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, 1999
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 __
---
357,075 shares of the registrant's common stock, par value
$0.01 per share, were outstanding at April 7, 1999.
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
MAR. 31 SEP. 30
1999 1998
(unaudited)
_______ _______
Assets
Cash and due from banks $ 90,757 $ 53,430
Interest-bearing demand deposits 3,269,460 1,688,212
Cash and cash equivalents 3,360,217 1,741,642
Interest-bearing time deposits 20,000 20,000
Investment securities:
Available for sale 1,248,027 2,784,515
Held to maturity 1,913,004 2,312,447
Total investment securities 3,161,031 5,096,962
Loans 35,551,654 34,380,142
Allowance for loan losses (168,308) (154,199)
Net loans 35,383,346 34,225,943
Premises and equipment 1,498,110 1,356,263
Federal Home Loan Bank stock 320,000 350,000
Income taxes receivable 175,000 0
Other Assets 315,761 425,628
Total assets $44,233,465 $43,216,438
Liabilities
Deposits:
Noninterest-bearing $ 870,419 $ 669,725
Interest-bearing 30,886,755 29,374,750
Total deposits 31,757,174 30,044,475
Federal Home Loan Bank borrowings 6,400,000 6,400,000
Other liabilities 143,902 450,681
Lawsuit settlement payable 500,000 0
Total liabilities 38,801,076 36,895,156
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 and outstanding- 396,750 3,968 3,968
Paid-in-capital 3,647,102 3,627,258
Retained earnings 2,668,769 2,866,968
Accumulated comprehensive income 5,369 24,826
Less:
Unearned employee stock
ownership plan shares-24,113 and 25,832 shares (242,455) (258,325)
Unearned incentive plan shares-11,333 & 0 shares (144,500) 56,587
Treasury Stock - 39,675 and 0 shares (505,864) 0
Total stockholders' equity 5,432,389 6,321,282
Total liabilities and
stockholders' equity $44,233,465 $43,216,438
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Six Months Ended
March 31,
------------------
1999 1998
____ ____
Interest Income
Loans receivable $1,438,419 $1,253,546
Investment securities 135,565 194,740
Deposits with financial Institutions 60,262 29,241
Total interest income 1,634,246 1,477,527
Interest Expense
Deposits 786,670 776,043
Federal Home Loan Bank Borrowings 166,358 90,503
Total interest expense 953,028 866,546
Net Interest Income 681,218 610,981
Provision for losses on loans 28,000 25,000
Net Interest Income After Provision for Losses on Loans 653,218 585,981
Noninterest Income
Loan Fees 28,919 15,498
Other Income 15,062 12,085
Gain on Sale of Securities 10,786 0
Gain on Sale of Real Estate 12,281 0
Total noninterest income 67,048 27,583
Noninterest Expense
Loss on settlement of lawsuit 500,000 0
Salaries and employee benefits 238,298 174,520
Net occupancy expenses 58,613 48,607
Data processing fees 30,363 29,481
Deposit Insurance Expense 8,855 9,140
Printing and office supplies 14,212 6,519
Legal and professional fees 79,869 60,413
Advertising and promotion 14,258 5,624
Director and committee fees 39,383 18,250
Other expenses 70,974 54,860
Total noninterest expense 1,054,825 407,414
Income(loss) Before Income Tax (334,559) 206,150
Income tax expense(benefit) (136,360) 58,500
Net Income(loss) $(198,199) $147,650
Per Share data:
Basic earnings per share $(0.54) $0.40
Diluted earnigs per share $(0.52) $0.40
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
------------------
1999 1998
____ ____
Interest Income
Loans receivable $ 719,511 $ 636,863
Investment securities 60,970 96,860
Deposits with financial Institutions 31,563 18,886
Total interest income 812,044 752,609
Interest Expense
Deposits 386,012 383,318
Federal Home Loan Bank Borrowings 82,265 52,726
Total interest expense 468,277 436,044
Net Interest Income 343,767 316,565
Provision for losses on loans 13,000 15,000
Net Interest Income After Provision for Losses on Loans 330,767 301,565
Noninterest Income
Loan Fees 14,188 7,714
Other Income 8,747 7,920
Gain on Sale of Securities 10,786 0
Gain on Sale of Real Estate 12,281 0
Total noninterest income 46,002 15,634
Noninterest Expense
Loss on settlement of lawsuit 500,000 0
Salaries and employee benefits 131,282 85,868
Net occupancy expenses 32,791 23,097
Data processing fees 19,486 15,283
Deposit Insurance Expense 4,572 4,536
Printing and office supplies 4,636 4,267
Legal and professional fees 21,745 18,189
Advertising and promotion 6,908 2,737
Director and committee fees 27,383 9,500
Other expenses 26,298 31,278
Total noninterest expense 775,101 194,755
Income(loss) Before Income Tax (398,332) 122,444
Income tax expense(benefit) (157,860) 42,000
Net Income(loss) $(240,472) $80,444
Per Share data:
Basic earnings per share $(0.68) $0.68
Diluted earnings per share $(0.65) $0.65
See notes to unaudited consolidated financial statements
<PAGE>
VERMILION BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
------------------
1999 1998
---- ----
Operating Activities
Net Income(loss) $(198,199) $147,650
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 28,000 25,000
Gain on sale of available for sale securities (10,786)
Investment securities amortization (accretion), net 223 (3,668)
Depreciation 24,474 18,474
Compensation expense related to ESOP & MRP 36,972 26,072
Net change in:
Income taxes receivable (175,000)
Other assets 140,699 (74,724)
Lawsuit settlement payable 500,000 0
Other liabilities (306,779) 62,017
Net cash provided by operating activities 39,604 200,821
Investing Activities
Purchase of Deposits with Financial Institutions 0 (20,000)
Proceeds from sales of securities available for sale 500,000 0
Proceeds from maturities and principal payments of
securities available for sale 996,762 14,996
Proceeds from maturities and principal payments of
securities held to maturity 399,443 308,706
Net change in loans (1,185,403)(1,993,310)
Purchase of premises and equipment (166,321) (122,533)
Purchase of Federal Home Loan Bank stock 30,000 0
Net cash provided (used) by investing activities 574,481 (1,812,141)
Financing Activities
Net change in deposits 1,712,699 41,495
Proceeds of Federal Home Loan Bank borrowings 0 2,400,000
Purchase of treasury stock (505,866) 0
Purchase of stock for incentive plan (202,343)
Net cash provided by financing activities 1,004,490 2,441,495
Net Change in Cash and Cash Equivalents 1,618,575 830,175
Cash and Cash Equivalents, Beginning of Period 1,741,642 1,137,897
Cash and Cash Equivalents, End of Period $3,360,217 $1,968,072
Additional Cash Flows Information
Interest paid $965,193 $776,481
Income tax paid $73,260 $30,000
See notes to unaudited consolidated financial statements
Vermilion Bancorp Inc. and Subsidiary
Consolidated Statement of Comprehensive Income
(unaudited)
Three Months Ended
March 31,
1999 1998
Net Income (Loss) $(240,472) $ 80,444
Other Comprehensive income, net of tax:
Unrealized gain(loss) on Securities
available for sale:
Unrealized holding gains(loss) arising
during the period, net of
income tax (4,691) and (68) (7,434) (108)
Less: Reclassification adjustment
for gains included in net income,
net of income tax 6,613 0
Comprehensive Income(loss) $(241,293) $ 80,336
Six Months Ended
March 31,
1999 1998
Net Income (Loss) $(198,199) $ 147,650
Other Comprehensive income, net of tax:
Unrealized gain(loss) on Securities
available for sale:
Unrealized holding gains(loss) arising
during the period, net of
income tax ((4,691) and (68) (12,844) 4,911
Less: Reclassification adjustment
for gains included in net income,
net of income tax 6,613 0
Comprehensive Income(loss) $(204,430) $ 152,561
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. 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, 1999 and
September 30, 1998, the results of operations for the six months ended
March 31, 1999 and 1998, the results of operations for the three months ended
March 31, 1999 and 1998, and the cash flows for the six months ended
March 31, 1999 and 1998, the consolidated statement of comprehensive income
for the six months ended March 31, 1999 and 1998 and the consolidated
statement of comprehensive income for the three months ended March 31, 1999
and 1998. These results have been determined on the
basis of generally accepted accounting principles. The results of operations
for the six months ended March 31, 1999 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 20, 1998
included in the Company's 1998 Annual Report to Shareholders.
3. EARNINGS PER SHARE
Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the three months ended March 31, 1999 and 1998 and
for the six months ended March 31, 1999 and 1998. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the company.
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.
FINANCIAL CONDITION
Total assets increased $1.0 million from September 30, 1998 to March 31,
1999 or 2.4% reflecting an increase in net loans of $1.2 million and an increase
in interest bearing demand deposits of $1.6 million offset by a $1.9 million
reduction in investment securities.
Cash and cash equivalents increased $1.6 million from September 30, 1998
to March 31, 1999 or 92.9%. This reflects the increase in total deposits of $1.7
million.
The $1.9 million or 38.0% decline in total investment securities from
September 30, 1998 to March 31, 1999 was the result of the sale of investment
securities to fund the stock repurchase that was done in February, 1999 and
management's continued emphasis on reinvesting proceeds from investment
securities paydowns and maturities in the Bank's loan portfolio.
The $1.2 million increase in net loans from September 30, 1998 to
March 31, 1999 was primarily the result of an increase of $1.0 million or 3.4%
in mortgage loans.
Premises and equipment increased $142,000 or 10.5% from September 30,
1998 to March 31, 1999 which reflects the final payment on the construction
of the new branch facility.
Total deposits increased $1.7 million or 5.7% from September 30, 1998 to
March 31, 1999 which reflects the new deposits being generated at the new
branch facility and the accumulation of interest on existing deposit
accounts.
Other liabilities decreased $307,000 or 68.1% from September 30, 1998
to March 31, 1999 primarily as a result of taxes payable and the disposal of
OREO.
American Savings Bank settled the lawsuit by a former officer of the
bank. The settlement was reached during the trial which took place during
April, 1999. The lawsuit was discussed in the legal section of the 10KSB
filed for September 30, 1998 and previous SEC filings. The settlement of
$500,000 is reflected in the following line items of the balance sheet
statements: Lawsuit settlement payable - $500,000; Income taxes receivable
$175,000; and a net decrease in Retained earnings of $325,000. Net
income, before the lawsuit settlement expense, was $127,000 for the six month
period ending March 31, 1999.
Total stockholders' equity decreased $889,000 from September 30,
1998 to March 31, 1999, the increase summarized as follows:
Stockholders' equity, September 30, 1998..........................$6,321,282
Net income........................................................ (198,199)
Change in comprehensive income ................................... (19,457)
ESOP shares allocated and MRP compensation ....................... 36,972
Treasury Stock and MRP Shares repurchased ........................ (708,209)
----------
Stockholders' equity, March 31,1998............................ $5,432,389
----------
----------
RESULTS OF OPERATIONS
SIX MONTH COMPARISON
Net income(loss) was $(198,000) for the six months ended March 31, 1999
compared to $148,000 for the six months ended March 31, 1998. The
decrease in earnings is primarily attributable to the lawsuit settlement which
had a net effect of decreasing income $325,000.
Net interest income after the provision for losses on loans increased
$67,000 in the six months ended March 31, 1999 compared to the same
period in 1998. Total interest income increased $157,000 or 10.6% from $1.5
million for the six months ended March 31, 1998 to $1.6 million for the
same period in 1999. The increase was primarily attributable to a $185,000
or 14.7% increase in interest income from loan receivables which increased
from $1.3 million for the six months ended March 31, 1998 to $1.4 million for
the same period in 1999. Total interest expense increased $86,000 or 10.0% from
$867,000 to $953,000 for the comparable period in 1999. This increase was
attributable to a $76,000 increase in interest expense on FHLB borrowings from
the quarter ended March 31, 1998 compared to the same quarter in 1999 which was
attributable to a higher average of borrowings outstanding.
The provision for loan losses was $28,000 for the six months
ended March 31, 1999 compared to $25,000 for the same period in 1998. 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 $39,000 or 143.1% for the six month period
ended March 31, 1999 compared to the same period of 1998, primarily due to
a $13,000 increase in loan fees, an $11,000 gain on the sale of available for
sale securities, and a $12,000 gain on the sale of real estate.
Total non-interest expense increased $647,000 or 158.9% for the six months
ended March 31, 1999 compared to the same period of 1998, due primarily to
the lawsuit settlement of $500,000 and an increase in salaries and employee
benefits of $64,000 or 36.5%, and a $10,000 increase in net occupancy expense
both of which reflect the opening of the new branch facility. Legal and
professional fees increased $19,000 or 32.2%. Director and committee fees
increased $21,000 or 115.8% which reflects the payment of director's fees
paid by Vermilion Bancorp, Inc. which had not been in effect prior to May, 1998.
Total income tax expense reflects a benefit of $136,000 for the six
months ended March 31, 1999 compared to a $59,000 expense for the same period
in 1998, reflecting the lawsuit settlement. The effective tax rate was 40.8%
for the 1999 period as compared to 28.4% for the 1998 period.
THREE MONTH COMPARISON
Net income(loss) decreased $321,000 or 398.9% from $80,000 for the
three months ended March 31, 1998 compared to a loss of 240,000 for the
three months ended March 31, 1999. The decrease in earnings is primarily
attributable to the lawsuit settlement which had a net effect of decreasing
income $325,000.
Net interest income after the provision for losses on loans increased
$29,000 or 9.7% in the three months ended March 31, 1999 compared to the same
period in 1998. The increase in net interest income was primarily the result
of an increase in total interest income of $59,000 or 7.9%. The increase in
total interest income reflects an increase in interest income from loan
receivables of $83,000 or 13.0% and an increase in interest on deposits at
financial institutions of $13,000 or 67.1%. These increases were offset by a
decline in investment security interest of $36,000 or 37.1%. The increase in
loan receivables and decline in investment securities interest 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 $32,000 or 7.4% from $436,000 for the
three months ended March 31, 1998 to $468,000 for the same period in 1999.
The increase is primarily the result of a $30,000 or 56.0% increase in
interest expense on FHLB borrowings which reflects the increase in borrowed
money.
The provision for loan losses was $13,000 for the three months
ended March 31, 1999 compared to $15,000 for the same period in 1998. 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 $30,000 or 194.2% for the three month period
ended March 31, 1999 compared to the same period of 1998, due to a $6,000
increase in loan fees, a $11,000 gain on the sale of securities available
for sale and a $12,000 gain on the sale of real estate.
Total non-interest expense increased $580,000 or 298.0% for the
three months ended March 31, 1999 compared to the same period of 1998, due
primarily to the lawsuit settlement of $500,000 and an increase of $45,000
in salary and employee benefits which reflects the opening of the new branch
facility. Directors and committee fees increased by $18,000 or 188.2% which
reflects the payment of director's fees paid by Vermilion Bancorp, Inc.
which had not been in effect prior to May, 1998.
Total income tax expense was a benefit of $158,000 for the three
months ended March 31, 1999 compared to $42,000 for the same period in 1998,
reflecting the lawsuit settlement. The effective tax rate was 39.6% for
the 1999 quarter as compared to 34.3% for the 1998 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 17.1% and 18.8% at
March 31, 1999 and September 30, 1998, 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 $1.6 million from September 30, 1998 to March 31,
1999. During the first six months of fiscal 1998, cash was primarily provided
by proceeds from investment securities and increases in deposits. Cash was
primarily used in fiscal 1999 to fund loans and repurchase stock. Cash
increased $830,000 from September 30, 1997 to March 31, 1998. The increase
in cash during the first six months of fiscal 1998 resulted from FHLB borrowings
offset by cash used to fund loans.
As, of March 31, 1999, the Bank had outstanding commitments
(including undisbursed loan proceeds) of $998,000. 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 March 31, 1999 totaled $15.1 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 March 31, 1999, the Bank's capital percentages for tier 1 leveraged
capital of 12.21%, tier 1 risked based capital of 22.41%, and total risk-
based capital of 23.12% 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 Form10-QSB 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.
Current Accounting Issues
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement requires companies to record derivatives on the
balance sheet at their fair market value. Statement No. 133 also acknowledges
that the method for recording a gain or loss depends on the use of the
derivative.
The new Statement applies to all entities. If hedge accounting is elected
by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.
Statement No. 133 amends Statement No. 52 and supercedes Statement No. 80,
105 and 119. Statement No. 107 is amended to include the disclosure
provisions about the concentrations of credit risk from Statement No. 105.
Several Emerging Issues Task Force consensuses are also changed or modified
by the provisions of Statement No. 133.
Statement No. 133 will be effective for all the fiscal years beginning after
June 15, 1999. The Statment may not be applied retroactively to financial
statements of prior periods. The adoption of the statement will have no
material impact on the Corporation's financial condition or result of
operations.
Accounting for Mortgage-Backed Securities Retained After the Securitization
of Motgage Loans Held for Sale by a Mortgage Banking Enterprise
Also in 1998, the FASB issued Statement No. 134, "Accounting for Mortgage-
Back Securities Retained After the Securitization of Motgage Loans Held
for Sale by a Mortgage Banking Enterprise." It establishes accounting standards
for certain activities of mortgage banking enterprises and for other
enterprises with similar mortgage operations. This Statement amends Statement
No. 65.
Statement No. 65, as previosly amended by the Statement No. 115 and 125,
required a mortgage banking enterprise to classify a mortgage-backed security
as a trading security following the securitization of the mortgage loan held
for sale. This Statement further amends Statement No. 65 to require that
after the securitization of the mortgage loans held for sale, an entity engaged
in mortgage banking activities must classify the resulting mortgage-backed
security or other retained interests based on the entity's ability and intent
to sell or hold those investments.
The determination of the appropriate classification for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise
now conforms to Statement No. 115. The only new requirement is that if an
entity has sales commitment in place, the security must be classified into
trading.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. On the date of the Statement is initially applied, an entity
may classify mortgage-backed securities and other beneficial interests
retained after the securitization of mortgage loans held for sale from the
trading category, except for those with sales commitments in place. those
securities and other interests shall be classified based on the entity's
present ability and intent to hold the investments. The adoption of this
Statement will have no material impact on the Company's financial condition
and results of operations.
Year 2000 Compliance
The Year 2000 compliance issue exists because many computer systems and
applications currently use two digit fields to designate a year. As the
century date change occurs, date sensitive systems may either fail or not
operate properly unless the underlying programs are modified or replaced.
The Bank's lending and deposit activities, like those of most financial
institutions, depend significantly upon computer systems to process and
record transactions. The Company is aware of the potential Year 2000
problems that may affect the operating systems that control our computers as
well as those of our third-party data service providers that maintain many of
our records. In 1997, the Bank began the process of identifying Year 2000
related problems that may affect the Bank's computer systems. A task force of
Bank officers was established to address the issues related to these problems.
Outside consultants have and will be utilized when required to complete
this project.
The task force analyzed the Bank's operations and both identified those
functions that would be affected by Year 2000 issues and determined which of
these functions were mission critical (i.e. vital to the day-to-day operations
of the Bank). A time table was established for completion of the various
sections of the project.
The Bank is working with the companies that supply or service the Bank's
computer systems that rely on computers to identify and remedy any Year 2000
related systems. The Board of Directors is monitoring the Bank's progress
in addressing Year 2000 issues.
The Bank's contract with its data service provider ends in October, 1999.
The Bank has analyzed the various factors involved and has made the decision
to transfer to a new data processor. This has delayed the Bank's ability
to test this area for Year 2000 compliance. Pending the completion of
contract negotiation with the new data service provider, the Bank should begin
testing on the new system by the end of July, 1999. The Bank did complete proxy
testing during March 1999 on the new data processor's system with positve
results in all areas tested.
Inventory and testing of the Bank's computer equipment is complete. No
new equipment purchases are anticipated because of the Year 2000 issue.
The direct expense to date (other than officer's salaries involved in
the project) have been less than $10,000.
Although the Company believes it is taking the necessary steps to
address the Year 2000 compliance issue, no assurances can be given that some
problems will not occur or that we will not incur significant additional
expenses in future periods. In the event that the Bank incurs substantial
expenses to make the Bank's current systems, programs and equipment Year
2000 compliant, the Company's net income, and financial condition could be
adversely affected.
Because the Bank's loan portfolio to individual borrowers is
diversified and its market area does not depend significantly upon one
employer or industry, the Bank does not expect any Year 2000 related
difficulties to significantly affect the Company's net earnings or cash
flow.
The Bank has developed a contingency plan to deal with Year 2000
related issues. This program provides for dealing with situations
that might occur that are both related to the Bank's operations (e.g.
computer systems or equipment, liquidity) and those beyond the Bank's
control (e,g. power failure, phone/communication line failure). The
plan will include methods to deal with these situations and continue
to service the Bank's customers despite Year 2000 problems arising.
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
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, alleging that she
was the victim of a retaliatory discharge based on common law
rights and the federal "whistleblower statute," 12
USC ' 1831j(a). The plaintiff seeks compensatory and
punitive damages against Amerian Savings Bank of Danville, f/k/a
American Savings and Loan Association based upon her loss
of income and employment for at least a ten-year
period. Although she did seek a specific dollar amount in her
Complaint, at one point she did make a demand of $900,000.
Trial on this lawsuit commenced in April of 1999. During the
trial a settlement was reached which resulted in payment by the
Bank of $500,000. This agreement is reflected the financial
reports of this filing.
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
a) An Annual Meeting of Stockholders("Annual Meeting") was
held on January 21, 1999.
b) Not applicable.
c) Two matters were voted upon at the Annual Meeting. The
stockholders approved matters brought before the Annual Meeting. The matters
voted upon together with the applicable voting results were as follows:
1) Proposal to elect two directors for a three year
term or until their successors are elected and qualified-Merrill G. Norton
received votes for 247,570; against 5,000; abstain 0; and not voted 0; and
Carl W. Busby received votes for 247,570; against 5,000; Abstained 0; and
not voted 0.
2) Proposal to ratify the appointment by the Board of
Directors of Olive LLP, as the Company's independent auditors for fiscal
year ending September 30, 1999; received votes for 247,445; against 100;
abstain 5,025; and not voted 0.
d) 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
8-K dated February 22, 1999 - Announces repurchase of shares
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: May 14, 1999 /s/ Merrill G. Norton
Merrill G. Norton
President and Chief
Executive Officer
Dated: May 14, 1999 /s/ Terry L. Stal
Terry L. Stal
Chief Financial Officer
Statement Regarding Computation of Earnings Per Share
Three Months Ended
March 31, 1999
(unaudited)
Weighted
Income Average Per-Share
(Loss) Shares Amount
Basic earnings Per Share
Income/(loss) available to common shareholders $(240,472) 358,175 $(0.67)
Effect of Dilutive Securities
MRP 11,531
Diluted Earnings per Share
Income/(loss) available to common shareholders
and assumed conversions $(240,472) 369,706 $(0.65)
Three Months Ended
March 31, 1998
(unaudited)
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings Per Share
Income available to common Shareholders $ 80,444 368,638 $0.22
Effect of Dilutive Securities
MRP 0
Duluted Earnings Per Share
Income available to common Shareholders
and assumed conversions $ 80,444 368,638 $0.22
Six Months Ended
March 31, 1999
(unaudited)
Weighted
Income Average Per-Share
(Loss) Shares Amount
Basic earnings Per Share
Income/(loss) available to common shareholders $(198,199) 366,707 $(0.54)
Effect of Dilutive Securities
MRP 11,827
Diluted Earnings per Share
Income/(loss) available to common shareholders
and assumed conversions $(198,199) 378,534 $(0.52)
Six Months Ended
March 31, 1998
(unaudited)
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings Per Share
Income available to common Shareholders $147,650 369,049 $0.40
Effect of Dilutive Securities
MRP 0
Duluted Earnings Per Share
Income available to common Shareholders
and assumed conversions $147,650 369,049 $0.40
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