated reserve ratio of 1.25% of insured deposits.
Institutions were assessed at the rate of 65.7 basis points based on the amount
of their SAIF-assessable deposits as of March 31, 1995. As a result of the
special assessment the Bank incurred an expense of $208,000 during the first
quarter of fiscal 1997, the quarter ended September 30, 1996.
The FDIC has adopted a new assessment schedule for SAIF deposit
insurance pursuant to which the assessment rate for well-capitalized
institutions with the highest supervisory ratings would be reduced to zero and
institutions in the lowest risk assessment classification will be assessed at
the rate of 0.27% of insured deposits. Until December 31, 1999, however, SAIF-
insured institutions, will be required to pay assessments to the FDIC at the
rate of 6.5 basis points to help fund interest payments on certain bonds issued
by the Financing Corporation ("FICO") an agency of the federal government
established to finance takeovers of insolvent thrifts. During this period, BIF
members will be assessed for these obligations at the rate of 1.3 basis points.
After December 31, 1999, both BIF and SAIF members will be assessed at the same
rate for FICO payments.
TRANSACTIONS WITH AFFILIATES. Transactions between a state member bank
and any affiliate are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a state member bank is any company or entity which
controls, is controlled by or is under common control with the state member
bank. In a holding company context, the parent holding company of a state member
bank (such as the Company) and any companies which are controlled by such parent
holding company are affiliates of the state member bank. Generally, Sections 23A
and 23B (i) limit the extent to which the bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
bank's capital stock and surplus, and contain an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus and (ii) require that all such transactions be on
24
<PAGE>
terms substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no state member bank may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the state member
bank. The BHCA further prohibits a depository institution from extending credit
to or offering any other services, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or certain of its affiliates or not
obtain services of a competitor of the institution, subject to certain
exceptions.
LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS. State
member banks such as the Bank, are also subject to the restrictions contained in
Section 22(h) and 22(g) of the Federal Reserve Act on loans to executive
officers, directors and principal stockholders. Under Section 22(h), loans to a
director, executive officer or greater than 10% stockholder of a state member
bank and certain affiliated interests of the foregoing, may not exceed, together
with all other outstanding loans to such person and affiliated interests, the
bank's loans to one borrower limit (generally equal to 15% of the institution's
unimpaired capital and surplus) and all loans to such persons may not exceed the
institution's unimpaired capital and unimpaired surplus. Section 22(h) also
prohibits loans, above amounts prescribed by the appropriate federal banking
agency, to directors, executive officers and greater than 10% stockholders of a
state member bank, and their respective affiliates, unless such loan is approved
in advance by a majority of the board of directors of the state member bank with
any "interested" director not participating in the voting. The Federal Reserve
Board has prescribed the loan amount (which includes all other outstanding loans
to such person), as to which such prior board of director approval if required,
as being the greater of $25,000 or 5% of capital and surplus (up to $500,000).
Further, the Federal Reserve Board pursuant to Section 22(h) requires that loans
to directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
unless the loan is made pursuant to a benefit or compensation plan that is
widely available to other employees and does not give preference to insiders.
Section 22(h) also prohibits a depository institution from paying the overdrafts
of any of its executive officers or directors. Section 22(g) of the Federal
Reserve Act requires that loans to executive officers of depository institutions
be approved by the board of directors of the institution, and imposes reporting
requirements for and additional restrictions on the type, amount and terms of
credits to such officers. In addition, Section 106 of the BHCA prohibits
extensions of credit to executive officers, directors, and greater than 10%
stockholders of a depository institution by any other institution which has a
correspondent banking relationship with the institution, unless such extension
of credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
LIMITS ON LOANS TO ONE BORROWER. State member banks, such as the Bank
generally are subject to the lending limits applicable to national banks. With
certain limited exceptions, the maximum amount that a savings institution may
lend to any borrower (including certain related entities of the borrower) at one
time may not exceed 15% of the unimpaired capital and surplus of the savings
institution, plus an additional 10% of unimpaired capital and surplus for loans
fully secured by readily marketable collateral.
At June 30, 1997, the maximum amount that the Bank could have loaned to
any one borrower without prior approval was $1.3 million. At such date, the
largest aggregate amount of loans that the Bank had outstanding to any one
borrower and their related interests was $1.0 million.
TRANSACTIONS WITH AFFILIATES. Transactions between a state member bank
and any affiliate are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a state member bank is any company or entity which
controls, is controlled by or is under common control with the state member
bank. In a holding company context, the parent holding company (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the state member bank. Generally, Sections 23A and 23B (i)
limit the extent to which the state
25
<PAGE>
member bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and contain an aggregate limit on all such transactions with all
affiliates in an amount equal to 20% of such capital stock and surplus and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable, to the institution or subsidiary as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, purchase
of assets, issuance of a guarantee and similar other types of transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no state member
bank may (i) loan or otherwise extend credit to an affiliate, except for any
affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of an affiliate, except for affiliates which are
subsidiaries of the state member bank.
BRANCHING AUTHORITY. Illinois banks, such as the Bank, have the
authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals. As noted
above, effective June 1, 1997, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 allowed banks to establish interstate branch networks
through acquisitions of other banks, subject to certain conditions, including
certain limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of DE NOVO interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an out-of-
state bank in its entirety) is allowed by the Act only if specifically
authorized by state law. The legislation allows individual states to "opt-out"
of certain provisions of the Act by enacting appropriate legislation prior to
June 1, 1997. Illinois enacted legislation permitting interstate mergers
beginning on June 1, 1997.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC
insured state banks, such as the Bank, are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law and FDIC
regulations also prohibit FDIC insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible investments
and activities must be divested or discontinued within certain time frames set
by the FDIC. These restrictions have not had, and are not currently expected to
have, a material impact on the operations of the Bank.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB System,
which consists of 12 district Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"). The Federal Home Loan
Banks provide a central credit facility primarily for member institutions. As a
member of the FHLB of Chicago, the Bank is required to acquire and hold shares
of capital stock in the FHLB of Chicago in an amount at least equal to 1% of the
aggregate unpaid principal of its home mortgage loans, home purchase contracts,
and similar obligations at the end of each year, or 1/20 of its advances
(borrowings) from the FHLB of Chicago, whichever is greater. The Bank was in
compliance with this requirement with investment in FHLB of Chicago stock at
June 30, 1997, of $398,000. The FHLB of Chicago serves as a reserve or central
bank for its member institutions within its assigned district. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It offers advances to members in accordance with policies and
procedures established by the FHFB and the Board of Directors of the FHLB of
Chicago. Long-term advances may only be made for the purpose of providing funds
for residential housing finance. The Bank had $8.0 million in advances
outstanding from the FHLB of Chicago with $35,000 of accrued interest payable as
of June 30, 1997. The advances consisted of a one fixed rate advance maturing
February 21, 2000 at 5.48% rate of interest, payable monthly, in the amount of
$1.5 million. An additional fixed rate advance maturing July 15, 1997 at 5.72%
rate of interest, payable monthly, in the amount of $1.5 million. The Bank's
daily advance from the FHLB amounted to $5.0 million at 5.76% average monthly
rate of interest which can adjust daily.
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<PAGE>
FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve
Board, all FDIC-insured depository institutions must maintain average daily
reserves against their net transaction accounts. This percentage is subject to
adjustment by the Federal Reserve Board. No reserves are required to be
maintained on the first $4.3 million of transaction accounts, reserves equal to
3% must be maintained on the next $49.3 million of transaction accounts, and a
reserve of 10% must be maintained against all remaining transaction accounts.
These reserve requirements are subject to adjustment by the Federal Reserve
Board. Because required reserves must be maintained in the form of vault cash or
in a noninterest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's interest-
earning assets. As of June 30, 1997, the Bank met its reserve requirements.
PROMPT CORRECTIVE REGULATORY ACTION
General. Under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") federal banking regulators are required to take prompt
corrective action if an insured depository institution fails to satisfy certain
minimum capital requirements, including a leverage limit, a risk-based capital
requirement, and any other measure of capital deemed appropriate by the federal
banking regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
of its capital requirements. An institution that fails to meet the minimum level
for any relevant capital measure (an "undercapitalized institution") may be: (i)
subject to increased monitoring by the appropriate federal banking regulator;
(ii) required to submit an acceptable capital restoration plan within 45 days;
(iii) subject to asset growth limits; and (iv) required to obtain prior
regulatory approval for acquisitions, branching and new lines of businesses. The
capital restoration plan must include a guarantee by the institution's holding
company that the institution will comply with the plan until it has been
adequately capitalized on average for four consecutive quarters, under which the
holding company would be liable up to the lesser of 5% of the institution's
total assets or the amount necessary to bring the institution into capital
compliance as of the date it failed to comply with its capital restoration plan.
A "significantly undercapitalized" institution, as well as any undercapitalized
institution that does not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities and possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution. Any company controlling the
institution could also be required to divest the institution or the institution
could be required to divest subsidiaries. The senior executive officers of a
significantly undercapitalized institution may not receive bonuses or increases
in compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls below a "critical capital level," the institution will be subject to
conservatorship or receivership within 90 days unless periodic determinations
are made that forbearance from such action would better protect the deposit
insurance fund. Unless appropriate findings and certifications are made by the
appropriate federal bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.
The federal banking regulators have adopted regulations implementing the
prompt corrective action provisions of FDICIA. Under such regulations, the
federal banking regulators will generally measure a depository institution's
capital adequacy on the basis of its total risk-based capital ratio (the ratio
of its total capital to risk-weighted assets), Tier 1 risk-based capital ratio
(the ratio of its core capital to risk-weighted assets) and leverage ratio (the
ratio of its core capital to adjusted total assets). Under the regulations, a
depository institution that is not subject to an order or written directive by
its primary federal regulator to meet or maintain a specific capital level is
deemed "well-capitalized" if it also has: (i) a total risk-based capital ratio
of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6% or greater; and
(iii) a leverage ratio of 5% or greater. An "adequately capitalized" depository
institution is an institution that does not meet the definition of well-
capitalized and has: (i) a total risk-based capital ratio of 8% or greater; (ii)
a Tier 1 risk-based capital ratio of 4% or greater; and (iii) a leverage ratio
of 4% or greater (or 3% or greater if the institution has a
27
<PAGE>
composite 1 CAMEL rating). An "undercapitalized institution" is a depository
institution that has (i) a total risk-based capital ratio less than 8%; or (ii)
a Tier 1 risk-based capital ratio of less than 4%; or (iii) a leverage ratio of
less than 4% (or 3% if the institution has a composite 1 CAMEL rating). A
"significantly undercapitalized" institution is defined as a depository
institution that has: (i) a total risk-based capital ratio of less than 6%; or
(ii) a Tier 1 risk-based capital ratio of less than 3%; or (iii) a leverage
ratio of less than 3%. A "critically undercapitalized" depository institution is
defined as a depository institution that has a ratio of "tangible equity" to
total assets that is equal to or less than 2%. "Tangible equity" is defined as
core capital plus the institution's outstanding cumulative perpetual preferred
stock (and related surplus) less all intangibles other than qualifying
supervisory goodwill and certain mortgage servicing rights. The appropriate
federal banking agency may reclassify a well capitalized depository institution
as adequately capitalized and may require an adequately capitalized or
undercapitalized institution to comply with the supervisory actions applicable
to institutions in the next lower capital category (but may not reclassify a
significantly undercapitalized institution as critically undercapitalized) if
the federal banking agency determines, after notice and an opportunity for a
hearing, that the depository institution is in an unsafe or unsound condition or
if the federal banking agency determines that the institution has received and
not corrected a less-than-satisfactory rating. As of June 30, 1997, the Bank was
classified as "well-capitalized" under the prompt corrective action regulations.
Safety and Soundness Guidelines. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each Federal banking agency is required to establish safety and soundness
standards for institutions under its authority. On July 10, 1995, the federal
banking agencies, including the Federal Reserve Board, released Interagency
Guidelines Establishing Standards for Safety and Soundness and published a final
rule establishing deadlines for submission and review of safety and soundness
compliance plans. The final rule and the guidelines went into effect on August
9, 1995. The guidelines require depository institutions to maintain internal
controls and information systems and internal audit systems that are appropriate
for the size, nature and scope of the institution's business. The guidelines
also establish certain basic standards for loan documentation, credit
underwriting, interest rate risk exposure, and asset growth. The guidelines
further provide that depository institutions should maintain safeguards to
prevent the payment of compensation, fees and benefits that are excessive or
that could lead to material financial loss, and should take into account factors
such as comparable compensation practices at comparable institutions. If the
appropriate federal banking agency determines that a depository institution is
not in compliance with the safety and soundness guidelines, it may require the
institution to submit an acceptable plan to achieve compliance with the
guidelines. A depository institution must submit an acceptable compliance plan
to its primary federal regulator within 30 days of receipt of a request for such
a plan. Failure to submit or implement a compliance plan may subject the
institution to regulatory sanctions. Management believes that the Bank already
meets substantially all the standards adopted in the interagency guidelines, and
therefore does not believe that implementation of these regulatory standards
will materially affect the Bank's operations.
Additionally under FDICIA, as amended by the CDRI Act, the federal
banking agencies are required to establish standards relating to the asset
quality and earnings that the agencies determine to be appropriate. On July 10,
1995, the federal banking agencies, including the Federal Reserve Board, issued
proposed guidelines relating to asset quality and earnings. Under the proposed
guidelines, an FDIC insured depository institution should maintain systems,
commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to
evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves. Management believes that the asset
quality and earnings standards, in the form proposed by the banking agencies,
would not have a material effect on the Bank's operations.
TAXATION
The Company and its subsidiaries will file a consolidated federal income
tax return on a June 30 fiscal year basis. Consolidated returns have the effect
of eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur.
The Company's and the Bank's federal income tax returns have not been
audited in the last five years.
28
<PAGE>
For additional information regarding federal income taxes, see Notes H
and I of Notes to Consolidated Financial Statements.
The State of Illinois has a corporate income tax which subjects the
Company's Illinois taxable income to a 4.8% tax and a Personal Property
Replacement tax of 2.5%. However, by virtue of statutory provisions relative to
a calculations of taxes assessed against corporations, such corporations do not
pay state income tax in years in which income on United States Government
securities exceeds taxable income.
For additional information regarding taxation, see Note I of Notes to
Consolidated Financial Statements.
EMPLOYEES
At June 30, 1997, the Bank had 29 full-time and six part-time employees.
The Company has no separate employees, except those of the Bank. None of the
Bank's employees is represented by a collective bargaining agreement. The Bank
believes that it enjoys good relations with its personnel.
EXECUTIVE OFFICERS OF THE COMPANY AND THE BANK
The Bank has made significant changes in its management personnel. For
more information, see "Changes in Key Management Personnel." The current
management of the Bank is described below.
JOHN H. LEONARD has been in the financial institutions industry for more
than 22 years and currently serves as Senior Vice President and Chief Credit
Officer, a position he has held since May 1996. Prior to that time, Mr. Leonard
was Assistant Vice-President/Commercial Loan Officer of Citizens Bank of
Illinois in Effingham, Illinois. He is a Director for the Effingham Chamber of
Commerce and a Director for the Effingham Family YMCA.
GERALD E. LUDWIG is owner of Ludwig Medical, Inc., a manufacturer of
plastic disposable medical devices. Mr. Ludwig was elected Chairman of the Board
and Chief Executive Officer of the Bank on April 18, 1995. Mr. Ludwig also
serves as Chairman of the Company.
DOUGLAS A. PIKE has been in the financial institutions industry for more
than 12 years and joined the Bank in February 1995 as Vice President of Lending.
Mr. Pike was appointed President and Chief Operating Officer of the Bank on
June 20, 1995. Prior to joining the Bank, he served as loan officer of Effingham
State Bank and, prior to that, as consumer loan officer of First National Bank
of Effingham, both in Effingham, Illinois. Mr. Pike is a Commissioner for the
Effingham City Council, and a Director for the Effingham County Community
Development Corporation. Mr. Pike also serves as President of the Company.
RONALD R. SCHETTLER has been in the financial institutions industry for
more than 29 years, and currently serves as Senior Vice President of the Bank in
charge of administration and investments, a position he has held since joining
the Bank in June 1995. Prior to that time, Mr. Schettler was Vice President of
Effingham State Bank in Effingham, Illinois. He is a member of the United
Methodist Church, the Scottish Rite, the Effingham Chamber of Commerce and the
Master Masons. Mr. Schettler also serves as director of the Company.
DONNIE U. DUEKER has been in the financial institution industry for more
than 8 years and currently serves as Vice President and Trust Officer of the
Bank, while also serving as a General Securities Representative for the Bank and
Primevest Financial Services, Inc. Prior to working for the Bank, Mr. Dueker was
Assistant Vice President and Trust Officer of Citizens Trust Company in
Effingham, Illinois. He is a member of the Presbyterian Church and served as
Secretary and Treasurer as a member of the Effingham County United Way Board of
Directors.
29
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------
The following table sets forth certain information at June 30, 1997
regarding the Bank's office facilities, which are owned by the Bank, and certain
other information relating to this property at that date.
<TABLE>
<CAPTION>
Year Completed Square Footage Net Book Value
-------------- -------------- --------------
<S> <C> <C> <C>
Main Office:
210 E. Fayette Avenue
Effingham, Illinois 1970 2,940 $ 239
Mid-America Office:
1300 North Keller Drive
Effingham, Illinois 1997(1) 10,000 $1,762
</TABLE>
- ----------------------
(1) The branch, a two story building with a basement, was completed in
January of 1997. This facility was constructed in a high traffic area of
Effingham to increase needed office space and increase market awareness.
The lending operation of Illinois Community Bank is primarily located at
this branch. In addition, a portion of this branch is rented until the
Bank needs additional space.
At June 30, 1997, the net book values of the Bank's computer equipment
and other furniture, fixtures and equipment totaled $741,000. For more
information, see Note F of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Bank or its subsidiary is a party or to which any of
their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- ------------------------------------------------------------------------
MATTERS
-------
The information contained under the section captioned "Market
Information" in the Annual Report to Stock holders for the Fiscal Year Ended
June 30, 1997 (the "Annual Report") is incorporated herein by reference. For
information regarding restrictions on the payment of dividends see Item 1.
"Business -- Regulation -- Dividend Limitations."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
30
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The consolidated financial statements contained in the Annual Report
which are listed under Item 14 herein are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE
- -----------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------
The information contained under the section captioned "Proposal I--
Election of Directors" in the Company's definitive proxy statement for the 1997
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.
During the year ended June 30, 1997, the Registrant's directors and
officers complied with the filing requirements of Section 16(a) of the
Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------
The information contained under the section captioned "Proposal I--
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
(a) and (b) The information required by this item is incorporated herein by
reference to the sections captioned "Proposal I - Election of
Directors" and "Voting Securities and Principal Holders Thereof"
of the Proxy Statement.
(c) Management knows of no arrangements, including any pledge by any
person of securities of the Bank, the operation of which may at a
subsequent date result in a change in control of the registrant.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of Directors" of the
Proxy Statement.
31
<PAGE>
PART IV
ITEM 13. FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------
(a) 1. Independent Auditors' Report (incorporated by reference to the Annual
Report)
Consolidated Financial Statements (incorporated by reference to the
Annual Report)
(a) Consolidated Statements of Financial Condition at June 30, 1997
and 1996
(b) Consolidated Statements of Earnings for the Years Ended June 30,
1997 and 1996
(c) Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1997 and 1996
(d) Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997 and 1996
(e) Notes to Consolidated Financial Statements.
2. All schedules have been omitted as the required information is either
inapplicable or included in the Notes to Consolidated Financial
Statements.
3. Exhibits and Index to Exhibits
(a) Exhibits
The following exhibits are either attached to or incorporated by
reference in this Annual Report on Form 10-KSB.
<TABLE>
<CAPTION>
Page No.
in Sequentially
No. Description Numbered Copy
----- ----------- ---------------
<S> <C> <C>
(3a) Articles of Incorporation of Illinois Community Bancorp, Inc. *
(3b) Bylaws of Illinois Community Bancorp, Inc. *
(4) Common Stock Certificate of Illinois Community Bancorp, Inc. *
(10a) Illinois Community Bancorp, Inc. Stock Option Plan *
(10b) Illinois Community Bancorp, Inc. Management Recognition Plan *
(10c) Retirement Plan for Non-employee Directors *
(10d) Profit Sharing Plan *
(10e) Employment Agreement between the Bank and Douglas A. Pike *
dated January 16, 1996
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(10f) Employment Agreement between the Bank and Ronald R. Schettler
dated January 16, 1996 *
(10g) Employment Agreement between the Bank and John H. Leonard **
dated May 13, 1996
(13) Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1997
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
</TABLE>
- ----------------
* Incorporated by reference to the Corporation's Registration Statement on
Form S-4 (333-3322) filed with the Securities and Exchange Commission on
April 9, 1996.
** Previously filed.
(b) During the last quarter of the fiscal year ended June 30, 1997, the Bank did
not file any Current Reports on Form 8-K.
(c) All required exhibits are filed as attached.
(d) No financial statement schedules are required.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
ILLINOIS COMMUNITY BANCORP, INC.
Date: September 30, 1997 By: /s/ Gerald E. Ludwig
-----------------------------------------
Gerald E. Ludwig
Chairman of the Board and Chief
Executive Officer
Duly Authorized Representative
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Gerald E. Ludwig Date: September 30, 1997
-----------------------------------------
Gerald E. Ludwig
Chairman of the Board
(Principal Executive Officer)
By: /s/ Michael F. Sehy Date: September 30, 1997
-----------------------------------------
Michael F. Sehy
Vice Chairman of the Board
By: /s/ Douglas A. Pike Date: September 30, 1997
-----------------------------------------
Douglas A. Pike
Director and President (Principal
Financial and Accounting Officer)
By: /s/ Milton Hinkle Date: September 30, 1997
-----------------------------------------
Milton Hinkle
Director
By: /s/ Frederick C. Schaefer Date: September 30, 1997
-----------------------------------------
Frederick C. Schaefer
Director
By: /s/ Ernest E. Garbe Date: September 30, 1997
-----------------------------------------
Ernest E. Garbe
Director
By: /s/ Garrett M. Andes, II Date: September 30, 1997
-----------------------------------------
Garrett M. Andes, II
Director
By: /s/ Scott R. Kabbes Date: September 30, 1997
-----------------------------------------
Scott R. Kabbes
Director
By: /s/ Ronald R. Schettler Date: September 30, 1997
-----------------------------------------
Ronald R. Schettler
Director
<PAGE>
INDEX TO EXHIBITS
(3a) Articles of Incorporation of Illinois Community Bancorp, Inc. *
(3b) Bylaws of Illinois Community Bancorp, Inc. *
(4) Common Stock Certificate of Illinois Community Bancorp, Inc. *
(10a) Illinois Community Bancorp, Inc. Stock Option Plan *
(10b) Illinois Community Bancorp, Inc. Management Recognition Plan *
(10c) Retirement Plan for Non-employee Directors *
(10d) Profit Sharing Plan *
(10e) Employment Agreement between the Bank and Douglas A. Pike dated
January 16, 1996 *
(10f) Employment Agreement between the Bank and Ronald R. Schettler dated
January 16, 1996 *
(10g) Employment Agreement between the Bank and John H. Leonard dated
May 13, 1996 **
(13) Annual Report to Stockholders for the Fiscal Year Ended June 30,
1997
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
- ----------------
* Incorporated by reference to the Corporation's Registration Statement on
Form S-4 (333-3322) filed with the Securities and Exchange Commission on
April 9, 1996.
** Previously filed.
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC.
1997
ANNUAL REPORT
<PAGE>
Dear Stockholder:
It is with great pleasure that we present Illinois Community Bancorp, Inc.'s
Annual Report to Shareholders for the fiscal year ended June 30, 1997.
The overwhelming local public response to our initial stock offering in
September of 1995 has presented a challenge to your Board and Senior Management.
Specifically, optimal deployment of capital has become one of our primary area's
of strategic focus. Toward this end, we undertook several significant
initiatives during fiscal year 1997.
First, we made every attempt to internally leverage the capital base through
growth in our loan portfolio with strong, safe and profitable loans. Loans
receivable increased during the year by $9.1 million, or 25.4%. The increase in
loans, representing the highest level of growth, other than last year, in our
history, was accomplished through expansion of our loan product line, added
management expertise in our lending staff, and aggressive direct marketing
efforts in our primary banking area. Concurrently, our overall marketing
efforts resulted in an increase of $7.1 million in new deposit accounts, or a
19.5% increase over fiscal year end 1996.
Second, we remain committed to the local community bank concept and have made a
firm commitment to further establishing our presence and enhancing our
visibility in the community, and significantly improving the level of service to
our present and future customers. In January, 1997, we opened our new Mid-
America Banking Facility. The new 10,000 square foot facility has provided
customers a full range of banking services including loans, drive-up banking and
drive-up ATM services. In June 1996, we completed an upgrade to our internal
data processing system. The improvements will provide our customers better
quality account information, as well as providing a higher level of detailed
information for management, and increased efficiency of bank personnel. In
August of 1996 we formed Illinois Leasing Corporation to provide leasing
services to our community as an alternative to normal banking operations. The
Bank's Trust and Investment Management Center began operations in April of 1997.
The full service brokerage and investment management service allows the Bank to
serve additional needs of our customers, and provides an additional source of
non-interest income.
Earnings performance for fiscal 1997 represents a decrease of $424,000 compared
to fiscal 1996. The reduced earnings were primarily attributable to an increase
in operating expenses including the one time "SAIF" special assessment signed
into law in September, 1996, to recapitalize the Savings Association Insurance
Fund. This legislation required Illinois Community Bank, then Illinois
Guarantee Savings Bank, a "SAIF" insured savings institution, to pay a one-time
special assessment of 65.7 cents for every $100 of deposits. Based on the
formula, our assessment was $207,632, which was realized entirely in the first
quarter of fiscal year 1997. It is important to keep in mind that the special
assessment was fully anticipated by management of Illinois Community Bank and by
all SAIF insured institutions in the industry. Increases in future earnings
will more than offset the negative impact on fiscal year earnings since the
deposit insurance premiums that Illinois Community Bank pay will now decline
from an average of 23.4 cents to 6.4 cents, per $100 of deposits, effective
January 1, 1997. No later than January 1, 2000, deposit insurance premiums will
be reduced to 2.4 cents per $100 of deposits. Also contributing to the increase
in annual operating expenses was: the January 21, 1997, opening and staffing of
our new, full-service, Mid-America Banking Facility; legal and administrative
costs associated with positive changes to corporate structure, including the
formation of a Bank Holding Company; a Regulatory Charter change to that of a
State Commercial Bank; and, the addition of expertise at the senior management
level.
<PAGE>
Letter to Stockholders
Page 2
June 30, 1997 ended a year of great accomplishment that had an obvious negative
impact on short-term profitability. Senior Management remains very encouraged
by the overall asset growth, and quality and performance thereof. Fee based
revenues continued to increase steadily during the year. Although total
earnings were clouded by the one-time SAIF assessment, and other costs, it is
clear that ensuring the integrity of the deposit insurance system will greatly
enhance the bank's long term profitability, vitality and competitiveness. In
addition, management believes operating efficiency ratios will continue to show
improvement in the coming year.
In conclusion, the Directors, Officers and Staff wish to thank all of you for
your support of Illinois Community Bancorp, Inc. over its first full year of
operations as a public company. We will continue to adapt to change in our
industry, continue to promote employee involvement in the community, look
forward to fiscal 1998 with cautious optimism, and remain ever-committed to
maximizing the value of your investment in our Corporation.
Respectfully,
ILLINOIS COMMUNITY BANCORP, INC.
Douglas A. Pike Gerald E. Ludwig
President Chairman of the Board
<PAGE>
GENERAL
ILLINOIS COMMUNITY BANCORP, INC.
Illinois Community Bancorp, Inc. (the "Company"), an Illinois corporation,
was organized by Illinois Guarantee Savings Bank, FSB ("Illinois Guarantee" or
the "Bank," as applicable) to be a savings institution holding company. The
Company was organized at the direction of the Bank in June 1996 to acquire all
of the capital stock of the Bank upon the consummation of the reorganization of
the Bank into the holding company form of ownership, (the "Reorganization")
which was completed on September 27, 1996, and the Company's Common Stock became
registered under the Securities Exchange Act of 1934 on September 27, 1996.
During the current year the Company invested $530,000 in two newly formed
corporations. This investment was funded by dividends from the Bank. Illinois
Leasing Corporation (ILC) was formed to provide commercial leasing services and
Illinois Financial Corporation (IFC) was formed to provide additional financial
services to the Bank's customers. The Company has no significant assets other
than capital stock in the Bank, ILC, and IFC and cash retained by the Company
following the reorganization. The Company has registered with the Board of
Governors of the Federal Reserve System as a bank holding company. The
Company's principal business is the business of the Bank, with insignificant
effect from ILC.
The executive offices of the Company are located at 210 E. Fayette Avenue,
Effingham, Illinois 62401-3613 and the telephone number is (217) 347-7127.
ILLINOIS COMMUNITY BANK
Illinois Community Bank ("Illinois Community" or the "Bank," as applicable)
is a state chartered commercial bank with its main office in Effingham,
Illinois. The predecessor to the Bank, Illinois Guarantee, was founded on April
7, 1893 as an Illinois state-chartered savings and loan association, and its
deposits have been federally insured since 1959. The institution has been a
member of the Federal Home Loan Bank ("FHLB") of Chicago since 1949. In
February 1990, Illinois Guarantee converted from a state-chartered savings and
loan association to a federally chartered savings bank under its current name.
The Bank completed its conversion from a federally chartered mutual savings bank
to a federally chartered capital stock savings bank (the "Conversion") on
September 28, 1995 (the "Conversion Date") through the sale and issuance of
502,550 shares of Bank Common Stock at a price of $10.00 per share for gross
proceeds of $5,025,500 and proceeds, net of Conversion expenses, of $4,563,000.
Illinois Guarantee then converted to Illinois Community Bank on April 21, 1997.
The Bank's main office is located at 210 E. Fayette Avenue, Effingham,
Illinois 62401-3613, and its telephone number is (217) 347-7127. The Bank
considers its primary market area to be its home county of Effingham and the
contiguous counties. The Bank serves its market area through its main office
and the new Mid-America branch, both in Effingham, Illinois.
The business of the Bank primarily consists of attracting savings deposits
from the general public and investing such deposits in loans secured by single-
family residential real estate, investment securities, including U.S. Government
and Agency securities, interest-earning deposits, mortgage-backed securities and
local municipal securities. The Bank also makes business and commercial loans
and leases, multi-family and commercial real estate loans, and consumer loans,
including automobile loans and deposit account loans. The Bank emphasizes the
origination of residential real estate mortgage loans with adjustable interest
rates and fixed-rate loans qualified for sale in the secondary mortgage market,
and makes other investments which are responsive to changes in interest rates,
and which allow the Bank to more closely match the interest rates and maturities
of its assets and liabilities.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to applicable limits for each depositor. The FHLB of
Chicago, of which the Bank is a member, is one of the 12 district banks
comprising the FHLB System. The Bank is subject to comprehensive examination,
supervision and regulation by the Illinois Office of Banks and Real Estate
("OBRE") and the FDIC. Such regulation is intended primarily for the protection
of depositors.
<PAGE>
ILLINOIS LEASING CORPORATION
Illinois Leasing Corporation (ILC) is a subsidiary incorporated to conduct
leasing activities outside of the banking activities of Illinois Community Bank.
ILC is wholly owned by the Company and was incorporated during the year ended
June 30, 1997. The operations of ILC are currently insignificant in comparison
to the total operations of the Company. During the year ended June 30, 1997,
ILC originated thirteen commercial leases, primarily operating leases, in the
total amount of $567,000. The operations of ILC have been consolidated in those
of the Company.
ILLINOIS FINANCIAL CORPORATION
Illinois Financial Corporation (IFC) is a subsidiary incorporated to
conduct financial services in the Bank's market area. IFC is wholly owned by
the Company and was incorporated during the year ended June 30, 1997. IFC did
not have any significant operational actives in the year ended June 30, 1997.
NEW BUSINESS STRATEGIES
New management joined the Bank in 1995 and the managerial structure has
developed in accordance with new business strategies intended to increase
presence, new market segment penetration, and overall market share in its
primary market area of Effingham County, Illinois ("Primary Market Area").
These new strategies, under the guidance and implementation of the newly formed
management team, have increased lending activities, non-traditional banking
service activities, and sources of fee income. New business development
strategies include (i) hiring of experienced commercial banking personnel
including a new Chief Credit Officer, Chief Administrative Officer, Controller,
and a Trust and Investment Management Officer; (ii) instituting a manager call
program encouraging direct contact with local businesses, property developers,
realtors, home builders, auto dealers and others; (iii) improving customer
service, educating staff, and developing a sales culture bankwide. Illinois
Leasing Corporation, Inc., a subsidiary of the holding company, has provided
enhanced services in its first year of operation in the form of commercial
equipment leasing and alternatives to traditional commercial lending. The
Bank's Trust and Investment Management Center began operations in April, 1997.
Full service brokerage and investment management services, offered at the bank
through our affiliate PRIMEVEST Financial Services, allows the Bank to better
serve our customers' overall long term investment and financial planning needs.
MARKET INFORMATION
At the present time, the Company's common stock is listed and traded over-
the-counter through the National Daily Quotation System "Pink Sheets" published
by the National Quotation Bureau. The high and low bid information for the
Company's common stock for the fiscal quarters since the Bank's initial public
offering was completed on September 28, 1995 is as follows:
<TABLE>
<CAPTION>
Bid Price(1)
-----------------
For the Quarter Ended High Low
--------------------- ------ ------
<S> <C> <C>
December 31, 1995 $11.75 $10.00
March 31, 1996 11.50 11.50
June 30, 1996 12.50 11.50
September 30, 1996 10.50 12.00
December 31, 1996 12.50 12.00
March 31, 1997 12.00 12.00
June 30, 1997 12.62 12.50
- --------------------
</TABLE>
(1) Based on bids received by Trident Securities, Inc. The quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and
may not represent actual transactions. Represents trading in the Bank's
common stock, as became the Company's common stock was not outstanding until
September 27, 1996.
There is currently no active market for the Company's common stock and
it is not expected that an active market for the Company's common stock will
develop. There were approximately 268 stockholders of record at September 1,
1997. Through June 30, 1997, the Company had declared during the quarter ended
December 31, 1996 and paid in January of 1997 a cash dividend of $0.15 per share
and declared an additional dividend of $0.15 per share during the quarter ended
June 30, 1997, payable in July of 1997.
2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary of selected consolidated financial information and
other data does not purport to be complete and is qualified in its entirety by
reference to the detailed information and consolidated financial statements and
accompanying notes appearing elsewhere herein.
<TABLE>
<CAPTION>
FINANCIAL CONDITION DATA:
At June 30,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets.............................. $59,799 $46,421 $36,393 $35,195 $35,481
Loans receivable, net............... 45,219 36,069 21,846 21,251 20,185
Cash and investment securities (1).. 9,611 6,814 11,319 10,683 10,994
Mortgage-backed securities (2)...... 1,422 1,773 2,326 2,696 3,741
Deposit and demand accounts......... 43,662 36,548 32,703 31,787 32,757
Advances - FHLB..................... 7,958 1,608 0 0 0
Other borrowings.................... 316 356 0 0 0
Stockholders equity (3)............. 7,092 7,302 2,959 3,049 2,874
- ----------------------------------------------------------------------------------
Number of:
Real estate loans................... 782 758 722 768 726
Deposit and demand accounts......... 5,704 5,847 4,564 4,485 3,992
Offices open........................ 2 1 1 1 1
- -------------
</TABLE>
(1) Includes available for sale securities (at estimated market values) of
$6,503,000, $6,108,000 and $2,004,000 at June 30, 1997, 1996 and 1995.
(2) Includes available for sale mortgage-backed securities (at estimated market
values) of $1,422,000 and $1,773,000 at June 30, 1997 and 1996.
(3) Includes unrealized gains on securities and mortgaged-backed securities held
as available for sale of $278,000, $142,000 and $121,000 at June 30, 1997,
1996 and 1995.
3
<PAGE>
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income.......................... $ 3,844 $ 3,017 $ 2,379 $ 2,177 $ 2,477
Interest expense......................... 2,234 (1,687) (1,416) (1,263) (1,575)
------- ------- ------- ------- -------
Net interest income...................... 1,610 1,330 963 914 902
Provision for loan losses................ (141) (81) (50) -- --
------- ------- ------- ------- -------
Net interest income after provision
for loan losses......................... 1,469 1,249 913 914 902
Non-interest income...................... 161 59 38 119 54
Non-interest expense..................... (2,023) (1,019) (883) (550) (591)
------- ------- ------- ------- -------
Income (loss) before provision for
income tax.............................. (393) 289 68 483 365
Provision for (benefit from) income tax.. (147) 111 7 168 116
------- ------- ------- ------- -------
Net income (loss) before effects of
change in accounting principle.......... (246) 178 61 315 249
Cumulative effect of change in
accounting principle.................... -- -- -- 4 --
------- ------- ------- ------- -------
Net income (loss)........................ $ (246) $ 178 $ 61 $ 319 $ 249
======= ======= ======= ======= =======
</TABLE>
4
<PAGE>
KEY RATIOS
<TABLE>
<CAPTION>
At or for the Year Ended June 30,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PERFORMANCE RATIOS:
Return on assets (net income divided by average
total assets)......................................... (0.46)% 0.43% 0.17%
Return on equity (net income divided by
average equity)....................................... (3.41)% 2.81% 2.07%
Net yield on interest-earning assets
(net income as a percentage of average
interest-earning assets).............................. 3.23% 3.36% 2.79%
Interest rate spread (combined weighted average
interest rate earned less combined weighted
average interest rate cost)........................... 2.64% 2.65% 2.40%
Non-interest expense to average total assets........... 3.77% 2.45% 2.49%
Asset quality ratios:
Nonperforming assets to total assets at end of period.. 0.37% 0.86% 0.29%
Allowance for loan losses to non-performing loans...... 199.43% 64.67% 265.15%
Allowance for loan losses to total loans
receivable, net....................................... 0.77% 0.63% 0.79%
Capital ratios:
Stockholders' equity to total assets at end of period.. 11.86% 15.73% 8.13%
Equity-to-Assets Ratio (average equity divided
by average total assets)............................. 13.45% 15.21% 8.38%
Average interest-earning assets to average
interest-bearing liabilities......................... 113.08% 116.64% 108.71%
Per Share Data:
Net income (loss) (1).................................. $ (0.53) $ 0.30 --
Pro forma net income (2)............................... -- 0.38 --
Book value (3)......................................... 14.11 14.53 --
- -------------
</TABLE>
(1) Net income for June 30, 1996 is calculated using the period from October 1,
1995 through June 30, 1996. The Bank converted to a stock savings bank on
September 28, 1995 and the earnings from the date of conversion to September
30, 1995 were considered insignificant on the per share calculation.
(2) Pro forma amount does not reflect pro forma effects of the stock conversion
on September 28, 1995 since the beginning of the year.
(3) Book value includes the liquidation account of the mutual share holders as
of the date of conversion.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The business of the Bank consists of attracting deposits from the
general public and using these funds to originate residential mortgage and home
equity loans, business loans, multi-family and commercial real estate loans,
automobile loans, and consumer loans. To a lesser extent, the Bank invests in
interest-bearing deposits, U.S. Government and federal agency securities,
mortgage-backed securities and local municipal securities. The Bank's
profitability depends primarily on its net interest income, which is the
difference between the interest income it earns on loans and investment
portfolio and its cost of funds, which consists mainly of interest paid on
deposits and Federal Home Loan Bank short term borrowings. Net interest income
is affected by the relative amounts of interest-earning assets and interest
bearing liabilities, and the interest earned or paid on these balances. When
interest-earning assets approximate or exceed interest-bearing liabilities, a
positive interest rate spread will generate net interest income.
The Bank's profitability is also affected by the level of noninterest
income and expense. Noninterest income consists primarily of loan fees and late
charges, recently supplemented by fees generated from the sale of qualified
mortgage loans to the secondary mortgage market, and by commissions generated
through Trust and Brokerage services. Non-interest expense consists of salaries
and benefits, occupancy related expenses, deposit insurance premiums, and other
operating expenses.
The operations of the Bank, and financial institutions in general, are
significantly influenced by general economic conditions and related monetary and
fiscal policies of financial institutions' regulatory agencies. Deposit flows
and the cost of funds are influenced by rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for financing real estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered and other factors
affecting loan demand and the availability of funds.
ASSET/LIABILITY MANAGEMENT
The principal operating objective of the Bank is the achievement of a
positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates. Since the Bank's principal interest-earning assets
have substantially longer terms to maturity than its primary source of funds,
i.e., deposit liabilities, increases in general interest rates will generally
result in an increase in the Bank's cost of funds before the yield on its asset
portfolio adjusts upwards. Savings institutions have generally sought to reduce
their exposure to adverse changes in interest rates by attempting to achieve a
closer match between the periods in which their interest-bearing liabilities and
interest-earning assets can be expected to reprice through the origination of
adjustable-rate mortgages and loans with shorter terms.
The term "interest rate sensitivity" refers to those assets and
liabilities which mature and reprice periodically in response to fluctuations in
market rates and yields. Thrift institutions have historically operated in a
mismatched position with interest-sensitive liabilities greatly exceeding
interest-sensitive assets in the short-term time periods. As noted above, one
of the principal goals of the Bank's asset/liability program is to more closely
match the interest rate sensitivity characteristics of the asset and liability
portfolios.
In order to properly manage interest rate risk, the Bank's management
monitors the difference between the Bank's maturing and repricing assets and
liabilities and develops and implements strategies to decrease the "negative
gap" between the two. Management assesses the Bank's asset/liability mix,
recommends strategies to the Board of Directors that will enhance income while
managing the Bank's vulnerability to changes in interest rates, and reports to
the Board of Directors the results of the strategies used.
6
<PAGE>
Since the early 1980's, the Bank has stressed the origination of
adjustable rate mortgage loans. At June 30, 1997, $16.8 million, or 36.85%, of
the Bank's total loans secured by real estate were adjustable rate mortgages.
In addition, the Bank had $363,000 in adjustable rate mortgage-backed securities
at June 30, 1997.
In order to increase the interest rate sensitivity of its assets, the
Bank has also maintained a consistent level of short and intermediate-term
investment securities and other assets. At June 30, 1997, the Bank had $1.6
million of investment securities including mortgage-backed securities and
interest-bearing deposits maturing within one year and $3.9 million maturing
within one to five years. At June 30, 1997, the Bank also had $3.8 million in
investment securities including mortgage-backed securities maturing after five
years, of which $1.5 million represented the Bank's investment in an asset
management adjustable rate fund, which is an uninsured mutual fund, which
thereby carries greater risk than government insured investment securities.
In the future, in managing its interest rate sensitivity, the Bank
intends to continue to stress the origination of adjustable-rate mortgages and
loans with shorter maturities, the purchase of adjustable rate mortgage-backed
securities and the maintenance of a consistent level of short-term securities.
In addition, the Bank has increased its origination of fixed-rate mortgage
loans, and then sell such loans in the secondary mortgage market to FHLMC.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap would adversely affect net interest income while a positive gap
would result in an increase in net interest income, while conversely during a
period of falling interest rates, a negative gap would result in an increase in
net interest income and a positive gap would negatively affect net interest
income.
7
<PAGE>
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1997 which are expected
to mature or reprice in each of the time periods shown/(1)/.
<TABLE>
<CAPTION>
Over One Over Five
One Year Through Through Over Ten
or Less Five Years Ten Years Years Total
--------- ------------ ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans...................... $21,992 $ 9,601 $ 2,987 $1,729 $36,309
Commercial loans....................... 2,452 449 -- -- 2,901
Consumer and other..................... 2,925 3,460 6 -- 6,391
Investment securities (1)(2)........... 1,494 2,853 1,243 1,910 7,500
Mortgage-backed securities............. 552 593 238 14 1,397
------- -------- ------- ------ -------
Total................................ 29,415 16,956 4,474 3,653 54,498
------- -------- ------- ------ -------
Interest-bearing liabilities:
Deposits (3)........................... 19,249 19,377 2,617 -- 41,243
FHLB advances.......................... 6,458 1,500 -- -- 7,958
Other.................................. 40 160 116 -- 316
------- -------- ------- ------ -------
Total................................ 25,747 21,037 2,733 -- 49,517
------- -------- ------- ------ -------
Interest sensitivity GAP................. $ 3,668 $ (4,081) $ 1,741 $3,653 $ 4,981
======= ======== ======= ====== =======
Cumulative interest sensitivity GAP...... $ 3,668 $ (413) $ 1,328 $4,981
======= ======== ======= ======
Ratio of interest-earning assets
to interest-bearing liabilities........ 114.25% 80.60% 163.70% NA 110.06%
======= ======== ======= ====== =======
Ratio of cumulative GAP to total assets.. 6.13% (0.69)% 2.22% 8.33% 8.33%
======= ======== ======= ====== =======
____________________
</TABLE>
(1) Investment securities are at amortized cost.
(2) Investment securities include interest-bearing deposits and time deposits.
Call dates on various securities have not been considered.
(3) In calculating this table, the Bank has used the assumptions which follow:
(i) the decay rate for passbook and demand accounts is considered to be
0.00% for the first year, 80% in years two through five, and 20% in years
six through ten; (ii) the decay rate for money market accounts is
considered to be 50% for the first year and 50% for years two through
three; and (iii) and no prepayment assumptions were used for loans.
Management believes the current one-year gap of 6.13% presents a slight risk
to the net interest income margin should a decrease occur in the current level
of interest rates. If interest rates increase, the Bank's positive one-year gap
should cause the net interest margin to increase. A conservative rate-gap
policy provides a stable net interest income margin. Accordingly, management
emphasizes a structured balance of rates spread by term to maturity and does not
anticipate a change in such objectives over the next year.
The preceding table was prepared utilizing certain assumptions regarding
prepayment and decay rates which management of the Bank believes reflect
Illinois Community Bank's actual experience. While management does not believe
that these assumptions will be materially different from Illinois Community
Bank's actual experience, the actual interest rate sensitivity of the Bank's
assets and liabilities could vary significantly from the information set forth
in the table due to market and other factors.
Certain shortcomings are inherent in the method of analysis presented in the
table above. Although certain assets and liabilities may have similar maturity
or periods of repricing they may react in different degrees to changes in the
market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
rates on other types of assets and liabilities may lag behind changes in market
interest rates. Certain assets, such as adjustable-rate mortgages, generally
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. In the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Additionally, an increased credit risk
may result as the ability of many borrowers to service their debt may decrease
in the event of an interest rate increase. Virtually all of the adjustable-rate
loans in the Bank's portfolio contain conditions which restrict the periodic
change in interest rate.
8
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid at the periods indicated. Such yields and costs are derived by dividing
income or expense by the average monthly balance of assets or liabilities,
respectively, for the periods presented. Management does not believe that the
use of monthly balances instead of daily balances has caused any material
difference in the information presented. Interest earned on loan portfolios is
net of reserves for uncollected interest.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
1997 1996
--------------------------- ----------------------------
Average Average
Yield/ Yield/
Balance Interest Cost Balance Interest Cost
-------- -------- ------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan receivable, net....................... $41,455 $3,347 8.07% $28,603 $2,314 8.09%
Investment securities...................... 6,833 373 5.46 8,936 548 6.13
Mortgage-backed securities................. 1,550 124 8.00 2,046 155 7.58
------- ------ ------ ------- ------ ----
Total interest-earning assets............ 49,838 3,844 7.71 39,585 3,017 7.62
------ ------ ------ ----
Non-interest-earning assets.................. 3,868 2,018
------- -------
Total assets............................ $53,706 $41,603
======= =======
Interest-bearing liabilities:
Deposits................................... $38,322 $1,895 4.94% $33,444 $1,652 4.93
Advances FHLB.............................. 5,412 311 5.75 205 12 5.83
Other...................................... 339 28 8.26 288 23 7.99
------- ------ ------ ------- ------ ----
Total interest-bearing liabilities....... 44,073 2,234 5.07 33,937 1,687 4.97
------ ------ ------ ----
Non-interest-bearing liabilities............. 2,411 1,337
------- -------
Total liabilities........................ 46,484 35,274
Common stock............................. 5 387
Paid-in capital.......................... 4,693 3,124
Retained earnings........................ 2,688 2,949
Valuation reserves....................... 177 157
ESOP plan shares......................... (341) (288)
------- -------
Total liabilities and retained
earnings............................. $53,706 $41,603
======= =======
Net interest income.......................... $1,610 $1,330
====== ======
Interest rate spread......................... 2.64% 2.65%
====== ======
Net yield on interest-earning assets......... 3.23% 3.36%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities....... 113.08% 116.64%
====== ======
</TABLE>
9
<PAGE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate), (ii) changes in rates (change in
rate multiplied by old volume), and (iii) total change. Changes in rate-volume
(changes in rate multiplied by changes in volume) are allocated proportionately
between changes in rate and changes in volume.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------
1997 vs. 1996
---------------------------------
Increase (Decrease)
Due to
---------------------------------
Rate/
Volume Rate Volume Total
------- ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loan portfolio, net.................... $1,040 $ (6) $(1) $1,033
Mortgage-backed securities............. (38) 9 (2) (31)
Investment securities.................. (129) (60) 14 (175)
------ ----- --- ------
Total interest-earning assets........ 873 (57) 11 827
------ ----- --- ------
Interest expense:
Deposits............................... 240 3 -- 243
Advances - FHLB..................... 304 -- (5) 299
Other............................... 4 1 -- 5
------ ----- --- ------
Total interest-bearing liabilities.. 548 4 (5) 547
------ ----- --- ------
Change in net interest income............ $ 325 $ (61) $16 $ 280
====== ===== === ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND 1996
The Company experienced growth during fiscal year 1997, as the Company's
assets increased by $13.4 million, or a 28.8%, from $46.4 million at June 30,
1996 to $59.8 million at June 30, 1997. This growth can be attributed to the
implementation of business strategies of increasing market awareness. The Bank
expects growth over the next one to three years of approximately 10% per year.
This growth rate could be significantly influenced by the new branch facility
which was completed in January of 1997.
Loans receivable increased by $9.1 million, or 25.4%, during fiscal year 1997,
from $36.1 million at June 30, 1996 to $45.2 million at June 30, 1997. The
increase in the Bank's loan portfolio were $2.2 million increase in one to four
family residential loans, $3.4 million increase in commercial and agricultural
real estate loans, $1.7 million in commercial loans, and a $0.7 million in
automobile loans. The increase in these lending activities was due to the
implementation of business strategies of increasing market awareness.
Cash and investment securities increased by $2.8 million, or 41.0%, during
fiscal year 1997 from $6.8 million at June 30, 1996 to $9.6 million at June 30,
1997. The increase was due to the increase yields and liquidity needs.
Mortgaged-backed securities decreased by $351,000, or 19.8%, during fiscal
year 1997 from $1.8 million at June 30, 1996 to $1.4 million at June 30, 1997.
The decrease was primarily the result of the paydown on principal. Management
does not intend to purchase any additional mortgage-backed securities.
Premise and equipment has increased by $1.5 million, or 117.3%, during fiscal
year 1997 from $1.3 million at June 30, 1996 to $2.7 million at June 30, 1997.
This increase is primarily from the completion of the branch facility. The Bank
anticipates no substantial addition during the 1998 fiscal year.
10
<PAGE>
The Bank's deposits have grown $7.1 million, or 19.5%, during the last fiscal
year from $36.5 million to $43.7 million for the fiscal years ended June 30,
1996 and 1997, respectively. This deposit growth is attributed to new deposits
and an increase in existing customer deposits. The Bank attributes this growth
to the increased community awareness of the Bank from the stock conversion and
increase lending activity. The Bank is anticipating a ten to fifteen percent
increase in deposits in the next year due to the community awareness and the
branch facility, however, there can be no assurance that such deposit growth
will be achieved. This growth will assist in providing liquidity for the Bank's
lending activities.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
Net Income. The Company had a net loss for the year ended June 30, 1997 of
$246,000 compared to a net income of $178,000 for the year ended June 30, 1996.
This decrease of $424,000 was primarily due to an increase in provision for loan
losses of $60,000 and non-interest expense of $1.0 million which was offset by
an increase in net interest income of $280,000, non-interest income of $102,000,
and income tax benefit of $258,000.
Net Interest Income. Net interest income for the year ended June 30, 1997 was
$1.6 million compared to $1.3 million for the year ended June 30, 1996. This
increase is from the interest rate spread, 2.64%, on the growth of interest
earning assets. Interest bearing liabilities increased a similar amount during
1997.
Interest Income. Interest income increased by $827,000, or 27.4%, from $3.0
million for the year ended June 30, 1996 to $3.8 million for the year ended June
30, 1997. This increase was the result of a $10.2 increase in the average
balance of interest bearing assets from $39.6 million in 1996 to $49.8 million
in 1997. In addition, average yield on interest-earning assets increased by
0.09% from 7.62% for the year ended June 30, 1996 to 7.71% for the year ended
June 30, 1997. The Bank attributes this improvement to increased market
awareness and implementation of business strategies.
Interest Expense. Interest expense increased $547,000, or 32.4%, from $1.7
million for the year ended June 30, 1996 to $2.2 million for the year ended June
30, 1997. This increase was attributed to an increase in average interest-
bearing liabilities of $10.1 million, or 29.9%, from $33.9 million in 1996 to
$44.0 million in 1997. In addition, the average cost on interest-bearing
liabilities increased by 0.10% from 4.97% for the year ended June 30, 1996 to
5.07% for the year ended June 30, 1997. Deposit growth of $7.1, or 19.5%, from
$36.5 million for the year ended June 30, 1996 to June 30, 1997 was not
sufficient to fund interest-bearing assets increase for the same period. The
Bank had to request additional advances of $6.4 million during the year ended
June 30, 1997 to fund the increase in the interest-bearing assets. The average
cost of these advances was 0.81% greater than the average-cost of deposits. The
Bank has money borrowed from another bank to fund the purchase of the ESOP
shares. The other borrowed money amounted to $316,000 as of June 30, 1997 with
an average interest rate of 8.26% with interest expense of $28,000 for the year
ended June 30, 1997.
Provision for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including general economic conditions, loan portfolio
composition, prior loan experience, the estimated fair value of the underlying
collateral and other factors that warrant recognition in providing for an
adequate loan loss allowance. During the years ended June 30, 1997 and 1996 the
Bank's provision for loan losses was $141,000 and $81,000, respectively. This
increase was due to an increase in the loan portfolio.
At June 30, 1997, the Bank's allowance for loan losses was $351,000. The
breakdown of general loss allowances and specific loss allowances is made for
regulatory accounting purposes only. General loan loss allowances are added
back to capital to the extent permitted in computing risk-based capital. At
June 30, 1996, approximately $302,000 of the general allowance was eligible to
be counted as risk-based capital. Both general and specific loss allowances are
charged to expense. The consolidated financial statements of the Bank are
prepared in accordance with
11
<PAGE>
GAAP and, accordingly, provisions for loan losses are based on management's
assessment of the factors set forth above. The Bank regularly reviews its loan
portfolio, including problem loans, to determine whether any loans require
classification and/or the establishment of appropriate reserves. Management
believes it has established its existing allowance for loan losses in accordance
with GAAP, however, future reserves may be necessary if economic conditions or
other circumstances differ substantially from the assumptions used in making the
initial determination. Additional loan loss provisions may be necessary, as
lending activities increase.
Non-Interest Income. Non-interest income increased by $102,000, or 172.9%,
from $59,000 for the year ended June 30, 1996 to $161,000 for the year ended
June 30, 1997. The increase in non-interest income was due primarily to
increase of $42,000 in deposit account fees, $18,000 in ATM fees, $25,000 of
fees and late charges on loans, and rental income from the branch of $7,000.
Fees for the demand accounts and loan can be attributed to increase in these
account, ATM service fees were implemented in 1997, and rental income was from
the opening of the branch in 1997.
Non-Interest Expense. Non-interest expense increased $1.0 million, or 98.5%,
from $1.0 million for the year ended June 30, 1996 to $2.0 million for the year
ended June 30, 1997. This increase in non-interest expense was due primarily
from an increase of $401,000 in compensation and employee benefits, $138,000 in
occupancy and equipment expense, $142,000 in professional fees, and $185,000 in
deposit insurance expense. Compensation and employee benefits increase was due
primarily from increased cost of the branch facility and management recognition
plan expenses, and the accrual of an expense from a legal settlement relating to
a former employee. Occupancy and equipment expense increase was primarily from
the opening of the branch facility. Professional fees increase was primarily
from increased cost of being a publically held corporation and accrual of legal
fees for litigation. The Bank's deposit insurance increase this year was from a
one-time SAIF special assessment of $208,000 which was partially offset by
reduced SAIF deposit insurance rates.
Nonperforming Assets. At June 30, 1997, the Bank had $221,000 in
nonperforming assets compared to $400,000 at June 30, 1996. As of June 30,
1997, the Bank had $45,000 of real estate held for sale compared to $49,000 at
June 30, 1996. The real estate held for sale consisted of unimproved building
lots. One lot was sold during the year ended June 30, 1997.
Provision for Income Taxes. For the year ended June 30, 1997, the Bank
recorded a benefit from income taxes of an effective rate of 37.3% from the
operating loss for the year. For the year ended June 30, 1996, the Bank
recorded a provision for income taxes at an effective rate of 38.4%.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgage-backed securities, maturities of investments
and interest-bearing deposits, and funds provided from operations. While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition. The Bank uses its liquidity resources
principally to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.
Liquidity management is both a daily and long-term function of management. If
the Bank requires funds beyond its ability to generate internally, the Bank
believes it could borrow additional funds from the FHLB. The Bank had to
request additional advances of $6.4 million from the FHLB during the year ended
June 30, 1997.
The primary investing activity of the Bank is the origination of loans.
During the year ended June 30, 1997, purchases of investment securities totaled
$3.5 million while loan originations totaled $18.9 million. These investments
were funded primarily from loan and mortgage-backed security repayments of $8.0
million, sales of loans to FHLMC and participation of loans of $1.9 million, and
investment security maturities of $2.0 million.
12
<PAGE>
At June 30, 1997, the Bank had $2.6 million in outstanding commitments to
originate fixed rate loans and $2.2 million of unused lines of credit. The Bank
anticipates that it may not have sufficient funds available to meet its current
loan origination commitments and additional advances from FHLB may be requested.
Certificates of deposit which are scheduled to mature in one year or less
totaled $16.1 million at June 30, 1997. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Bank.
At June 30, 1997, the Bank exceeded all of its regulatory capital
requirements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for ESOP. The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AcSEC") has issued
Statement of Position ("SOP 93-6") on "Employers' Accounting for Employee Stock
Ownership Plans" ("ESOP"). SOP 93-6, among other things, changes the measure of
compensation expense recorded by employers from the cost of ESOP shares to the
fair value of ESOP shares. To the extent that fair value of the Company's ESOP
shares differs from the cost of such shares, compensation expense must be
recorded in the Company's financial statements for the fair value of ESOP shares
allocated to participants for a reporting period. SOP 93-6 was adopted by the
Company during fiscal 1995, without material financial statement effect.
Disclosure of Certain Significant Risks and Uncertainties. In December 1994,
the AICPA issued SOP 94-6, "Disclosure of Certain Significant Risks and
Uncertainties," which requires entities to disclose specified information,
including a description of certain risks and uncertainties. SOP 94-6 requires
four new disclosures related to: (1) the nature of an entities operations, (2) a
statement about the use of estimates in the financial statements, (3)
uncertainties concerning estimates that affect financial statement amounts if it
is reasonably possible that the estimates that will change within a year and
that change could be material to the financial statements, and (4) risks related
to concentrations in volume of business, sources of supply, revenue or market or
geographic area if those concentrations expose the entity to risk of a
disruption in operations within a year. The first two disclosures will always
be necessary whereas the disclosure about certain significant estimates and
vulnerability from concentrations apply if criteria specified in SOP 94-6 are
met. SOP 94-6 is effective for fiscal years ending after December 15, 1995.
SOP 94-6 was adopted by the Company during fiscal year end 1997, without
material financial statement effect.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. In March 1995, the FASB issued SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The statement does not apply to financial
instruments, long-term customer relationships of a financial institution (core
deposits), mortgage and other servicing rights and deferred tax assets. SFAS
No. 121 requires the review of long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances include,
for example, a significant decrease in market value of an asset, a significant
change in use of an asset, an adverse change in a legal factor that could effect
the value of an asset. If such an event occurs and it is determined that the
carrying value of the asset may not be recoverable, an impairment loss
13
<PAGE>
should be recognized as measured by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Fair value can be determined by
a current transaction, quoted market prices or present value of estimated
expected future cash flows discounted at the appropriate rate. The statement is
effective for fiscal years beginning after December 15, 1995. The Company
adopted this statement July 1, 1996 without any material impact on its results
of operations or financial position.
Accounting for Mortgage Servicing. In May 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights." SFAS No. 122 requires that the
Company recognizes as separate assets rights to service mortgage loans for
others, regardless of how those servicing rights were acquired. An institution
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells those loans with servicing rights
retained would allocate some of the cost of the loans to the mortgage servicing
rights. SFAS No. 122 also requires that an enterprise allocate the cost of
purchasing or originating the mortgage loans between the mortgage servicing
rights and the loans when mortgage loans are securitized, if it is practicable
to estimate the fair value of mortgage servicing rights. Additionally, SFAS No.
122 requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment would be measured
based on fair value. SFAS No. 122 is to be applied prospectively to the
Company's fiscal year beginning July 1, 1996, to transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited.
Management adopted SFAS No. 122 on July 1, 1996, as required, without material
effect on the Company's consolidated financial position or results of
operations.
Accounting for Stock-Based Compensation. In October 1994, the FASB issued
SFAS No. 123 entitled "Accounting for Stock Based Compensation." SFAS No. 123
establishes a fair value based method of accounting for stock-based compensation
paid to employees. SFAS No. 123 recognizes the fair value of an award of stock
or stock options on the grant date and is effective for transactions occurring
after December 1995. Companies are allowed to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net earnings and,
if presented, earnings per share, as if SFAS No. 123 had been adopted.
Management has determined that the Company will continue to account for stock-
based compensation pursuant to Accounting Principles Board Opinion No. 25, and
therefore adoption of SFAS No. 123 will not have a material effect on the
Company's consolidated financial condition or results of operations.
Accounting for Transfers of Financial Assets. In June 1996, the FASB issued
SFAS No. 125, "Accounting for Transfers of Financial Assets, Servicing Rights,
and Extinguishment of Liabilities," that provides accounting guidance on
transfers of financial assets, servicing of financial assets, and extinguishment
of liabilities. SFAS No. 125 introduces an approach to accounting for transfers
of financial assets that provides a means of dealing with more complex
transactions in which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special purpose entities in
the transaction, or otherwise has continuing involvement with the transferred
assets. The new accounting method, the financial components approach, provides
that the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. SFAS No. 125
provides criteria for determining whether control of assets has been
relinquished and whether a sale has occurred. If the transfer does not qualify
as a sale, it is accounted for as a secured borrowing. Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers involving
repurchase agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing
assets and liabilities are amortized in proportion to and over the period of
estimated net servicing income or net servicing loss and are subject to
subsequent assessments for impairment based on fair value.
14
<PAGE>
SFAS No. 125 provides that a liability is removed from the balance sheet only
if the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. In December of 1996, the FASB issued SFAS No. 127, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which defers the effective date of SFAS No. 125 for one year.
Earnings Per Share. In February of 1997, the FASB issued SFAS No. 128,
"Earnings Per Share," that specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly held
common stock. SFAS is effective for financial statements ending after December
15, 1997. The Company does not anticipate implementation of SFAS No. 128 will
have a material effect on its earning per share computation.
Disclosure of Information About Capital Structure. In February of 1997, the
FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure,"
that specifies standards for disclosing information about an entity's capital
structure. SFAS is effective for financial statements ending after December 15,
1997. The Company does not anticipate implementation of SFAS No. 129 will have
any disclosure effect on its financial statements.
Reporting Comprehensive Income. In June of 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. This statement requires classification of items
of other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid in capital in the equity section of the
statement of financial position. This statement is effective for fiscal years
beginning after December 31, 1997. The Company will implement SFAS No. 130 for
their year ended June 30, 1999.
Disclosures about Segments of an Enterprise and Related Information. In June
of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments in annual financial statements and requires
that those businesses report selective information about operating segments in
interim financial reports to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for fiscal years beginning after
December 31, 1997. The Company will implement SFAS No. 131 for their year ended
June 30, 1999.
OTHER DEVELOPMENTS -- BIF-SAIF PREMIUM DISPARITY; DEPOSIT INSURANCE ASSESSMENT
The Bank's savings deposits are insured by the Savings Association Insurance
Fund ("SAIF"), which is administered by the FDIC. The assessment rate currently
ranges from 0.23% of deposits for well capitalized institutions to 0.31% of
deposits for undercapitalized institutions.
The FDIC also administers the Bank Insurance Fund ("BIF"), which has the same
designated reserve ratio as the SAIF. The FDIC amended the BIF risk-based
assessment schedule which lowered the deposit insurance assessment rate for most
commercial banks and other depository institutions with deposits insured by the
BIF to a range of from 0.31% of insured deposits for undercapitalized BIF-
insured institutions to a statutory minimum of $2,000 annually for well-
capitalized institutions, which constitute over 90% of BIF-insured institutions.
These revisions to the BIF assessment rate schedule created a substantial
disparity in the deposit insurance premiums paid by BIF and SAIF
15
<PAGE>
members and placed SAIF-insured savings institutions such as the Bank at a
significant competitive disadvantage to BIF-insured institutions.
To alleviate this disparity, the U.S. Department of Treasury, the FDIC and the
U.S. Congress provided for a one-time assessment of 65.7 basis points be imposed
on all SAIF-insured deposits to cause the SAIF to reach its designated reserve
ratio.
The payment of this special assessment severely and negatively impact the
Bank's results of operations for year ended June 30, 1997, resulting in an
expense of $208,000 special assessment imposed and the SAIF is recapitalized.
It will have the effect of reducing the Bank's insurance premiums in the future,
thereby creating equal competition between BIF-insured and SAIF-insured
institutions.
16
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report......................... 18
Consolidated Financial Statements
Consolidated Statements of Financial Condition... 19
Consolidated Statements of Income................ 20
Consolidated Statements of Stockholders' Equity.. 21
Consolidated Statements of Cash Flows............ 22
Notes to Consolidated Financial Statements....... 24
</TABLE>
17
<PAGE>
[LETTERHEAD OF LARSSON, WOODYARD & HENSON, LLP APPEARS HERE]
Independent Auditors' Report
To the Board of Directors
Illinois Community Bancorp, Inc.
and Subsidiaries
Effingham, Illinois
We have audited the accompanying consolidated statements of financial
condition of Illinois Community Bancorp, Inc. and Subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years then ended June
30, 1997, 1996 and 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Illinois Community Bancorp, Inc. and Subsidiaries as of June 30, 1997 and
1996 and the results of their operations and their cash flows for each of the
years then ended June 30, 1997, 1996 and 1995 in conformity with generally
accepted accounting principles.
/s/ LARSSON, WOODYARD & HENSON, LLP
July 25, 1997
18
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
<TABLE>
<CAPTION>
June 30,
----------------
1997 1996
------- -------
ASSETS (1,000's)
----------------
<S> <C> <C>
Cash and Cash Equivalents:
Cash $ 1,708 $ 267
Interest bearing deposits 767 1,129
------- -------
Total Cash and Cash Equivalents 2,475 1,396
Securities available for sale, amortized cost of $7,497 and
$6,675 at June 30, 1997 and 1996, respectively 7,925 6,892
Securities held to maturity, estimated market value of
$633 and $299 at June 30, 1997 and 1996, respectively 633 299
Loans receivable, net 45,219 36,069
Accrued interest receivable 453 309
Premises and equipment, net 2,742 1,262
Real estate held for sale 45 49
Prepaid income taxes 121 0
Organization expense 71 0
Other assets 115 145
------- -------
Total Assets $59,799 $46,421
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $43,662 $36,548
Advances from Federal Home Loan Bank 7,958 1,608
Other borrowings 316 356
Advances from borrowers for taxes and insurance 79 91
Accrued interest payable 154 103
Accrued income taxes 0 41
Accrued expenses 180 19
Accrued dividends 75 0
Deferred income taxes 97 16
Other liabilities 186 337
------- -------
Total Liabilities 52,707 39,119
------- -------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value; authorized 4,000,000 shares
502,550 shares issued and outstanding $ 5 $ 503
Paid-in capital 4,693 4,066
Retained earnings 2,432 2,947
Unrealized gain on securities held available for sale 278 142
Unearned employee stock ownership plan (316) (356)
------- -------
Total Stockholders' Equity 7,092 7,302
------- -------
Total Liabilities and Stockholders' Equity $59,799 $46,421
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------
1997 1996 1995
------ ------ ------
(1,000's)
-----------------------
<S> <C> <C> <C>
Interest income:
Interest on loans $3,347 $2,314 $1,581
Interest and dividends on securities 497 703 798
------ ------ ------
Total interest income 3,844 3,017 2,379
------ ------ ------
Interest expense:
Interest on deposits 1,895 1,652 1,416
Interest on Federal Home Loan Bank advances 311 12 0
Interest on other borrowings 28 23 0
------ ------ ------
Total interest expense 2,234 1,687 1,416
------ ------ ------
Net interest income 1,610 1,330 963
Provision for loan losses 141 81 50
------ ------ ------
Net interest income after provision
for loan losses 1,469 1,249 913
------ ------ ------
Non-interest income:
Realized gain on sale of securities 0 2 0
Gain on sale of premises 0 11 0
Other fees 107 38 22
Insurance commissions 5 5 8
Other 49 3 8
------ ------ ------
161 59 38
------ ------ ------
Non-interest expense:
Compensation and employee benefits 914 513 554
Occupancy and equipment 247 109 63
Data processing 112 81 69
Audit, legal and other professional 193 51 26
SAIF deposit insurance 273 88 85
Advertising 40 39 30
Other 244 138 56
------ ------ ------
2,023 1,019 883
------ ------ ------
Income (loss) before income taxes (393) 289 68
Provision for (benefit from) income taxes (147) 111 7
------ ------ ------
Net income (loss) ($ 246) $ 178 $ 61
====== ====== ======
Earnings (loss) per share ($0.53) $ 0.30 N/A
====== ====== ======
Proforma earnings per share NA $ 0.38 N/A
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Unearned Gain on
Employee Securities
Stock Available
Common Paid-in Retained Ownership For
Stock Capital Earnings Plan Sale Total
---------- ---------- ---------- ---------- ---------- ----------
(1,000's)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 $ 0 $ 0 $ 2,777 $ 0 $ 97 $ 2,874
Net income 0 0 61 0 0 61
Change in unrealized gain
on securities available for sale 0 0 0 0 24 24
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1995 0 0 2,838 0 121 2,959
Issuance of common
shares 503 4,060 0 (402) 0 4,161
Cash dividends 0 0 (69) 0 0 (69)
Net income 0 0 178 0 0 178
Change in unrealized gain on
securities available for sale 0 0 0 0 21 21
ESOP shares earned 0 6 0 46 0 52
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 503 4,066 2,947 (356) 142 7,302
Holding company formation and
stock exchange with bank (498) 601 (103) 0 0 0
Cash and declared dividends 0 0 (149) 0 0 (149)
Net loss 0 17 (263) 0 0 (246)
Change in unrealized gain on
securities available for sale 0 0 0 0 136 136
ESOP shares earned 0 9 0 40 0 49
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 $ 5 $ 4,693 $ 2,432 $ (316) $ 278 $ 7,092
========== ========== ========== ========== ========== ==========
</TABLE>
21
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
1997 1996 1995
---------- ---------- ----------
(1,000's)
------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (246) $ 178 $ 61
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities
Provision for depreciation 130 55 21
Provision for loan losses 141 81 50
Amortization of organization expenses 8 0 0
Amortization of investment value 16 0 0
Net amortization and accretion of securities 1 3 2
Increase in accrued interest receivable (144) (46) (25)
Increase in prepaid income taxes (102) 0 0
Increase in organization expense (79) 0 0
Decrease (increase) in other assets 30 59 (170)
Increase (decrease) in accrued interest payable 51 (30) 86
(Decrease) increase in accrued income taxes (60) 112 (71)
Increase in accrued expenses 161 0 0
Increase in accrued dividends 75 0 0
Increase (decrease) in deferred income taxes 81 (16) (65)
(Decrease) increase in other liabilities (151) 68 228
Federal Home Loan Bank stock dividends 0 0 (3)
Stock dividends on securities (89) (142) (91)
Realized gain on sale of investments 0 (2) 0
Gain on sale of facility 0 (11) 0
Gain on sale of real estate held for sale (5) 0 0
ESOP benefit expense 10 12 0
---------- ---------- ----------
Net cash (used in) provided by operating activities (172) 321 23
---------- ---------- ----------
Investing activities:
Proceeds from securities held to maturity 0 3,070 6,243
Proceeds from matured securities available for sale 2,012 2,675 0
Proceeds from sale of securities available for sale 0 502 0
Purchase of securities held to maturity (350) (379) (7,510)
Purchase of securities available for sale (3,191) (1,156) 0
Increase in loans receivable (11,159) (13,804) (696)
Purchase of mortgage loans 0 (500) 0
Repayment of mortgage-backed securities 369 323 370
Sale of originated loans 1,868 0 51
Proceeds from sale of facility 0 13 0
Proceeds from sale of real estate held for sale 9 0 0
Purchase of premises and equipment (1,610) (1,002) (92)
---------- ---------- ----------
Net cash used in investing activities (12,052) (10,258) (1,634)
---------- ---------- ----------
</TABLE>
22
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1997 1996 1995
------- ------ -------
(1,000's)
-------------------------------------
<S> <C> <C> <C>
Financing activities:
Net increase in deposits $ 7,114 $3,845 $ 916
Advances from Federal Home Loan Bank 6,350 1,608 0
Decrease in advances from borrowers
for taxes and insurance (12) (198) (4)
Proceeds from Employee Stock Ownership Plan loan 0 402 0
Repayment of Employee Stock Ownership Plan loan (40) (46) 0
Allocated shares of ESOP stock 40 46 0
Proceeds from issuance of common stock 0 4,563 0
Purchase of employee stock ownership plan stock 0 (402) 0
Cash dividends (149) (75) 0
Net cash provided by financing activities 13,303 9,743 912
------- ------ ------
Increase (decrease) in cash and cash equivalents 1,079 (194) (699)
Cash and cash equivalents at beginning of year 1,396 1,590 2,289
------- ------ ------
Cash and cash equivalents at end of year $ 2,475 $1,396 $1,590
======= ====== ======
Supplemental disclosures:
Additional cash flows information:
Cash paid for:
Interest on deposits, advances and other borrowings $ 2,183 $1,717 $1,330
Income taxes $ 10 $ 15 204
Schedule of noncash investing activities:
Stock dividends were distributed by the
Federal Home Loan Bank of Chicago $ 0 $ 0 $ 3
Investment securities transferred to available for sale $ 0 $6,364 $ 0
Unrealized gain on securities available for sale $ 211 $ 30 $ 37
Deferred taxes on unrealized gain on securities available for sale $ 75 $ 9 $ 13
Dividends declared but unpaid $ 75 $ 0 $ 0
</TABLE>
23
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Description of the Business
On April 7, 1994, the board of directors of the Bank adopted a plan of
conversion whereby the Bank would convert to a federal stock savings bank. The
conversion was completed on September 28, 1995 with the issuance of 502,550
shares of the Bank's common stock at a price of $10.00 per share. Total proceeds
from the conversion of $4,563,000, net of costs relating to the conversion of
$462,500, have been recorded as common stock and additional paid-in capital. The
Bank articles of incorporation authorizes the issuance of up to 1,000,000 shares
of serial preferred stock, which may be issued with certain rights and
preferences. As of June 30, 1997 and 1996, no preferred stock has been issued.
On April 21, 1997, Illinois Guarantee Savings Bank, FSB changed from a federal
stock savings bank to a state chartered bank. The Bank also changed its name to
Illinois Community Bank.
Illinois Community Bancorp, Inc. ("Company") was organized by the Bank to be a
financial institution holding company. The Company was organized at the
direction of the Bank to acquire all of the capital stock of the Bank, on a one
to one exchange basis, upon the consummation of the reorganization of the Bank
into the holding company form of ownership, the reorganization was approved by
the shareholders of the Bank on July 23, 1996 and was completed on September 27,
1996. The Company was authorized to issue 4,000,000 shares of common stock,
$0.01 par value per share, and 1,000,000 of serial preferred stock, $0.01 par
value per share. The Company incurred $79,000 of organization cost during the
reorganization. Amortization of the organization cost, over five years, was
$8,000 for the year ended June 30, 1997.
After reorganization, the Company invested in two newly formed corporations.
These corporations are Illinois Leasing Corporation (ILC) and Illinois Financial
Corporation (IFC). Illinois Leasing Corporation was formed to provide leasing
services to the Bank's market area and Illinois Financial Corporation will
provide financial services in the future. These two corporations along with the
wholly owned subsidiary, Illinois Community Bank (the Bank) have been included
in the consolidated financial statements.
The Bank is a state bank operating offices located in Effingham County. The
principal business of the Bank historically consists of attracting deposits from
the general public and investing these deposits in loans secured by first
mortgages on single-family residences in the Bank's market area. The Bank's
Trust and Investment Management Center began operations in April, 1997. Full
service brokerage and investment management services, offered at the bank
through PRIMEVEST Financial Services, allows the Bank to serve customers'
investment and financial planning needs.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Illinois Community Bank, Illinois Leasing
Corporation, and Illinois Financial Corporation. All material intercompany
transactions and accounts have been eliminated.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. 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
statement of consolidated financial condition and revenues and expenses for the
year. 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 losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for loan losses and
foreclosed real estate, management obtains independent appraisals for
significant properties.
24
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all cash, daily interest demand deposits, federal funds sold, and interest
bearing deposits and securities having original maturities of three months or
less to be cash equivalents.
Securities Held to Maturity
Securities classified as held to maturity are those debt securities the Company
has the positive intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, which are recognized in interest income using the
interest method over the period to maturity.
Securities Available for Sale
Securities classified as available for sale are those debt and equity securities
that the Company intends to hold for an indefinite period of time, but not
necessarily to maturity and marketable equity securities. Any decision to sell
a security classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix
of the Company's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair value. The difference between fair value and amortized cost,
adjusted for amortization of premium and accretion of discounts, which are
recognized in interest income using the interest method over their contractual
lives, results in an unrealized gain or loss. Unrealized gains or losses are
reported as increases or decreases in stockholders' equity, net of the related
deferred tax effect. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in earnings.
Loans and Allowance for Loan Losses
Loans are considered a held to maturity asset and, accordingly, are carried at
historical cost. Loans are stated at the amount of unpaid principal, reduced
by unearned discounts, allowances for loan losses, loans in process, loans
participated to other financial institutions, and deferred loan origination
fees. Unearned discounts on nonmortgage installment loans are recognized as
income over the term of the loan by the interest method. Interest on all other
mortgage and nonmortgage loans is calculated by using the simple interest method
on the unpaid principal outstanding. Loan origination and commitment fees, as
well as certain direct origination costs, are deferred and amortized as a yield
adjustment over the lives of the related loans using the interest method when in
excess of loan origination cost. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status. An allowance for loan
losses has been established for loans through a provision for loan losses
charged to operations. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
probable losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, 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 Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash flows. The
allowance is increased by a provision for loan losses, which is charged to
expense, and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the provision
for loan losses.
25
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Loans and Allowance for Loan Losses
The determination to discontinue the accrual of interest is based on a review of
each loan. Generally, the accrual of interest is discontinued on all loans
greater than 90 days past due, including a loan impaired under SFAS No. 114, as
to principal or interest, unless in management's opinion, collection of both
principal and interest is assured by way of collateralization, guaranties or
other security and the loan is in the process of collection. Such interest is
either charged off or reserved through an allowance account. If amounts are
received on loans for which the accrual of interest has been discontinued, a
determination is made as to whether payments received should be recorded as a
reduction of the principal balance or as interest income. The loan is returned
to accrual status when, in management's judgment, the borrower has demonstrated
the ability to make periodic interest and principal payments on a timely basis.
Real Estate Held for Sale and Foreclosed Real Estate
Direct investments in real estate properties held for sale are carried at the
lower of cost, including cost of improvements and amenities subsequent to
acquisition, or net realizable value. The real estate held for sale as of June
30, 1997 and 1996 consists of undeveloped lots which are considered as a real
estate equity investment because of the holding period. One of these
undeveloped lots was sold March 18, 1997 at a sales price of $9,000, with a
recognized gain of $5,000.
Foreclosed real estate held for sale is carried at the lower of cost or
estimated fair market value, net of estimated selling costs. Costs of holding
foreclosed property are charged to expense in the current period, except for
significant property improvements, which are capitalized to the extent that
carrying value does not exceed estimated fair market value.
Premises and Equipment
Land is carried at cost. Buildings and furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation and amortization. Buildings and
furniture, fixtures, and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. The estimated useful
lives are seven to forty years for buildings and improvements and five to twelve
years for equipment.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
26
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Earnings Per Share
Earnings per share calculation for the year ended June 30, 1997 has been based
on the net income and the weighted average number of shares outstanding of
468,478, as if the Company had been in existence since the beginning of the
year. For purposes of this calculation, the number of shares purchased by the
ESOP Plan, which have not been allocated to the participant accounts, are not
assumed to be outstanding.
The Bank converted from a mutual savings bank to a stock savings bank on
September 28, 1995. Earnings per share for 1996 were computed by dividing net
income of $140,000 from September 30, 1995 through June 30, 1996 by the weighted
average common stock shares outstanding of 464,377 for the period. Earnings
from September 28, 1995 through September 30, 1995 were considered insignificant
on the earnings per share calculation. Proforma earnings per share were
computed by dividing the net income of $178,000 for the year ended June 30, 1996
by the average shares outstanding, since the conversion to stock, of 464,377 for
the period. The proforma earnings per shares calculation does not reflect the
proforma effects of the stock offering being received at the beginning of the
year. Only allocated ESOP shares are considered in the calculation of earnings
per share. Earnings per share amounts have not been presented for the year
ended June 30, 1995, which was prior to the stock conversion.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business the Company has entered into off-balance-
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit and
standby letters of credit. Such instruments are recorded in the consolidated
financial statements when they become payable.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements. Estimates also affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
Amounts presented in prior year consolidated financial statements have been
reclassified to conform to the 1997 presentation.
27
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
In August 1996, the FASB issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities using a financial-components approach
that focuses on control of the asset or liability. It requires that an entity
recognize only assets it controls and liabilities it has incurred and should
derecognize assets only when control has been surrendered and derecognize
liabilities only when they have been extinguished. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996, and is to be applied prospectively. The
Company plans to adopt this Statement on July 1, 1997 without any material
impact on its consolidated financial statements. In December of 1996, the FASB
issued SFAS No. 127, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," which defers the effective date of SFAS No.
125 for one year.
In February of 1997, the FASB issued SFAS No. 128, "Earnings Per Share," that
specifies the computation, presentation, and disclosure requirements for
earnings per share for entities with publicly held common stock. SFAS is
effective for financial statements ending after December 15, 1997. The Company
does not anticipate implementation of SFAS No. 128 will have a material effect
on its earnings per share computation.
In February of 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," that specifies standards for disclosing information
about an entity's capital structure. SFAS is effective for financial statements
ending after December 15, 1997. The Company does not anticipate implementation
of SFAS No. 129 will have any disclosure effect on its financial statements.
In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. This
statement requires classification of items of other comprehensive income by
their nature in the financial statements and display of the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid in capital in the equity section of the statement of financial position.
This statement is effective for fiscal years beginning after December 31, 1997
and the Company will implement this for its year ended June 30, 1999.
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information about operating segments in annual financial statements and requires
that those businesses report selective information about operating segments in
interim financial reports to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for fiscal years beginning after
December 31, 1997. This statement requires disclosure in information in the
financial statements and the Company will implement this for their year ended
June 30, 1999.
28
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
Securities available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ----------- ------------
(1,000's)
----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 899 $ 1 $ 0 $ 900
Obligations of other U.S. government
agencies 2,906 5 10 2,901
State and municipal obligations 385 3 0 388
Asset Management Adjustable Rate Fund 1,500 0 3 1,497
Mortgage-backed securities
FHLMC 406 6 7 405
FNMA 238 3 0 241
GNMA 753 23 0 776
FHLMC stock 12 407 0 419
FHLB stock, at cost 398 0 0 398
------------ ----------- ----------- ------------
$ 7,497 $ 448 $ 20 $ 7,925
============ =========== =========== ============
June 30, 1997
----------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ----------- ------------
(1,000's)
----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,478 $ 2 $ 1 $ 1,479
Obligations of other U.S. government
agencies 1,498 0 21 1,477
State and municipal obligations 207 0 3 204
Asset Management Adjustable Rate Fund 1,500 0 12 1,488
Mortgage-backed securities
FHLMC 584 3 11 576
FNMA 249 3 0 252
GNMA 933 17 5 945
FHLMC stock 12 245 0 257
FHLB stock, at cost 214 0 0 214
------------ ----------- ----------- ------------
$ 6,675 $ 270 $ 53 $ 6,892
============ =========== =========== ============
</TABLE>
29
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
The amortized cost and approximate market value of securities available for
sale at June 30, 1997 and 1996, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because securities
may have a call provision.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
---------------------- ------------------------
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
--------- ----------- --------- -----------
(1,000's)
------------------------------------------------
<S> <C> <C> <C> <C>
Due within one year $ 813 $ 811 $2,801 $2,782
Due after one year through five years 3,926 3,949 1,145 1,144
Due after five years through ten years 848 852 616 618
Due after ten years 1,910 2,313 2,113 2,348
------ ------ ------ ------
$7,497 $7,925 $6,675 $6,892
====== ====== ====== ======
</TABLE>
The Company exercised a one-time option to transfer all of its securities
from held to maturity to available for sale. This transfer was done in
December 1995 and the amortized cost and approximate market value at time of
transfer was $6,364,000 and $6,424,000, respectively, which reduced
stockholders' equity by $40,000, net of income tax.
The only investment classified as held to maturity as of June 30, 1997 and
1996 is an interest in a limited partnership, Boston Capital Corporation Tax
Credit Fund V of $633,000 and $299,000, respectively. The Company purchased a
one unit investment in this Fund of Class A limited partnership interest. The
one unit cost was $788,000 with first installment paid with the purchase. The
balance is due as follows:
<TABLE>
<CAPTION>
Amount
(1,000's)
---------
<S> <C>
April 1, 1997 $ 44
October 1, 1997 95
----
$139
====
</TABLE>
It is the intent of the partnership to invest in qualified affordable housing
programs to generate Federal Housing Tax Credits. The Company intends to
account for this investment using the amortized cost method. This method
requires amortizing the excess of the carrying value over its estimated
residual value at the close of the tax credit realization. Annual
amortization is proportional to the realization of the tax credits. The
limited partnership files a tax return on a calendar basis. Based on the
limited partnership 1996 tax year, the Bank was entitled to $25,000 of tax
credits and record amortization of the investment carrying value of $16,000.
The April 1, 1997 installment was partially funded per the request of the
investment partnership.
30
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
The amortized cost and approximate market value of securities held to
maturity at June 30, 1997 and 1996, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because securities
may have a call provision.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
-------------------------------- ----------------------------
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
------------------- ----------- ------------- -------------
(1,000's)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within one year $ 0 $ 0 $ 0 $ 0
Due after one year
through five years 0 0 0 0
Due after five years
through ten years 0 0 0 0
Due after ten years 633 633 299 299
---- ---- ---- ----
$633 $633 $299 $299
==== ==== ==== ====
</TABLE>
Proceeds from sales of securities, gross gains and gross losses from such
sales for the years ended June 30, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------
1997 1996 1995
------ ------ ------
(1,000's)
-------------------------------------
<S> <C> <C> <C>
Proceeds from sales $ 0 $ 502 $ 0
===== ===== =====
Gross gains $ 0 $ 2 $ 0
Gross losses 0 0 0
----- ----- -----
$ 0 $ 2 $ 0
===== ===== =====
</TABLE>
Securities at June 30, 1997 and 1996, respectively, with carrying amounts of
$500,000 and $501,000, and approximate market values of $499,219 and $502,000
were pledged to secure public deposits and for other purposes as required or
permitted by law.
31
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C. Loans Receivable
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
(1,000's)
-----------------
<S> <C> <C>
Real estate loans:
One to four family residential $25,984 $22,952
Multi-family residential 1,293 1,036
Agricultural 338 1,839
Commercial 8,542 3,604
Construction: One to four residential 152 1,015
Multi-family residential 0 292
------- -------
36,309 30,738
Other loans:
Commercial business 2,403 1,044
Commercial leasing 498 137
Automobile 4,509 3,800
Other 1,882 610
------- -------
45,601 36,329
Less:
Loans in process 0 6
Allowance for losses 351 227
Deferred loan fees 31 27
------- -------
$45,219 $36,069
======= =======
</TABLE>
The Company participated in a commercial loan during the year ended June 30,
1997 with the original participation amount of $100,000. The loan participation
balance at June 30, 1997 and 1996 was $346,000 and $297,000, respectively.
During the current year, the Bank originated and sold loans to FHLMC of
approximately $1,768,000 of single family residences at a premium of $18,000.
The balance of these loans, at June 30, 1997, amounted to approximately
$1,539,000. The balances for the participation loans and the loans sold to
FHLMC have been netted against total loans at June 30, 1997 and 1996.
During the current year, the Company formed Illinois Leasing Corporation with an
initial investment of $525,000. The leasing corporation was formed to provide
leasing services, primarily commercial operating leases, in the Bank's market
area. For the year ended June 30, 1997, Illinois Leasing Corporation originated
thirteen leases with an outstanding balance of $313,000 at June 30, 1997.
Changes in allowance for loan losses are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996 1995
------ ------ ------
(1,000's)
----------------------
<S> <C> <C> <C>
Balance $ 227 $ 175 $ 125
Amount charged to provision 141 81 50
Recoveries 0 0 0
Loans charged off 17 29 0
----- ----- -----
Balance $ 351 $ 227 $ 175
===== ===== =====
</TABLE>
32
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C. Loans Receivable
At June 30, 1997 and 1996, the Company had loans totalling $78,000 and
$42,000, respectively, which were in nonaccrual status and $98,000 and
$309,000, respectively, which were 90 days or more contractually delinquent
and still accruing. Additional interest income that would have been recorded
on non-accrual loans for the years ended June 30, 1997, 1996 and 1995 had
they performed in accordance with their original terms throughout each year
amounted to approximately $9,000, $3,000 and $0.
At June 30, 1997 and 1996, the amount recorded on loans that were considered
to be impaired under SFAS No. 114 was $78,000 and $42,000, respectively.
There has been no specific allowance associated with these loans as
determined in accordance with SFAS No. 114. The average recorded investment
in impaired loans during the years ended June 30, 1997 and 1996 amounted to
approximately $23,000 and $42,000, respectively, and recognized interest
income of $4,000 and $0, respectively.
Weighted average interest rates on loans, consisted of the following:
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996 1995
------- ------ -----
<S> <C> <C> <C>
Mortgage loans 8.04% 7.65% 7.79%
Other loans 8.71% 9.20% 8.78%
Total loans 8.18% 8.07% 7.99%
</TABLE>
Note D. Accrued Interest Receivable
Accrued interest receivable consisted of the following:
<TABLE>
<CAPTION>
June 30,
---------------
1997 1996
------ ------
(1,000's)
---------------
<S> <C> <C>
Loans $385 $240
Securities 68 69
---- ----
$453 $309
==== ====
</TABLE>
Note E. Premises and Equipment
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30,
---------------
1997 1996
------ ------
(1,000's)
---------------
<S> <C> <C>
Land $ 450 $ 445
Office building 1,733 681
Furniture and equipment 1,062 509
------ ------
3,245 1,635
Accumulated depreciation (503) (373)
------ ------
$2,742 $1,262
====== ======
</TABLE>
33
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E. Premises and Equipment
Depreciation included in the consolidated statements of income amounted to
$130,000, $55,000 and $21,000 for the years ended June 30, 1997, 1996 and
1995, respectively.
The Company completed its new branch facility in January of 1997. Included in
the buildings is $32,000 of capitalized interest from the 1997 building
project. Amortization of capitalized interest, which is included in occupancy
and equipment expense, amounted to $2,000 for the year ended June 30, 1997.
Depreciation, which is included in the $130,000, amounted to $51,000 for the
year ended June 30, 1997.
In November of 1995, the Bank sold their Palestine, Illinois facility. The
Palestine facility was closed in 1992. The Bank sold this facility for $13,000
and realized a gain on the sale of $11,000.
Note F. Deposit Analysis
Deposits and weighted average interest rates are summarized as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------
1997 1996
------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------- -------- -------- --------
1,000's 1,000's
-------- --------
<S> <C> <C> <C> <C>
Non-interest bearing $ 2,419 .00% $ 873 .00%
NOW accounts 2,076 4.14% 1,300 2.92%
Money market 2,457 3.00% 2,431 4.04%
Passbook 11,004 4.62% 4,911 3.56%
Certificates 25,706 5.52% 27,033 5.38%
-------- --------
Totals $ 43,662 4.78% $ 36,548 4.83%
======== ========
</TABLE>
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------------------
One Two After
Less Than to Two to Three Three
Rate One Year Years Years Years Totals
---- -------- -------- -------- -------- --------
1,000's
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 - 3.99% $ 100 $ 0 $ 0 $ 21 $ 121
4 - 5.99% 15,666 4,720 869 671 21,926
6 - 7.99% 248 1,473 1,408 488 3,617
8 - 9.99% 42 0 0 0 42
-------- -------- -------- -------- --------
$ 16,056 $ 6,193 $ 2,277 $ 1,180 $ 25,706
======== ======== ======== ======== ========
</TABLE>
34
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F. Deposit Analysis
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------------------
One Two After
Less Than to Two to Three Three
Rate One Year Years Years Years Totals
---- --------- --------- --------- --------- ---------
1,000's
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 - 3.99% $ 8 $ 0 $ 0 $ 0 $ 8
4 - 5.99% 18,720 4,534 1,172 173 24,599
6 - 7.99% 241 411 914 818 2,384
8 - 9.99% 0 42 0 0 42
--------- --------- --------- --------- ---------
$ 18,969 $ 4,987 $ 2,086 $ 991 $ 27,033
========= ========= ======== ========= =========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION> Years Ended June 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
(1,000's)
---------------------------------
<S> <C> <C> <C>
Passbook $ 230 $ 158 $ 152
Demand deposits 159 130 74
Certificates 1,506 1,364 1,190
--------- --------- ---------
$ 1,895 $ 1,652 $ 1,416
========= ========= =========
</TABLE>
For financial statement purposes, the Company records interest expense on
deposits net of early withdrawal penalties which amounted to $0, $5,000 and
$5,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
At June 30, 1997 and 1996, the Company had $2,423,000 and $2,287,000,
respectively, of deposit accounts with balances of $100,000 or more. The
Company did not have brokered deposits at June 30, 1997 or 1996. Deposits in
excess of $100,000 are not federally insured.
The Company has pledged mortgage-backed certificates and securities, when
requested by depositors, for deposits of $100,000 or more.
Note G. Federal Home Loan Bank Advances
The Company entered into a FHLB advance agreements on December 19, 1995. This
agreement covered terms for FHLB advances and collateral requirements. The
advances are secured by FHLB stock and a portion of qualified mortgage loans
of the Company. The Company had $7,958,000 and $1,608,000 in advances with
$35,000 and $7,000 of accrued interest payable as of June 30, 1997 and 1996,
respectively.
At June 30, 1997, the advances consisted of the following:
Fixed rate advance maturing February 21, 2000 at 5.48% rate of interest,
payable monthly, in the amount of $1,500,000.
Fixed rate advance maturing July 15, 1997 at 5.72% rate of interest,
payable monthly, in the amount of $1,468,000.
Daily advance at June 30, 1997 of $4,990,000 at 6.74% rate of interest
which can adjust daily.
35
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G. Federal Home Loan Bank Advances
At June 30, 1997, the advances consisted of the following:
Fixed rate advance maturing February 21, 2000 at 5.48% rate of interest,
payable monthly, in the amount of $1,500,000.
Fixed rate advance maturing July 15, 1997 at 5.72% rate of interest,
payable monthly, in the amount of $1,468,000.
Daily advance at June 30, 1997 of $4,990,000 at 6.74% rate of interest
which can adjust daily.
At June 30, 1996, the advances consisted of the following:
One year fixed rate advance maturing April 29, 1997 at 5.93% rate of
interest, payable monthly, in the amount of $790,000.
One year fixed rate advance maturing May 16, 1997 at 5.98% rate of
interest, payable monthly, in the amount of $468,000.
Daily advance of $350,000 at 5.50% rate of interest which can adjust
daily. The Bank received its first advance on June 18, 1996 for $200,000
and had an additional borrowing on June 24, 1996 to $350,000.
The average outstanding balance on the advances was $5,412,000 and $205,000,
with weighted average interest rate of 5.75% and 5.83% for the years ended
June 30, 1997 and 1996, respectively. Interest expense on the advances
amounted to $311,000, $12,000, and $0 for the years ended June 30, 1997, 1996,
and 1995, respectively.
Note H. Regulatory Matters
The Company is regulated by the Board of Governors of the Federal Reserve
System ("FRB") and is subject to securities registration and public reporting
regulations of the Securities and Exchange Commission. The Bank is regulated
by the Federal Deposit Insurance Corporation ("FDIC") and the Illinois
Commissioner of Banks and Real Estate (the "Commissioner").
The Bank is subject to the capital requirements of the FDIC and the
Commissioner. The FDIC requires the Bank to maintain minimum ratios of Tier 1
capital to total risk-weighted assets and total capital to risk-weighted
assets of 4% and 8%, respectively. Tier 1 capital consists of total
shareholders' equity calculated in accordance with generally accepted
accounting principles less intangible assets, and total capital is comprised
of Tier 1 capital plus certain adjustments, the only one of which is
applicable to the Bank is the allowance for possible loan losses. Risk-
weighted assets refer to the on- and off-balance sheet exposures of the Bank
adjusted for relative risk levels using formulas set forth in FDIC
regulations. The Bank is also subject to a FDIC leverage capital requirement,
which calls for a minimum ratio of Tier 1 capital (as defined above) to
quarterly average total assets of 3% to 5%, depending on the institution's
composite ratings as determined by its regulators.
36
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Regulatory Matters
At June 30, 1997 and 1996, the Bank was in compliance with all of the
aforementioned capital requirements as summarized below.
<TABLE>
<CAPTION>
At June 30,
-------------------------
1997 1996
----------- -----------
(1,000's)
-------------------------
<S> <C> <C>
Tier I Capital:
Common stockholders' equity $ 6,499 $ 7,302
Unrealized holding loss (gain) on securities
available for sale (278) (142)
Real estate held for sale (45) (49)
----------- -----------
Total Tier I capital $ 6,176 $ 7,111
=========== ===========
Tier II Capital:
Total Tier I capital $ 6,176 $ 7,111
Qualifying allowance for loan losses 302 227
----------- -----------
Total capital $ 6,478 $ 7,338
=========== ===========
Risk-weighted assets $ 39,244 $ 28,894
Fourth quarter average assets $ 57,520 $ 41,603
</TABLE>
<TABLE>
<CAPTION>
To be Well Capitalized
under the Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 6,478 16.51% $ 3,140 > 8.0% $ 3,924 > 10.0%
Tier I Capital - -
(to Risk-Weighted Assets) 6,176 15.74% 1,570 > 4.0% 2,355 > 6.0%
Tier I Capital - -
(to Average Assets) 6,176 10.74% 2,301 > 4.0% 2,876 > 5.0%
As of June 30, 1996: - -
Total Risk-Based Capital
(to Risk-Weighted Assets) 7,338 24.40% 2,312 > 8.0% 2,889 > 10.0%
Tier I Capital - -
(to Risk-Weighted Assets) 7,111 24.61% 1,156 > 4.0% 1,734 > 6.0%
Tier I Capital - -
(to Average Assets) 7,111 17.10% 1,664 > 4.0% 2,080 > 5.0%
- -
</TABLE>
At the time of the conversion of the Bank to a stock organization, a special
liquidation account was established for the benefit of eligible account holders
and the supplemental eligible account holders in an amount equal to the net
worth of the Bank. The special liquidation account will be maintained for the
benefit of eligible account holders and the supplemental eligible accounts
holders who continue to maintain their accounts in the Bank after the conversion
on September 27, 1995. In the event of a complete liquidation, each eligible
and the supplemental eligible accounts holders will be entitled to receive a
liquidation distribution from the liquidation account in an amount proportionate
to the current adjusted qualifying balances for accounts then held. With the
reorganization completed on September 27, 1996, this liquidation account became
part of stockholders' equity for the Company under the same terms and conditions
as if the reorganization had not occurred. The Company may not declare or pay
cash dividends on or repurchase any of its common stock if stockholders' equity
would be reduced below applicable regulatory capital requirements or below the
special liquidation account.
37
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Regulatory Matters
Subject to applicable law, the Boards of Directors of the Company and the
Bank may each provide for the payment of dividends. Future declarations of
cash dividends, if any, by the Company may depend upon dividend payments by
the Bank to the Company. Subject to regulations of the Commissioner, the Bank
may not declare or pay a cash dividend if its stockholder's equity would
thereby be reduced below either the aggregate amount then required for the
liquidation account or the minimum regulary capital requirements imposed by
federal and state regulations. The Bank may not declare or pay a cash
dividend to the Company in excess of 100% of its net income to date, less
dividends paid, during the current calendar year plus the two preceding
year's net income less any dividends paid or declared during the two period
years without prior regulatory approval.
Retained earnings at June 30, 1997 includes approximately $181,000 for which
federal income tax has not been provided, which is adjusted annually. The
Bank is allowed a special bad debt deduction limited generally to 8 percent
of otherwise taxable income and subject to certain limitations based on
aggregate loans and savings account balances at the end of the year. If the
amounts that qualify as deductions for federal income tax purposes are later
used for purposes other than for bad debt losses, they will be subject to
federal income tax at the then current corporate rate. The unrecorded
deferred tax liability on the above amount is approximately $62,000.
Note I. Income Tax
The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------
1997 1996 1995
------ ------ ------
(1,000's)
------------------------
<S> <C> <C> <C>
Currently: Federal ($155) $ 96 $ 86
State 0 0 0
Deferred: Federal 8 5 (73)
State 0 10 (6)
----- ---- ----
($147) $111 $ 7
===== ==== ====
</TABLE>
Income tax expense (benefit) for the years ended June 30, 1997, 1996, and 1995
has been provided at an effective rate of approximately (37.32%), 38.40% and
10.29%, respectively. An analysis of such expense for the three years setting
forth the reasons for the variations from the federal statutory rates is as
follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------
1997 1996 1995
------ ------ ------
(1,000's)
------------------------
<S> <C> <C> <C>
Computed tax at statutory rates ($134) $ 99 $12
Increase (decrease) in tax expense resulting from:
Tax credits (25) 0 0
Tax exempt income - net (3) (4) (5)
Other 15 16 0
----- ---- ---
Income tax expense (benefit) ($147) $111 $ 7
===== ==== ===
</TABLE>
38
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I. Income Tax
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
(1,000's)
-----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 32 $ 6
Deferred loan fees 6 11
Severance agreement 30 80
Other 1 1
------- -------
69 98
------- -------
Deferred tax liabilities:
Unrealized gains on
securities available for sale 149 76
FHLB stock 9 17
Premises and equipment 8 18
Allowance for loan losses 0 0
Other 0 3
------- -------
166 114
------- -------
Net deferred tax liabilities $ 97 $ 16
======= =======
</TABLE>
No valuation allowance was required for deferred tax assets at June 30, 1997
or 1996.
Note J. Employee Benefit Plans
The Company had a profit sharing plan and defined contribution pension plan
that covered substantially all employees. Contributions to the profit sharing
plan were at the discretion of the Board of Directors. Contributions to the
defined contribution pension plan are based on a percentage of eligible
compensation. Pension cost for both plans included current service costs,
which were accrued and funded on a current basis. Pension expense for both
plans charged to operations for the years ended June 30, 1995 was $29,000.
These plans were terminated during 1996.
The Company established a director retirement plan, which was effective
January 1, 1995, that covers all nonemployee directors. Under this plan, each
director will receive a retirement benefit for ten years, following retirement
from the Board, based on the product of the benefit percentage, vesting
percentage, and $500. Each participant will earn a 5% benefit percentage per
each year served. Vesting percentage is 33 1/3% per year served after the date
of conversion. Benefit and vesting percentages will be accelerated to 100% for
board members with 10 years of service and who have reached age 70, death,
disability, or change in control. Upon death of a participant of this plan, a
lump sum payment of 50% of the present value of the plan benefit shall be paid
to the surviving spouse or estate. Expense for this plan amounted to $25,000
for the year ended June 30 1997.
During 1996, the Company entered into three year employment contracts with
three members of management establishing a base compensation amount and
benefits available to these employees. These contracts include a provision for
termination, without just cause following, a change in control. If termination
occurs within twelve months following a change in control, the employee will
receive 2.99 times the base compensation.
During the current year, the Company has established a 401(k) retirement
savings plan for the fiscal year beginning July 1, 1997. The plan includes all
employees that meet the plan requirements of hours of service and age
limitations. The plan contains a matching provision of 50% of the
participant's eligible compensation which does not exceed 4% of compensation.
The plan contains a five year vesting schedule after the initial service year.
The plan includes all prior years of service with the Company for vesting
purposes.
39
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K. Economic Dependency
The Company is a nondiscriminatory lender in its market area as defined by the
Bank's community reinvestment policy. The Company is a full service bank in
Effingham County. The Company has no economic dependency other than the
general market area. Concentration of credit risk has been disclosed in Note C
concerning lending portfolio.
Note L. Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material effect on the consolidated financial statements of the Company. For
the year ended June 30, 1997, the Company accrued $50,000 for settlement of a
legal matter with a former employee.
The Company had outstanding firm commitments to originate mortgage loans as
follows:
<TABLE>
<CAPTION>
June 30,
--------------
1997 1996
------ ------
(1,000's)
--------------
<S> <C> <C>
Fixed rate $2,555 $ 624
Variable rate 0 968
------ ------
$2,555 $1,592
====== ======
</TABLE>
Interest rate ranges for fixed rate loan commitments at June 30, 1997 and 1996
ranged from 7.75% to 9.50%. Interest rate ranges for variable rate loan
commitments at June 30, 1996 were 6.50% to 7.75%. As of June 30, 1997 and
1996, the Company had unused lines of credit in the amount of $2,166,000 and
$8,000, respectively.
There were no outstanding commitments to purchase or sell securities at June
30, 1997 and 1996.
The Company 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. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the consolidated statements of
financial condition.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of these instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
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. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount and type of
collateral obtained, if deemed necessary by the Company upon extension of
credit, varies and is based on management's credit evaluation of the
counterparty.
In September, 1996, the FDIC imposed the one-time assessment on all SAIF
insured deposits as of March 31, 1995. The Bank has included the FDIC
assessment in the amount of $207,632 as SAIF deposit insurance in the
consolidated statements of income for the year ended June 30, 1997.
40
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M. Related Parties
The Bank has entered into transactions with its directors, key management and
their affiliates (Related Parties). Such transactions were made in the
ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers, and did not, in the opinion
of management, involve more than normal credit risk or present other
unfavorable features. A summary of loans to related parties is as follows:
<TABLE>
<CAPTION>
June 30,
------------------
1997 1996
-------- --------
(1,000's)
------------------
<S> <C> <C>
Balance $ 171 $ 160
New loans 61 54
Repayment (31) (43)
-------- --------
Balance $ 201 $ 171
======== ========
</TABLE>
Note N. Employee Stock Ownership Plan (ESOP)
In connection with the conversion to the stock form of ownership, the Board of
Directors established an employee stock ownership plan (ESOP) for the
exclusive benefit of participating employees. Employees age 21 or older who
have completed one year of service are eligible to participate. Upon the
issuance of the common stock, the ESOP acquired 40,204 shares of $1 par value
common stock at the subscription price of $10.00 per share. The Company makes
contributions to the ESOP equal to the ESOP's debt service less dividends
received by the ESOP. All dividends received by the ESOP are used to pay debt
service. The ESOP shares initially were pledged as collateral for its debt. As
the debt is repaid, shares are released from collateral and allocated to
active employees, based on the proportion of debt service paid in the year.
The Company accounts for its ESOP in accordance with the AICPA's Statement of
Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and the
shares are released from collateral, the Company reports compensation expense
equal to the current market price of the shares released, and the shares
become outstanding for earnings-per-share calculations. Dividends on allocated
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt or accrued
interest. ESOP compensation expense was $50,000, $52,000 and $0 for the
respective years ended June 30, 1997, 1996 and 1995.
The ESOP shares were as follows:
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
-------- --------
(1,000's)
-------------------
<S> <C> <C>
Allocated shares 8,643 4,623
Shares released for allocation 0 0
Unallocated shares 31,561 35,581
-------- --------
Total ESOP shares 40,204 40,204
======== ========
Fair value of unallocated shares $387,000 $427,000
======== ========
</TABLE>
The ESOP plan shares were purchased by the Bank with the loan proceeds from
the Stewardson National Bank. This loan is secured by the ESOP plan shares
with quarterly principal payments of $10,000 and accrued interest. The note is
for ten years with interest rate of prime plus 1%.
41
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N. Employee Stock Ownership Plan (ESOP)
Following are maturities of the long-term debt:
<TABLE>
<CAPTION>
Amount
---------
(1,000's)
---------
<S> <C>
1998 $ 40
1999 40
2000 40
2001 40
After June 30, 2001 156
----
$316
====
</TABLE>
The balance of the loan was $316,000 and $356,000 with an interest rate of
8.50% and 8.00% at June 30, 1997 and 1996, respectively. Average outstanding
balance was $339,000 and $288,000 with a weighted average interest rate of
8.26% and 7.99% for the respective years ended June 30, 1997 and 1996.
Interest expense was $28,000, $23,000 and $0 for the respective years ended
June 30, 1997, 1996 and 1995.
Note O. Severance Agreement
On June 16, 1995, the Company and the past Chief Executive Officer (CEO)
entered into a separation agreement. This agreement included the CEO
retaining the company car, cash payments for the first three years of the
agreement of $64,000 and the next seven years of $14,000 on an annual basis.
These payments are to be made monthly, starting in July of 1995, except for
the first year in which $20,000 was paid in June of 1995. Health benefits
included in the agreement were that the Company would pay the group health,
medical, and life insurance benefits for the CEO that are currently provided
to the Company's employees. These benefits would cease when the CEO attains
age 65. The Company's cost of this termination agreement amounted to a net
present value of $226,000, at an 8% discount rate, as of June 30, 1995. This
amount is included in other liabilities and in compensation expense at June
30, 1995. As of June 30, 1997 and 1996, this amount was $135,000 and
$192,000, respectively. Compensation expense has been reduced by $57,000,
$34,000 and $0 for the respective years ended June 30, 1997, 1996 and 1995.
Note P. Stock Options
The board of directors adopted a stock option and incentive plan which was
approved by the stockholders at the annual meeting on July 23, 1996. The
Stock Option and Incentive Plan allows the Company to grant incentive or
nonqualified stock options to Directors and key employees for an aggregate of
50,225 shares of the Company's common stock, with an exercise price equal to
market value of $12.25 per share at the date of the award. The options to
purchase shares expires ten years after the grant. Effective with the
approval of this plan, options for 49,225 shares of common stock were awarded
to key employees and Directors. The options vest at 20% per year with
immediate vesting in the case of death, disability, or change in control. At
the Company's sole discretion, they may from time to time grant Stock
Appreciation Rights "SARs" to employees either in conjunction with, or
independently of, any options granted under the plan. SARs granted in tandem
with an ISO must have similar terms and price ass the ISO. Exercise of either
the SARs or ISO will cancel the other. SARs not in tandem with the ISO, is
exercised, will entitle the optionee to receive all or a percent of the
difference between the market value of the Company's shares at the time of
exercise and market value of the shares at the time of the grant. The
exercise price as to the ISO and SARs may not be less than market on the date
of the grant. The first grant date for the ISO shares will be July 23, 1997,
accordingly there has been no shares exercised or expired for the year ended
June 30, 1997.
42
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P. Stock Options
The Company adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", on July 23, 1996.
SFAS 123 encourages companies to account for stock compensation awards based
on their fair value at the date the awards are granted. The resulting
compensation cost would be shown as an expense on the income statement.
Companies may choose to continue to measure compensation for stock-based
plans using the intrinsic method of accounting prescribed by APB Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees." Entities electing
to continue the accounting prescribed in APB 25 will be required to disclose
in the notes to the financial statements what net income and earnings per
share would have been if the fair value-based method of accounting defined in
SFAS No. 123 had been applied. The Company elected to continue to measure
compensation cost using APB 25. The proforma net loss and net loss per share
amounts were not material to the Company in 1997.
Note Q. Management Recognition Plan
The Company approved the establishment of the Management Recognition Plan
"MRP" with the objectives to enable the Company to attract and retain
personnel of experience and ability in key positions of responsibility. The
stockholders approved the MRP at the annual meeting on July 23, 1996. Those
eligible to receive benefits under the MRP will be on a discretionary basis
and the MRP is a non-qualified plan that will be managed through a separate
trust. The Company will contribute sufficient funds to the MRP for the
purchase of up to 20,102 shares of common stock. Automatic grants will be
made to the nonemployee directors, with two years continuous service prior to
the effective plan date, of the lesser of 5% of the plan shares per Director
or 30% of the plan shares in the aggregate. Nonemployee directors who join
the Board within the two year period before the effective date or after the
effective date shall receive up to 2% of the plan shares. These awards will
vest 20% on each anniversary date except in the case of participant's death
or disability where all shares awarded will vest immediately. The Company
intends to expense the MRP awards over the years during which the shares are
payable, based on the market value of the common stock at the time of the
grant. The Company, on July 8, 1997, purchased 13,400 shares of its stock for
$169,000. These shares will be used to fund the MRP. Compensation expense
related to the MRP was $52,000 for the year ended June 30, 1997.
Note R. Fair Value of Financial Instruments
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
For cash and cash equivalents, Federal Home Loan Bank stock and accrued
interest receivable, the carrying value is a reasonable estimate of fair
value. The fair value of investment securities is based on quoted market
prices,, dealer quotes and prices obtained from independent pricing services.
The fair value of loans receivable is estimated based on present values using
the Bank's current pricing structures to approximate current entry-value
interest rates considering anticipated prepayment speeds, maturity and credit
risks.
The fair value of demand deposit accounts, NOW accounts, savings accounts and
money market deposits, and fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities at the reporting date. The fair value of FHLB advances and other
borrowings are estimated using rates currently available for debt with
similar terms and remaining maturities. For advance payments by borrowers for
taxes and insurance and accrued interest payable the carrying value is a
reasonable estimate of fair value. Commitments are generally made at
prevailing interest rates at the time of funding and, therefore, there is no
difference between the contract amount and fair value.
43
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note R. Fair Value of Financial Instruments
The fair value estimates presented herein are based on pertinent information
available to management as of June 30, 1997 and 1996. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since the reporting date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The estimated fair value of the Company's financial instruments were are as
follows:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1997 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
1,000's
------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and interest bearing deposits $ 2,475 $ 2,475 $ 1,396 $ 1,396
Securities available for sale 7,925 7,925 6,892 6,892
Securities held to maturity 633 633 299 299
Loans receivable, net 45,219 45,306 36,069 36,266
Accrued interest receivable 453 453 309 309
LIABILITIES
Deposits 43,662 42,764 36,548 36,545
FHLB advances and other borrowings 8,274 8,241 1,964 1,951
Advances from borrowers for taxes
and insurance 79 79 91 91
Accrued interest payable 154 154 103 103
Commitments 0 2,555 0 1,592
</TABLE>
Note S. Parent Company Only Financial Information
The following condensed statement of financial condition, as of June 30,
1997, and condensed statement of income and cash flows for the period from
July 23, 1996 (date of formation) to June 30, 1997, for Community Financial
Corp. should be read in conjunction with the consolidated financial
statements and the notes herein.
CONDENSED STATEMENT OF FINANCIAL CONDITION
June 30, 1997
<TABLE>
<CAPTION>
(1,000's)
---------
<S> <C>
ASSETS
Cash and cash equivalent $ 91
Investment in Illinois Community Bank 6,499
Investment in Illinois Leasing Corporation 530
Investment in Illinois Financial Corporation 5
Other Assets 94
------
Total Assets $7,219
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 52
Dividend declared 75
Stockholders' equity 7,092
------
Total Liabilities and Stockholders' Equity $7,219
======
</TABLE>
44
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note S. Parent Company Only Financial Information
CONDENSED STATEMENT OF INCOME
For the Period from July 23, 1996 to June 30, 1997
<TABLE>
<CAPTION>
(1,000's)
---------
<S> <C>
INCOME:
Interest income $ 1
----
Total income 1
----
EXPENSES:
Employee benefits 52
Professional fees 4
Other 8
----
Total expense 64
----
LOSS BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (63)
INCOME TAX BENEFIT (21)
----
LOSS BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES (42)
EQUITY OF UNDISTRIBUTED EARNINGS OF SUBSIDIARIES:
Illinois Community Bank (209)
Illinois Leasing Corporation 5
Illinois Financial Corporation 0
----
Net Loss ($246)
====
</TABLE>
45
<PAGE>
ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note S. Parent Company Only Financial Information
CONDENSED STATEMENT OF CASH FLOWS
For the Period from July 23, 1996 to June 30, 1997
<TABLE>
<CAPTION>
(1,000's)
---------
OPERATING ACTIVITIES:
<S> <C>
Net loss ($246)
Amortization of organization cost 8
Dividends receivable from Illinois Community Bank 780
Adjustments to reconcile net loss to net cash provided
by operating activities:
Equity in undistributed net loss of subsidiaries 204
Increase in other assets (23)
Increase in accrued expenses 52
----
Net cash provided by operating activities 775
----
INVESTING ACTIVITIES:
Investment in Illinois Leasing Corporation (525)
Investment in Illinois Financial Corporation (5)
Organization cost incurred (79)
----
Net cash used in investing activities (609)
----
FINANCING ACTIVITIES:
Dividends paid (75)
----
Net cash used in financing activities (75)
----
NET INCREASE IN CASH 91
Cash beginning of period 0
----
Cash end of Period $ 91
====
</TABLE>
46
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
GERALD E. LUDWIG MILTON HINKLE ERNEST E. GARBE
Chairman of the Board Retired Retired
DOUGLAS A. PIKE FREDERICK C. SCHAEFER GARRETT M. ANDES, II
President and Chief Executive Officer Ticket Agent for Greyhound Self-employed
RONALD R. SCHETTLER SCOTT KABBES MICHAEL F. SEHY
Senior Vice President President Self-employed
Eaglesoft, Inc.
</TABLE>
EXECUTIVE OFFICERS
GERALD E. LUDWIG RONALD R. SCHETTLER
Chairman of the Board Senior Vice President and Secretary
DOUGLAS A. PIKE JOHN H. LEONARD
President and Chief Executive Senior Vice President and Chief
Officer Credit Officer
DONNIE U. DUEKER
Vice President and Trust Officer
OFFICE LOCATIONS
Main Office Mid-America Office
210 E. Fayette Avenue 1300 Keller Drive
Effingham, Illinois 62401-3613 Effingham, Illinois 62401
GENERAL INFORMATION
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Larsson Woodyard & Henson LLP
702 E. Court Street
Paris, Illinois 61944
SPECIAL COUNSEL
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W. Suite 700
Washington, D.C. 20036
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on November 18, 1997 at 2:00
p..m. at the Ramada Inn on Keller Drive, Effingham, Illinois
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
(908) 272-8511
SHAREHOLDER INQUIRIES AND AVAILABILITY OF 10-KSB REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
JUNE 30, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED WITHOUT CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE FOR THE 1997
ANNUAL MEETING UPON WRITTEN REQUEST TO INVESTOR RELATIONS, ILLINOIS COMMUNITY
BANCORP, INC., 210 E. FAYETTE AVENUE, EFFINGHAM, ILLINOIS 62401-3613
47
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
- ------
Illinois Community Bancorp, Inc.
State or Other
Jurisdiction of Percentage
Subsidiaries Incorporation Ownership
- ------------ --------------- -----------
Illinois Community Bank Illinois 100%
Illinois Leasing Corporation, Inc. Illinois 100%
Subsidiary of Illinois Community Bank
- -------------------------------------
IGSL Service Corporation Illinois 100%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,708
<INT-BEARING-DEPOSITS> 767
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,925
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 45,570
<ALLOWANCE> 351
<TOTAL-ASSETS> 59,799
<DEPOSITS> 43,662
<SHORT-TERM> 6,498
<LIABILITIES-OTHER> 771
<LONG-TERM> 1,776
0
0
<COMMON> 5
<OTHER-SE> 7,087
<TOTAL-LIABILITIES-AND-EQUITY> 59,799
<INTEREST-LOAN> 3,347
<INTEREST-INVEST> 497
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,844
<INTEREST-DEPOSIT> 1,895
<INTEREST-EXPENSE> 2,234
<INTEREST-INCOME-NET> 1,610
<LOAN-LOSSES> 141
<SECURITIES-GAINS> 0
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<INCOME-PRETAX> (393)
<INCOME-PRE-EXTRAORDINARY> (393)
<EXTRAORDINARY> 0
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<NET-INCOME> (246)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
<YIELD-ACTUAL> 3.23
<LOANS-NON> 78
<LOANS-PAST> 98
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<ALLOWANCE-DOMESTIC> 326
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 25
</TABLE>
