Illinois Service federal Savings and Loan Association of Chicago
Chairman's Statement to the Shareholders at the annual meeting
January 21, 2009
2008 was arguably the most challenging year most of us have ever experienced. Following the deteriorating trend begun in the latter part of 2007, financial markets collapsed as a result of massive investments in speculative securities tied to risky real estate loans. Many old and respected investment banks, such as Lehman Brothers, Merrill Lynch, and Bear Sterns no longer exist. Large mortgage lenders such as Washington Mutual, InyMac, Wachovia and Countywide Financial have closed or been acquired by other banks.
The Federal Reserve Bank and US Treasury Department resorted to a number of unprecedented actions in attempting to stop the crisis. The Fed lowered its discount rate from 4.75% at the beginning of the year to a target of 0% to 0.25% effectively ending the use of Monitory Policy as an economy management tool. Additionally, the Fed started providing loans to non-banks because banks and related financial entities were unwilling or unable to lend money. The Treasury Department sponsored a number of mega-buck programs designed to address the crisis, though with limited success. The most famous of these programs is the $750 billion Troubled Asset Relief Program (TARP).
And yet, the biggest victim of the collapse, the consumer, has not received relief. Mortgage loan foreclosures are at record highs across the United States. Real estate values have dropped as much as 32% in some parts of the country, 11% in Chicago. Unemployment, currently at 7.2%, is soaring. Credit card past due was last reported at 4.54%. Both Consumer Confidence and Sentiment are at all time lows.
Against this background Illinois Service Federal (ISF) had a successful 2008. Net income for the year was $55,270 compared to $153,895 in 2007. This result is after writing-off $200,000 of investments in Fannie Mae and Freddie Mac, and increasing loan loss reserves $83,557. For the year, we paid $1,016,669 in interest to our loyal customers; a decrease of $241,152 because interest rates declined dramatically during the year. Total operating income increased $140,834, while total operating expenses increased $438,800 because added experienced personnel in key areas.
Total assets increased $20,377,432 as we took advantage of profit opportunities created by uncertainties that existed in the financial markets during the fourth quarter 2008. ISF remains well capitalized with core capital ratios exceeding 11% and risk based capital ratios of 30%. This is due to a large extent to the prudent manner our customers have managed their personal finances and their effective use of their banking relationship.
Loan production for 2008 was $14,219,427, our best year ever. We are especially proud that we have not sold a single loan to Fannie Mae or Freddie Mac, and that our loans are performing even in these difficult economic times. We are also proud that 73% of the loans originated were secured by homes or small business property. In the midst of the worst economic decline since the depression, ISF came within 1% of its projected loan origination budget.
Total deposits as of 12/31/2008 were $91,123,919, almost the equivalent to the 2007 year end total. ISF lost some deposits throughout the year due to the economy; as credit became more difficult to obtain from other financial institutions there was a sharp increase in the use of debit cards, checking accounts, and reductions in individual savings. ISF replaced those dollars with new customers and new funds from existing customers. In 2008, the bank became a municipal depository of the City of Chicago to provide small business loans in our community. ISF established more than 400 new customer relationships in 2008, as a consequence of a flight to safety.
Despite all of the challenges facing the economy the election of President Barack H. Obama has raised optimism that things will be much better and the a course for an improved future has been set. We completed a major research project in 2008 identifying consumer and community needs, we intensified our community outreach and look forward to offering improved service this year. ISF has improved the technological infrastructure, and looks forward to a more efficient and competitive offering of banking products.
The ISF Family thanks you, our shareholders, for your continued loyalty and support. The slogan, My Bank Knows Me, is not just words for us; it is ingrained in the culture of all that we do. With strength, stability, and longevity, Illinois Service Federal invites you to celebrate our 75th Anniversary this year.We stand with you to face our future together with hope born out of the wisdom of our collective experience and prepared to be the best bank we can be.