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 June 30, 1998
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 __
---
370,306 shares of the registrant's common stock, par value
$0.01 per share, were outstanding at August 3, 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)
JUN. 30 SEP. 30
1998 1997
_______ _______
Assets
Cash and due from banks $ 43,242 $ 55,354
Interest-bearing demand deposits 2,046,546 1,082,543
Cash and cash equivalents 2,089,788 1,137,897
Interest-bearing time deposits 20,000 99,000
Investment securities:
Available for sale 3,099,605 3,115,652
Held to maturity 2,526,939 3,000,155
Total investment securities 5,626,544 6,115,807
Loans 33,876,074 29,563,296
Allowance for loan losses (155,569) (151,868)
Net loans 33,720,505 29,411,428
Premises and equipment 1,016,895 460,617
Federal Home Loan Bank stock 350,000 283,200
Other assets 373,390 308,126
Total assets $43,197,122 $37,816,075
Liabilities
Deposits:
Noninterest-bearing $ 657,044 $ 285,753
Interest-bearing 29,063,453 28,811,931
Total deposits 29,720,497 29,097,684
Federal Home Loan Bank borrowings 7,000,000 2,600,000
Other liabilities 305,878 163,259
Total liabilities 37,026,375 31,860,943
Stockholders' Equity
Preferred stock, $0.01 par value
Authorized and unissued-400,000 shares 0 0
Common stock, $0.01 par value
Authorized- 1,600,000 shares
Issued- 396,750
Outstanding- 370,036 and 367,479 shares 3,968 3,968
Paid-in-capital 3,625,874 3,614,922
Retained earnings 2,794,610 2,622,516
Less:
Net unrealized gain on securities
available for sale 12,555 6,437
Unearned employee stock ownership plan shares (266,260) (292,711)
Total stockholders' equity 6,170,747 5,955,132
Total liabilities and
stockholders' equity $43,197,122 $37,816,075
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Nine Months Ended
June 30,
------------------
1998 1997
____ ____
Interest Income
Loans receivable $1,929,214 $1,724,418
Investment securities 288,889 301,005
Deposits with financial Institutions 48,676 65,836
Total interest income 2,266,779 2,091,259
Interest Expense
Deposits 1,165,496 1,226,086
Federal Home Loan Bank Borrowings 166,590 88,422
Total interest expense 1,332,086 1,314,508
Net Interest Income 934,693 776,751
Provision for losses on loans 40,000 7,000
Net Interest Income After Provision for Losses on Loans 894,693 769,751
Noninterest Income
Loan Fees 24,164 25,063
Other Income 17,556 11,127
Total noninterest income 41,720 36,190
Noninterest Expense
Salaries and employee benefits 284,506 308,685
Net occupancy expenses 74,235 85,517
Data processing fees 44,208 34,764
Deposit Insurance Expense 13,647 10,011
Printing and office supplies 8,926 12,459
Legal and professional fees 94,725 51,094
Advertising and promotion 11,698 13,379
Director and committee fees 50,541 32,250
Other expenses 82,333 72,717
Total noninterest expense 664,819 620,876
Income Before Income Tax 271,594 185,065
Income tax expense 99,500 41,035
Net Income $172,094 $ 144,030
Per Share data:
Basic and diluted $0.47 N/A
Weighted average shares outstanding 368,400 N/A
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
June 30,
------------------
1998 1997
____ ____
Interest Income
Loans receivable $ 675,668 $ 584,236
Investment securities 94,149 96,415
Deposits with financial Institutions 19,435 39,948
Total interest income 789,252 720,599
Interest Expense
Deposits 389,453 389,849
Federal Home Loan Bank Borrowings 76,087 29,474
Total interest expense 465,540 419,323
Net Interest Income 323,712 301,276
Provision for losses on loans 15,000 5,000
Net Interest Income After Provision for Losses on Loans 308,712 296,276
Noninterest Income
Loan Fees 8,666 7,636
Other Income 5,471 708
Total noninterest income 14,137 8,344
Noninterest Expense
Salaries and employee benefits 109,986 79,252
Net occupancy expenses 25,628 30,290
Data processing fees 14,727 13,120
Deposit Insurance Expense 4,507 5,075
Printing and office supplies 2,407 4,400
Legal and professional fees 34,312 25,831
Advertising and promotion 6,074 5,664
Director and committee fees 32,291 13,350
Other expenses 27,473 20,575
Total noninterest expense 257,405 197,557
Income Before Income Tax 65,444 107,063
Income tax expense 41,000 31,035
Net Income $24,444 $ 76,028
Per Share data:
Basic and diluted $0.07 N/A
Weighted average shares outstanding 369,251 N/A
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
------------------
1998 1997
---- ----
Operating Activities
Net Income $172,094 $144,030
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 40,000 7,000
Investment securities accretion, net (5,536) (11,741)
Depreciation 27,711 27,711
Allocation of ESOP shares 37,401 16,401
Net change in:
Other assets (65,264) 4,635
Other liabilities 142,620 (225,350)
Net cash provided by operating activities 349,026 (37,314)
Investing Activities
Purchases of securities available for sale 0 (1,950,995)
Purchase of Deposits with Financial Institutions (20,000) 0
Proceeds from maturities of interest-bearing
time deposits 99,000 0
Proceeds from maturities and principal payments of
securities available for sale 25,665 1,077,225
Proceeds from maturities and principal payments of
securities held to maturity 475,253 1,145,665
Net change in loans (4,349,077)(1,645,402)
Purchase of premises and equipment (583,989) (3,664)
Purchase of Federal Home Loan Bank stock (66,800) (14,200)
Net cash used by investing activities (4,419,948)(1,391,371)
Financing Activities
Net change in deposits 622,813 (1,318,130)
Proceeds of Federal Home Loan Bank borrowings 4,400,000 0
Issuance of common stock 0 3,632,522
Purchase of ESOP Stock 0 (317,400)
Net cash provided by financing activities 5,022,813 1,996,992
Net Change in Cash and Cash Equivalents 951,891 568,307
Cash and Cash Equivalents, Beginning of Period 1,137,897 789,198
Cash and Cash Equivalents, End of Period $2,089,788 $1,357,505
Additional Cash Flows Information
Interest paid $1,166,130 $1,314,508
Income tax paid $34,531 $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 13,
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 June 30, 1998 and
September 30, 1997, the results of operations for the nine months ended
June 30, 1998 and 1997, the results of operations for the three months ended
June 30, 1998 and 1997, and the cash flows for the nine months ended
June 30, 1998 and 1997. 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 ended June 30, 1998 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 March 31, 1998, 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.
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 368,400 for the nine month period ending June 30, 1998 and 369,251
for the three month period ending June 30, 1998.
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 $5.4 million from September 30, 1997 to June 30,
1998 or 14.2% primarily reflecting an increase in net loans of $4.3 million,
an increase in cash and cash equilalents of $952,000 and in premises and
equipment of 556,000 somewhat offset by a decline in investment securities
of $489,000.
Cash and cash equivalents increased $952,000 from September 30, 1997 to
June 30, 1998 or 83.7%. This reflects the balance of the monies borrowed from
the FHLB that will be used to fund future loan growth and the construction of
the new branch facility.
The $489,000 or 8.0% decline in total investment securities from
September 30, 1997 to June 30, 1998 was the result of management's continued
emphasis on reinvesting proceeds from investment security pay-downs and
maturities into the Bank's loan portfolio. Interest-bearing time
deposits declined $79,000 or 79.8% for the same period.
The $4.3 million increase in net loans from September 30, 1997 to
June 30, 1998 was the result of an increase of $2.8 million or 11.2% in
one-to-four family residential mortgage loans, an increase of $296,000
or 61.7% in commercial loans and an increase of $626,000 or 39.9% in
consumer loans and an increase of $602,000 or 59.7% in nonfarm-nonresidential
real estate loans and an increase of $157,000 or 135.3% in construction and
land development real estate loans, somewhat offset by a decline of $71,000
or 86.6% in real estate loans secured by farmland. This is the result of
management's emphasis on the Bank's loan portfolio as previously mentioned.
Premises and equipment increased $556,000 or 120.8% from September 30,
1997 to June 30, 1998 which was a result of the purchase of real estate for
the construction of a branch facility which is expected to be open in the fall
of 1998, and energy saving expenditures and remodeling of the main bank
building.
Total liabilities increased by $5.2 million from September 30, 1997
to June 30, 1998 or 16.2%, primarily the result of an increase in FHLB
borrowing of $4.4 million. Total deposits increased $623,000 or 2.1% from
September 30, 1997 to June 30, 1998 which was the result of an increase in
non-interest-bearing deposits of $371,000 or 129.9% and an increase in
interest-bearing deposits of $252,000 or .9%.
The FHLB borrowings increase of $4.4 million or 169.2% from $2.6
million at September 30, 1997 to $7.0 million at June 30, 1998, reflected the
funding of loan portfolio growth and the purchase of real estate
for the new branch facility. FHLB borrowings increased because of favorable
rates relative to deposit rates.
The increase in other liabilities of $143,000 or 87.4% from September
30, 1997 to June 30, 1998 was the result of an increase in taxes payable of
$84,000 or 203.4%, an increase of $18,000 or 150.0% in accrued interest payable
on FHLB advances, and the addition of the management recognition plan expense
of $47,000, somewhat offset by a decline of $5,000 or 5.9% in deferred directors
fees payable.
Total stockholders' equity increased $216,000 from September 30,
1997 to June 30, 1998, the increase summarized as follows:
Stockholders' equity, September 30, 1997..........................$5,955,132
Paid in capital................................................... 10,592
Net income........................................................ 172,094
Net unrealized gain on securities available for sale.............. 6,118
ESOP shares allocated............................................. 26,451
----------
Stockholders' equity, June 30, 1998............................ $6,170,747
----------
----------
RESULTS OF OPERATIONS
NINE MONTH COMPARISON
Net income was $172,094 for the nine months ended June 30, 1998
compared to $144,030 for the nine months ended June 30, 1997. The
increase in earnings is primarily attributable to higher net interest income
somewhat offset by the increase in provision for loan losses and non-
interest expenses.
Net interest income after the provision for losses on loans increased
$125,000 or 16.2% in the nine months ended June 30, 1998 compared to the same
period in 1997. Total interest income increased $176,000 or 8.4% from $2.1
million for the nine months ended June 30, 1997 to $2.3 million for the
same period in 1998. The increase was primarily attributable to a $205,000
or 11.9% increase in interest income from loan receivables which increased
from $1.7 million for the nine months ended June 30, 1997 to $1.9 million for
the same period in 1998. Total interest expense increased $18,000 or 1.3%
for the nine months ended June 30, 1998 as compared to the same period in
1997. This increase was primarily attributable to a $78,000 or 88.4% increase
in interest expense related to the increase in FHLB borrowings offset by a
decline of $61,000 or 4.9% in interest expense on deposits which was
attributable to lower average cost of deposits.
The provision for loan losses was $40,000 for the nine months
ended June 30, 1998 compared to $7,000 for the same period in 1997. The increase
in 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 $6,000 or 15.3% for the nine month period
ended June 30, 1998 compared to the same period of 1997, due primarily to
a $6,000 increase in other income.
Total non-interest expense increased $44,000 or 7.1% for the nine months
ended June 30, 1998 compared to the same period of 1997, due primarily to an
an increase of $43,000 or 85.4% in legal and professional fees, an $18,000 or
56.7% increase in director and committee, a $9,000 or 27.2% increase in data
processing fees, an increase of $10,000 or 13.2% in other expenses, somewhat
offset by a $24,000 or 7.9% decrease in salaries and other employee benefits
and a $11,000 or 13.2% decrease in net occupancy expense.
Total income tax expense was $100,000 for the nine months ended
June 30, 1998 compared to $41,000 for the same period in 1997, reflecting
the increase in earnings. The effective tax rate was 36.6% for the 1998
quarter as compared to 22.2% for the 1997 quarter.
THREE MONTH COMPARISON
Net income declined $52,000 or 67.8% from $76,028 for the three months
ended June 30, 1997 compared to $24,444 for the three months ended June 30,
1998.
Net interest income after the provision for losses on loans increased
$12,000 or 4.2% in the three months ended June 30, 1998 compared to the same
period in 1997. The increase in net interest income was primarily the result
of an increase in total interest income of $69,000 or 9.5%. The increase in
total interest income reflects an increase in interest income from loan
receivables of $91,000 or 15.6% somewhat offset by a decline in interest on
deposits at financial institutions of $21,000 or 51.3%. The increase in
loan receivables is a direct result of management's emphasis of increasing
loans outstanding and funding them with proceeds from investment security
proceeds and FHLB borrowings.
Total interest expense increased $46,000 or 11.0% from $419,000 for the
three months ended June 30, 1997 to $466,000 for the same period in 1998.
The increase is primarily the result of a $47,000 or 158.1% increase in
interest on FHLB borrowings which reflects the increase in borrowed money.
The provision for loan losses was $15,000 for the three months
ended June 30, 1998 compared to $5,000 for the same period in 1997. 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 $6,000 or 69.4% for the three month period
ended June 30, 1998 compared to the same period of 1997, due primarily to
a $6,000 increase in other income.
Total non-interest expense increased $60,000 or 30.3% for the
three months ended June 30, 1998 compared to the same period of 1997, due
primarily to an increase in salaries and employee benefits of $31,000 or 38.8%
and an increase in director and committee fees of $19,000 or 141.9%, both
reflect the establishment of the management recognition plan approved by
the stockholders at the April, 1998 annual shareholders meeting. In addition,
legal and professional fees increased $8,000 or 32.8% and other expenses
increased $7,000 or 33.5%. These were somewhat offset by a decrease of $5,000
or 15.4% in net occupancy expenses.
Total income tax expense was $41,000 for the three months ended
June 30, 1998 compared to $31,000 for the same period in 1997. The effective
tax rate was 62.6% for the 1998 quarter as compared to 29.0% for the 1997
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 21.1% and 20.4% at
June 30, 1998 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 $952,000 from September 30, 1997 to June 30,
1998. During the first nine months of fiscal 1998, cash was primarily provided
by FHLB advances. Cash was primarily used in fiscal 1998 to fund loans and
to acquire the property for the new branch facility. Cash increased $568,000
from September 30, 1996 to June 30, 1997. The increase in cash during the
first nine months of fiscal 1997 resulted from the sale of common stock,
offset by cash used to fund loans and pay the special assessment
levied to recapitalize the Savings Association Insurance Fund ("SAIF").
As, of June 30, 1998, the Bank had outstanding commitments
(including undisbursed loan proceeds) of $661,000. 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 June 30, 1998 totaled $14.3 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 tier 1 leveraged capital requirement, a tier one
risk-based capital requirement, and a total risked based capital requirement.
As of June 30, 1998, the Bank's capital percentages for tier 1 leveraged
capital of 12.88%, tier 1 risked based capital of 23.47%, and total risk-
based capital of 24.15% which significantly exceeded the regulatory requirement
for each category.
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995
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.
ACCOUNTING CHANGES
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), which establishes standards for
reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. Comprehensive
income is defined as "the change in equity of a business enterprise during
a period from transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except those
resulting from investment by owners and distirbution to owners." The
comprehensive income and related cumluative equity impact of comprehensive
income items will be required to be disclosed prominently as part of the
notes to the financial statements. Only the impact of unrealizes gains
or losses on securities available for sale is expected to be disclosed
as an additional component of the Company's income under the requirements
of SFAS No. 130. This statement is effective for fiscal years beginning
after December 15, 1997. The Company will adopt SFAS No. 130 in fiscal
year 1999.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments. It
requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all periods
beginning after June 15, 1999. the Company will adopt Standard 133
during fiscal year 2001 and does not anticipate any impact to its financial
statements.
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 data 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
The Bank is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate except a noted below, are
believed by management to be immaterialto the financial condition of the Bank.
On December 30, 1992, Rosemary Frobose, a former officer of the Bank, filed a
lawsuit against the Bank in the United States District Court, Central District
of Illinois, (subsequently transferred to the Central District of Illinois,
Peoria Division) alleging that she was the victim of a retaliatory discharge
based on common law rights and the federal "whistleblower statute, " 12 USC S
1831j(a). The plaintiff seeks compensatory and punitive damages against the Bank
based upon her loss of income and employment for at least a 10-year period.
She has not sought a specific dollar amount in her complaint but at one point
made a demand of $900,000.00. Recently, the Seventh circuit reversed the
district court's entry of summary judgement in favor of the bank on
plaintiff's claims of retaliation under the whistleblower statute, a state
retailiatory discharge claim, and a quantum merit claim for directors' fees.
The Seventh Circuit affirmed summary judgement in favor of the Bank on
plaintiff's false light and defamation claims. See Frobose v. American
Savings & Loan Association of Danville, Case Number 97-1432 (Seventh Cir.,
July 31, 1998). The Bank's litigation counsel believes that the range of
potential loss after trial is between $250,000 and $1,000,000. In light of the
language of the Seventh Circuit opinion, it is the opinion of counsel that
there is a reasonable possibility of a plaintiff's verdict.
Item 2. Changes in Securities and Use of Proceeds
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: August 14, 1998 /s/ Merrill G. Norton
Merrill G. Norton
President and Chief
Executive Officer
Dated: August 14, 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 Nine Months Ended June 30, 1998
(unaudited)
1998
Basic: ----
Net income $ 172,094
Weighted average
number of shares 368,400
Basic earnings
per share $ 0.47
Diluted:
Net income $ 172,094
Weighted average
number of shares 368,400
Basic earnings
per share $ 0.47
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 nine months ended June 30, 1997, are not meaningful.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 43,242
<INT-BEARING-DEPOSITS> 2,046,546
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,099,605
<INVESTMENTS-CARRYING> 2,526,939
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<TOTAL-ASSETS> 43,197,122
<DEPOSITS> 29,720,497
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0
0
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