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 December 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.
- ----------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 37-1363755
- --------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
714 North Vermilion Street, Danville, Illinois 61832
- -----------------------------------------------------------------
(Address of principal executive offices)
(217) 442-0270
- -----------------------------------------------------------------
(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.
Yes X No __
---
368,801 shares of the registrant's common stock, par value
$0.01 per share, were outstanding at February 2, 1998.
Transitional Small Business Disclosure Format (check one)
Yes ___ NO X
---
<PAGE>
VERMILION BANCORP, INC.
TABLE OF CONTENTS
Part 1. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part 2. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
Part 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DEC. 31 SEP. 30
1997 1996
_______ _______
Assets
Cash and due from banks $ 44,752 $ 55,354
Interest-bearing demand deposits 1,095,725 1,082,543
Cash and cash equivalents 1,140,477 1,137,897
Interest-bearing time deposits 99,000 99,000
Investment securities:
Available for sale 3,115,922 3,115,652
Held to maturity 2,888,824 3,000,155
Total investment securities 6,004,746 6,115,807
Loans 30,182,597 29,563,296
Allowance for loan losses (136,153) (151,868)
Net loans 30,046,444 29,411,428
Premises and equipment 534,955 460,617
Federal Home Loan Bank stock 283,200 283,200
Other Assets 361,051 308,126
Other real estate owned 21,791 0
Total assets $38,491,664 $37,816,075
Liabilities
Deposits:
Noninterest-bearing $ 430,743 $ 285,753
Interest-bearing 28,776,251 28,811,931
Total deposits 29,206,994 29,097,684
Federal Home Loan Bank borrowings 3,100,000 2,600,000
Other liabilities 142,498 163,259
Total liabilities 32,449,492 31,860,943
Stockholders' Equity
Preferred stock, $0.01 par value
Authorized and unissued-400,000 shares 0 0
Common stock, $0.01par value
Authorized- 1,600,000 shares
Issued- 396,750
Outstanding- 368,537 and 367,4790 shares 3,968 3,968
Paid-in-capital 3,619,155 3,614,922
Retained earnings 2,689,724 2,622,516
Less:
Net unrealized gain on securities
available for sale 11,456 6,437
Unearned employee stock ownership plan shares (282,130) (292,711)
Total stockholders' equity 6,042,172 5,955,132
Total liabilities and
stockholders' equity $38,491,664 $37,816,075
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
December 31,
------------------
1997 1996
____ ____
Interest Income
Loans receivable $616,683 $562,819
Investment securities 97,880 100,491
Deposits with financial Institutions 10,355 10,001
Total interest income 724,918 673,311
Interest Expense
Deposits 392,725 421,732
Federal Home Loan Bank Borrowings 37,777 29,798
Total interest expense 430,502 451,530
Net Interest Income 294,416 221,781
Provision for losses on loans 10,000 0
Net Interest Income After Provision for Losses on Loans 284,416 221,781
Noninterest Income
Loan Fees 7,784 6,360
Other Income 4,165 2,167
Total noninterest income 11,949 8,527
Noninterst Expense
Salaries and employee benefits 88,652 87,113
Net occupancy expenses 25,510 31,492
Data processing fees 14,198 8,849
Deposit Insurance Expense 4,604 0
Printing and office supplies 2,252 7,036
Legal and professional fees 42,224 27,083
Advertising and promotion 2,887 6,069
Director and committee fees 8,750 10,050
Other expenses 23,582 8,626
Total noninterest expense 212,659 186,318
Income Before Income Tax 83,707 43,990
Income tax expense 16,500 6,000
Net Income $ 67,207 $ 37,990
Per Share data:
Basic and diluted $0.18 N/A
Weighted average shares outstanding 366,937 N/A
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
------------------
1997 1996
---- ----
Operating Activities
Net Income $ 67,207 $ 37,990
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 10,000 0
Investment securities amortization (accretion), net (4,605) (2,858)
Depreciation 9,237 9,237
Allocation of ESOP shares 14,814 0
Net change in:
Other assets (72,379) (122,913)
Other liabilities (18,079) (246,797)
Net cash used by operating activities 6,195 (325,341)
Investing Activities
Purchases of securities available for sale 0 0
Proceeds from maturities and principal payments of
securities available for sale 10,164 305,172
Proceeds from maturities and principal payments of
securities held to maturity 105,502 428,597
Net change in loans (645,016) (743,206)
Purchase of premises and equipment (83,574) (5,885)
Purchase of Federal Home Loan Bank stock 0 0
Net cash provided by investing activities (612,924) (15,322)
Financing Activities
Net change in deposits 109,309 829,030
Proceeds of Federal Home Loan Bank borrowings 500,000 0
Issuance of common stock 0 0
Purchase of ESOP stock 0 0
Net cash provided by financing activities 609,309 829,030
Net Change in Cash and Cash Equivalents 2,580 488,367
Cash and Cash Equivalents, Beginning of Period 1,137,897 789,198
Cash and Cash Equivalents, End of Period $1,140,477 $1,277,565
Additional Cash Flows Information
Interest paid $437,494 $462,730
Income tax paid $30,000 $27,000
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED 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. Accordingly, the data relating to the period
prior to March 25, 1997 represents the consolidated data of the Bank and its
subsidiary. The data subsequent to March 25, 1997 represents the consolidated
data of the Company and the Bank. 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 December 31, 1997 and
September 30, 1997, the results of operations for the three months ended
December 31, 1997 and 1996, and the cash flows for the three months ended
December 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 three months ended December 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 dated October 17, 1997
included in the Company's 1997 Annual Report to Shareholders.
3. EARNINGS PER SHARE
During the fiscal quarter ended December 31, 1997, the Company adopted
SFAS No. 128, "Earnings Per Share", issued by the Financial Accounting Standard
Board. SFAS No. 128 establishes standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock or
potential common stock. SFAS No. 128 simplifies previous standards for
computing EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires restatement of all prior
period EPS data presented. Management does not anticipate that this will have
a material impact on its EPS disclosures.
Net earnings per share are 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, less unreleased shares
of the Company's ESOP. The number of shares used to calculate earnings per
share were 368,169.
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 $676,000 from September 30, 1997 to December
31, 1997 or 1.8%. This increase was primarily funded by borrowings from the
Federal Home Loan Bank of Chicago ("FHLB").
The $111,000 decline or 1.8% in total investment securities from
September 30, 1997 to December 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 $635,000 increase in net loans from September 30, 1997 to
December 31, 1997 was the result of an increase of $523,000 or 2.1% in
one-to-four family residential mortgage loans, an increase of $184,000
or 38.3% in commercial loans and an increase of $117,000 or 7.5% in
consumer loans somewhat offset by a decrease of $104,000 or 9.6% in multi-
family real estate loans and a decrease of $73,000 or 7.2% in nonfarm-
nonresidential real estate loans. This is the result of management's emphasis
on the Bank's loan portfolio as previously mentioned.
The $109,000 increase in total deposits or .4% was mainly
attributable to capitalized interest during the quarter.
FHLB borrowings increased $500,000 or 19.2% from $2.6 million at
September 30, 1997 to 3.1 million at December 31, 1997. Additional FHLB
borrowings were used to fund loan portfolio growth.
Other liabilities remained stable for the period.
Total stockholders' equity increased $87,000 from September 30,
1997 to December 31, 1997, the increase summarized as follows:
Stockholders' equity, September 30, 1997..........................$5,955,132
Net income........................................................ 67,207
Change in unrealized gain/(loss) on securities Available for sale. 5,019
ESOP shares allocated............................................. 14,814
----------
Stockholders' equity, December 31,1997............................$6,042,172
----------
----------
RESULTS OF OPERATIONS
THREE MONTH COMPARISON
Net income was $67,207 for the three months ended December 31, 1997
compared to $37,990 for the three months ended December 31, 1996. The
increase in earnings is primarily attributable to higher net interest income.
Net interest income after the provision for losses on loans increased
$63,000 in the three months ended December 31, 1997 compared to the same
period in 1996. Total interest income increased $52,000 or 7.7% from $673,000
for the three months ended December 31, 1996 to $725,000 for the
same period in 1997. The increase was primarily attributable to a $54,000
increase in interest income from loan receivables which increased from
$563,000 for the three months ended December 31, 1996 to $617,000 for the
same period in 1997. Total interest expense declined $21,000 or 0.6% from
$452,000 to $431,000 for the comparable period in 1997. This decline was
attributable to a $29,000 decrease in interest expense on deposits from the
quarter ended December 31, 1996 compared to the same quarter in 1997. This
decline is attributable to lower average deposits. Average deposits for the
quarter ended December 31, 1997 were $2.01 million lower than for the same
period in 1996. The decrease in interest expense on deposits were somewhat
offset by an $8,000 increase in interest expense related to the increase in
FHLB borrowings used to fund its loan portfolio growth.
The provision for loan losses was $10 thousand for the three months
ended December 31, 1997 compared to $0 for the same period in 1996. The
provision corresponds with the growth in the loan portfolio. 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.
Non-interest income increased $3,000 or 40.1% for the three month period
ended December 31, 1997 compared to the same period of 1996, due primarily to
a $2,000 increase in deferred compensation income and a $1,000 increase in
loan fees.
Total noninterest expense increased $26,000 or 14.5% for the
three months ended December 31, 1997 compared to the same period of 1996, due
primarily to an increase of $15,000 in legal and professional fees related to
the additional reporting required for publicly traded companies and an
increase of $15,000 in other miscellaneous expenses.
Total income tax expense was $17,000 for the three months ended
December 31, 1997 compared to $6,000 for the same period in 1996, reflecting
the increase in earnings. The effective tax rate was 19.1% for the 1997
quarter as compared to 13.6% for the 1996 quarter.
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
adequate levels of liquid assets. The Bank's liquidity ratios were 19.7% and
20.4% at December 31, 1997 and September 30, 1997, respectively.
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 $3,000 from September 30, 1997 to December 31,
1997. During the first three months of fiscal 1998, cash was primarily provided
by FHLB advances. Cash was primarily used in fiscal 1998 to fund loans. Cash
increased $488,000 from September 30, 1996 to December 31, 1996. The increase
in cash during the first three months of fiscal 1997 resulted from net cash
being provided from deposits, offset by cash used to fund loans and pay the
special assessment levied to recapitalize the Savings Association Insurance
Fund ("SAIF").
As, of December 31, 1997, the Bank had outstanding commitments
(including undisbursed loan proceeds) of $777,000. 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 December 31, 1997 totaled $14.4 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 tier 1 leveraged capital requiremnet; a tier one
risk-based capital requirement, and a total risked based capital requirement.
As of December 31, 1997, the Bank's capital percentages were: tier 1 leveraged
capital, 13.56%; tier 1 risked based capital, 26.25%, and for total risk-
based capital, 26.94% all of which significantly exceeded the regulatory
requirements for each category.
In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic
conditions(both generally and more specifically in the markets in which the
Company operates), the impact of competition for the Company's customers from
other providers of financial services, the impact of government legislation
and regulation (which changes from time to time and over which the Company has
no control), and other risks detailed in this Form 10-Q and in the Company's
other Securities and Exchange Commission ("SEC") filings. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements,
to reflect events or circumstances that arise after the date hereof. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the SEC.
YEAR 2000 COMPLIANCE
The Company is in the final stages of identifying those computer applications
where program changes will be required in order for the applications to process
information accurately subsequent to 1999. Since the Company currently uses
an outside service bureau for a majority of its date processing, the Company is
dependent on the service bureau to be YEAR 2000 compliant. The serivce bureau
has not yet informed the Company that it is or will be YEAR 2000 compliant.
The Company also uses purchased software programs for a variety of functions,
such as for payroll and check processing. The majority of the companies
providing these software programs have already assured the Company that the
programs are YEAR 2000 comliant. The Company is also in the process of
surveying certain loan customers, primarily commercial loan customers, to
ensure that these customers' computer systems and operations are or will be
YEAR 2000 compliant. The total cost that the Company may incur for YEAR 2000
compliance is unknown, however, the cost is not expected to be material since
the Company does not use any proprietary software.
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Preceeds
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
27.0 Financial Data Sheet
_____________________________
* Incorporated herein by reference into this document from Form SB-2.
* Registration Statement, as amended, filed on March 28, 1997
Registration No. 333-17227.
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant had duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: February 11, 1998 /s/ Merrill G. Norton
Merrill G. Norton
President and Chief
Executive Officer
Dated: February 11, 1998 /s/ Terry L. Stal
Terry L. Stal
Chief Financial Officer
11.0 COMPUTATION OF EARNINGS PER SHARE
Statement Regarding Computation of Earnings Per Share for
the Three Months Ended December 31, 1997
(unaudited)
1997
Basic: ----
Net income $ 67,207
Weighted average
number of shares 368,169
Basic earnings
per share $ 0.18
Diluted:
Net income $ 67,207
Weighted average
number of shares 368,169
Basic earnings
per share $ 0.18
Note: Net earnings per share are computed based upon the
weighted average common equivalent shares outstanding for
periods subsequent to the Bank's conversion to a stock
savings bank on March 25, 1997. Net earnings per share for
the three months ended December 31, 1996, is not meaningful.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 44,752
<INT-BEARING-DEPOSITS> 1,095,725
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,115,922
<INVESTMENTS-CARRYING> 2,888,824
<INVESTMENTS-MARKET> 2,953,003
<LOANS> 30,182,597
<ALLOWANCE> 136,153
<TOTAL-ASSETS> 38,491,664
<DEPOSITS> 29,206,994
<SHORT-TERM> 3,100,000
<LIABILITIES-OTHER> 142,498
<LONG-TERM> 0
0
0
<COMMON> 3,968
<OTHER-SE> 6,038,204
<TOTAL-LIABILITIES-AND-EQUITY> 38,491,664
<INTEREST-LOAN> 616,683
<INTEREST-INVEST> 97,880
<INTEREST-OTHER> 10,355
<INTEREST-TOTAL> 724,918
<INTEREST-DEPOSIT> 392,725
<INTEREST-EXPENSE> 430,502
<INTEREST-INCOME-NET> 294,416
<LOAN-LOSSES> 10,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 212,659
<INCOME-PRETAX> 83,707
<INCOME-PRE-EXTRAORDINARY> 83,707
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,207
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> .083
<LOANS-NON> 0
<LOANS-PAST> 570,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 151,868
<CHARGE-OFFS> 27,297
<RECOVERIES> 1,582
<ALLOWANCE-CLOSE> 136,153
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<ALLOWANCE-UNALLOCATED> 136,153
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