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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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For the quarterly period ended June 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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For the transition period from to .
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Commission file number: 333-17227
Vermilion Bancorp, Inc.
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(Exact name of small business issuer as specified in its charter)
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Delaware 37-1363755
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
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714 North Vermilion Street, Danville, Illinois 61832
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(Address of principal executive offices)
(217) 442-0270
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
1) Yes X No
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2) Yes X No
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366,761 shares of the registrant's common stock, par value $0.01 per share,
were outstanding at August 14, 1997.
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VERMILION BANCORP, INC.
TABLE OF CONTENTS
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PAGE
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Part 1. Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Part 2. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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2
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997 AND SEPTEMBER 30, 1996
(UNAUDITED)
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JUNE 30, SEPTEMBER 30,
1997 1996
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Assets
Cash and due from banks................................................................... $ 45,759 $ 359,747
Interest-bearing demand deposits.......................................................... 1,311,746 429,451
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Cash and cash equivalents............................................................... 1,357,505 789,198
Interest-bearing time deposits............................................................ 99,000 99,000
Investment securities
Available for sale...................................................................... 3,100,817 2,221,693
Held to maturity........................................................................ 3,197,281 4,336,559
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Total investment securities........................................................... 6,298,098 6,558,252
Loans....................................................................................... 28,718,504 27,079,584
Allowance for loan losses................................................................. 143,867 (143,349)
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Net loans............................................................................... 28,574,637 26,936,235
Premises and equipment...................................................................... 442,881 466,928
Federal Home Loan Bank stock................................................................ 283,200 269,000
Other assets................................................................................ 335,964 340,599
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Total assets.......................................................................... $37,391,285 $35,459,212
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Liabilities
Deposits
Noninterest-bearing..................................................................... $ 640,203 $ 165,593
Interest-bearing........................................................................ 28,765,720 30,558,460
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Total deposits........................................................................ 29,405,923 30,724,053
Federal Home Loan Bank borrowings......................................................... 2,000,000 2,000,000
Other liabilities......................................................................... 144,424 380,010
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Total liabilities..................................................................... 31,550,347 33,104,063
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Stockholders' Equity
Preferred stock, $0.01 par value Authorized and unissued--400,000 shares
Common stock, $0.01 par value
Authorized--1,600,000 shares
Issued--396,750 shares
Outstanding--366,409 and 0 shares....................................................... 3,968 --
Paid-in-capital........................................................................... 3,630,847 --
Retained earnings......................................................................... 2,514,534 2,370,504
Less:
Unrealized loss on securities available for sale.......................................... (5,119) (15,355)
Unearned employee stock ownership plan shares............................................. (303,292) --
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Total stockholders' equity............................................................ 5,840,938 2,355,149
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Total liabilities and stockholder's equity............................................ $37,391,285 $35,459,212
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See note to consolidated financial statements.
3
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VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED)
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1997 1996
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Interest Income
Loans receivable........................................................................ $1,724,418 $1,720,471
Investment securities................................................................... 301,005 154,720
Deposits with financial institutions.................................................... 65,836 54,209
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Total interest income............................................................... 2,091,259 1,929,400
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Interest Expense
Deposits................................................................................ 1,226,086 1,254,992
Federal Home Loan Bank borrowings....................................................... 88,422 77,315
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Total interest expense.............................................................. 1,314,508 1,332,307
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Net Interest Income....................................................................... 776,751 597,093
Provision for losses on loans........................................................... 7,000 20,000
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Net Interest Income After Provision for Losses on Loans................................... 769,751 577,093
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Noninterest Income
Loan fees............................................................................... 25,063 26,033
Other income............................................................................ 11,127 17,813
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Total noninterest income............................................................ 36,190 43,846
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Noninterest Expense
Salaries and employee benefits.......................................................... 308,685 233,462
Net occupancy expenses.................................................................. 85,517 71,594
Data processing fees.................................................................... 34,764 30,627
Deposit insurance expense............................................................... 10,011 53,676
Printing and office supplies............................................................ 12,459 10,101
Legal and professional fees............................................................. 51,094 37,437
Advertising and promotion............................................................... 13,379 26,048
Director and committee fees............................................................. 32,250 19,500
Other expenses.......................................................................... 72,717 71,721
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Total noninterest expense........................................................... 620,876 554,166
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Income Before Income Tax.................................................................. 185,065 66,773
Income tax expense...................................................................... 41,035 10,500
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Net Income................................................................................ $ 144,030 $ 56,273
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See notes to consolidated financial statements.
4
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VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED)
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1997 1996
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Interest Income
Loans receivable................................................................................. $ 584,236 $ 585,611
Investment securities............................................................................ 96,415 53,213
Deposits with financial institutions............................................................. 39,948 12,991
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Total interest income........................................................................ 720,599 651,815
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Interest Expense
Deposits......................................................................................... 389,849 411,793
Federal Home Loan Bank borrowings................................................................ 29,474 29,474
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Total interest expense....................................................................... 419,323 441,267
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Net Interest Income................................................................................ 301,276 210,548
Provision for losses on loans.................................................................... 5,000 15,974
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Net Interest Income After Provision for Losses on Loans............................................ 296,276 194,574
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Noninterest Income
Loan fees and other income....................................................................... 8,344 13,056
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Noninterest Expense
Salaries and employee benefits................................................................... 79,252 71,152
Net occupancy expenses........................................................................... 30,290 24,278
Data processing fees............................................................................. 13,120 10,269
Deposit insurance expense........................................................................ 5,075 17,643
Legal and professional fees...................................................................... 25,831 5,555
Advertising and promotion........................................................................ 5,664 8,387
Director and committee fees...................................................................... 13,350 7,500
Other expenses................................................................................... 24,975 32,888
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Total noninterest expense.................................................................... 197,557 177,672
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Income Before Income Tax........................................................................... 107,063 29,958
Income tax expense............................................................................... 31,035 6,500
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Net Income......................................................................................... $ 76,028 $ 23,458
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Per Share Data:
Earnings per share
Assuming no dilution
Net income................................................................................... $ 0.21 N\A
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Average number of shares..................................................................... 366,057 N\A
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Assuming full dilution
Net income................................................................................... $ 0.19 N\A
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Average number of shares..................................................................... 396,750 N\A
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See notes to consolidated financial statements.
5
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VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED)
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1997 1996
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Operating Activities
Net income (loss)...................................................................... $ 144,030 $ 56,273
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Provision for loan losses............................................................ 7,000 20,000
Investment securities amortization (accretion), net.................................. (11,741) (12,296)
Depreciation......................................................................... 27,711 27,711
Allocation of ESOP shares............................................................ 16,401 --
Net change in:
Other assets....................................................................... 4,635 (349,237)
Other liabilities.................................................................. (225,350) (77,429)
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Net cash used by operating activities.............................................. (37,314) (334,978)
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Investing Activities
Purchases of securities available for sale............................................. (1,950,995) (550,000)
Proceeds from maturities and principal payments of securities available for sale....... 1,077,225 1,417,587
Proceeds from maturities and principal payments of securities held to maturity......... 1,145,665 669,987
Net change in loans.................................................................... (1,645,402) (2,045,793)
Purchase of premises and equipment..................................................... (3,664) (5,270)
Purchase of Federal Home Loan Bank stock............................................... (14,200) (14,000)
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Net cash provided by investing activities.......................................... (1,391,371) (527,489)
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Financing Activities
Net change in deposits................................................................. (1,318,130) 155,683
Proceeds of Federal Home Loan Bank borrowings.......................................... -- 2,000,000
Issuance of common stock............................................................... 3,632,521 --
Purchase of ESOP stock................................................................. (317,400) --
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Net cash provided by financing activities.......................................... 1,996,992 2,155,683
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Net Change in Cash and Cash Equivalents.................................................. 568,307 1,293,216
Cash and Cash Equivalents, Beginning of Period........................................... 789,198 570,592
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Cash and Cash Equivalents, End of Period................................................. $1,357,505 $1,863,809
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Additional Cash Flows Information
Interest paid.......................................................................... $1,314,508 $1,331,804
Income tax paid........................................................................ $ 27,000 $ 12,205
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See notes to consolidated financial statements.
6
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VERMILION BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND INFORMATION
Vermilion Bancorp, Inc. (the "Company") was incorporated on November 1996
and on March 25, 1997 acquired all of the outstanding shares of common stock of
American Savings Bank of Danville (the "Bank") upon the Bank's conversion from a
state chartered mutual savings bank to a state chartered stock savings bank. The
Company purchased 100% of the outstanding capital stock of the Bank using 75% of
the net proceeds from the Company's initial stock offering, which was completed
on March 25, 1997. The Company sold 396,750 shares of common stock in the
initial offering at $10 per share, including 31,740 shares purchased by the
Bank's Employee Stock Ownership Plan ("ESOP"). The ESOP shares were acquired by
the Bank with proceeds from a Company loan totaling $317,400. The net proceeds
of the offering totaled $3,632,522: $3,967,500 less $334,978 in underwriting
commissions and other expenses.
The acquisition of the Bank by the Company is being accounted for as a
"pooling-of-interests" under generally accepted accounting principles. The
application of the pooling-of-interests method records the assets and
liabilities of the merged companies on a historical cost basis with no goodwill
or other intangible assets being recorded.
2. STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and Item 310 (b) of
Regulation S-B, and in the opinion of management contain all adjustments
necessary to present fairly the financial position as of June 30, 1997 and
September 30, 1996, the results of operations for the nine months ended June 30,
1997 and 1996, the results of operations for the nine months ended June 30, 1997
and 1996 and the cash flows for the nine months ended June 30, 1997 and 1996.
All adjustments to the financial statements were normal and recurring in nature.
These results have been determined on the basis of generally accepted accounting
principles. The results of operations for the nine months and the three months
ended June 30, 1997 are not necessarily indicative of the results to be expected
for the entire fiscal year.
The consolidated financial statements are those of the Company and the Bank.
These consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
Prospectus dated October 11, 1996.
3. EARNINGS PER SHARE
Net earnings per share for 1997 will be computed based upon the weighted
average common and common equivalent shares outstanding for periods subsequent
to the Bank's conversion to a stock savings bank on March 25, 1997. Net income
per share for the nine month period ended June 30, 1997 is not meaningful.
7
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PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Vermilion Bancorp, Inc. (the "Company") is the holding company for American
Savings Bank of Danville (the "Bank"). The Bank operates a wholly owned
subsidiary, GBW Service Corporation, which services contract sales of real
estate. Prior to the Company's acquisition of the Bank on March 25, 1997, the
Company had no material assets or operations. Accordingly, the following
information reflects management's discussion and analysis of the financial
condition and results of operations for the Bank at and for the period prior to
March 25, 1997.
FINANCIAL CONDITION
Total assets increased $1.9 million from September 30, 1996 to June 30, 1997
or 5.4%. This increase was primarily funded by net proceeds raised in the
Company's initial public offering.
The $260 thousand decline in total investment securities from September 30,
1996 to June 30, 1997 was the result of management's continued emphasis on
reinvesting proceeds from investment security pay-downs and maturities into the
Bank's loan portfolio.
The $1.6 million increase in net loans from September 30, 1996 to June 30,
1997 was the result of increases in both one-to-four family residential mortgage
loans and consumer loans which is the result of management's emphasis on the
Bank's loan portfolio as previously mentioned.
The decline in total deposits of $1.3 million or 4.2% was almost entirely
attributable to a $1.8 million decline in interest-bearing deposits during the
period as depositors withdrew funds to purchase the Company's stock. This
decline was somewhat offset by a $474 thousand increase in noninterest-bearing
deposit accounts.
Other liabilities declined $236 thousand from September 30, 1996 to June 30,
1997, due to $207 thousand of accrued expenses related to the special assessment
levied to recapitalize the Savings Association Insurance Fund ("SAIF") that was
accrued on September 30, 1996 and paid during the period.
Total stockholders' equity increased $3.5 million from September 30, 1996 to
June 30, 1997, the increase summarized as follows:
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Stockholders' equity, September 30, 1996........................ $2,355,149
Gross proceeds of stock offering................................ 3,967,500
Underwriting commissions and other expenses of conversion....... (334,978)
Net income...................................................... 144,030
Decrease in unrealized loss on securities available for sale.... 10,236
Total share price of shares purchased by ESOP................... (317,400)
ESOP shares allocated........................................... 16,401
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Stockholders' equity, June 30, 1997............................. $5,840,938
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8
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RESULTS OF OPERATIONS
NINE MONTH COMPARISON
Net income was $144,030 for the nine months ended June 30, 1997 compared to
$56,273 for the comparative period ending June 30, 1996. The increase in
earnings is primarily attributable to higher net interest income offset by
increased noninterest expense.
Net interest income increased $180 thousand in the nine months ended June
30, 1997 compared to the same period in 1996, due to increases in interest
income related to loans and investment securities, while interest expense
remained fairly stable. Interest income grew by $162 thousand in 1997 compared
to 1996 while interest expense declined by $17 thousand for the same period.
The provision for loan losses was $7 thousand for the first nine months in
1997 compared to $20 thousand for the same period in 1996. While management of
the Bank believes that the allowance for loan losses is sufficient based on
information currently available, no assurances can be made that future events or
conditions or regulatory directives will not result in increased provisions for
loan losses or additions to the Bank's allowance for loan losses which may
adversely affect net income.
Total noninterest expense increased $67 thousand or 12.1% for the first nine
months of 1997 compared to the first nine months of 1996, due primarily to an
increase in salaries and employee benefits expense, and other expenses, offset
by lower deposit insurance expense. Salaries and employee benefits expense was
$76 thousand higher in 1997, mainly due to the recording of an additional $54
thousand in compensation expense in January related to the termination of an
employee and approximately $16 thousand related to the implementation of an
employee stock ownership plan ("ESOP"). These increases were offset by a $44
thousand decline in deposit insurance expense as the Bank became subject to the
substantially lower insurance rates that became effective on September 30, 1996
with the adoption of the Deposit Insurance Funds Act of 1996 ("Funds Act").
Total income tax expense was $41 thousand for the nine months ended June 30,
1997 compared to $11 thousand in 1996, reflecting the increase in earnings. The
effective tax rate was 22.2% for 1997 as compared to 16.4% in 1996.
THREE MONTH COMPARISON
Net income was $53 thousand more in the quarter ended June 30, 1997 compared
to the same quarter in 1996, primarily due to the increase in net interest
income which was partially offset by an increase in noninterest expenses.
Net interest income was $90 thousand higher in the three months ended June
30, 1997 compared to the same period in 1996. Interest income was $69 thousand
higher, primarily due to increases in interest income on investment securities
and deposits with financial institutions.
Interest expense was fairly stable, declining by $22 thousand in the quarter
ended June 30, 1997 compared to the quarter ended June 30, 1996 as any increase
in the average rate paid on deposits was offset by the shift of deposits into
noninterest bearing accounts.
9
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Noninterest expense was $20 thousand higher in the quarter ended June 30,
1997 compared to the same period in 1996, due primarily to increases in
salaries and employee benefits and legal and professional fees, which were
partially offset by lower deposit insurance expense. Salaries and benefit
expense increased $8 thousand in 1997 due to the implementation of the ESOP
that was adopted in conjunction with the Company's initial public offering in
March 1997. Likewise, legal and professional fees increased by $20 thousand
as the Company became subject to various regulatory and public filings. These
increases were somewhat offset by a $13 thousand decline in deposit insurance
expense which was a direct result of the lower insurance rates enacted by the
Funds Act.
Income tax expense was $24 thousand more in the third quarter of fiscal
1997 compared to the third quarter or 1996. The marginal tax rate was 29.0%
in 1997 compared to 23.3% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, principal and interest
payments on loans and FHLB advances. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Company's initial stock offering,
which was completed on March 25, 1997, contributed substantially to the
Company's overall liquidity levels. The Federal Deposit Insurance Corporation
("FDIC"), the Bank's primary Federal regulator, requires the Bank to maintain
minimum levels of liquid assets. Currently, the required ratio is 5%. The
Bank's liquidity ratios were 11.4% and 15.5% at June 30, 1997 and September
30, 1996, respectively, well above the required minimum.
A review of the Consolidated Statements of Cash Flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents ("cash") increased $568 thousand from September 30, 1996 to June 30,
1997. Cash increased $1.3 million from September 30, 1995 to June 30, 1996.
During the first nine months of fiscal 1997, cash was primarily provided by the
stock offering and proceeds from maturing securities. Cash was primarily used in
1997 to fund loans and to purchase securities. The increase in cash during the
first nine months of fiscal 1996 resulted from net cash being provided by
proceeds from maturing securities and FHLB borrowings, offset by cash used to
fund loans.
As of June 30, 1997, the Bank had outstanding commitments (including
undisbursed loan proceeds) of $446 thousand. The Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit which are scheduled to mature in one year
or less from June 30, 1997 totaled $7.3 million. Based upon the Bank's
experience, Management believes that a significant portion of such deposits will
remain with the Bank.
The FDIC capital regulations require savings institutions to meet three
capital standards: a 1,5% tangible capital standard, a 3% leverage (tier 1
capital) ratio and an 8% risk-based capital standard. The tier 1 capital
requirement is effectively 4%, since FDIC regulations stipulate that, effective
December 19, 1992, an institution with less than 4% core capital will be deemed
to be "undercapitalized." As of June 30, 1997, the Bank's capital percentages
for tangible capital of 13.37%, tier 1 capital of 13.37%, and risk-based capital
of 27.38% significantly exceeded the regulatory requirement for each category.
10
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PART 2. OTHER INFORMATION
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Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of Vermilion Bancorp, Inc.*
3.2 By-laws of Vermilion Bancorp, Inc.*
11.0 Computation of earnings per share
Not meaningful.
b. Reports on Form 8-K
None
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* Incorporated herein by reference into this document from Form S-1
Registration Statement, as amended, filed on March 28, 1997 Registration No.
333-17227.
11
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SIGNATURES
Pursuant to the requirements 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.
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Dated: August 7, 1997 /s/ Merrill G. Norton
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Merrill G. Norton
President and Chief Executive Officer
Dated: August 7, 1997 /s/ Terry L. Stal
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Terry L. Stal
Chief Financial Officer
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12
