SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file No. 0-21347
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ILLINOIS COMMUNITY BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 37-1361560
- --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
210 E. Fayette, Effingham, Illinois 62401
- ------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (217) 347-7127
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
---------- -----------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at May 10, 1997
- ----------------------------- ----------------------------------
Common Stock, Par Value $0.01 502,550
ILLINOIS COMMUNITY BANCORP, INC.
Index to Form 10-QSB
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
- Consolidated Statements of Financial Condition 1
- Consolidated Statements of Income 2
- Consolidated Statement of Stockholders' Equity 3
- Consolidated Statement of Cash Flows 4
- Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
ILLINOIS COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31 June 30
--------- -------
1997 1996
--------- -------
Unaudited Audited
--------- -------
ASSETS (1,000's)
-----------------------------
Cash and Cash Equivalents:
Cash $ 1,422 $ 267
Interest bearing deposits 612 140
------- -------
Total Cash and Cash Equivalents 2,034 407
Securities available for sale, amortized cost of $7,598 and $7,664
at March 31, 1997 and June 30, 1996, respectively 7,904 7,881
Securities held to maturity, estimated market value of $528 and
$299 at March 31, 1997 and June 30, 1996, respectively 528 299
Loans receivable, net 42,739 36,069
Accrued interest receivable 413 309
Premises and equipment, net 2,552 1,262
Real estate held for sale 45 49
Prepaid income taxes 59 0
Other assets 184 145
------- -------
Total Assets $56,458 $46,421
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $42,478 $36,548
Advances from Federal Home Loan Bank 6,008 1,608
Other borrowings 316 356
Advances from borrowers for taxes and insurance 59 91
Accrued interest payable 141 103
Accrued income taxes 0 41
Deferred income taxes 54 16
Other liabilities 259 356
------- -------
Total Liabilities 49,315 39,119
------- -------
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.01 par value; authorized 4,000,000 shares
502,550 shares issued and outstanding 5 503
Paid-in capital 4,684 4,066
Retained earnings 2,581 2,947
Unrealized gain on securities held available for sale 199 142
Unearned employee stock ownership plan (326) (356)
------- -------
Total Stockholders' Equity 7,143 7,302
------- -------
Total Liabilities and Stockholders' Equity $56,458 $46,421
======= =======
1
ILLINOIS COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
------------------ ------------------
1997 1996 1997 1996
--------- -------- -------- --------
(1,000's)
--------------------------------------------------
Interest income:
Interest on loans $ 835 $ 645 $ 2,437 $ 1,662
Interest and dividends on securities 126 170 369 565
-------- -------- -------- --------
Total interest income 961 815 2,806 2,227
-------- -------- -------- --------
Interest expense:
Interest on deposits 467 410 1,380 1,227
Interest on Federal Home
Loan Bank advances 92 0 218 0
Interest on other borrowings 6 8 21 16
-------- -------- -------- --------
Total interest expense 565 418 1,619 1,243
-------- -------- -------- --------
Net interest income 396 397 1,187 984
Provision for loan losses 22 15 119 15
-------- -------- -------- --------
Net interest income after
provision for loan losses 374 382 1,068 969
-------- -------- -------- --------
Non-interest income:
Other fees 27 9 76 21
Other 13 0 34 25
-------- -------- -------- --------
Total other income 40 9 110 46
-------- -------- -------- --------
Non-interest expense:
Compensation and employee benefits 252 106 624 307
Occupancy and equipment 69 30 152 74
Data processing 28 22 75 59
Audit, legal and other professional 51 5 125 17
SAIF deposit insurance 5 22 50 65
SAIF assessment 0 0 211 0
Advertising 11 10 29 31
Other 80 49 169 121
-------- -------- -------- --------
496 244 1,435 674
-------- -------- -------- --------
Income (loss) before income taxes (82) 147 (257) 341
Provision for (benefit from)
income taxes (29) 44 (86) 103
-------- -------- -------- --------
Net Income (Loss) ($ 53) $ 103 ($ 171) $ 238
======== ======== ======== ========
Earnings (Loss) Per Share: ($ 0.11) $ 0.22 ($ .37) $ 0.52
======== ======== ======== ========
2
ILLINOIS COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Unrealized
Gain
Unearned (Loss) on
Employee Securities
Stock Available
Common Paid-in Retained Ownership For
Stock Capital Earnings Plan Sale, Net Total
------- ------- -------- --------- ---------- ----------
(1,000's)
----------------------------------------------------------------
Balance at June 30, 1996,
bank only $503 $4,066 $2,947 $ (356) $ 142 $7,302
Net income (loss) 0 17 (188) 0 0 ( 171)
Dividends paid 0 0 (75) 0 0 (75)
Change in unrealized gain on
securities available for sale 0 0 0 0 57 57
Holding company formation and
stock exchange with bank (498) 601 (103) 0 0 0
Shares released for allocation 0 0 0 30 0 30
---- ------ ------ ----- ------ ------
Balance at March 31, 1997 $ 5 $4,684 $2,581 $ (326) $ 199 $7,143
==== ====== ====== ====== ====== ======
3
ILLINOIS COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
------------------ ------------------
1997 1996 1997 1996
------- --------- -------- --------
(1,000's)
--------------------------------------------
Operating activities:
Net income (loss) $ (53) $ 103 $ (171) $ 238
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for depreciation 36 8 69 23
Provision for loan losses 22 15 119 15
Net amortization and accretion of securities 14 1 17 4
Decrease (increase) in accrued interest receivable (65) 51 (104) 6
Decrease (increase) in other assets (4) (61) (39) 75
Increase (decrease) in accrued interest payable 0 (9) 38 (29)
Increase (decrease) in income taxes (29) 14 (100) 71
Increase (decrease) in deferred income taxes 0 (7) 6 58
Increase (decrease) in other liabilities 52 (39) (97) (74)
Dividends on investments (38) (40) (111) (62)
ESOP benefit expense 10 12 30 12
------ ------- ------- --------
Net cash provided by operating activities (55) 48 (343) 337
------ ------- ------- --------
Investing activities:
Proceeds from securities held to maturity
and certificates of deposit 0 0 0 3,122
Proceeds from matured securities available for sale 650 799 2,087 799
Purchase of securities held to maturity (130) (299) (229) (1,374)
Purchase of securities available for sale (926) (1,066) (2,192) (1,075)
Repayment of mortgage-backed securities 117 162 265 431
Increase in loans receivable (1,882) (1,880) (7,868) (8,179)
Loans sold 489 0 1,079 0
Loans purchased 0 0 0 (500)
Decrease (increase) in other repossessed property 4 0 4 0
Purchase of premises and equipment (483) (96) (1,359) (681)
------ ------- ------- --------
Net cash used in investing activities (2,161) (2,380) (8,213) (7,457)
------ ------- ------- --------
4
ILLINOIS COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31
------------------ ------------------
1997 1996 1997 1996
-------- -------- ------- --------
(1,000's)
-----------------------------------------
Financing activities:
Net increase (decrease) in deposits $2,319 $ 1,465 $5,930 $2,660
Advances from Federal Home Loan Bank 250 0 4,400 0
Increase (decrease) in advances from borrowers
for taxes and insurance 21 8 (32) (207)
Dividends paid (75) 0 (75) 0
Proceeds from Employee Stock Ownership Plan note 0 0 0 402
Repayment Employee Stock Ownership Plan loan (20) (10) (40) (30)
Proceeds from issuance of common stock 0 0 0 4,563
Purchase of employee stock ownership plan stock 0 0 0 (402)
------ ------ ------- ------
Net cash provided by financing activities 2,495 1,463 10,183 6,986
------ ------ ------- ------
Increase (decrease) in cash and cash equivalents 279 (869) 1,627 (134)
Cash and cash equivalents at beginning of period 1,755 2,325 407 1,590
------ ------ ------- ------
Cash and cash equivalents at end of period $2,034 $1,456 $ 2,034 $1,456
====== ====== ======= ======
Supplemental Disclosures:
Additional Cash Flows Information:
Cash paid for:
Interest on deposits, advances and
other borrowings $ 592 $ 428 $1,608 $1,273
Income taxes:
Federal $ 0 $ 22 $ 0 ($ 11)
Schedule of Noncash investing activities:
Unrealized gain on securities available for sale ($ 7) ($ 25) $ 89 $ 95
Deferred tax on unrealized gain on
securities available for sale ($ 2) ($ 9) $ 32 $ 33
Investment and mortgage-backed securities
transfer to available for sale $ 0 $ 0 $ 0 $6,364
5
ILLINOIS COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Illinois
Community Bancorp, Inc. (the Company) and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements are
unaudited and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Illinois Guarantee Bank, FSB
(the Bank)'s annual report on Form 10-KSB for the year ended June 30, 1996.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations, and cash flows
in conformity with generally accepted accounting principles. In the opinion
of management of the Company the unaudited consolidated financial statements
reflect all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position of the Company at March
31, 1997, and the results of its operations and cash flows for the three
months and nine months ended March 31, 1997 and 1996.
Information for the year ended June 30, 1996 and prior periods is for the
Bank. Information for the nine months ended March 31, 1997 is for the
Company and its subsidiaries. Operating results for the nine months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1997.
(2) Stock Conversion
----------------
On September 28, 1995, the Bank converted from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank through the
sale and issuance of 502,550 shares of $1 par value common stock at a price
of $10 per share, resulting in gross proceeds of $5,025,500. After reducing
gross proceeds for conversion costs of $462,500, net proceeds totaled
$4,563,000.
In conjunction with the conversion, an employee stock ownership plan
established by the Bank borrowed $402,040 from a third party to purchase
40,204 shares of common stock issued by the Bank. As of September 30, 1996,
the outstanding loan balance is recorded as a liability and, a corresponding
amount is reflected as a reduction to stockholders' equity.
(3) Bank Holding Company
--------------------
On July 23, 1996, the shareholders' of Illinois Guarantee Savings Bank
approved the formation of a single bank holding company, Illinois Community
Bancorp, Inc. The reorganization was consummated on September 27, 1996. Also
approved on September 27, 1996 was the Management Recognition Plan of 4%
outstanding stock and Stock Option Plan of up to 10% of outstanding stock.
In the first quarter of calendar year 1997, the Company formed two
subsidiary corporations to conduct business as a leasing corporation and a
financial services corporation. The Company anticipates that these
corporations will not have a material effect on the consolidated operations
of the Company during the 1997 fiscal year.
(4) Bank Charter
------------
On April 21, 1997, Illinois Guarantee Savings Bank changed its name to
Illinois Community Bank and its charter from a federal savings and loan
association to an Illinois-chartered commercial bank. Also on this date the
Company became a Bank Holding Company regulated by the Board of Governors of
the Federal Reserve, upon its conversion from a Thrift Holding Company.
6
ILLINOIS COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Earnings Per Share
------------------
Only ESOP shares that are committed to be released are considered
outstanding for earnings per share calculations. Earnings per share have
been calculated based on 469,069 shares for the three months ended March 31,
1997 and 468,004 for the nine months ended March 31, 1997.
(6) Employee Stock Ownership Plan
-----------------------------
In connection with the conversion to the stock form of ownership, the Board
of Directors established an employee stock ownership plan (ESOP) for the
exclusive benefit of participating employees. Employees age 21 or older who
have completed one year of service are eligible to participate. Upon the
issuance of the common stock, the ESOP acquired $40,204 shares of $0.01 par
value common stock at the subscription price of $10.00 per share. The Bank
makes contributions to the ESOP equal to the ESOP's debt service less
dividends received by the ESOP. All dividends received by the ESOP are used
to pay debt service. The ESOP shares initially were pledged as collateral
for its debt. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on the proportion of debt service paid
in the year. The Bank accounts for its ESOP in accordance with Statement of
Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and the
shares pledged as collateral are reported as unearned ESOP shares in the
consolidated balance sheets. As shares are released from collateral, the
Bank reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings-per-share
calculations. Dividends on allocated shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of debt or accrued interest. ESOP compensation expense was $30,000
and $20,000 for the nine months ended March 31, 1997 and 1996, respectively.
The ESOP shares at March 31, 1997 were as follows:
Allocated shares $ 2,010
Shares released for allocation 4,623
Unallocated shares 33,571
--------
Total ESOP shares $ 40,204
========
Fair value of unallocated shares $411,245
========
(7) New Facility
------------
The Bank completed their new branch facility in January of 1997. Total costs
for this facility and related equipment amounted to $2.0 million, including
$32,000 of capitalized interest cost.
7
ILLINOIS COMMUNITY BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
The principal business of the Company is the business of the Bank. Therefore,
substantially all of the discussion in the Form 10-QSB relates to the
operations of the Bank. The principal business of the Bank consists of
attracting deposits from the general public and using these funds to originate
mortgage loans secured by one-to four-family residences located primarily in
Effingham, Illinois and surrounding areas. The Bank engages in various forms
of consumer and commercial lending and invests in mortgage-backed U.S.
Government and federal agency securities, local municipal issues, and interest-
bearing deposits. The Bank's profitability depends primarily on its net
interest income, which is the difference between the interest income it earns
on its loans, mortgage-backed and investment portfolio and its cost of funds,
which consists mainly of interest paid on deposits. Net interest income is
affected by the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rates earned or paid on these balances.
The Bank's profitability is also affected by the level of noninterest income and
expense. Noninterest income consists primarily of late charges and other
fees. Noninterest expense consists of salaries and benefits, occupancy related
expenses, deposit insurance premiums paid to the SAIF, and other operating
expenses.
The operations of the Bank, and financial institutions in general, are
significantly influenced by general economic conditions and related monetary
and fiscal policies of financial institutions' regulatory agencies. Deposit
flows and the cost of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting loan demand and the availability of funds.
BUSINESS STRATEGY
The business strategy is to operate as a well capitalized, profitable and
independent community bank dedicated to financing home ownership and consumer
needs in its primary market area of Effingham County, Illinois ("Primary Market
Area"). The Bank has implemented this strategy by: (1) closely monitoring the
needs of customers and providing quality service; (2) emphasizing consumer-
oriented banking by originating construction and permanent loans on residential
and commercial real estate and consumer loans, and by offering other financial
services and products; (3) improving and maintaining high asset quality; (4)
maintaining capital in excess of regulatory requirements; and (5) managing
interest rate risk by emphasizing the origination of loans with adjustable
rates or shorter terms and investments in short-term and liquid investments.
The Bank has adopted various new business strategies intended to increase its
presence in its Primary Market Area, thereby increasing its lending activities
and sources of income. These steps include (i) instituting a marketing program
to contact local realtors, builders, auto dealers and others in order to
increase the origination of one-family to four-family residential loans,
construction loans and permanent loans, secured by multi-family and commercial
real estate, and consumer loans, including direct and indirect automobile loans
through arrangements with local auto dealers; (ii) opening a new branch office
in January of 1997 in the northern section of its Primary Market Area, an area
of Effingham, Illinois which is experiencing growth in commercial and retail
activities, and is in close proximity to expanding residential area; (iii)
installing automated teller machines (ATM's) at its main office and the new
branch office, as well as considering other possible "stand alone" locations;
and (iv) offering new products to its customers and potential customers,
including home equity lending and debit card program. Through the holding
company subsidiaries, the Company is offering leasing services and will also be
able to further diversify the Bank's products now that the Bank is a state
chartered commercial bank. See "Part II - - Item 5 - - Other Information," for
more information on the conversion to a commercial bank.
8
ILLINOIS COMMUNITY BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgage-backed securities, maturities of investments
and interest-bearing deposits, and funds provided from operations. Scheduled
repayments of loans and mortgage-backed securities and maturities of investment
securities are predictable influenced by general interest rates, economic
conditions and competition. The Bank uses its liquidity resources principally
to fund existing and future loan commitments, to fund maturing certificates of
deposit and demand deposit withdrawals, to invest in other interest-earning
assets, to maintain liquidity, and to meet operating expenses. Management
believes that loan repayments and other sources of funds will not be adequate
to meet the Bank's liquidity needs for the immediate future. The Bank will
borrow from FHLB to meet liquidity demands.
The Bank is required to maintain minimum levels of liquid assets as defined by
regulations. This requirement, which may be varied at the direction of the
regulators depending upon economic conditions and deposit flows, is based upon
a percentage of deposits and short-term borrowings. The required minimum ratio
is currently 5%. The Bank has historically maintained a level of liquid assets
in excess of regulatory requirements. The Bank's liquidity ratios at March 31,
1997 and June 30, 1996 were 9.71% and 14.38%, respectively.
A portion of the Bank's liquidity consists of cash and cash equivalents, which
include investments in highly liquid, short-term deposits. The level of these
assets is dependent on the Bank's operating, investing, lending and financing
activities during any given period. At March 31, 1997 and June 30, 1996, cash
and cash equivalents totaled $2.0 million and $407,000, respectively.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank may borrow additional funds from the FHLB. At March 31,
1997, the Bank had $1.3 million in fixed term and fixed rate advances maturing
in April and May of 1997 and $4.7 million in daily advances.
At March 31, 1997, the Bank had outstanding commitments to originate loans of
$758,000 for 1 to 4 family dwellings and $863,000 in other real estate loans.
The Bank had $434,000 in unused consumer lines of credits and $714,000 of
commercial lines of credit outstanding. The Bank anticipates that it will have
to borrow additional FHLB advances to meet its current loan origination
commitments.
REGULATORY CAPITAL
Federally insured financial institutions such as the Bank are required to
maintain a minimum level of regulatory capital. The capital regulations require
institutions to have tangible capital equal to 1.5% of total adjusted assets
(as defined by regulation), a minimum core capital ratio of 3% of adjusted
total assets, and a risk-based capital ratio of 8% of risk-based assets (as
defined by regulation). The risk-based capital requirement is calculated based
on the credit risk presented by both on-balance-sheet assets and off-balance-
sheet commitments and obligations. Assets are assigned a credit-risk weighing
based upon their relative risk ranging from 0% for assets based by the full
faith and credit of the United States or that pose no credit risk to the
institution to 100% for assets such as delinquent or repossessed assets. As of
March 31, 1997, the Bank was in compliance with all of these capital
requirements.
9
ILLINOIS COMMUNITY BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
REGULATORY CAPITAL
A reconciliation of stockholders' equity, as reported in the consolidated
financial statements of the Bank as of March 31, 1997, to the three capital
standards, as required under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA), is as follows:
Regulatory Capital
-----------------------------------
Tangible Core Risk-based
Capital Capital Capital
-------- ------- ----------
Stockholders' equity $6,516 $6,516 $6,516
Less Real Estate Held For Sale 45 45 45
Less Unrealized Gain On
Securities Available for Sale 199 199 199
Additional capital item -
general loan loss reserves 0 0 336
-------- ------- ----------
Regulatory capital, as computed 6,272 6,272 6,608
Minimum capital requirement 839 1,678 2,722
-------- ------- ----------
Regulatory capital in excess of
minimum capital requirement $5,433 $4,594 $3,886
======== ======= ==========
FINANCIAL CONDITION
The Company's total assets increased $10.0 million, or 21.6%, from $46.4 million
at June 30, 1996 to $56.5 million at March 31, 1997. The Bank continues to
experience loan growth, and loan receivables increased by $6.7 million, or
18.5%, from $36.0 million at June 30, 1996 to $42.7 million at March 31, 1997.
The Bank anticipates loan growth to continue but at a reduced rate. Premises
and equipment, net, increased $1.3 million, or 102.2%, from $1.3 million at
June 30, 1996 to $2.6 million at March 31, 1997 primarily from the new branch
facility, which opened in January of 1997. Deposits increased $5.9 million, or
16.2%, from $36.5 million at June 30, 1996 to $42.5 million at March 31, 1997
from increased market awareness in the community. The deposit growth was not
sufficient to meet the demands of loan originations and branch construction.
The Bank had received additional advances from the FHLB in the amount of $4.4
million during the nine months to fund the loan originations and construction
costs.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997
Net loss for the three months ended March 31, 1997 was $53,000 compared to net
income of $103,000 for the three months ended March 31, 1996. The decrease in
net income was primarily from an increase in non-interest expense of $252,000,
which was offset primarily by a decrease in provision for income taxes of
$73,000 and an increase in non-operating income of $31,000.
Net interest income for the three months ended March 31, 1997 was $396,000
compared to $397,000 for the three months ended March 31, 1996.
Interest income increased by $146,000 from $815,000 to $961,000 or by 17.9%,
during the 1997 three month period compared to 1996. This increase resulted
from the increase in average interest earnings assets, which was offset
partially by a decrease in the average yield on interest-earning assets to
7.67% in 1997 from 8.11% in 1996. This decrease was reflective of the decrease
in market interest rates that occurred in the Bank's market area.
10
ILLINOIS COMMUNITY BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997, CONTINUED
Interest expense increased $147,000 or 35.2%, to $565,000 for the three months
ended March 31, 1997 from $418,000 for the same period in 1996. The increase
was primarily attributable to the increase in interest bearing liabilities of
13.7 million, or 40.1%, from 34.2 million in 1996 to 47.9 million in 1997.
The allowance for loan losses is established through a provision for loan losses
based on management's evaluation of the risk inherent in its loan portfolio and
the general economy. Such evaluation considers numerous factors including,
general economic conditions, loan portfolio composition, prior loss experience,
the estimated fair value of the underlying collateral and other factors that
warrant recognition in providing for an adequate loan loss allowance. During
the three months ended March 31, 1997 and 1996, the Bank's provision for loan
losses was $22,000 and $15,000, respectively.
The Bank's allowance for loan losses was $336,000 or .79% of loans receivable at
March 31, 1997, compared to $227,000, or .63% of loans receivable at June 30,
1996. The Bank's level of non-performing loans was 0.96% of total loans at June
30, 1996 compared to 0.18% as of March 31, 1997. Based on current reserve
levels in relation to total loans receivable and classified assets and the
identification and diligent effort put forth by management to address problem
loan situations, management believes its reserves are currently adequate.
Noninterest income increased $31,000 to $40,000 for the three months ended March
31, 1997, when compared to the same period last year. The increase in
noninterest income was largely due to an increase in fees collected on loans
and deposit accounts.
Noninterest expense increased from $252,000 for the three months ended March 31,
1997 to $496,000 from 244,000 for the three months ended March 31, 1996. This
fluctuation resulted from increases in compensation expense, occupancy and
professional assessments. The increase in compensation expense was in part the
result of normal salary increases, coupled with both the hiring of additional
officers and other employees for expanded operations and staffing of the new
branch. The increase in occupancy expense was in part due to remodeling the
existing building and new branch facility. The increase in professional
expenses were primarily additional services performed in conjunction being a
publicly held company.
The Bank's effective tax rate for the three months ended March 31, 1997 and 1996
was approximately 35.4% and 29.9%, respectively.
NONPERFORMING ASSETS
At March 31, 1997, the Bank had $120,000 in nonperforming assets. On June 30,
1996, the Bank also had $400,000 in nonperforming assets.
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Net Income - The Bank's net loss for the nine months ended March 31, 1997 was
$171,000 compared to $238,000 net income for the nine months ended March 31,
1996. This decrease of $409,000 resulted primarily from an increase in
noninterest expense of $761,000, which was partially offset by the increase in
net interest income after provision for loan losses of $104,000, non-interest
income increase of $64,000, and benefit from income taxes of $189,000.
Net Interest Income - Net interest income for the nine months ended March 31,
1997 was $1.2 million compared to $1.0 million for the nine months ended March
31, 1996. The increase in net interest income was due to an increase in the
interest rate spread of 2.63% in 1996 to 3.07% in 1997.
11
ILLINOIS COMMUNITY BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1997 AND 1996, CONCLUDED
Interest Income - Interest income increased by $579,000 from $2.2 million to
$2.8 million or by 26%, during 1997 compared to 1996. This increase resulted
from the increase experienced by the Bank in the average yield on interest-
earning assets to 7.81% in 1997 from 7.57% in 1996. This increase was
reflective of the general increase in market interest rates. In addition,
average balance of interest earning asset increased by $8.7 million from March
31, 1996 to $47.9 million at March 31, 1997 due primarily to loan demand.
Interest Expense - Interest expense increased by $376,000 or 30.2%, to $1.6
million for the nine months ended March 31, 1997 from $1.2 million for the
same period in 1996. The increase was primarily attributable to the increase
in the deposits and FHLB advances from 35.7 million in 1996 to 48.8 million in
1996.
Provision for Loan Losses - The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. During the nine months ended March 31,
1997 and 1996, the Bank's provision for loan losses was $119,000 and $15,000,
respectively.
The Bank's allowance for loan losses was $336,000 or .70% of loans receivable
at March 31, 1997, compared to $160,000, or 0.55% of loans receivable at March
31, 1996. The allowance for loan losses and the allowance as a percentage of
loans receivable increased primarily from additional provisions in 1997 period.
The Bank's level of non-performing loans was .75% of total loans at March 31,
1996 compared to 0.18% as of March 31, 1997. Based on current reserve levels in
relation to total loans receivable and classified assets and the identification
and diligent effort put forth by management to address problem loans,
management believes its reserves are currently adequate. The Bank regularly
reviews its loan portfolio, including problem loans, to determine whether any
loans require classification and/or the establishment of appropriate reserves.
Management believes it has established its existing allowance for loan losses
in accordance with GAAP, however future reserves may be necessary if economic
conditions or other circumstances differ substantially from the assumptions
used in making the initial determination.
Noninterest Income - Noninterest income was $110,000 for the nine months ended
March 31, 1997 compared to $46,000 for the 1996 period. The increase in
noninterest income was largely due to an increase in fees collected on loans
and deposit accounts.
Noninterest Expense - The Bank's noninterest expense increased by $761,000 for
the nine months ended March 31, 19965 to $1.4 million for the nine months ended
March 31, 1997. This increase resulted from increases in compensation expense,
occupancy, professional expenses, and $211,000 SAIF special assessment. The
increase in compensation expense was in part the result of normal salary
increases, coupled with both the hiring of an additional loan officers and
other employees for the new branch. The increase in occupancy expense was in
part due to remodeling the existing building and opening the new branch in
January of 1997. The increase in professional expenses was due in general to
increased expenses of a publicly held company.
The Bank's effective tax rate for the six months ended December 31, 1996 and
1995 was approximately 33.5% and 30.2%, respectively.
NONPERFORMING ASSETS
At March 31, 1997, the Bank had $120,000 in nonperforming assets. On March 31,
1996, the Bank had $278,000 in nonperforming assets. On June 30, 1996, the Bank
had $400,000 in nonperforming assets.
12
ILLINOIS COMMUNITY BANCORP, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
IMPACT OF INFLATION AND CHANGING PRICES
The unaudited consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in the
relative purchasing power of money over time because of inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of the Bank
are monetary in nature. As a result, interest rates have a more significant
impact on the Bank's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
In January 1997, Illinois Guarantee Savings Bank, FSB, the wholly-owned
subsidiary of Illinois Community Bancorp, Inc., announced that it had
applied to the Illinois Office of Banks and Real Estate to become a
state-chartered commercial bank. On April 21, 1997, the conversion to an
Illinois-chartered commercial bank became effective, and the Company
became a Bank Holding Company, regulated by the Board of Governors of
the Federal Reserve. The conversion to an Illinois commercial bank
charter will result in significant savings in supervisory costs and
direct access to a highly qualified, locally-based financial
institutions regulator. In addition, conversion to a commercial bank as
a wholly-owned subsidiary of Illinois Community Bancorp, Inc. will
provide the Bank with additional operating flexibility and enhance its
ability to provide a full range of banking products and services to the
community. Illinois Community Bank's deposits will continue to be
insured by the Federal Deposit Insurance Corporation. The Bank will also
continue to be operated locally and, except for the bank offering
additional products and services, such as trust and leasing activities,
customers will not experience any changes in the Bank's operations.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
Exhibits:
None.
Reports on Form 8-K:
None
14
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Illinois Guarantee Bank FSB and Subsidiary
Date: May 11, 1997 /s/ Douglas A. Pike
------------ -----------------------------------------
Douglas A. Pike
President and Chief Operations Officer
Date: May 11, 1997 /s/ Ronald R. Schettler
------------ -----------------------------------------
Ronald R. Schettler
Senior Vice President and Chief Financial
Officer
15