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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
- --- OF 1934
For the quarterly period ended March 31, 1997
___TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to __________________.
Commission file number: 333-17227
Vermilion Bancorp, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 37-1363755
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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)
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
--- ---
2) Yes No X
--- ---
365,353 shares of the registrant's common stock, par value $0.01 per
share, were outstanding at May 8, 1997.
1
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Vermilion Bancorp, Inc.
Table of Contents
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
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 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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VERMILION BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheet
As of March 31, 1997 and September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
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<S> <C> <C>
Assets
Cash and due from banks..................................... $ 75,470 $ 359,747
Interest-bearing demand deposits............................ 5,135,061 429,451
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Cash and cash equivalents............................... 5,210,531 789,198
Interest-bearing time deposits.............................. 99,000 99,000
Investment securities
Available for sale......................................... 1,597,604 2,221,693
Held to maturity........................................... 3,554,960 4,336,559
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Total investment securities............................. 5,152,564 6,558,252
Loans....................................................... 27,545,483 27,079,584
Allowance for loan losses.................................. (139,337) (143,349)
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Net loans............................................... 27,406,146 26,936,235
Premises and equipment...................................... 452,118 466,928
Federal Home Loan Bank stock................................ 269,000 269,000
Other assets................................................ 309,279 340,599
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Total assets............................................ $ 38,898,638 $ 35,459,212
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Liabilities
Deposits
Noninterest-bearing......................................... $ 1,233,780 $ 165,593
Interest-bearing............................................ 29,748,675 30,558,460
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Total deposits.......................................... 30,982,455 30,724,053
Federal Home Loan Bank borrowings........................... 2,000,000 2,000,000
Other liabilities........................................... 184,081 380,010
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Total liabilities....................................... 33,166,536 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--396,741 shares
Outstanding--365,353 shares............................... 3,968 --
Paid-in-capital............................................. 3,628,554 --
Retained earnings........................................... 2,438,506 2,370,504
Less:
Unrealized loss on securities available for sale............ (25,053) (15,355)
Unearned employee stock ownership plan shares............... (313,873) --
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Total stockholders equity............................... 5,732,102 2,355,149
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Total liabilities and stockholders equity.............. $ 38,898,638 $ 35,459,212
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</TABLE>
See note to consolidated financial statements.
3
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<TABLE>
VERMILION BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Income
For the Six Months Ended March 31, 1997 and March 31, 1996 (Unaudited)
<CAPTION>
1997 1996
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<S> <C> <C>
Interest Income
Loans receivable............................................ $1,140,182 $ 1,134,860
Investment securities....................................... 204,590 101,507
Deposits with financial institutions........................ 25,888 41,218
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Total interest income................................... 1,370,660 1,277,585
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Interest Expense
Deposits.................................................... 836,237 843,199
Federal Home Loan Bank borrowings........................... 58,948 47,841
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Total interest expense.................................. 895,185 891,040
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Net Interest Income........................................... 475,475 386,545
Provision for losses on loans............................... 2,000 4,026
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Net Interest Income After Provision for
Losses on Loans........................................ 473,475 382,519
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Noninterest Income
Loan fees................................................... 10,035 11,308
Other income................................................ 17,811 19,482
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Total noninterest income................................ 27,846 30,790
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Noninterest Expense
Salaries and employee benefits.............................. 229,433 162,310
Net occupancy expenses...................................... 55,227 47,316
Data processing fees........................................ 21,644 20,358
Deposit insurance expense................................... 4,936 36,033
Printing and office supplies................................ 8,059 14,510
Legal and professional fees................................. 25,263 31,882
Advertising and promotion................................... 7,715 17,661
Director and committee fees................................. 18,900 12,000
Other expenses.............................................. 52,142 34,424
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Total noninterest expense............................... 423,319 376,494
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Income (Loss) Before Income Tax............................... 78,002 36,815
Income tax expense.......................................... 10,000 4,000
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Net Income (Loss)............................................. $ 68,002 $ 32,815
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</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
VERMILION BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Income
For the Three Months Ended March 31, 1997 and March 31, 1996 (Unaudited)
<CAPTION>
1997 1996
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<S> <C> <C>
Interest Income
Loans receivable.............................................. $ 521,918 $ 570,286
Investment securities......................................... 164,277 46,492
Deposits with financial institutions.......................... 11,154 25,071
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Total interest income..................................... 697,349 641,849
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Interest Expense
Deposits...................................................... 414,503 417,557
Federal Home Loan Bank borrowings............................. 29,150 29,473
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Total interest expense.................................... 443,653 447,030
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Net Interest Income............................................. 253,696 194,819
Provision for losses on loans................................. 2,000 4,000
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Net Interest Income After Provision for
Losses on Loans.......................................... 251,696 190,819
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Noninterest Income
Loan fees..................................................... 6,957 4,802
Other income.................................................. 12,363 11,021
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Total noninterest income.................................. 19,320 15,823
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Noninterest Expense
Salaries and employee benefits................................ 142,319 82,575
Net occupancy expenses........................................ 23,735 22,867
Data processing fees.......................................... 12,795 10,443
Deposit insurance expense..................................... 4,936 17,908
Printing and office supplies.................................. 5,232 6,976
Legal and professional fees................................... 4,203 10,765
Advertising and promotion..................................... 2,846 10,010
Director and committee fees................................... 8,850 6,000
Other expenses................................................ 32,088 16,396
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Total noninterest expense................................. 237,004 183,940
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Income (Loss) Before Income Tax................................. 34,012 22,702
Income tax expense............................................ 4,000 2,000
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Net Income (Loss)............................................... $ 30,012 $ 20,702
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</TABLE>
See notes to consolidated financial statements.
5
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<TABLE>
VERMILION BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Six Months Ended March 31, 1997 and March 31, 1996 (Unaudited)
<CAPTION>
1997 1996
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<S> <C> <C>
Operating Activities
Net income (loss)................................................. $ 68,002 $ 32,185
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Provision for loan losses......................................... 2,000 4,026
Investment securities amortization (accretion), net............... (8,376) (984)
Depreciation...................................................... 18,474 18,474
Net change in:
Other assets..................................................... 34,553 (78,371)
Other liabilities................................................ (195,929) (57,695)
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Net cash used by operating activities............................ (81,276) (82,365)
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Investing Activities
Purchases of securities available for sale........................ (450,000) --
Proceeds from maturities and principal payments of securities
available for sale................................................ 1,069,534 1,366,571
Proceeds from maturities and principal payments of securities held
to maturity....................................................... 781,599 413,202
Net change in loans.............................................. (471,911) (1,682,394)
Purchase of premises and equipment................................ (3,664) (5,271)
Purchase of Federal Home Loan Bank stock.......................... -- (14,000)
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Net cash provided by investing activities........................ 925,558 78,108
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Financing Activities
Net change in deposits............................................ 258,402 (356,937)
Proceeds of Federal Home Loan Bank borrowings..................... -- 2,000,000
Issuance of common stock.......................................... 3,318,649 --
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Net cash provided by financing activities........................ 3,577,051 1,643,063
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Net Change in Cash and Cash Equivalents............................. 4,421,333 1,638,806
Cash and Cash Equivalents, Beginning of Period...................... 789,198 570,592
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Cash and Cash Equivalents, End of Period............................ $ 5,210,531 $ 2,209,398
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Additional Cash Flows Information
Interest paid..................................................... 895,663 877,474
Income tax paid................................................... 27,000 7,205
</TABLE>
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 March 31, 1997 and
September 30, 1996, the results of operations for the six months ended March 31,
1997 and 1996, the results of operations for the three months ended March 31,
1997 and 1996 and the cash flows for the six months ended March 31, 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 six months and the
three months ended March 31, 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 six and three month periods ended March 31, 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 28, 1997.
FINANCIAL CONDITION
Total assets increased $3.4 million from September 30, 1996 to March 31,
1997 or 9.6%. This increase was primarily attributable to an increase in cash
and cash equivalents. Cash and cash equivalents increased $4.4 million due to
$3.3 million in cash generated from the Company's stock offering ($3.9 million
total stock offering and less $335 thousand in underwriting commissions and
other expenses of the offering and less $314 thousand related to shares
purchased by the ESOP). The balance of the increase in cash and cash equivalents
was the result of $1.8 million in proceeds from the maturity of investment
securities during the period, a portion of which had not yet been reinvested at
March 31, 1997.
The $1.4 million decline in investment securities from September 30, 1996 to
March 31, 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 $470 thousand increase in net loans from September 30, 1996 to March 31,
1997 was the result of increases in both one-to-four family residential mortgage
loans and consumer loans. This growth was the result of management's emphasis on
the Bank's loan portfolio as previously mentioned.
The increase in total deposits of $258 thousand or 0.8% was due to the $1.1
million increase in noninterest bearing demand deposits. This increase was
somewhat offset by a $798 thousand decline in certificates of deposit during the
period as depositors withdrew funds to purchase the Company's stock.
Other liabilities declined $124 thousand from September 30, 1996 to March
31, 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.
8
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Total stockholders' equity increased $3.4 million from September 30, 1996 to
March 31, 1997, the increase summarized as follows:
<TABLE>
<S> <C>
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...................................................... 68,002
Increase in unrealized loss on securities available for sale.... (9,698)
Total share price of shares purchased by ESOP................... (317,400)
ESOP shares allocated........................................... 3,527
---------
Stockholders' equity, March 31, 1997............................ $5,732,102
---------
---------
</TABLE>
RESULTS OF OPERATIONS
SIX MONTH COMPARISON
Net income was $68,002 for the six months ended March 31, 1997 compared to
$32,815 for the comparative period ending March 31, 1996. The increase in
earnings is primarily attributable to higher net interest income offset by
increased noninterest expense.
Net interest income increased $88 thousand in the six months ended March 31,
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 $93 thousand in 1997 compared to 1996.
Interest income from loans was $5 thousand higher.
The provision for loan losses remained stable for the first six months in
1997 compared to 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 $47 thousand or 12.5% for the first six
months of 1997 compared to the first six months of 1996, due primarily to an
increase in compensation and employee benefits expense, and other expenses,
offset by lower deposit insurance expense. Compensation and employee benefits
expense was $67 thousand higher in 1997, mainly due to the recording of
additional compensation expense in January related to the termination of an
employee. This additional expense amounted to $54 thousand. The "other"
noninterest expense category is $18 thousand higher in 1997, with $10 thousand
of that amount relating to fees paid to a consultant as management explores the
possibility of remodeling its existing facility in effort to make more efficient
use of its facility. These increases were offset by a $31 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 Funds Act of 1996.
Total income tax expense was $10 thousand for the six months ended March 31,
1997 compared to $4 thousand in 1996, reflecting the increase in earnings. The
effective tax rate was 12.8% for 1997 as compared to 10.8% in 1996.
9
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THREE MONTH COMPARISON
Net income was $9 thousand more in the quarter ended March 31, 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 $59 thousand higher in the three months ended March
31, 1997 compared to the same period in 1996. Interest income was $55 thousand
higher, primarily due to increases in interest income on investment securities
Interest expense was stable, declining by $4 thousand in the quarter ended
March 31, 1997 compared to the quarter ended March 31, 1996 as any increase in
the average rate paid on deposits was offset by the shift of deposits into
noninterest bearing accounts.
Noninterest expense was $53 thousand higher in the quarter ended March 31,
1997 compared to the same period in 1996. This was solely attributable to the
$54 thousand expense recorded upon the termination of an employee.
Income tax expense was $2 thousand more in the second quarter of fiscal 1997
compared to the second quarter or 1996, due to the increased earnings. The
marginal tax rate was 11.8% in 1997 compared to 8.7% 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 28, 1997 contributed substantially to the
Company's overall liquidity levels. The Federal Deposit Insurance Corporation
("FDIC"), the Company's and the Bank's primary regulator, requires the Bank
to maintain minimum levels of liquid assets. Currently, the required ratio is
5%. The Bank's liquidity ratios were 20.4% and 15.5% at March 31, 1997 and
September 30, 1996, respectively, well above the required minimum. Currently,
the proceeds from the stock offering are invested in overnight funds, as the
Company and the Bank explore other options.
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 $4.4 million from September 30, 1996 to March 31,
1997. Cash increased $1.6 million from September 30, 1995 to March 31, 1996.
During the first six 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 six 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 March 31, 1997, the Bank had outstanding commitments (including
undisbursed loan proceeds) of $457 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 March 31, 1997 totaled $15,037,000. Based upon the Bank's
experience, Management believes that a significant portion of such deposits will
remain with the Bank.
10
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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 March 31, 1997, the Bank's
capital percentages for tangible capital of 13.1%, tier 1 capital of 13.1%,
and risk-based capital of 26.5% significantly exceeded the regulatory
requirement for each category.
11
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Part 2. Other Information
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.
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. Report 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.
12
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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.
Dated: May 14, 1997 /s/ Merrill G. Norton
-----------------
Merrill G. Norton
President and Chief Executive Officer
Dated: May 14, 1997 /s/ Terry L. Stal
-------------
Terry L. Stal
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 75,470
<INT-BEARING-DEPOSITS> 5,135,061
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,597,604
<INVESTMENTS-CARRYING> 3,554,960
<INVESTMENTS-MARKET> 3,579,637
<LOANS> 27,545,483
<ALLOWANCE> 139,337
<TOTAL-ASSETS> 38,898,638
<DEPOSITS> 30,982,455
<SHORT-TERM> 2,000,000
<LIABILITIES-OTHER> 184,081
<LONG-TERM> 0
0
0
<COMMON> 3,968
<OTHER-SE> 5,728,134
<TOTAL-LIABILITIES-AND-EQUITY> 38,898,638
<INTEREST-LOAN> 1,140,182
<INTEREST-INVEST> 204,590
<INTEREST-OTHER> 25,888
<INTEREST-TOTAL> 1,370,660
<INTEREST-DEPOSIT> 836,237
<INTEREST-EXPENSE> 895,185
<INTEREST-INCOME-NET> 475,475
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 423,319
<INCOME-PRETAX> 78,002
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,002
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 300,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 143,349
<CHARGE-OFFS> 7,452
<RECOVERIES> 1,440
<ALLOWANCE-CLOSE> 139,337
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 139,337
</TABLE>
