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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to ___________
Commission file number 0-14468.
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First Oak Brook Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-3220778
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Sixteenth Street, Oak Brook, Illinois 60523
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 571-1050
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock ($2 par value)
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 and 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 17, 1998 was: $111,163,119 based upon the last sales
price of the registrant's Class A Common stock at $48.125 per share as reported
by the National Association of Securities Dealers Automated Quotation System.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 17, 1998: 1,461,665 shares of Common Stock and 1,887,240
shares of Class A Common Stock.
Documents incorporated by reference: Portions of the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1997, and Proxy Statement
for its 1998 Annual Meeting of Shareholders to be filed on or about April 1,
1998 are incorporated by reference into Parts I., II. and III. hereof, to the
extent indicated in the Form 10-K Cross-Reference Index.
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Form 10-K Cross-Reference Index
Certain information required to be included in Form 10-K is also included in the
1997 Annual Report to Shareholders or in the Proxy Statement used in connection
with the 1998 Annual Meeting of Shareholders to be held on May 5, 1998. The
following Cross-Reference Index shows the page location in the 1997 Annual
Report or in the Proxy Statement of only that information which is to be
incorporated by reference into Form 10-K. All other sections of the 1997 Annual
Report or the Proxy Statement are not required in Form 10-K and should not be
considered a part thereof.
<TABLE>
<CAPTION>
1997 1997 1998
FORM ANNUAL PROXY
Item No. Part I 10-K REPORT STATEMENT
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<S> <C> <C> <C>
1. Business.............................................. 2-11
Statistical Disclosure by Bank Holding Companies .. 7-22
2. Properties............................................ 11-12
3. Legal Proceedings..................................... 12
4. Submission of Matters to a Vote of Security Holders .. 12
Part II
5. Market for Registrant's Common Equity
and Related Stockholder Matters..................... 35-37
6. Selected Financial Data............................... 7
7. Management's Discussion and Analysis of
Financial Condition and Results of Operation........ 7-22
7a. Quantitative and Qualitative Disclosures about
Market Risk......................................... 16-17
8. Financial Statements and Supplementary Data........... 23-39
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 13
Part III
10. Directors and Executive Officers of the Registrant.... 5-6
11. Executive Compensation................................ 10-12
12. Security Ownership of Certain Beneficial
Owners and Management............................... 2-3
13. Certain Relationships and Related Transactions........ 7
Part IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................. 15-18
Signatures........................................... 19
</TABLE>
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PART I
ITEM 1. BUSINESS
General
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First Oak Brook Bancshares, Inc. ("the Company") was organized under Delaware
law on March 3, 1983, as a bank holding company under the Bank Holding Company
Act of 1956, as amended. The Company owns all of the outstanding capital stock
of Oak Brook Bank ("the Bank"), Oak Brook, Illinois, which is an Illinois state-
chartered bank. The bank has eight locations in DuPage County and two locations
in Cook County. A new branch opened in Aurora, Illinois in January, 1998 and
one is scheduled to open in Glen Ellyn, Illinois in the fourth quarter of 1998;
both are located in DuPage County.
The Company has two classes of common stock, Class A Common stock and Common
stock. The Common stock is convertible into Class A Common at any time on a
one-for-one basis. The Company has authorized shares of Class A Common and
Common stock of 4,000,000 and 3,000,000, respectively.
As of December 31, 1997, the Company had total assets of $816,144,000; loans of
$447,332,000, deposits of $627,763,000, and shareholders' equity of $71,661,000.
The business of the Company consists primarily of the ownership, supervision and
control of its subsidiary bank. The Company provides its subsidiary bank with
advice, counsel and specialized services in various fields of banking policy and
strategic planning. The Company also engages in negotiations designed to lead
to the acquisition of other banks and closely related businesses.
The Bank is engaged in the general retail and commercial banking business. The
services offered include demand, savings, and time deposits, corporate cash
management services, and commercial and personal lending products. In addition,
related products and services are offered including discount brokerage, mutual
funds and annuity sales and foreign currency sales. The Bank has a full service
investment management and trust department.
The Bank originates the following types of loans: commercial, real estate (land
acquisition and construction, commercial mortgages, residential mortgages and
home equity lines), indirect auto and consumer loans. The extension of credit
inherently involves certain levels and types of risk (general economic
conditions, industry and concentration risk, interest rate risk, and credit and
default risk) which the Company manages through the establishment of lending,
credit and asset/liability management policies and procedures.
On June 30, 1997, the Company sold substantially all of its credit card
portfolio. Although credit card lending was still a
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high-return business, future growth potential was questionable, acquiring and
retaining customers was becoming more difficult and more costly, and consumer
delinquency and bankruptcy was increasing. The sale allows the Company to
market credit cards under an agency relationship and refocus internal efforts on
the acquiring (merchant) side of the business and strengthen other of the Bank's
core businesses.
Loans originated comply with the Bank's loan policies and governmental rules,
regulations and laws. While the subsidiary bank's loan policy varies for
different loan products, the policy generally covers such items as: percentages
to be advanced against collateral, blanket or specific liens, insurance
requirements, maximum terms, down payment requirements, debt-to-income ratio,
credit history and other matters of credit concern.
The Bank's loan policy grants limited loan approval authority to designated loan
officers. Where a credit request exceeds the loan officer's approval authority,
approval by a senior lending officer and/or bank loan committee is required.
The loan policy also sets forth those credit requests that, either because of
the amount and/or type, require the approval of the bank loan committee.
The chart that follows sets forth the credit risks, loan origination procedures,
underwriting standards and lien position generally associated with the Bank's
lending in each major loan category. The major loan categories are commercial
loans; commercial real estate, including land acquisition, development and
construction loans; residential real estate, including purchase money, refinance
and home equity loans; indirect auto loans; and consumer loans, including direct
auto loans, check credit and student loans. These loans are made generally in
the Chicago Metropolitan area and are generally secured by collateral located in
the Chicago Metropolitan area.
The chart sets forth the information generally considered in approving each
category of loans. The collateral stated for each category is the collateral
generally required for these loans. Each loan is reviewed on its own merits and
the information set forth in the chart does not necessarily apply to each loan
within a category. The lien position (if any) and collateral documentation for
commercial loans, commercial real estate and construction loans are structured
specifically for each loan.
3
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<TABLE>
<CAPTION>
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LOAN TYPE
YEAR END BAL. PRINCIPAL SIGNIFICANT MAJOR
(000's) CREDIT LOAN ORIGINATION UNDERWRITING
% OF LOANS RISKS DOCUMENTATION STANDARDS LIEN POSITION
====================================================================================================================================
<S> <C> <C> <C> <C>
Commercial Borrower default Personal financial statements of Determination of eligible and Unsecured:
- -Working capital Industry change guarantors ineligible receivables Companies with
- -Term General economic Personal tax returns of guarantors Advances generally not to exceed significant net
conditions Business financial statements, or 80% of eligible collateral worth relative
Balance $54,658 tax returns (if applicable) Annual credit review to debt
% 12.2% Cash flow projections Debt to tangible net worth normally and solid
Credit history less than 4 to 1 operating
Mercantile reports Assessment of company's cash flow history
Supplier references -net annual cash flow should be Secured:
Customer references 120% of the total estimated Blanket first
If applicable annual debt service (with a 100% lien on key
-Collateral valuation floor) business assets
-Accounts receivable and accounts Maximum length of term loans (unmonitored or
payable listing and aging generally 7 years with limited
-Machinery, furniture, fixtures and Personal guaranties of controlling monitoring)
equipment, inventory lists owners of smaller closely held Secured:
-Pre-loan audit companies (full or partial) Specific first
Periodic monitoring of accounts lien on assets
receivable being
Periodic audit for asset based loans financed
Loan covenant restrictions (including
-Other borrowings leases)
-Payment of dividends
-Limit on owner withdrawals
-Sale of company
-Capital expenditures
-Debt to net worth limits
-Minimum tangible net worth
Evidence of insurance
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Commercial Borrower default Personal financial statements of Loans to appraised value generally Secured:
Mortgages Industry change guarantors not to exceed 80% (with a ceiling First mortgages
General economic Personal tax returns of guarantors of 85%) Assignment of
Balance $73,376 conditions Business financial statements, or Assessment of property's cash flow rents/leases
% 16.4% tax returns (if applicable) -net annual cash flow should be Security
Cash flow projections 120% of the total estimated agreement on
Credit history annual debt service (with a 100% fixtures
Lender references floor) Environmental
Appraisals Personal guaranties of controlling indemnity
Environmental assessments owners (full or partial) agreement
Credit history of key tenants Evidence of insurance
Financial information on key tenants Tax and insurance reserves (if
Review of leases applicable)
Market trends and conditions
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</TABLE>
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<TABLE>
<CAPTION>
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LOAN TYPE
YEAR END BAL. PRINCIPAL SIGNIFICANT MAJOR
(000's) CREDIT LOAN ORIGINATION UNDERWRITING
% OF LOANS RISKS DOCUMENTATION STANDARDS LIEN POSITION
====================================================================================================================================
<S> <C> <C> <C> <C>
Land acquisition Project Personal financial statements Land acquisition loan to value Secured:
and construction completion of guarantors generally not to exceed 50% First mortgages
Borrower default Personal tax returns of guarantors (with a ceiling of 65%) Assignment of
Balance $36,525 Industry change Business financial statements or Land development loan to value rents/leases
% 8.2% tax returns (if applicable) generally not to exceed 75% Assignment of unit
Cash flow projections Contruction loan to value sale contracts
Credit history generally not to exceed 75% Assignment of plans,
Industry experience and reputation (with a ceiling of 85%) of specifications
Contractor references retail value construction and
Lender references Assessment of project cash flow service contracts
Market trends and conditions Disbursement escrows Assignment of
Project feasibility Personal guaranties (full or developers rights
-Market acceptance partial) Environmental
-Project marketing strategy Evidence of insurance indemnity agreement
-Engineering review Inspection
Appraisals
Environmental assessments Residential subdivision
projects
Review of other current projects -Minimum unit release
by developer requirements for accelerated
payback
-Interest reserves
(if applicable)
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Residential Real
Estate
A) Portfolio Borrower default Application (including Debt to income generally not to Secured:
1) Purchase money -Reduction of financials) exceed 39% gross annual income -First mortgages
2) Refinance income Verification of employment and Principal/interest/taxes/
-Excessive debt income insurance generally less than
-Future death, Verification of deposits 28% of gross annual income
disability or (excluding home equity) Loan to value
B) Secondary Market divorce Collateral appraisal, generally -generally not to exceed 80% for
1) Purchase money Decline in two appraisals for property loans under $500,000
2) Refinance market value values in excess of $500,000 -generally not to exceed 70%
Completion of Credit history for loans greater than $500,000
construction
Balance $96,766 Insurance (flood, hazard)
% 21.6% Two year job history or
employment in related field
No serious prior derogatory
credit history
No current delinquencies
Secondary market loans
(in addition to above):
-Loan to value generally not
to exceed 95%
-Loan to values which exceed
80% require private mortgage
insurance
-Investor approval
C) Home equity Same as above Same as above Same as above -Primarily Second
mortgages
Balance $65,273
% 14.6%
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</TABLE>
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<TABLE>
<CAPTION>
- -===================================================================================================================================
LOAN TYPE
YEAR END BAL. PRINCIPAL SIGNIFICANT MAJOR
(000's) CREDIT LOAN ORIGINATION UNDERWRITING
% OF LOANS RISKS DOCUMENTATION STANDARDS LIEN POSITION
====================================================================================================================================
<C> <S> <C> <C> <C>
Indirect Auto Borrower default Application (with financials) Debt to income ratio generally Secured, recorded
-Reduction of Verification of employment not to exceed 39% of gross lien on title
Balance $105,807 income Credit history annual income Single interest
% 23.7% -Excessive debt Evidence of insurance No serious prior derogatory insurance
-Future death, credit history
disability or No current delinquencies
divorce Stable employment and
Collateral value residence
decline Established credit unless
Casualty down payment> 25%
Dealer New dealerships are submitted New cars-
-Business decline for credit approval -invoice up to $18,000, will
-Industry decline -Review dealers trade and finance up to $500 over
-General references invoice
economic -Review dealer financial -invoice over $18,000, will
conditions statements finance up to $1,000 over
-Fraud -Mercantile report invoice
-Annual review Used cars (generally not
-Signed dealer agreement older than 4 years)-loans
limited to 100% of
NADA loan value
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Consumer Borrower default Application (with financials) Debt to income ratio generally Secured, recorded
Auto (direct) -Reduction of Verification of employment not to exceed 39% of gross lien on title
income Credit history annual income Single interest
Balance $3,181 -Excessive debt Evidence of insurance No serious prior derogatory insurance
% .7% -Future death, credit history
disability or No current delinquencies
divorce Stable employment and
Collateral value residence
decline Established credit unless
Casualty down payment> 25%
New cars -
-invoice up to $18,000, will
finance up to $500 over
invoice
-invoice over $18,000, will
finance up to $1,000
over invoice
Used cars (generally not
older than 4 years)-loans
limited to 100% of
NADA loan value
Student Loss of Application Compliance with government Unsecured,
Government standards Government
Balance $6,062 guaranty guaranty
% 1.3%
Other
Balance $5,689 Various Various Various Various
% 1.2%
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</TABLE>
6
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Competition
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The Company and its subsidiary bank operate primarily in DuPage County,
Illinois, with eight locations, and two locations in Cook County, Illinois, one
of which is located in western Cook County and the other on Chicago's North
Shore.
At June 30, 1997, the Company's seven DuPage County, Illinois, offices held $561
million in deposits for an approximate 5.6% market share in relation to the
total deposits in DuPage County commercial banks. The Company's two offices in
Cook County, Illinois, contained $74 million in deposits for an approximate .1%
market share of Cook County. The Company's offices are part of the Chicago
banking market, as defined by the Federal Reserve Bank of Chicago, consisting of
Cook, DuPage and Lake Counties, which at June 30, 1997, had $108.5 billion in
deposits.
The Company's subsidiary bank is located in a highly competitive market facing
competition for deposits, loans and other financial services from many financial
intermediaries, including banks, savings and loan associations, finance
companies, credit unions, mortgage companies, retailers, stockbrokers, insurance
companies, mutual funds and investment companies, many of which have greater
assets and resources than the Company.
Regulation and Supervision
- --------------------------
General
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The Company is a bank holding company subject to the restrictions and
regulations adopted under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and interpreted by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), and the Company is also subject to Federal
Securities Laws and Delaware Law. The BHCA requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before acquiring
direct or indirect ownership or control of 5% or more of the voting shares of
any bank or bank holding company. However, no acquisition may be approved if it
is prohibited by applicable state law. The Company is examined by the Federal
Reserve Bank of Chicago.
The subsidiary bank is subject to extensive governmental regulation and periodic
regulatory reporting requirements. The regulations by various governmental
entities, as well as Federal and State laws of general application affect the
Company and the subsidiary bank in many ways including but not limited to:
requirements to maintain reserves against deposits, payment of FDIC insurance,
restrictions on investments, establishment of lending limits and payment of
dividends. The subsidiary bank is primarily supervised and examined by the
Illinois Office of Banks and Real Estate and the Federal Deposit Insurance
Corporation ("FDIC").
The Federal Reserve Bank examines and supervises bank holding companies pursuant
to risk-based capital adequacy guidelines. These guidelines establish a uniform
capital framework that is
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sensitive to risk factors, including off-balance sheet exposures, for all
federally supervised banking organizations. This can impact a bank holding
company's ability to pay dividends and expand its business through the
acquisition of subsidiaries if capital falls below the levels established by
these guidelines. As of December 31, 1997 the Company's Tier 1, total risk-
based capital and leveraged ratios were in excess of minimum regulatory
guidelines and also exceed the FDIC criteria for "well capitalized" banks. See
the Company's Annual Report at pages 35-36 for a more detailed discussion of the
Risk Based Assessment System and the impact upon the Company and its subsidiary
bank.
Federal Deposit Insurance
- -------------------------
Under Federal law, the FDIC has authority to impose special assessments on
insured depository institutions, to repay FDIC borrowings from the United States
Treasury or other sources, and to establish semi-annual assessment rates for
Bank Insurance Fund ("BIF") member banks to maintain the BIF at the designated
reserve ratio required by law. Effective January 1, 1998 the FDIC Assessment
Rate Schedule for BIF members ranged from zero for "well capitalized"
institutions to $.27 per $100 for "undercapitalized" institutions as set forth
in the following table:
<TABLE>
<CAPTION>
BIF RATES
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Capital Supervisory Subgroup
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Group A B C
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<S> <C> <C> <C>
Well capitalized 0c 3c 10c
Adequate 3 10 24
Under capitalized 17 24 27
</TABLE>
The Funds Act also authorized the Financing Corporation ("FICO") to levy annual
assessments of BIF-assessable deposits to service FICO bond obligations. On
January 2, 1998 the Company's subsidiary bank was assessed $38,400 for its
semiannual FICO payment. The BIF assessment must equal 1/5 of the FICO
assessment rate that is applied to deposits assessable by the Savings
Association Insurance Fund ("SAIF"). The annual assessment rates for FICO were
determined from the September 30, 1997 call reports and for BIF institutions the
rate was 1.256c per $100.
The subsidiary bank is not restricted by the limitations on Brokered Deposits
and can pass-through the $100,000 FDIC insurance coverage to each participant in
or beneficiary of a qualified employee benefit plan.
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The Riegle/Neal Interstate Banking and Branching Efficiency Act of 1994 ("The
- -----------------------------------------------------------------------------
Interstate Banking Act")
- ------------------------
The Interstate Banking Act allowed "adequately capitalized" and "adequately
managed" bank holding companies to acquire banks in any state as of September
29, 1995. The Act also allows interstate merger transactions.
The Interstate Banking Act amends Section (d) of the Bank Holding Company Act of
1956 authorizing the Federal Reserve to approve a bank holding company's
application to acquire either control or substantial assets of a bank located
outside of the bank holding company's home state regardless of whether the
acquisition would be prohibited by state law. The Federal Reserve may approve
these transactions only for "adequately capitalized" and "adequately managed"
bank holding companies.
The Interstate Banking Act also amended the Federal Deposit Insurance Act to
allow responsible agencies to approve merger transactions between insured banks
with different home states regardless of whether the transaction is prohibited
under state law. Through interstate merger transactions, banks are able to
acquire branches of out of state banks by converting their offices into branches
of the resulting bank. The Act provides that it will be the exclusive means for
bank holding companies to obtain interstate branches. In these transactions,
the resulting bank must remain "adequately capitalized" and "adequately managed"
upon completion of the merger. The Act also states that a home state may enact
a law preventing these transactions; Illinois allows these transactions.
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
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The FIRREA has broadened the regulatory powers of federal bank regulatory
agencies. One of the provisions of FIRREA contains a "cross-guarantee"
provision which could impose liability on the Company for losses incurred by the
FDIC in connection with assistance provided to or the failure of any of the
Company's insured depository institutions. The U.S. Court of Appeals Second
Circuit recently upheld the FDIC's power to charge losses from a bank failure to
another bank in the same corporate organization. The Company, under Federal
Reserve Board policy, is a source of financial strength to its subsidiary bank
and is expected to commit resources to support the subsidiary bank. As a
result, the Company could be required to commit resources to its subsidiary bank
in circumstances where it might not do so absent such policies.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
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The FDICIA significantly expanded the regulatory and enforcement powers of
federal banking regulators. FDICIA gives federal banking regulators
comprehensive directions to promptly direct or require the correction of
problems of inadequately capitalized banks in a manner that is least costly to
the Federal Deposit
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Insurance Fund. The degree of corrective regulatory involvement in the
operations and management of banks and their holding companies will be largely
determined by the actual or anticipated capital position of the institution. See
the Company's Annual Report page 21 and pages 35-36 detailing the Company's
capital position.
FDICIA also directs federal banking regulatory agencies to issue new safety and
soundness standards governing operational and managerial activities of banks and
their holding companies particularly in regard to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth,
executive compensation and market risk sensitivity.
Year 2000
- ---------
The Federal Reserve Year 2000 Bank Supervision Program addresses how existing
application software programs and operating systems can accommodate the date
value for the Year 2000. Many computer programs were designed and developed
without considering the impact of the upcoming change of the century and
therefore many computer applications may interpret 00 as meaning 1900. The
Federal Financial Institutions Examination Counsel has issued Interagency
Statements alerting financial institutions to this problem and is requiring that
the computer systems be compliant.
The Federal Reserve has announced the following actions under its Year 2000 bank
supervision program: (1) The use of a three tiered interagency supervisory
rating system (satisfactory/needs improvement/unsatisfactory) to evaluate the
quality of the banking organization's Year 2000 compliance program and (2) The
issuance of a Year 2000 deficiency notification letter for banks rated "needs
improvement" or "unsatisfactory." The consequences of these ratings are: (i) The
Bank must prepare and submit a written acceptance in compliance with the
Interagency Statements and related FFIEC advisories; (ii) Submission of monthly
progress reports which must include actions taken; (iii) The Bank may be subject
to formal enforcement action; and (iv) Prior to any acquisition, merger or
expansion of activity, regulatory approval will be required.
Other Laws and Regulations
- --------------------------
Proposals that change the laws and regulations governing banks, bank holding
companies and other financial institutions are discussed in Congress, the state
legislatures and before the various bank regulatory agencies. Banks are subject
to a number of federal and state laws and regulations which have a material
impact on their business. These include, among others, state usury laws,
consumer protection laws and regulations, (e.g., the Truth in Lending Act, the
Equal Credit Opportunity Act, the Expedited Funds Availability Act, the
Community Reinvestment Act, the Truth in Savings Act), as well as the electronic
funds transfer laws, Bank Secrecy Act, environmental laws and privacy laws.
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Statistical Disclosure by Bank Holding Companies
- ------------------------------------------------
See "Financial Review" on pages 7 through 22, inclusive, of the Company's 1997
Annual Report to Shareholders, which is incorporated herein by reference for the
statistical disclosure by bank holding companies.
ITEM 2. PROPERTIES
The Company's offices are located in Oak Brook, Illinois. The subsidiary bank
and its branches conduct business in both owned and leased premises. The
Company believes its facilities are suitable and adequate to operate its banking
business. For information concerning lease obligations, see Note 6 of the Notes
to Consolidated Financial Statements and lease exhibits previously filed and
incorporated by reference.
The Company and Oak Brook Bank occupy space in a seven-year old, three-story,
100,000 square foot, modern office building located at 1400 Sixteenth Street,
Oak Brook, Illinois, which is owned and operated by Oak Brook Bank. The first
and second floors and portions of the third floor and lower level are occupied
by Oak Brook Bank. The Company leases a small portion from Oak Brook Bank. A
portion of the third floor is rented to third parties.
Oak Brook Bank purchased property in Glen Ellyn, Illinois and began developing
the site for a new branch during the first quarter of 1998. The Cape Cod cottage
style building will be approximately 1,100 square feet, and constructed of stone
and stucco. This location will offer a drive-up facility and is expected to open
in the fourth quarter of 1998.
In addition, Oak Brook Bank operates the following branches:
Addison - A 25 year old, 14,500 square foot, two-story brick, colonial
building including a full basement and attached drive-up facility in
Addison, Illinois. The second floor is rented to third parties. This
facility and real estate are owned by Oak Brook Bank and was originally the
Heritage Bank of Addison, acquired September, 1974.
Aurora - A new Federalist style building, 4,400 square feet, brick with a
slate roof and accentuated by a clock tower in Aurora, Illinois. This
facility and real estate are owned by Oak Brook Bank. Opened in January,
1998.
Bensenville - Approximately 2,000 square feet of leased space in a modern,
two-story glass building in Bensenville, Illinois. The current lease
expires in 2001 and has three additional 5-year renewal options. Opened in
May, 1986.
Broadview - A 44 year old, 6,955 square foot, one-story brick building in
Broadview, Illinois. This facility and real estate are owned by Oak Brook
Bank. Originally Liberty Bank, acquired March, 1989.
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Broadview Drive-up - Oak Brook Bank also owns a detached one-story drive-up
facility across the street from the Broadview location.
Burr Ridge - Approximately 6,600 square feet of leased space in a one-story
contemporary building located in Burr Ridge, Illinois. A portion of this
space is used for record storage. The current lease expires in 1999 and has
five additional 3-year renewal options. Opened in October, 1988.
Glenview - Approximately 1,800 square feet of leased space in a strip
shopping center in Glenview, Illinois. The current lease expires in 2002
with an option to cancel in 1999. Opened in March, 1990.
Lisle - Approximately 1,300 square feet of leased space in a neighborhood
shopping center in a primarily residential section of Lisle, Illinois. A
detached drive-up automated teller machine is also operated at this
location. The current lease expires in 2000 and has one additional 3-year
renewal option. Opened in October, 1985.
Naperville - A 2,400 square foot, two-story contemporary Palladian-style
building with a full basement and attached drive-up facility in Naperville,
Illinois. This facility is owned by Oak Brook Bank. Opened in June, 1988.
Warrenville - Approximately 4,400 square feet of leased space on the first
floor of a two-story tudor-style building with a full basement and attached
drive-up facility in Warrenville, Illinois. Originally Warrenville Bank &
Trust acquired April, 1983. The current lease expires in 2003.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiary bank were not subject to any material pending or
threatened legal actions as of December 31, 1997. No such actions have arisen
subsequent to year-end.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of this year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See Notes 9, 13 and 14 of the Notes to Consolidated Financial Statements on
pages 35 through 37, inclusive, of the Company's 1997 Annual Report to
Shareholders which is incorporated herein by reference.
The Company's Class A common stock is listed on The Nasdaq Stock Market/SM/,
which began operation in 1971, is the world's first electronic securities market
and the fastest growing stock market in the U.S. Nasdaq utilizes today's
information technologies--computers and telecommunications--to unite its
participants in a screen-based, floorless market. It enables market participants
to compete with each other for investor orders in each Nasdaq security and,
through the use of Nasdaq WorkstationII/TM/ and other automated systems,
facilitates the trading and surveillance of thousands of securities. This
competitive marketplace, along with the many products and services available to
issuers and their shareholders, attracts today's largest and fastest growing
companies to Nasdaq. These include industry leaders in computers,
pharmaceuticals, telecommunications, biotechnology, and financial services. More
domestic and foreign companies list on Nasdaq than on all other U.S. stock
markets combined.
ITEM 6. SELECTED FINANCIAL DATA
See "Earnings Summary and Selected Consolidated Financial Data" on page 7 of the
Company's 1997 Annual Report to Shareholders, which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
See "Financial Review" on pages 7 through 22, inclusive, of the Company's 1997
Annual Report to Shareholders, which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
See "Financial Review" on pages 16-17 inclusive, of the Company's 1997 Annual
Report to shareholders, which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes are on pages 23 through
39, inclusive, of the Company's 1997 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Directors and Executive Officers" on pages 5 and 6 of the Company's Proxy
Statement to be filed on or before April 1, 1998, which is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
See "Summary Compensation Table" and footnotes, "Five Year Performance
Comparison" and "Aggregated Option Exercises and Year-End Option Values Table"
and "Option Grants Table" on pages 10 through 13, inclusive, of the Company's
Proxy Statement to be filed on or before April 1, 1998, which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Information Concerning Security Ownership of Certain Beneficial Owners and
Management" on pages 2 and 3 of the Company's Proxy Statement to be filed on or
before April 1, 1998, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Transactions" on page 7 of the Company's Proxy Statement to be
filed on or before April 1, 1998, which is incorporated herein by reference.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE
----
(a) 1. The following financial statements are
filed as part of this report:
<S> <C>
Annual Report to Shareholders -
Report of Independent Auditors 23
Consolidated Balance Sheets - December 31, 1997
and 1996 24
Consolidated Statements of Income for each of
the three years in the period ended
December 31, 1997 25
Consolidated Statements of Changes in
Shareholders' Equity for each of the three
years in the period ended December 31, 1997 26
Consolidated Statements of Cash Flows for each
of the three years in the period ended
December 31, 1997 27
Notes to Consolidated Financial Statements 28-39
</TABLE>
2. Financial statement schedules: All schedules are omitted as they are
not applicable or information is included in the consolidated
financial statements or the notes thereto.
(b) The following Reports on Form 8-K were filed during the last quarter of the
period covered by this report: None
(c) The following exhibits are included herein:
Exhibit (3) Articles of Incorporation including Amendments thereto and
By Laws of First Oak Brook Bancshares, Inc. (Exhibit 3 to
the Company's Form 10-K Annual Report for the year ended
December 31, 1994, incorporated herein by reference).
Exhibit (10.1) Loan Agreement between First Oak Brook Bancshares, Inc. and
LaSalle National Bank dated December 1, 1991 as amended.
(Exhibit 10.1 to the Company's Form 10-Q Quarterly Report
for the period ended March 31, 1997, incorporated herein by
reference).
Exhibit (10.2) Lease Agreement between First Oak Brook Bancshares, Inc.
and Oak Brook Bank dated November 8, 1991. (Exhibit 10.2 to
the Company's Form 10-K Annual Report for the
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
year ended December 31, 1994, incorporated herein by
reference).
Exhibit (10.3) First Oak Brook Bancshares, Inc. Executive Deferred
Compensation Plan effective November 1, 1997.
Exhibit (10.4) First Oak Brook Bancshares, Inc. Employees' Stock Bonus
Plan as amended and restated effective July 19, 1994.
(Exhibit 10.4 to the Company's Form 10-K Annual Report for
the year ended December 31, 1994, incorporated herein by
reference).
Exhibit (10.5) First Oak Brook Bancshares, Inc. Amended and Restated 1987
Stock Option Plan effective September 21, 1987. (Exhibit
10.5 to the Company's Form 10-K Annual Report for the year
ended December 31, 1994, incorporated herein by
reference).
Exhibit (10.6) Lease Agreement between Oak Brook Bank, not personally,
but solely as Trustee under Trust Agreement dated August
1, 1989 and known as Trust Number 2200 and Life Investors
Insurance Co. of America, an Iowa Corporation, for Suite
300 of the Oak Brook Bank Building. (Exhibit 10.6 to the
Company's Form 10-K Annual Report for the year ended
December 31, 1994, incorporated herein by reference).
Exhibit (10.7) Lease Agreement between Oak Brook Bank, not personally,
but solely as Trustee under Trust Agreement dated August
1, 1989 and known as Trust Number 2200 and CB Commercial
Real Estate Group, Inc., a Delaware Corporation, for Suite
301 of the Oak Brook Bank Building. (Exhibit 10.7 to the
Company's Form 10-K Annual Report for the year ended
December 31, 1994, incorporated herein by reference).
Exhibit (10.8) License Agreement, between Jack Henry & Associates, Inc.
and First Oak Brook Bancshares, Inc. dated March 10, 1993.
(Exhibit 10.8 to the Company's Form 10-K Annual Report for
the year ended December 31, 1994, incorporated herein by
reference).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Exhibit (10.9) Form of Transitional Employment Agreement for Eugene P.
Heytow, Richard M. Rieser, Jr. and Frank M. Paris.
(Exhibit 10.9 to the Company's Form 10-K Annual Report for
the year ended December 31, 1994, incorporated herein by
reference).
Exhibit (10.10) Form of Transitional Employment Agreement for Senior
Officers. (Exhibit 10.10 to the Company's Form 10-K
Annual Report for the year ended December 31, 1994,
incorporated herein by reference).
Exhibit (10.11) Form of Agreement Regarding Post-Employment Restrictive
Covenants for Eugene P. Heytow, Richard M. Rieser, Jr. and
Frank M. Paris. (Exhibit 10.11 to the Company's Form 10-K
Annual Report for the year ended December 31, 1994,
incorporated herein by reference).
Exhibit (10.12) Form of Supplemental Pension Benefit Agreement for Eugene
P. Heytow. (Exhibit 10.12 to the Company's Form 10-K
Annual Report for the year ended December 31, 1994,
incorporated herein by reference).
Exhibit (10.13) Form of Supplemental Pension Benefit Agreement for Richard
M. Rieser, Jr. (Exhibit 10.13 to the Company's Form 10-K
Annual Report for the year ended December 31, 1994,
incorporated herein by reference).
Exhibit (10.14) Senior Executive Insurance Plan. (Exhibit 10.14 to the
Company's Form 10-K Annual Report for the year ended
December 31, 1995, incorporated herein by reference).
Exhibit (10.15) First Oak Brook Bancshares, Inc. Performance Bonus Plan
amended and restated effective May 7, 1996. (Exhibit
10.15 to the Company's Form 10-K Annual Report for the
year ended December 31, 1996, incorporated herein by
reference).
Exhibit (13) Annual Report to Shareholders.
Exhibit (21) Subsidiary of the Registrant.
Exhibit (23) Consent of Ernst & Young LLP.
Exhibit (27) Financial Data Schedule.
</TABLE>
17
<PAGE>
Exhibits 10.9 through 10.15 are management contracts or compensatory plans or
arrangements required to be filed as an Exhibit to this Form 10-K pursuant to
Item 14(c) hereof.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRST OAK BROOK BANCSHARES, INC.
--------------------------------
(Registrant)
BY: /S/ EUGENE P. HEYTOW
-------------------
(Eugene P. Heytow,
Chairman of the Board and
Chief Executive Officer)
DATE: March 17, 1998
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ EUGENE P. HEYTOW Chairman of the Board March 17, 1998
- ----------------------------- and Chief Executive
Eugene P. Heytow Officer
/S/ FRANK M. PARIS Vice Chairman of March 17, 1998
- ----------------------------- the Board
Frank M. Paris
/S/ RICHARD M. RIESER, JR. President, March 17, 1998
- ----------------------------- Assistant Secretary,
Richard M. Rieser, Jr. and Director
/S/ MIRIAM LUTWAK FITZGERALD Director March 17, 1998
- -----------------------------
Miriam Lutwak Fitzgerald
/S/ GEOFFREY R. STONE Director March 17, 1998
- -----------------------------
Geoffrey R. Stone
/S/ ROSEMARIE BOUMAN Vice President and March 17, 1998
- ----------------------------- Chief Financial Officer
Rosemarie Bouman (Principal Accounting
Officer)
</TABLE>
19
<PAGE>
EXHIBIT (10.3)
FIRST OAK BROOK BANCSHARES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(Adopted October __, 1997)
Effective as of November 1, 1997
<PAGE>
FIRST OAK BROOK BANCSHARES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
INTRODUCTION.....................................................1
1.1 Adoption and Name of Plan...................................1
1.2 Purposes of Plan............................................1
1.3 "Top Hat" Pension Benefit Plan..............................1
1.4 Plan Unfunded...............................................1
1.5 Effective Date..............................................2
1.6 Administration..............................................2
ARTICLE II
DEFINITIONS AND CONSTRUCTION.....................................3
2.1 Definitions.................................................3
(a) "Account"..............................................3
(b) "Accounting Date"......................................3
(c) "Beneficiary"..........................................3
(d) "Board"................................................3
(e) "Code".................................................3
(f) "Company"..............................................3
(g) "Compensation".........................................3
(h) "Effective Date".......................................3
(i) "Employee".............................................4
(j) "Employees' Savings Plan"..............................4
(k) "Employees' Stock Bonus Plan"..........................4
(l) "Employer".............................................4
(m) "Employer Make-up Contribution"........................4
(n) "Employer Matching Make-up Contribution"...............4
(o) "ERISA"................................................4
(p) "Participant"..........................................4
(q) "Participation Agreement"..............................4
(r) "Plan".................................................5
(s) "Plan Year"............................................5
(t) "Pre-tax Contribution..................................5
(u) "Retirement Date"......................................5
2.2 Number and Gender...........................................5
2.3 Headings....................................................5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III
PARTICIPATION AND ELIGIBILITY......................................6
3.1 Participation.................................................6
3.2 Commencement of Participation.................................6
3.3 Cessation of Active Participation.............................6
ARTICLE IV
PRE-TAX, MATCHING & MAKE-UP CONTRIBUTIONS..........................7
4.1 Participants' Pre-tax Contributions...........................7
4.2 Effective Date of Participation Agreement.....................7
4.3 Modification or Revocation of Election by Participant.........7
4.4 Employer Make-up Contributions................................7
4.5 Employer Matching Make-up Contributions.......................8
ARTICLE V
VESTING AND EARNINGS ELECTIONS.....................................9
5.1 Vesting.......................................................9
5.2 Hypothetical Investment Elections.............................9
ARTICLE VI
ACCOUNTS..........................................................10
6.1 Establishment of Bookkeeping Accounts........................10
6.2 Subaccounts..................................................10
6.3 Hypothetical Nature of Accounts..............................10
ARTICLE VII
PAYMENT OF ACCOUNT................................................11
7.1 Timing of Distribution of Benefits...........................11
(a) Distribution of Contribution to Employees' Savings Plan.11
(b) Distribution After Termination of Employment............11
7.2 Time of Distribution and Accounting..........................12
7.3 Form of Payment or Payments..................................12
7.4 Accelerated Distribution.....................................13
7.5 Designation of Beneficiaries.................................13
7.6 Amendments...................................................13
7.7 Change in Marital Status.....................................13
7.8 No Beneficiary Designation...................................14
7.9 Unclaimed Benefits...........................................14
7.10 Hardship Withdrawals.........................................14
7.11 Withholding..................................................15
ARTICLE VIII
ADMINISTRATION....................................................16
8.1 Committee....................................................16
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.2 General Powers of Administration..........................16
8.3 Indemnification of Committee..............................16
ARTICLE IX
DETERMINATION OF BENEFITS,
CLAIMS PROCEDURE AND ADMINISTRATION............................17
9.1 Claims....................................................17
9.2 Claim Decision............................................17
9.3 Request for Review........................................17
9.4 Review of Decision........................................18
9.5 Discretionary Authority...................................18
ARTICLE X
MISCELLANEOUS...................................................19
10.1 Plan Not a Contract of Employment.........................19
10.2 Non-Assignability of Benefits.............................19
10.3 Amendment and Termination.................................19
10.4 Unsecured General Creditor Status of Employee.............19
10.5 Severability..............................................20
10.6 Governing Laws............................................20
10.7 Binding Effect............................................20
10.8 Entire Agreement..........................................20
</TABLE>
iii
<PAGE>
FIRST OAK BROOK BANCSHARES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I
INTRODUCTION
1.1 Adoption and Name of Plan.
The Company adopts the First Oak Brook Bancshares, Inc., Executive Deferred
Compensation Plan.
1.2 Purposes of Plan.
The purposes of the Plan are to provide deferred compensation for a select
group of management or highly compensated Employees of the Employer and to
provide eligible Employees the opportunity to maximize their elective
contributions to the Employees' Savings Plan notwithstanding certain
restrictions and limitations in the Code.
1.3 "Top Hat" Pension Benefit Plan.
The Plan is an "employee pension benefit plan" within the meaning of ERISA
Section 3(2). The Plan is maintained, however, for a select group of
management or highly compensated employees and, therefore, is exempt from
Parts 2, 3 and 4 of Title 1 of ERISA. The Plan is not intended to qualify
under Code Section 401(a).
1.4 Plan Unfunded.
The Employer is fully committed to paying the benefits promised under this
Plan, and recognizes that the Plan represents a binding contract; however,
the Plan is intended to be unfunded for tax purposes, and for purposes of
Title I of ERISA. Participants (and, where applicable, their
Beneficiaries) have the status of general unsecured creditors of the
Employer, and this Plan constitutes a mere promise by the Employer to pay
benefits in the future. Notwithstanding the foregoing, the Employer may
establish a "grantor trust" in which to hold cash or other assets to be
used to make payments of Plan benefits to Participants and Beneficiaries;
however, the assets of any such trust will at all times remain subject to
the claims of general creditors of the Employer, in case the Employer
becomes insolvent. The Employer will remain liable to pay benefits under
the Plan, although any payment of benefits made by the trust will satisfy
the Employer's obligation to make that payment to a Participant or
Beneficiary.
1
<PAGE>
1.5 Effective Date.
The Plan is effective as of the Effective Date.
1.6 Administration.
The Plan will be administered by the Committee.
2
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions.
For purposes of the Plan, the following words and phrases will have the
meanings set forth below, unless their context clearly requires a different
meaning:
(a) "Account" means the bookkeeping account maintained by the Company on
behalf of each Participant pursuant to Article VI that is credited
with Pre-tax Contributions, Employer Discretionary Make-up
Contributions and Employer Matching Make-up Contributions on behalf of
each Participant pursuant to Article IV and the earnings and losses on
such amounts as determined in accordance with Article V.
(b) "Accounting Date" means the last business day of each calendar
quarter and each special accounting date designated by the Committee.
(c) "Beneficiary" means the person or persons designated by the
Participant in accordance with Section 7.5.
(d) "Board" means the board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Company" means First Oak Brook Bancshares, Inc. and any successor
thereto.
(g) "Compensation" means the total compensation paid to or for the benefit
of a Participant while he or she is an active Participant for services
rendered or labor performed as an Employee of the Employers, as
reportable on Form W-2, Wage and Tax Statement, for federal income tax
purposes. Notwithstanding the foregoing, Compensation will include the
amount of Pre-tax Contributions made on a Participant's behalf under
the Plan and the amount of pre-tax salary reduction contributions made
on a Participant's behalf under any Internal Revenue Code Section 125
plan, and Compensation will exclude amounts attributable to stock
options and similar equity-based compensation and premiums paid or
reimbursed by the Employers for or under any individual life insurance
policy, program or agreement.
(h) "Effective Date" means November 1, 1997.
(i) "Employee" means any common-law employee of an Employer; the term does
not include any non-employee director, independent contractor or
leased employee of an Employer, nor does it include an individual
performing services for an Employer pursuant to a contract that
designates the individual as an independent contractor or under other
circumstances that cause the Employer to consider the individual to be
an independent contractor.
3
<PAGE>
(j) "Employees' Savings Plan" means the First Oak Brook Bancshares, Inc.
Employees' Savings Plan, as amended from time to time.
(k) "Employees' Stock Bonus Plan" means the First Oak Brook Bancshares,
Inc. Employees' Stock Bonus Plan.
(l) "Employer" means the Company and any affiliate of the Company that
adopts this Plan with the consent of the Board.
(m) "Employer Make-up Contribution" means a contribution credit for or on
behalf of a Participant equal to the amount of the contribution credit
that would have been made for or on account of that Participant under
the terms of the Employees' Stock Bonus Plan for the Plan Year in
question, not taking into account any limitations on considered
compensation or yearly allocations contained in Sections 401(a)(17)
and 415 of the Code. The Employer Make-up Contribution will also
include any additional amount the Board may approve as a contribution
credit for the Plan Year.
(n) "Employer Matching Make-up Contribution" means a contribution credit
for or on behalf of a Participant equal to the difference, if any,
between the matching contribution credit that would have been made for
the Participant under the Employees' Savings Plan but for the
limitations on considered Compensation, Pre-tax Contributions or
yearly allocations contained in Sections 401(a)(17), 401(k)(3),
401(m)(2), 402(g), and 415 of the Code and the matching contribution
credit actually made for the Participant under the Employees' Savings
Plan.
(o) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(p) "Participant" means each Employee who has been selected for
participation in the Plan and who has become a Participant pursuant to
Article III.
(q) "Participation Agreement" means the written agreement pursuant to
which the Participant elects the amount of his Compensation to be
deferred pursuant to the Plan, the amount of Pre-tax Contributions
which are to be contributed to the Employees' Savings Plan, and such
other matters as the Committee determines from time to time.
(r) "Plan" means the First Oak Brook Bancshares, Inc. Executive Deferred
Compensation Plan, as amended from time to time.
(s) "Plan Year" means the twelve-consecutive month period commencing
January 1 of each year ending on December 31; however, the initial
Plan Year will run from November 1, 1997 through December 31, 1997.
4
<PAGE>
(t) "Pre-tax Contribution" means the amount of a Participant's
Compensation which the Participant elects to have withheld on a pre-
tax basis and credited to his Account pursuant to Section 4.1.
(u) "Retirement Date" means the date a Participant:
(i) voluntarily terminates his employment with the Employer and all
affiliates (as defined in the Employees' Savings Plan)
(A) on or after he has attained at least 65 years of age,
(B) on or after he has attained 55 years of age and completed at
least 15 years of service (as defined in the Employees'
Savings Plan for purposes of benefit distribution), or
(C) with the Committee's consent; or
(ii) qualifies for disability under the Employer's group long-term
disability plan.
2.2 Number and Gender.
Wherever appropriate herein, the singular includes the plural, the
plural includes the singular, and the masculine includes the feminine.
2.3 Headings.
The headings of Articles and Sections herein are included solely for
convenience, and if there is any conflict between them and the rest of the
Plan, the text will control.
5
<PAGE>
ARTICLE III
PARTICIPATION AND ELIGIBILITY
3.1 Participation.
Participants in the Plan are those individuals who are members of a select
group of highly compensated or management Employees of the Company and
selected by the Committee, in its sole discretion, to be Participants. The
Committee will notify each Participant of his selection as a Participant.
Subject to the provisions of Section 3.3, a Participant will remain
eligible to continue participation in the Plan for each Plan Year following
his initial year of participation in the Plan.
3.2 Commencement of Participation.
Except as provided in the following sentence, an Employee will become a
Participant effective as of the first day of the Plan Year following the
date on which his Participation Agreement becomes effective. A newly
eligible Employee (because of hire or selection by the Committee) who
completes a Participation Agreement within thirty days after the date his
employment commences or selection becomes effective will become a
Participant as of the date on which his Participation Agreement is
effective under Section 4.2.
3.3 Cessation of Active Participation.
Notwithstanding any provision herein to the contrary, an individual who has
become a Participant in the Plan will cease to be a Participant effective
as of any date designated by the Committee.
6
<PAGE>
ARTICLE IV
PRE-TAX, MATCHING & MAKE-UP CONTRIBUTIONS
4.1 Participants' Pre-tax Contributions.
Before the first day of each Plan Year, a Participant may file with the
Committee a Participation Agreement on which he elects to make Pre-tax
Contributions. Participants may defer up to 10% of their Compensation. All
Pre-tax Contribution elections must be in whole percentages. Any Pre-tax
Contribution election will be subject to rules prescribed by the Committee.
A Participant's Pre-tax Contributions will be credited to his Account on a
payroll-by payroll basis (and, to the extent permitted by law and
consistent with the Participant's election and the Committee s rules of
procedure, all or a portion thereof will be immediately contributed to the
Employees' Savings Plan and appropriately debited from the Account).
4.2 Effective Date of Participation Agreement.
A Participant's Participation Agreement will become effective on the first
day of the Plan Year to which it relates. The Participation Agreement of an
Employee who is first eligible during a Plan Year will become effective as
of the first day of the month after the Employee completes his
Participation Agreement, if the Employee completes the Participation
Agreement within 30 days after the date he first becomes eligible.
Otherwise, the Employee must wait until the beginning of the following Plan
Year to begin making Pre-tax Contributions. Participation Agreements relate
only to compensation earned after they are completed and executed. Except
as provided above, if a Participant fails to complete a Participation
Agreement before the first day of the Plan Year in which he or she will
earn the compensation to which the Participation Agreement relates, the
Participant will be deemed to have elected not to make Pre-tax
Contributions for that Plan Year.
4.3 Modification or Revocation of Election by Participant.
A Participant may not change the amount of his Pre-tax Contributions during
a Plan Year unless the Committee determines that he has suffered a severe,
sudden and unforeseeable hardship, as more fully described in Section 7.10.
Under no circumstances may a Participant's Participation Agreement be made,
modified or revoked retroactively.
4.4 Employer Make-up Contributions.
For each Plan Year, the Account of each Participant will be credited with
the Employer Make-up Contribution determined pursuant to Section 2.1(m).
7
<PAGE>
4.5 Employer Matching Make-up Contributions.
For each Plan Year, the Account of each Participant will be credited with
the Employer Matching Make-up Contribution determined pursuant to Section
2.1(n).
8
<PAGE>
ARTICLE V
VESTING AND EARNINGS ELECTIONS
5.1 Vesting.
A Participant will be 100% vested at all times in the amount of his Account
which is attributable to his Pre-tax Contributions and Employer Matching
Make-up Contributions. The portion of the Participant's Account
attributable to Employer Make-up Contributions will vest on the earliest to
occur of the following dates:
(a) the Participant's Retirement Date;
(b) the Participant's death; and
(c) the date the Participant accrues three years of vesting service under
the Employees Stock Bonus Plan.
All provisions of the Plan relating to the distribution of a Participant's
Account will mean only the vested portion of that Account. Since the Plan
is unfunded, the portion of a Participant's Account that is not vested and
therefore not distributed with the vested portion of his Account will
remain property of the Employer who was responsible for it, and will not be
allocated to the Accounts of other Participants or otherwise inure to their
benefit.
5.2 Hypothetical Investment Elections.
Amounts credited to a Participant's Account will be credited with earnings
and losses based on hypothetical investments selected by the Committee, as
described below. The Committee will establish "investment guidelines" that
prescribe hypothetical allocation (and periodic rebalancing) of account
credits in specified percentages among a range of mutual funds and other
investment vehicles chosen according to the "investment objectives" of the
guidelines. From time to time, the Committee will review the guidelines and
may adjust them, to redefine the investment objectives, or better to
achieve existing objectives. Amounts in each account will be credited as of
each Accounting Date with the gains, or debited with the losses, they would
have earned or lost since the next preceding Accounting Date if the
investments had been real, instead of hypothetical.
9
<PAGE>
ARTICLE VI
ACCOUNTS
6.1 Establishment of Bookkeeping Accounts.
A separate bookkeeping Account will be maintained for each Participant. The
account will be credited with the Pre-tax Contributions made by the
Participant pursuant to Section 4.1, the Employer Make-up Contributions
made by the Employers pursuant to Section 4.4 and the Employer Matching
Make-up Contributions made by the Employers pursuant to Section 4.5,
credited (or charged, as the case may be) with the hypothetical investment
results determined pursuant to Section 5.2, and charged with distributions
made to or with respect to a Participant.
6.2 Subaccounts.
Within each Participant's bookkeeping Account, separate subaccounts will be
maintained to the extent necessary or desirable for the efficient
administration of the Plan.
6.3 Hypothetical Nature of Accounts.
The Accounts established under this Article VI will be hypothetical in
nature and will be maintained for bookkeeping purposes only, so that Pre-
tax Contributions, Employer Make-up Contributions and Employer Matching
Make-up Contributions can be credited to Participants and earnings and
losses on those contributions can be credited (or charged, as the case may
be). Neither the Plan nor any of the Accounts (or subaccounts) will hold
any actual funds or assets. The right of any person to receive one or more
payments under the Plan will be an unsecured claim against the general
assets of the Employers. Any liability of an Employer to any Participant,
former Participant, or Beneficiary with respect to a right to payment will
be based solely upon contractual obligations created by the Plan. Neither
the Company, any other Employer, the Board, nor any other person will be
deemed to be a trustee of any amounts to be paid under the Plan. Nothing
contained in the Plan, and no action taken pursuant to its provisions, will
create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and a Participant, former Participant,
Beneficiary, or any other person.
10
<PAGE>
ARTICLE VII
PAYMENT OF ACCOUNT
7.1 Timing of Distribution of Benefits.
a) Distribution of Contribution to Employees' Savings Plan. No later
than March 15 of the Plan Year following the Plan Year for which the
Participant executed the Participation Agreement, the lesser of (i)
the excess of the allowable pre-tax contribution which may be made on
behalf of the Participant to the Employees' Savings Plan for the Plan
Year for which the Participant executed the Participation Agreement
over the amounts already actually contributed to the Employees'
Savings for the Plan Year and (ii) the excess of the Pre-tax
Contributions for the Plan Year for which the Participant executed the
Participation Agreement over the amounts already actually contributed
to the Employees' Savings Plan for the Plan Year will be paid directly
to the Participant's Account in the Employees' Savings Plan, and the
appropriate subaccounts of Participant's Account in this Plan will be
debited accordingly. However, the Plan will not make distributions to
the Employees' Savings Plan in excess of the Participant's Account
balance. Distributions pursuant to this Section 7.1(a) may be made in
one or more installments.
(b) Distribution After Termination of Employment. Except as provided
below and in Section 7.1(a), a Participant's entire Account will be
distributed to him (or his Beneficiary in the event of his death)
following the earliest to occur of the following:
(i) the Participant's death;
(ii) the Participant's Retirement Date; and
(iii) the Participant's other termination of employment with the
Employer and all affiliates (as defined in the Employees'
Savings Plan).
Notwithstanding the foregoing, if a Participant's Retirement Date is
on account of disability, as described in Section 2.1(u)(ii), and if
the Participant so requests and the Committee permits it, the
Participant may defer distribution until the earlier of the dates
specified in Section 2.1(u)(i)(A) or 2.1(u)(i)(B) or the Participant's
death.
11
<PAGE>
7.2 Time of Distribution and Accounting.
When a distributable event described in Section 7.1(b) occurs, the balance
of a Participant's Account will be determined, as of the Accounting Date
immediately following the distributable event. Distribution will be made or
begin as soon as practicable after the accounting or ninety days following
the distributable event, whichever is later.
7.3 Form of Payment or Payments.
If the value of the Participant's Account as of the Accounting Date
described in Section 7.2 is at least $25,000, benefits payable after the
Participant's Retirement Date will be paid in the form elected by the
Participant. The form elected will apply to the entire Account. The
election may be amended, provided that the amended election does not
increase the duration of payments in the previous election and the election
is made no later than December 31 of the calendar year before the
Participant's Retirement Date. Available forms of distribution are:
(a) payment by lump sum; and
(b) payment in substantially equal monthly installments over a period of
sixty, 120, or 180 months, or substantially equal annual installments
over a period of five, ten, or fifteen years. During the payout
period, hypothetical earnings on the unpaid balance will continue to
be credited to subaccounts at the appropriate rate, in accordance with
the Participant's hypothetical investment election.
If, as of the Accounting Date described in Section 7.2, the value of the
Participant's Account is less than $25,000, the form of distribution will
be by lump sum payment. If a former Participant dies after installment
payments have begun, but before distribution of his entire Account has been
completed, distributions will be continued to his Beneficiary in the form
that was being paid before his death.
12
<PAGE>
7.4 Accelerated Distribution.
Notwithstanding any other provision of the Plan, a Participant will be
entitled to receive, upon written request to the Committee, a lump sum
distribution of his Account balance, valued as of the Accounting Date
immediately following the date he makes his request. A Participant who
makes such a request will forfeit ten percent of the Account balance as so
valued, as a penalty. A Participant who receives a distribution under this
Section 7.4 will not be eligible to make Pre-tax Contributions until the
first day of the second Plan Year which begins after that distribution. A
distribution under this section 7.4 will be made as soon as practicable
after the Committee receives the Participant's written request and the
Account has been valued.
7.5 Designation of Beneficiaries.
Each Participant will have the right, at any time, to designate one or more
persons or an entity as a Beneficiary (joint, primary or secondary) to whom
his benefits under this Plan will be paid if he dies before his Account has
been completely distributed. Each Beneficiary designation must be in a
written form prescribed by the Committee and will be effective only when
filed with the Committee during the Participant's lifetime. Designation by
a married Participant of a Beneficiary other than his spouse will not be
effective unless the spouse executes a written consent that acknowledges
the effect of the designation and is witnessed by a notary public, or
unless the consent cannot be obtained because the spouse cannot be located.
7.6 Amendments of Beneficiary Designations.
Except as provided below, any designation of Beneficiary other than the
Participant's spouse may be changed by a Participant without the consent of
that Beneficiary, merely by the Participant's filing a new designation with
the Committee. The filing of a new designation will cancel all
designations previously filed.
7.7 Change in Marital Status.
If the Participant's marital status changes after he has designated a
Beneficiary, the following rules will apply.
(a) If the Participant is married at death but was unmarried when the
designation was made, the designation will be void unless the spouse
has consented to it in the manner described in Section 7.5 or is the
Beneficiary named in the designation.
(b) If the Participant is unmarried at death but was married when the
designation was made:
(i) the designation will be void if the spouse was named as
Beneficiary; and
(ii) the designation will remain valid if a Beneficiary other than the
individual to whom the Participant was married at the time of the
designation was named.
13
<PAGE>
(c) If the Participant was married when the designation was made and is
married to a different spouse at death, the designation will be void
unless the new spouse has consented to it in the manner described in
Section 7.5, or unless the individual who is the Participant's spouse
at the Participant's death was named as the Beneficiary.
7.8 No Beneficiary Designation.
If any Participant fails to designate a Beneficiary in the manner provided
above, or if the Beneficiary designated by a deceased Participant dies
before the Participant or before complete distribution of the Participant's
benefits, the Participant's Beneficiary will be the person in the first of
the following classes in which there is a survivor:
(a) the Participant's surviving spouse;
(b) the Participant's children in equal shares, except that if any of the
children predeceases the Participant but leaves issue surviving, then
such issue will take by right of representation the share the parent
would have taken if living; and
(c) the Participant's estate.
7.9 Unclaimed Benefits.
If the Committee is unable to locate the Participant or beneficiary to whom
a benefit is payable, the benefit will be forfeited to the Employer or
Employers who made the contributions on behalf of the Participant, if the
Committee so decides. Notwithstanding the foregoing, if after any such
forfeiture the Participant or beneficiary to whom the benefit was payable
makes a valid claim for the benefit, it will be paid by the Employer or
restored to the Plan by the Employer.
7.10 Hardship Withdrawals.
A Participant may apply in writing to the Committee for, and the Committee
may permit, a hardship withdrawal of all or any part of a Participant's
Account, valued as of the Accounting Date immediately following the date
the application is made. The Committee will grant a hardship withdrawal
under this Section 7.10 only if it determines in its sole and absolute
discretion that the Participant has incurred a severe financial hardship
resulting from a sudden and unexpected illness or accident of the
Participant or of the Participant's dependent (as defined in Section 152(a)
of the Code), a loss of the Participant's property due to casualty, or
another similar extraordinary and unforeseeable set of circumstances
arising as a result of events beyond the control of the Participant, as
determined by the Committee. The amount that may be withdrawn will be
limited to the amount reasonably necessary to relieve the hardship or
financial emergency upon which the request is based, plus the federal and
state taxes due on the withdrawal, as determined by the Committee. The
Committee may require a Participant who requests a hardship withdrawal to
submit evidence the Committee, in its sole discretion, deems necessary or
appropriate to substantiate the hardship withdrawal request. A Participant
who receives a
14
<PAGE>
hardship withdrawal under this Section 7.10 will not be eligible to make
Pre-tax Contributions until the first day of the next Plan Year.
7.11 Withholding.
All contributions, hypothetical earnings (if any) on contributions and
distributions under this Plan will be subject to legally required income
and employment tax withholding.
15
<PAGE>
ARTICLE VIII
ADMINISTRATION
8.1 Committee.
The Plan will be administered by a Committee, which will consist of the
members of the Company Stock Option Advisory Committee of the Board. The
Committee will be responsible for the general operation and administration
of the Plan and for carrying out its provisions. The Committee may
delegate certain of its responsibilities under the Plan to others,
including officers and employees of the Employers, advisors and individuals
qualified to undertake Plan ministerial duties, so long as the delegation
is in writing. No member of the Committee who is a Participant may
participate in any matter relating to his status as a Participant or his
rights or entitlement to benefits as a Participant.
8.2 General Powers of Administration.
The Committee will have all powers necessary or appropriate to enable it to
carry out its administrative duties. Not in limitation, but in
illustration of the foregoing, the Committee will have discretionary
authority to construe and interpret the Plan and determine all questions
that may arise hereunder as to the status and rights of Employees,
Participants, Beneficiaries and others. The Committee may exercise its
powers in its sole and absolute discretion. The Committee may promulgate
such regulations as it deems appropriate for the operation and
administration of the Plan. No member of the Committee will be personally
liable for any actions taken by the Committee unless the member acted with
willful misconduct.
8.3 Indemnification of Committee.
The Company will indemnify the members of the Committee against any and all
claims, losses, damages and expenses, including attorney's fees, incurred
by them, and against any liability, including any amounts paid in
settlement with their approval, arising from their action or failure to
act, except when the action or failure to act is judicially determined to
be attributable to the members' gross negligence or willful misconduct.
16
<PAGE>
ARTICLE IX
DETERMINATION OF BENEFITS,
CLAIMS PROCEDURE AND ADMINISTRATION
9.1 Claims.
A person who believes that he is being denied a benefit to which he is
entitled under the Plan may file a written request for the benefit with the
Committee, setting forth his claim. The request must be addressed to the
Committee at the Company at its then principal place of business.
9.2 Claim Decision.
Upon receipt of a claim, the Committee will advise the claimant that a
reply will be forthcoming within ninety days and will, in fact, deliver its
reply within that period. The Committee may, however, extend the reply
period for an additional ninety days for reasonable cause, so long as it
gives the claimant advance notice of the need for an extension.
If the Committee denies the claim in whole or in part, the Committee will
adopt a written opinion, using language calculated to be understood by the
claimant, setting forth:
(a) the specific reason or reasons for the denial;
(b) specific references to the Plan provisions on which the denial is
based;
(c) a description of any additional material or information necessary for
the claimant to perfect his claim and an explanation why the material
or information is necessary;
(d) appropriate information as to the steps to be taken if the claimant
wishes to submit the claim for review; and
(e) the time limits for requesting a review under Section 9.3 and for
review under Section 9.4 hereof.
9.3 Request for Review.
Within sixty days after the Claimant receives the written opinion described
above, he may request in writing that the Secretary of the Company (the
"Secretary") review the Committee's determination. The request must be
addressed to the Secretary of the Company at its then principal place of
business. The claimant or his duly authorized representative may, but need
not, review the pertinent documents and submit issues and comments in
writing for consideration by the Secretary. If the claimant does not
request a review of the Committee's determination within sixty days after
receiving the Committee's opinion, he will be barred and stopped from
challenging the Committee's determination.
17
<PAGE>
9.4 Review of Decision.
Within sixty days after the Secretary's receipt of a request for review, he
will review the Committee's determination. After considering all materials
presented by the claimant, the Secretary will render a written opinion,
written in a manner calculated to be understood by the claimant, setting
forth the specific reasons for the decision and containing specific
references to the provisions of the Plan on which the decision is based.
If special circumstances require that the sixty-day time period be
extended, the Secretary will notify the claimant and will render the
decision as soon as possible, but no later than 120 days after receipt of
the request for review.
9.5 Discretionary Authority.
The Committee and Secretary will have complete discretionary authority to
determine a claimant's entitlement to benefits upon his claim or his
request for review of a denied claim, respectively.
18
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Plan Not a Contract of Employment.
The adoption and maintenance of the Plan will not be or be deemed to be a
contract between the Company and any person, or to be consideration for
the employment of any person. Nothing in this Plan will give or be deemed
to give any person the right to be retained in the employ of an Employer
or the right to restrict an Employer's right to discharge any person at
any time; nor will the Plan give or be deemed to give an Employer the
right to require any person to remain in the employ of the Employer, or to
restrict any person's right to terminate his employment at any time.
10.2 Non-Assignability of Benefits.
No Participant, Beneficiary or distributee of benefits under the Plan will
have any power or right to transfer, assign, anticipate, hypothecate or
otherwise encumber any part or all of the amounts payable hereunder, which
are expressly declared to be unassignable and non-transferable. Any such
attempted assignment or transfer will be void. No amount payable under the
Plan will, prior to actual payment thereof, be subject to seizure by any
creditor of any Participant, Beneficiary or other distributee for the
payment of any debt, judgment, or other obligation, by a proceeding at law
or in equity, nor transferable by operation of law in the event of the
bankruptcy, insolvency or death of a Participant, Beneficiary or other
distributee hereunder.
10.3 Amendment and Termination.
The Board (or any person authorized by the Board) may from time to time,
in its discretion, amend, in whole or in part, any or all of the
provisions of the Plan; provided, however, that no amendment may be made
which would impair the rights of a Participant to amounts already
allocated to his Account. The Board may terminate the Plan at any time. If
the Plan is terminated, the balance in a Participant's Account will be
paid to the Participant or his Beneficiary in a lump sum or in equal
monthly installments, as determined by the Committee.
10.4 Unsecured General Creditor Status Of Employee.
The payments to a Participant, his Beneficiary or any other distributee
hereunder will be made from assets which will continue, for all purposes,
to be a part of the general, unrestricted assets of the Employers; no
person will have nor acquire any interest in any such assets by virtue of
the provisions of this Agreement. An Employer's obligation hereunder will
be an unfunded and unsecured promise to pay money in the future. To the
extent that the Participant, a Beneficiary, or other distributee acquires
a right to receive payments from the Employer under the provisions hereof,
such right will be no greater than the right of any unsecured general
creditor of the Employer; no such person will have nor require any legal
or equitable right, interest or claim in or to any property or assets of
19
<PAGE>
the Employer. If, in its discretion, the Employer purchases an insurance
policy or policies insuring the life of the Participant (or any other
property), or establishes a grantor trust, to allow the Employer to
recover the cost of providing the benefits, in whole, or in part,
hereunder, neither the Participant, his Beneficiary nor any other
distributee will have nor acquire any rights whatsoever therein or in the
proceeds therefrom. The Employer will be the sole owner and beneficiary of
any such insurance policy or policies and, as such, will possess and may
exercise all incidents of ownership therein. Except as described in
Section 1.4, no such policy, policies or other property will be held in
any trust for a Participant, Beneficiary or other distributee or held as
collateral security for any obligation of an Employer hereunder.
10.5 Severability.
If any provision of this Plan is held to be illegal or invalid for any
reason, the illegality or invalidity will not affect the remaining
provisions hereof; instead, each provision will be fully severable and the
Plan will be construed and enforced as if the illegal or invalid provision
had never been included in it.
10.6 Governing Laws.
All provisions of the Plan will be construed in accordance with the laws
of Illinois, except to the extent preempted by federal law.
10.7 Binding Effect.
This Plan will be binding on each Participant and his heirs and legal
representatives and on the Employers and their successors and assigns.
10.8 Entire Agreement.
This document and any amendments contain all the terms and provisions of
the Plan and will constitute the entire Plan, any other alleged terms or
provisions being of no effect.
* * *
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
the _______________ day of October, 1997.
FIRST OAK BROOK BANCSHARES, INC.
By:______________________________
Title:_____________________________
20
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. IN BRIEF
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OUR BUSINESS
First Oak Brook Bancshares, Inc. is the 12th largest, independent, publicly-
held bank holding company headquartered in Illinois. Organized in 1983 and pub-
licly-traded since 1985, its primary business is the ownership and control of
Oak Brook Bank, an Illinois-chartered commercial bank. The Company employs 264
full-time equivalent employees.
Oak Brook Bank offers full-service banking, investment management, trust and
related financial services through a network of 10 offices in suburban Chicago-
land.
OUR MARKETS
The Company is headquartered and its largest banking office is located in Oak
Brook, Illinois, twenty miles west of downtown Chicago. Nine of its offices are
located in the western suburbs of Chicago, eight of which are in DuPage County.
DuPage, the second largest county in Illinois, has a population of approxi-
mately 859,000 and enjoys the highest median family income in the state. Its
other office is located on Chicago's affluent North Shore. In addition, the
Company markets its products and services through local advertising.
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TABLE OF CONTENTS
1 Financial Highlights 24 Consolidated Financial Statements
2 Message to Shareholders 28 Notes to Consolidated Financial
7 Financial Review Statements
23 Report of Independent Auditors 40 Corporate and Shareholder Informa-
tion
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This annual report to shareholders contains certain forward looking statements
consisting of estimates with respect to the financial condition, results of op-
erations and business of the Company that are subject to various factors which
could cause actual results to differ from these estimates. These factors in-
clude, but are not limited to, changes in: general economic conditions, inter-
est rates, legislative or regulatory changes, loan demand and depositor prefer-
ences. These risks and uncertainties should be considered in evaluating for-
ward-looking statements.
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
At and for the year ended
December 31,
(Dollars in thousands except per share
amount) 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 13,753 $ 7,107 $ 6,692
KEY FINANCIAL RATIOS
Return on Average Assets 1.76% .97% 1.03%
Return on Average Equity 21.72% 12.77% 14.00%
PER SHARE
Basic earnings per share $ 4.18 $ 2.11 $ 1.99
Diluted earnings per share 4.06 2.06 1.95
Book value at year-end 20.75 17.26 15.64
Market price at year-end 48.00 23.25 20.63
Cash dividends paid
Class A common .540 .380 .315
Common .440 .315 .263
YEAR-END BALANCES
Total assets $816,144 $768,655 $678,102
Loans, net of unearned discount 447,332 420,164 362,728
Demand deposits 153,806 147,497 128,236
Total deposits 627,763 648,303 555,086
Shareholders' equity 71,661 59,553 53,762
ASSET QUALITY
Nonperforming loans to total loans .09% .49% .03%
Allowance for loan losses to total loans .97% .98% 1.08%
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</TABLE>
1
First Oak Brook Bancshares, Inc.
<PAGE>
TO OUR SHAREHOLDERS
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You probably can tell this Annual Report was produced inexpensively. Rather
than spending the extra money painting the lily, we decided to let our past
year's stellar performance speak for itself.
And how well did we do? Well, our earnings totaled $13.8 million, up a spec-
tacular 94% from last year. Even setting aside our $5.1 million net gain from
the sale of our credit card portfolio, First Oak Brook's core earnings rose to
$8.7 million in 1997 from $7.1 million in 1996, a 22% increase. And 1997
shareholders' equity climbed to $71.7 million from $59.6 million the year be-
fore, up 20%.
Enjoying an outstanding return on average equity of 21.72% and return on av-
erage assets of 1.76%, we were very comfortable boosting dividends for the
sixth consecutive year and initiating our first stock buy back program.
Evidently, the market responded, rewarding shareholders with an unprece-
dented gain in our stock price. Our Class A common stock opened at $23.25 per
share on January 1, 1997 and closed at $48 per share on December 31, 1997,
more than doubling over the year. More to the point, our Company's stock
outperformed the indexes. We'd like to suggest some possible explanations for
this.
ENHANCING SHAREHOLDER VALUE
We now recognize managing our bank well and enhancing shareholder value are
not synonymous, although they remain closely related. We are more focused than
ever before on the advantages of stock buy back programs, which raise per
share earnings; increased dividends, which put cash in our investors' pockets;
stock splits, which enhance liquidity and market interest; and stock option
plans, which better align management and shareholder objectives. Our growing
size, desirable location, and valuable franchise have been attracting invest-
ors; we're also taking more direct action to encourage their interest. In the
past, we tended to think of visits from the investment community as distrac-
tions keeping us from our customers. Now we think of them as opportunities and
act accordingly.
BUILDING ON OUR STRENGTHS: A REVIEW
We have learned that the same kind of dispassionate and objective examina-
tion of our business that can work so well for investment analysts can also
work for us. Thus, as 1997 began, we looked closely at each of our major busi-
ness divisions. In some of our strongest performing areas, we made crucial
changes. Here are details:
COMMERCIAL BANKING AND CASH MANAGEMENT. Historic sources of growth and profit,
these related departments develop, sell, install and service cash management
products for business, the professions and the public sector. Our objective is
to continue to build the business development and relationship management
staff and to introduce custom-made and innovative products for this sophisti-
cated business market. We certainly are well on our way to our goals. In 1997
we brought in approximately $30 million in new checking accounts or fee equiv-
alents. We expanded our front-line to 17 people. We made important product im-
provements, including a complex new lockbox/electronic data interchange serv-
ice (LBX/EDI) and a Windows-based enhancement to our electronic banking serv-
ice (EBS); and we're about to unveil an Internet-based version of our elec-
tronic banking service (WEBSSM), one of the first of its kind in the U.S.
COMMERCIAL REAL ESTATE LENDING. Another growth engine, commercial real estate
lending, enjoyed a profitable year in 1997, expanding to $109.9 million from
$99.3 million. Although our portfolio is diversified, we exploited our special
expertise in lending to home builders. Yields remained relatively attractive.
We introduced a successful direct mail marketing program. Our top lenders re-
mained in place, and we strengthened support staff.
2
First Oak Brook Bancshares, Inc.
<PAGE>
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CONSUMER LOANS. Consumer loans consist of two principal categories--indirect
auto loans and home equity lines. Our indirect auto loan business exploded in
1997 to $105.8 million from $58.6 million in 1996. We have, by design, become
an area leader in making consumer auto loans through a network of car dealers.
In fact, in 1997 we placed 7th in new car and 10th in used car bank loan orig-
inations for the Chicago area according to the Cross-Sell Report, whereas,
previously, we had not made the top 40. And we are particularly pleased we
achieved this remarkable result while incurring only $39,000 in losses on 12
loans out of a portfolio of over 8,300 loans. Our success depends on competi-
tive pricing, fast turnarounds and consistent buying habits. To sharpen our
edge while increasing our capacity for business development, we expanded our
staff to 8 in 1997 from 4 in 1996.
Our home equity line business expanded in 1997 as outstandings rose to $65.3
million from $55.3 million, growing 18%. Chicago-area radio continues as our
principal marketing vehicle, promoting our under prime rates for larger lines
of credit. We refined our Call Center, which opened in late 1996, so that ap-
plications for home equity lines, direct auto loans and several other types of
consumer loans could be taken by phone.
INVESTMENT MANAGEMENT AND TRUST DEPARTMENT. The growth in Investment Manage-
ment and Trust Department (IM&T) income and assets coincides with our strategy
over the last five years to produce an increase in discretionary investment
assets under management. Until then our IM&T Department operated largely as an
accommodation to our banking customers.
Our focused effort, with help from the recent bull market, has produced out-
standing results. Discretionary assets under management rose to $134 million
in 1997 from $91 million in 1996. Income from all sources climbed to $1.025
million from $653 thousand the prior year, allowing that $147 thousand of this
increase resulted from a one-time shift in billing practice to quarterly in
1997 from annually in arrears in 1996.
To fortify our efforts, we hired our first full-time business development
officer in October, 1996. His specialty is selling investment management serv-
ices primarily to police and fire retirement funds, of which we now have 9 as
clients. We hired an attorney to work full-time on land trusts, so our other
administrators can focus on discretionary asset management. And in February,
1998, we engaged a new head of the IM&T Department, who comes to us with ex-
tensive investment experience.
Also, in August, 1997 we selected Pacific Income Advisors (PIA), a spin-off
from Security Pacific Bank, as a sub-investment advisor on our large-capital-
ization, value-oriented managed funds. So far, PIA's results have been excel-
lent. Clients also appreciated another investment approach, mutual fund asset-
allocation modeling. Here, for a modest fee, we advise clients on a mix of no-
load mutual funds to support their lifestyles and meet their investment goals.
All these initiatives are intended to help us become a leading provider of
investment management services to individuals, professionals, middle market
businesses, and the public sector throughout the western suburbs.
FIXING OUR WEAKNESSES: A REVIEW
As we wrote in last year's Annual Report, we also began 1997 by identifying
a few areas which needed attention. Here's what we did about them:
CREDIT CARDS. After years of leading the credit card industry with low rates
and top service, we found we lacked the resources to compete against even big-
ger and more aggressive companies. Our credit card business had stayed very
profitable but wasn't growing. Our low cost position in the market was erod-
ing. Our revolving credit users were being attracted by teaser rates, and our
convenience users
3
First Oak Brook Bancshares, Inc.
<PAGE>
TO OUR SHAREHOLDERS
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were being lured away by rebate programs. We were doing well just maintaining
our portfolio. The big players had been buying business; we couldn't afford
the same tactics.
We considered two alternatives:
. Stay in the business, and go after affinity card sponsors who want to
provide a low-cost card for their members, rather than a high revenue
stream for themselves. While this niche is only a small fraction of the
market, it fit best with our resources and reputation.
. Sell the business at a price warranted by the quality of our portfolio
and sufficient to preserve our income stream for at least five years,
while making sure our loyal customers continued to receive outstanding
service.
We chose the second alternative, and the portfolio sale we completed in mid-
1997 achieved all our objectives. We received an immediate after-tax premium,
net of expenses, of $5.1 million. We entered into a revenue-sharing agreement
on the sold portfolio that, coupled with the income on the reinvested princi-
pal, should produce a return for five years approximating our previous profit.
And we sold the portfolio to an organization recognized for superior service.
This was a difficult decision for us because we knew it could hurt loyal em-
ployees. But this tough choice turned out to be the right one. With our growth
and a very tight job market, we were able to place most of the displaced staff
in other jobs in our own Company. In the end, we strengthened several growing
areas of the bank.
RETAIL BANKING. Gathering retail deposits still centers on walk-in business at
branches. That's one reason, to depositors, quality service means having a
convenient location. And that's why branches, although expensive, are likely
to continue as the premier retail delivery channel for the foreseeable future.
In this context, we have staked out the western suburbs of Chicago as our pri-
mary market. Area demographics remain outstanding. DuPage County, the heart of
our market, has an estimated population of 859,000 and enjoys the highest me-
dian family income of any county in Illinois and the twentieth highest nation-
ally.
However, as we examined our branch costs, we realized we had gotten a little
off track. Generally, we had located offices in communities with both growing
consumer and commercial bases, with the expectation that consumer business
would cover our initial costs and commercial accounts would produce long-term
growth and profit. Unfortunately, in certain cases we had built up retail
staff at the expense of outside commercial new business staff. We began to
correct this imbalance in 1997.
We also found inefficiencies. For example, banking hours in some cases did
not coincide with customer preferences. We typically maintained late hours on
Friday nights because years ago it was a popular time to cash the weekly pay-
check or float a car loan. With direct deposit of most payrolls, the prolifer-
ation of ATMs, and the car loan business migrating into dealer showrooms, such
extended Friday hours are an anachronism. We adjusted them.
Meanwhile, we introduced new technology where appropriate. A simple computer
model now allows us to identify and pay special attention to our better cus-
tomers who account for virtually all retail banking profits.
To cover our costs and associated risks, we also began charging non-custom-
ers for cashing checks and using our ATMs.
For 1998, we are working on a number of initiatives. We have already intro-
duced a new Individual Cash Management Checking Account which combines check-
ing and investment features, so cus-
4
First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
tomers don't have to transfer cash back and forth between checking and higher
interest accounts. This new checking account pays regular checking interest on
smaller balances and a high savings rate on balances over $10,000. We are also
planning to modify our other checking and savings products to eliminate com-
plexity and reward our better customers with extra features. And we're happily
saying goodbye to the avalanche of paper that used to jam our CD system.
Before the year is up, we expect to introduce check imaging, which will give
customers images of their checks each month, instead of the originals. Later,
when we introduce home banking, customers will be able to see their checks as
soon as they clear, instead of having to wait until the end of the month.
But the success of our retail banking will depend on more than technology.
The Retail Banking Department is focusing on ways to please our customers at
each and every point of contact. We already have introduced Customer Apprecia-
tion Days, and we celebrate holidays like Valentine's Day, Mother's Day, Fa-
ther's Day, and Halloween with special gifts. We thank our customers when they
open an account, and we let our best customers know we appreciate them during
the holidays each December. We think our customers will value these and other
courtesies greatly.
COMMERCIAL LENDING. Finally, commercial lending was lagging. Despite the ex-
panding economy, commercial loans totaled just $40.9 million at year-end 1996
compared to $38.2 million at the end of 1995; worse still, commercial loans
represented a meager 9.7% of total loans in 1996, down from 10.5% in 1995. We
found new leadership for the commercial loan group in 1997 and streamlined the
decision-making process to improve our responsiveness. Consequently, we ended
1997 with $54.7 million in outstandings. Our long-term goal is to make commer-
cial lending as important as commercial deposit gathering.
OTHER PLANS
NEW TECHNOLOGY. In the coming year, we'll have new challenges to face. As the
wave of new banking technology speeds along, we must work even harder to stay
on the leading edge. Our commitment manifests itself in some of our future
projects: a more powerful IBM AS400 computer, check imaging, business and home
banking over the Internet, a new system to process consumer loan applications,
a new computerized system for opening retail accounts, a new platform system
to simplify loan operations input, and upgrades to the Call Center, not to
mention 66 replacement Pentium II PC installations. Also, of course, our IT
Department is examining and testing "Year 2000" solutions.
We have to bear in mind that advancement doesn't come without its costs,
even beyond the money spent. Every time we install new computer equipment or
software, it's as if we all become trainees again until everybody in the or-
ganization readjusts. Also, we must continue to hire and train talented new
people in a very tight job market.
EXPANSION. We're expanding. In early January 1998, we opened our new Aurora
branch. This elegant new Federalist style office, situated at the entrance to
the upscale Stonegate community, will serve both residents of eastern Aurora
and western Naperville and businesses throughout the Fox Valley area.
We also acquired a location for a new branch in downtown Glen Ellyn, another
attractive DuPage County community. We have all necessary approvals in hand
and have sent plans out for bid. We expect this office to open late in 1998.
And we are seeking additional sites. Even though new branches retard short-
term earnings, we believe our market warrants judicious office additions.
5
First Oak Brook Bancshares, Inc.
<PAGE>
TO OUR SHAREHOLDERS
- -------------------------------------------------------------------------------
Meanwhile, we're keeping an eye out for acquisitions. Recently, bank acqui-
sitions have been growing larger, and some smaller financial institutions are
starting to recognize that it may be wise to merge with a company our size.
Non-bank acquisitions, such as insurance brokerages, are also a possibility.
Moreover, the recent uptick in our stock price gives us an attractive currency
for such deals. We are committed to a very disciplined approach to acquisi-
tions. Our expectation is to optimize current and future earnings streams, ob-
tain logical market extensions and exploit economies of scale.
THE OAK BROOK BANK CHARITABLE FOUNDATION. Part of being a leader means sup-
porting good causes in the communities we serve. Hence, at the end of 1997, we
established the Oak Brook Bank Charitable Foundation with an initial gift of
$300,000. While this donation slightly reduced 1997 profits, it allowed us to
take advantage of the higher 38% marginal tax bracket our credit card sale put
us in; it gave us leeway to invest in equities as well as debt; and it pro-
vides us with ample funds to help low and moderate income families within our
Community Reinvestment Act (CRA) assessment area.
LOOKING FORWARD. In 1998, we'll most likely continue to be challenged by our
asset growth and technological sophistication. Of course, many organizations
in less desirable markets dream of facing such problems, so we're not com-
plaining. You can be sure we'll be working harder than ever during the coming
year to reinforce our position of banking leadership in Chicago's western sub-
urbs.
GOODBYE, AL. Lastly, let us wish a fond farewell to Al Withers, who passed
away in November, 1997 after serving as Director so ably and long. The Board
will miss this Texan's practical advice and good humor.
LOGO LOGO
LOGO
Eugene P. Heytow Frank M. Paris
Chairman Richard M. Rieser, Jr. Vice-Chairman
President
6
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
EARNINGS SUMMARY AND SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At and for the year ended December 31,
(Dollars in thousands except
per share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 27,432 $ 26,834 $ 25,476 $ 24,296 $ 21,315
Provision for loan losses 1,550 1,510 1,050 1,200 960
Net interest income after
provision for loan losses 25,882 25,324 24,426 23,096 20,355
Other income 15,541 4,647 4,186 4,098 5,112
Other expenses 20,708 20,435 19,924 19,173 18,379
Income before provision for
income taxes 20,715 9,536 8,688 8,021 7,088
Provision for income taxes 6,962 2,429 1,996 1,827 1,555
Net income $ 13,753 $ 7,107 $ 6,692 $ 6,194 $ 5,533
- -------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings per share $ 4.18 $ 2.11 $ 1.99 $ 1.84 $ 1.65
Diluted earnings per share 4.06 2.06 1.95 1.81 1.62
Cash dividends paid per
share:
Class A common .540 .380 .315 .276 .236
Common .440 .315 .263 .222 .192
Book value per common share
and common equivalent share 20.75 17.26 15.64 13.17 13.25
Market price per share 48.00 23.25 20.63 17.25 14.33
- -------------------------------------------------------------------------------
YEAR-END BALANCE SHEET DATA
Total assets $816,144 $768,655 $678,102 $634,705 $613,574
Loans, net of unearned dis-
count 447,332 420,164 362,728 309,681 278,177
Allowance for loan losses 4,329 4,109 3,932 3,859 3,231
Investment securities 302,098 265,954 256,192 263,943 223,988
Demand deposits 153,806 147,497 128,236 109,237 113,780
Total deposits 627,763 648,303 555,086 513,623 508,173
Federal Home Loan Bank
borrowings 42,500 -- 3,500 6,000 6,000
Shareholders' equity 71,661 59,553 53,762 42,909 44,118
- -------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets 1.76% .97% 1.03% 1.01% .95%
Return on average equity 21.72 12.77 14.00 14.54 13.85
Net interest margin 3.97 4.20 4.54 4.61 4.44
Net interest spread 2.86 3.23 3.57 3.87 3.75
Dividend payout ratio 12.43 18.63 14.63 14.13 16.75
- -------------------------------------------------------------------------------
CAPITAL RATIOS
Average equity to average
total assets 8.11% 7.59% 7.39% 6.95% 6.89%
Tier 1 capital ratio 13.70 12.66 13.33 13.37 11.88
Total capital ratio 14.55 13.54 14.32 14.46 12.83
Capital leverage ratio 8.57 7.69 7.94 7.50 6.56
- -------------------------------------------------------------------------------
ASSET QUALITY RATIOS
Nonperforming loans to total
loans .09% .49% .03% .21% .11%
Nonperforming assets to
total loans and other real
estate owned .09 .49 .03 .21 .46
Nonperforming assets to
total capital .53 3.49 .19 1.49 2.92
Allowance for loan losses to
total loans .97 .98 1.08 1.25 1.16
Net charge-offs to average
loans .32 .34 .30 .20 .23
Allowance for loan losses to
nonperforming loans 11.45X 1.98x 37.81x 6.05x 10.99x
- -------------------------------------------------------------------------------
</TABLE>
7
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
EARNINGS
First Oak Brook Bancshares, Inc. consolidated net income, earnings per share
and selected ratios for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------
<S> <C> <C> <C>
Net income $13,753,000 $7,107,000 $6,692,000
Basic earnings
per share $ 4.18 $ 2.11 $ 1.99
Diluted earnings
per share $ 4.06 $ 2.06 $ 1.95
Return on
average assets 1.76% .97% 1.03%
Return on
average equity 21.72% 12.77% 14.00%
</TABLE>
1997 versus 1996
A significant change in 1997 net income was the gain on the sale of the credit
card portfolio. The Company recognized an after-tax gain of $5.1 million on the
sale. The net gain consisted of a premium of $11.5 million less expenses of
$2.25 million, an $800,000 special provision for loan losses and an income tax
provision of $3.3 million. In addition the Company will share in the revenue
from the sold portfolio for each of the next five twelve month periods begin-
ning July of 1997, subject to a maximum annual payment of $900,000. Results for
1997, excluding the gain on the sale of the credit card portfolio follow:
<TABLE>
<S> <C>
Net income $8,670,000
Basic earnings per share $ 2.63
Diluted earnings per share $ 2.56
Return on average assets 1.11%
Return on average equity 13.69%
</TABLE>
As detailed below, the sale of the credit card portfolio affects the compara-
bility of virtually every line item in the financial statements.
The 1997 results compared to 1996 include the following significant pre-tax
components:
. Net interest income rose $598,000 due to a 7% increase in average earning as-
sets offset by a 5% decrease in the net interest margin.
. Other income, excluding the gain on the credit card portfolio sale, increased
$1,643,000 primarily due to income earned from the revenue sharing agreement
on the sold credit card portfolio amounting to $450,000 in 1997, as well as
higher fees from business deposit accounts, investment management and trust
accounts, and merchant card processing.
. Salaries and employee benefits increased $527,000 due to normal salary in-
creases, higher compensation due to competitive market conditions, additional
upgrades and increased staff in core growth areas, offset by the elimination
of salaries in the credit card department due to the sale of the credit card
portfolio.
. Data processing fees decreased $324,000 primarily due to the sale of the
credit card portfolio.
. Included in other operating expense was a $300,000 contribution made to the
newly established Oak Brook Bank Charitable Foundation.
. Included in other operating expense was a $515,000 gain on the sale of sur-
plus property formerly leased to a third party.
1996 versus 1995
The 1996 results compared to 1995 include the following significant pre-tax
components:
. Net interest income rose $1,358,000 due to a 13% increase in average earning
assets, offset by a 7% decrease in the net interest margin.
. Management increased the provision for loan losses by $460,000 considering
loan portfolio growth, higher credit card losses and one nonaccrual loan.
. Other income increased $461,000 due to increased fee income from business de-
posit accounts, investment management and trust accounts, mortgages sold in
the secondary market and merchant credit card processing, offset by a
decrease in investment securities gains of $113,000.
. Salaries and employee benefits increased $845,000 due to additional staffing,
normal salary increases and higher benefit payments.
. Advertising and business development expenses decreased $189,000 due to a re-
duction in advertising, offset by increased business development costs.
. FDIC premiums decreased $590,000 as a result of lower FDIC premiums for
"well-capitalized" banks which became effective January 1, 1996.
NET INTEREST INCOME
Net interest income is the difference between interest earned on loans, invest-
ments and other earning assets and interest paid on deposits and other inter-
est-bearing liabilities. Net interest income is the principal source of the
Company's revenues.
1997 versus 1996
On a tax-equivalent basis, net interest income for 1997 totaled $28,591,000, an
increase of $438,000 or 2% over
8
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
1996. This increase is attributable to a 7% increase in average earning assets
offset by a 5% decrease in the net interest margin to 3.97% in 1997 from 4.20%
in 1996. The compression of the net interest margin was a result of the follow-
ing:
. On June 30, 1997, the Company sold its credit card portfolio which totalled
approximately $53 million and had a gross yield of approximately 16%. The net
proceeds from the sale of approximately $58 million were reinvested in the
bank's securities portfolio at an approximate yield of 7%. While the interest
income stream combined with the future revenue sharing payments and reduced
expenses associated with the sale had a neutral to slightly positive effect
on earnings, the net interest margin was compressed for the second six months
of 1997.
. Further compression of the net interest margin in 1997 was offset by a slight
increase in the average prime rate to 8.44% in 1997 from 8.27% in 1996 and
the growth in average loans. Average loans increased $24 million primarily in
indirect auto loans ($30 million), home equity loans ($9.4 million) and com-
mercial loans ($9.4 million), offset by credit card loans dropping $27.2 mil-
lion.
. The cost of average interest-bearing liabilities rose to 4.89% in 1997 from
4.80% in 1996. The 1997 average balance for higher rate time deposits in-
creased $21.2 million compared to 1996 while the 1997 average balance for
lower rate savings and NOW accounts declined $13.7 million compared to 1996.
Financial institutions bid up rates to mitigate a continuing shift in in-
vestor preference for the securities markets. To fund the loan growth at
lower rates than it would have had to pay on deposits, the Company increased
its Federal Home Loan Bank borrowings by $12.6 million on average in 1997.
1996 versus 1995
On a tax-equivalent basis, net interest income for 1996 totaled $28,153,000, an
increase of $1,266,000 or 5% over 1995. This increase is attributable to a 13%
increase in average earning assets offset by a 7% decrease in the net interest
margin to 4.20% in 1996 from 4.54% in 1995. The compression of the net interest
margin was a result of the following:
. During 1996, the prime rate averaged 8.27%, while in 1995 the prime rate av-
eraged 8.83%. Annual yields on earning assets for 1996 reflect this decrease,
declining 35 basis points in comparison with 1995. Lower rates paid on inter-
est bearing liabilities were offset by a $69 million increase in the average
balance of time deposits. The net effect of the rate decreases and the change
in deposit mix was a decline of only one basis point in the rate on interest
bearing liabilities.
. Retail consumers continued to show a strong preference for longer-term,
higher yielding CDs over shorter-term, lower yielding savings and money mar-
ket accounts. The 1996 average balance for time deposits increased $69 mil-
lion compared to 1995 while the 1996 average balance for savings and money
market accounts declined $11 million compared to 1995. Competitive pressure
for consumer dollars from financial institutions and high returns in the eq-
uity markets kept CD rates relatively high.
. Further compression of the net interest margin in 1996 was offset by the 21%
growth in average loans. The $67 million increase in average loans was pri-
marily in real estate (commercial and residential) and indirect auto loans.
Credit card growth was constrained as a result of vigorous competition.
9
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
The following table presents the average interest rate on each major category
of interest-earning assets and interest-bearing liabilities for 1997, 1996, and
1995.
AVERAGE BALANCES AND EFFECTIVE INTEREST RATES
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
INTEREST Interest Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) BALANCE EXPENSE RATES Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Federal funds sold $ 8,325 $ 460 5.52% $ 17,679 $ 943 5.33% $ 17,375 $ 1,024 5.89%
Interest-bearing
deposits with banks 5,260 362 6.89 250 13 5.20 128 8 6.25
Taxable securities 243,341 15,090 6.20 208,546 12,551 6.02 195,080 11,869 6.08
Tax exempt
securities/1/ 46,638 3,489 7.48 51,101 3,956 7.74 54,907 4,355 7.93
Loans, net of unearned
discount/1/, /2/ 416,758 36,445 8.75 392,572 36,328 9.25 325,228 32,427 9.97
- ------------------------------------------------------------------------------------------------------
Total earning
assets/interest income $720,322 $55,846 7.75% $670,148 $53,791 8.03% $592,718 $49,683 8.38%
- ------------------------------------------------------------------------------------------------------
Cash and due from banks 39,611 41,738 31,868
Other assets 25,237 25,013 26,389
Allowance for loan
losses (4,431) (4,139) (4,045)
- ------------------------------------------------------------------------------------------------------
$780,739 $732,760 $646,930
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and NOW
accounts $172,533 $ 6,159 3.57% $186,195 $ 6,852 3.68% $199,523 $ 7,785 3.90%
Money market accounts 34,071 1,089 3.20 29,865 900 3.01 27,205 835 3.07
Time deposits 277,727 16,125 5.81 256,520 14,786 5.76 187,281 10,989 5.87
Short-term debt 59,881 3,101 5.18 60,753 3,058 5.03 56,245 2,993 5.32
FHLB borrowings 13,438 781 5.82 870 42 4.83 4,103 194 4.73
- ------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities/interest
expense $557,650 $27,255 4.89% $534,203 $25,638 4.80% $474,357 $22,796 4.81%
Demand deposits 151,257 136,866 119,812
Other liabilities 8,523 6,052 4,967
- ------------------------------------------------------------------------------------------------------
Total liabilities $717,430 $677,121 $599,136
Shareholders' equity 63,309 55,639 47,794
- ------------------------------------------------------------------------------------------------------
$780,739 $732,760 $646,930
- ------------------------------------------------------------------------------------------------------
Net interest income/net
interest margin/3/ $28,591 3.97% $28,153 4.20% $26,887 4.54%
Net interest spread/4/ 2.86% 3.23% 3.57%
- ------------------------------------------------------------------------------------------------------
</TABLE>
/1Tax/equivalent basis. Interest income and average yield on tax exempt loans
and investment securities include the effects of tax equivalent adjustments
using a tax rate of 35% in 1997 and 34% in 1996 and 1995.
/2Includes/nonaccrual loans.
/3Total/interest income, tax equivalent basis, less total interest expense, di-
vided by average earning assets.
/4Total/yield on average earning assets, less total rate paid on average inter-
est-bearing liabilities.
10
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
The following table presents a summary analysis of changes in interest income
and interest expense for 1997 as compared to 1996 and 1996 as compared to 1995.
Interest income rose in 1997 due to the higher volume of loans and securities
offset by a decline in average loan yields due to sale of the credit card port-
folio. Interest expense rose in 1997 due to the increased volume of time depos-
its and Federal Home Loan Bank borrowings. The increase in net interest income
in 1996 was due to the increased volume of loans offset by higher volume of
time deposits.
<TABLE>
ANALYSIS OF NET INTEREST INCOME CHANGES
<CAPTION>
1997 OVER 1996 1996 Over 1995
-------------------------------------------------
(Dollars in thousands)
VOLUME/1/ RATE/1/ TOTAL Volume/1/ Rate/1/ Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest income:
Federal funds sold $ (516) $ 33 $ (483) $ 18 $ (99) $ (81)
Interest-bearing
deposits with banks 344 5 349 6 (1) 5
Taxable securities 2,148 391 2,539 811 (129) 682
Tax exempt securities/2/ (337) (130) (467) (297) (102) (399)
Loans, net of unearned
discount/2/,/3/ 2,173 (2,056) 117 6,373 (2,472) 3,901
- ---------------------------------------------------------------------------------
Total interest income $3,812 $(1,757) $2,055 $6,911 $(2,803) $4,108
- ---------------------------------------------------------------------------------
Increase (decrease) in
interest expense:
Savings & NOW accounts $ (492) $ (201) $ (693) $ (504) $ (429) $ (933)
Money market accounts 132 57 189 80 (15) 65
Time deposits 1,230 109 1,339 3,994 (197) 3,797
Short-term debt (44) 87 43 232 (167) 65
FHLB borrowings 729 10 739 (156) 4 (152)
- ---------------------------------------------------------------------------------
Total interest expense $1,555 $ 62 $1,617 $3,646 $ (804) $2,842
- ---------------------------------------------------------------------------------
Increase (decrease) in
net interest income $2,257 $(1,819) $ 438 $3,265 $(1,999) $1,266
- ---------------------------------------------------------------------------------
</TABLE>
/1/The change in interest due to both rate and volume has been allocated pro-
portionately.
/2/Tax equivalent basis. Tax exempt loans and investment securities include the
effects of tax equivalent adjustments using a tax rate of 35% in 1997 and 34%
in 1996 and 1995.
/3/Includes nonaccrual loans.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Loans which are determined to be uncollectible are charged off against the al-
lowance and recoveries of loans that were previously charged off are credited
to the
allowance.
The Company's charge-off policy varies with respect to the category of and spe-
cific circumstances surrounding each loan under consideration. The Company's
policy with respect to commercial, real estate, indirect auto and other loans
is to charge-off on the basis of management's ongoing evaluation of
collectibility. With respect to credit card loans, charge-offs are made on all
such loans when they are deemed to be uncollectible or when 180 days past due,
whichever comes first. In addition, any loans which are classified as "loss" in
regulatory examinations are charged off.
11
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
The following table summarizes the loan loss experience for each of the last
five years.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans for the
period, net of unearned
discount and allowance for
loan losses $412,327 $388,433 $321,183 $280,648 $266,352
- ------------------------------------------------------------------------------
Allowance for loan losses,
beginning of period $ 4,109 $ 3,932 $ 3,859 $ 3,231 $ 2,890
Charge-offs for period:
Real estate--construction (200) -- -- -- --
Real estate mortgage and
home equity loans (20) -- -- -- --
Commercial loans -- -- -- (25) (125)
Indirect auto loans (39) -- (3) (2) (1)
Credit card and consumer
loans (1,246) (1,511) (1,109) (708) (618)
- ------------------------------------------------------------------------------
Total charge-offs (1,505) (1,511) (1,112) (735) (744)
- ------------------------------------------------------------------------------
Recoveries for period:
Real estate mortgage and
home equity loans -- -- -- 35 6
Commercial loans 1 33 41 52 16
Credit card and consumer
loans 174 145 94 76 103
- ------------------------------------------------------------------------------
Total recoveries 175 178 135 163 125
- ------------------------------------------------------------------------------
Net charge-offs for the
period (1,330) (1,333) (977) (572) (619)
Provision for loan losses 1,550 1,510 1,050 1,200 960
- ------------------------------------------------------------------------------
Allowance for loan losses,
end of period $ 4,329 $ 4,109 $ 3,932 $ 3,859 $ 3,231
- ------------------------------------------------------------------------------
Ratio of net charge-offs to
average loans outstanding .32% .34% .30% .20% .23%
Allowance for loan losses
as a percent of loans
outstanding, net of
unearned discount at end
of period .97% .98% 1.08% 1.25% 1.16%
Ratio of allowance for loan
losses to nonperforming
loans 11.45X 1.98x 37.81x 6.05x 10.99x
- ------------------------------------------------------------------------------
</TABLE>
The provision for loan losses increased $40,000 in 1997 over 1996. When the
credit card portfolio was sold, the bank retained approximately $1.3 million in
outstandings, approximately one third of which consisted of accounts delinquent
60 days or more and the remainder of which were accounts on fixed payment
schedules. Based on a review of these accounts, management determined that a
special $800,000 provision was prudent given the discontinued credit card oper-
ations and the inherent risks related to the accounts.
Net charge-offs totalled $1,330,000 in 1997 or .32% of average loans outstand-
ing. Of the total net charge-offs, $1,072,000 related to the credit card port-
folio and $200,000 related to a charge-off on the $1.7 million nonaccrual loan
outstanding at December 31, 1996.
Management increased the provision for loan losses by $460,000 in 1996 over
1995 considering loan portfolio growth of $57 million, higher credit card
charge-offs and one nonaccrual loan. Net charge-offs totalled $1,333,000 in
1996 up $356,000 from 1995. Economic trends of higher consumer debt and a rise
in consumer bankruptcies contributed to the increase in credit card losses for
both the Company and the industry.
Currently and historically, the Company has had high asset quality. Fluctua-
tions in asset quality ratios in the current period were positively affected by
a repayment of $1.5 million on the nonaccrual loan of $1.7 million outstanding
at December 31, 1996. See nonperforming assets discussion for further informa-
tion.
The Company's allowance for loan losses as a percent of loans outstanding was
.97% at December 31, 1997 as compared to .98% in 1996 and 1.08% in 1995. Man-
agement believes the allowance for loan losses is at a prudent level.
The provision for loan losses is sufficient to provide for current loan losses
and maintain the allowance at an adequate level commensurate with management's
evaluation of the risks inherent in the loan portfolio. In order to identify
potential risks in the loan portfolio of the Company's bank subsidiary and de-
termine the necessary provision for loan losses, detailed information is ob-
tained from the following sources:
. Regular reports prepared by the bank's management which contain information
on the overall characteristics of the loan portfolio, including delinquencies
and nonaccruals, and specific analysis of loans requiring special attention
(i.e. "watch lists");
12
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
. Examinations of the loan portfolio of the subsidiary bank by Federal and
State regulatory agencies; and
. Reviews by the independent auditors, third party consultants and internal au-
dit staff.
Management of the subsidiary bank prepares a detailed analysis, at least quar-
terly, reviewing the adequacy of its allowance and, when appropriate, recom-
mending an increase or decrease in its provision for loan losses. This analysis
is divided into two parts--one for allocated and the other for unallocated re-
serves. The allocated segment involves primarily an estimated calculation of
losses on specific problem and management watch list loans, the remaining
credit card portfolio and delinquent consumer loans. The unallocated segment
involves primarily a calculation of the bank's actual net charge-off history
averaged with industry net charge-off history by major loan categories. In ad-
dition, the bank considers its loan growth, management capabilities, economic
trends, credit concentrations, industry risks, underlying collateral values and
the opinions of bank management. Accordingly, because each of these criteria is
subject to change, the allocation of the allowance below is made for analytical
purposes and is not necessarily indicative of the trend of future loan losses
in any particular loan category. The total allowance is available to absorb
losses from any segment of the portfolio.
The following table presents the allocation of the allowance for loan losses
for each of the last five years.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Analysis of allowance for loan losses:
Real estate--land acquisition and
construction loans $ -- $ 400 $ 126 $ 144 $ --
Real estate mortgage and home equity
loans 6 12 7 11 31
Commercial loans 34 -- -- 30 118
Indirect auto loans 32 22 52 17 8
Consumer loans 14 6 20 9 16
Credit card loans 287 324 208 88 169
Unallocated 3,956 3,345 3,519 3,560 2,889
- -------------------------------------------------------------------------------
Total allowance $4,329 $4,109 $3,932 $3,859 $3,231
- -------------------------------------------------------------------------------
Percentage of loans to gross loans:
Real estate--land acquisition and
construction loans 8.2% 8.5% 7.9% 4.8% 4.3%
Real estate mortgage and home equity
loans 52.6 50.5 50.6 53.3 57.3
Commercial loans 12.2 9.7 10.5 10.7 10.4
Indirect auto loans 23.7 13.9 10.8 7.6 2.7
Consumer loans 3.2 3.6 4.1 4.3 5.2
Credit card loans 0.1 13.8 16.1 19.3 20.1
- -------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS
The Company discontinues the accrual of interest on loans, excluding credit
card loans, when the continuity of the contractual principal or interest is
deemed doubtful by management or when 90 days past due or more and the loan is
not well secured or in the process of collection. Interest income is recorded
on these loans only as it is collected. Interest payments on nonaccrual loans
which contain unusual risk features or marginal collateral values may be ap-
plied directly to loan principal for accounting purposes. Renegotiated loans
are loans on which interest is being accrued at less than the original contrac-
tual or existing market rate of interest because of the inability of the bor-
rower to service the obligation under the original terms of the agreement.
There are no renegotiated loans.
First Oak Brook Bancshares, Inc. 13
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
The following table highlights the Company's nonperforming assets.
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $ -- $1,730 $ -- $ 70 $ 36
Loans which are past due 90 days or more 378 349 104 568 258
- ---------------------------------------------------------------------------
Total nonperforming loans 378 2,079 104 638 294
Other real estate owned -- -- -- -- 994
- ---------------------------------------------------------------------------
Total nonperforming assets $378 $2,079 $104 $638 $1,288
- ---------------------------------------------------------------------------
Nonperforming loans to total loans
outstanding .09% .49% .03% .21% .11%
Nonperforming assets to total loans
outstanding
and other real estate owned .09% .49% .03% .21% .46%
Nonperforming assets to total assets .05% .27% .02% .10% .21%
Nonperforming assets to total capital .53% 3.49% .19% 1.49% 2.92%
- ---------------------------------------------------------------------------
</TABLE>
The Company's ratio of nonperforming assets to total loans outstanding and
other real estate owned of .09% was below the industry peer group ratio of
.74%/1/.
At December 31, 1996, the $1.7 million in nonaccrual loans consisted of one
commercial real estate construction loan. During 1997, the borrower sold the
property and $200,000 was charged off.
SUMMARY OF OTHER INCOME
The following table summarizes significant components of other income and per-
centage changes from year to year:
<TABLE>
<CAPTION>
% Change
-------------
(Dollars in thousands) 1997 1996 1995 '97-'96 '96-'95
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges $ 2,730 $2,381 $2,263 15% 5%
Investment management and trust fees 1,025 653 592 57 10
Merchant card processing fees 962 511 428 88 19
Fees on mortgages sold 224 131 30 71 337
Other operating income 1,358 957 746 42 28
Investment securities gains (losses) (9) 14 127 (164) (89)
Gain on sale of credit card portfolio 9,251 -- -- -- --
- -------------------------------------------------------------------------------
Total $15,541 $4,647 $4,186 234% 11%
- -------------------------------------------------------------------------------
</TABLE>
1997 Versus 1996
Service charges on deposit accounts increased $349,000, primarily due to an in-
crease in business account analysis fees.
Investment management and trust department income increased $372,000, primarily
due to an increase in assets under investment management, other new trust busi-
ness and a change to quarterly billing in 1997 from annual billing in 1996. In-
vestment management and trust department discretionary assets under investment
management grew over $43 million to $134 million at December 31, 1997 from $91
million at December 31, 1996.
Merchant card processing fees increased $451,000 primarily due to several new
large volume merchants and continued marketing efforts. The number of merchants
represented increased to 170 at year-end 1997 from 138 at year-end 1996. Mer-
chant interchange expense (in the other expense section) rose $386,000 in 1997.
The increase in other operating income of $401,000 was principally attributable
to income of $450,000 earned from the revenue sharing agreement on the sold
credit card portfolio and the introduction in July, 1997 of ATM surcharge fees,
offset by a decrease in rental income and investment center fees.
1996 Versus 1995
Service charges on deposit accounts increased $118,000 primarily due to an in-
crease in business account analysis fees.
- --------------------------------------------------------------------------------
/1/Source: Seventh Federal Reserve District Bank Holding Company Performance
Report as of September, 1997, page 1, Peer Group 04, Consolidated assets be-
tween $500 million and $1 billion, consisting of 209 bank holding companies.
14
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Investment management and trust department income increased $61,000, primarily
due to an increase in assets under investment management and other new trust
business. Investment management and trust department discretionary assets under
investment management grew over $23 million to $91 million at December 31, 1996
from $68 million at December 31, 1995.
The increase in other operating income of $211,000 was principally attributable
to miscellaneous fees on a variety of retail services.
Investment securities gains decreased $113,000 from the $127,000 of securities
gains recognized in 1995 when the Company restructured its held-to-maturity and
available-for-sale portfolios. The portfolios were restructured in 1995 to more
closely mirror each other in both security composition and maturity distribu-
tion. The 1995 securities gains were from the sale of longer maturity securi-
ties in the available-for-sale portfolio.
SUMMARY OF OTHER EXPENSES
The following table summarizes significant components of other expenses and
percentage changes from year to year:
<TABLE>
<CAPTION>
% Change
----------------
(Dollars in thousands) 1997 1996 1995 '97-'96 '96-'95
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $12,293 $11,766 $10,921 4% 8%
Occupancy expense 1,457 1,430 1,315 2 9
Equipment expense 1,566 1,737 1,702 (10) 2
Data processing fees 1,301 1,625 1,473 (20) 10
Professional fees 398 329 259 21 27
Postage, stationery and supplies 768 752 815 2 (8)
Advertising and business development 1,191 1,205 1,394 (1) (14)
Merchant interchange expense 697 311 227 124 37
FDIC premiums 78 2 592 3,800 (99)
Other operating expenses 959 1,278 1,226 (25) 4
- -------------------------------------------------------------------------------
Total $20,708 $20,435 $19,924 1% 3%
- -------------------------------------------------------------------------------
</TABLE>
1997 Versus 1996
Other expenses rose $273,000, or 1%, in 1997 over 1996. This modest increase is
primarily due to the disposition of the credit card portfolio, cost savings
initiatives and two offsetting non "core" items.
Salaries and employee benefits increased $527,000 as a result of normal raises,
higher compensation due to competitive market conditions, additional upgrades
and increased staff in the growing areas of the bank including indirect auto,
merchant card processing and commercial departments. This increase was offset
by the elimination of salaries due to the sale of the credit card portfolio.
Equipment expense decreased $171,000 primarily due to lower depreciation ex-
pense, as certain assets became fully depreciated, and due to the write off of
equipment formerly used to process the credit card portfolio.
Data processing fees decreased $324,000 primarily as a result of the disposi-
tion of the credit card portfolio.
Other operating expenses decreased $319,000 primarily due to two non "core"
items. First, the Company recognized a pre-tax gain of $515,000 on the sale of
surplus property formerly leased to McDonald's Corporation. Secondly, the Com-
pany made a pre-tax contribution of $300,000 to the newly established Oak Brook
Bank Charitable Foundation. The impetus to organize the Foundation was (1) a
change in the Community Reinvestment Act regulations which provide specific in-
centives for certain charitable gifts, (2) greater leeway in investing the
Foundation funds, and (3) an increase in the Company's marginal tax rate caused
by the credit card sale.
1996 Versus 1995
Other expenses rose $511,000, or 3%, in 1996 over 1995. Salaries and employee
benefits rose $845,000. The increase is due to additional staffing, normal sal-
ary increases and higher benefit payments.
Occupancy expense increased $115,000 over 1995 due to increased real estate
taxes and lower rental income. In August, 1996, the Company took over approxi-
mately 2,000 square feet of space in its Oak Brook headquarters formerly rented
by a third party.
Data processing increased $152,000 primarily due to higher credit card process-
ing fees, trust processing fees and miscellaneous processing fees for compli-
ance and student loans.
Advertising and business development expenses decreased $189,000 due to a re-
duction in advertising offset by increased business development costs.
First Oak Brook Bancshares, Inc. 15
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FDIC premiums decreased $590,000 due to lower quarterly assessments. The FDIC
premium was decreased to $500 per quarter for "well-capitalized" banks in 1996.
INCOME TAX EXPENSE
Income taxes for 1997 totaled $6,962,000 as compared to $2,429,000 for 1996 and
$1,996,000 in 1995. When measured as a percentage of income before income tax-
es, the Company's effective tax rate was 34% for 1997 compared to 25% in 1996
and 23% in 1995. The increase in the provision for income taxes and the effec-
tive tax rate in 1997 was due to a $3.3 million tax provision on the gain on
the sale of the credit card portfolio. The higher taxable income caused the
Company to be in a marginal 38% tax bracket for pre-tax earnings greater than
$15 million which results in a 35% Federal statutory tax rate (34% in 1996 and
1995) and a certain portion was subject to Illinois state income tax.
The increase in the provision for income taxes in 1996 was due to higher pre-
tax earnings while the increase in the effective tax rate was due to a decrease
in tax exempt income as a percentage of pre-tax income.
FINANCIAL CONDITION
LIQUIDITY
Effective management of balance sheet liquidity is necessary to fund growth in
earning assets and to pay liability maturities, depositors' withdrawal require-
ments and shareholders' dividends.
The Company has numerous sources of liquidity including a portfolio of shorter-
term assets, readily marketable investment securities, the ability to attract
consumer time deposits and access to various borrowing arrangements.
Available borrowing arrangements are summarized as follows:
Subsidiary Bank:
. Informal Federal funds lines aggregating $48 million with five correspondent
banks, subject to continued good financial standing.
. Reverse repurchase agreement lines totaling $100 million with two brokerage
firms and one correspondent bank, subject to the availability of collateral
and continued good financial standing.
. Additional advances from the Federal Home Loan Bank of Chicago are available
based on the pledge of specific collateral and FHLB stock ownership.
Parent Company:
. Revolving credit arrangement for $5 million. The line is currently unused and
matures on May 1, 1998. It is anticipated to be renewed annually.
. The parent company also had cash, short-term investments and other marketable
securities totaling $7.9 million at December 31, 1997.
INTEREST RATE SENSITIVITY
Interest rate risk arises when the maturity or repricing of assets differs sig-
nificantly from the maturity or repricing of liabilities. The Company's finan-
cial results could be affected by changes in market interest rates such as the
prime rate, LIBOR and treasury yields as well as competitive pressures for re-
tail deposit products. The objective of interest rate risk management is to
provide the maximum levels of net interest income while maintaining acceptable
levels of interest rate risk and liquidity risk. A number of measures are used
to monitor and manage interest rate risk, including income simulation and in-
terest sensitivity (gap) analyses.
An income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in interest
rates. The model incorporates management assumptions regarding the level of in-
terest rate or balance changes on indeterminate maturity deposit products
(passbook savings, money market, NOW and demand deposits) for a given level of
market rate changes. These assumptions are developed through historical analy-
sis. Additionally, changes in prepayment behavior of the mortgage related as-
sets in each rate environment are captured using estimates of prepayment speeds
for the portfolios. Other assumptions in the model include, cash flows and ma-
turities of other financial instruments, changes in market conditions, loan
volumes and pricing, and customer preferences. These assumptions are inherently
uncertain and, as a result, the model cannot precisely estimate net interest
income or precisely predict the impact of higher or lower interest rates on net
interest
16
First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
income. Actual results will differ from simulated results due to timing, mag-
nitude and frequency of interest rate changes and changes in market conditions
and management strategies, among other factors.
The Company's policy objective is to limit the change in annual net interest
income to 10% from an immediate and sustained parallel change in interest
rates of 200 basis points. As of December 31, 1997, the Company had the fol-
lowing estimated net interest income sensitivity profile. The impact of
planned growth and anticipated new business activities is not factored into
the calculation.
<TABLE>
<CAPTION>
Immediate Change in Rates
<S> <C> <C>
+200 bp -200 bp
- -------------------------------------------------
Net interest income
Dollar change
(in thousands) $630 $(2,169)
Percent change 2.3% (7.9)%
</TABLE>
The table below presents a static gap
analysis as of December 31, 1997
which does not fully capture the true
dynamics of interest rate changes in-
cluding the timing and/or degree of
interest rate changes. While most of
the asset categories' rates change
when certain independent indices
(such as the prime rate) change, the
liability categories are repriced at
the Company's discretion.
INTEREST RATE SENSITIVE POSITION
<TABLE>
<CAPTION>
1-90 91-180 181-365 Over 1
(Dollars in thousands) days days days year Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits
with banks $ 167 $ 72 $ -- $ 10,000 $ 10,239
Taxable securities 29,214 21,060 28,609 176,514 255,397
Tax exempt securities 663 -- 2,307 43,731 46,701
Loans, net of unearned
discount 180,727 26,347 51,764 188,494 447,332
- -------------------------------------------------------------------------------
Total $210,771 $ 47,479 $ 82,680 $418,739 $759,669
- -------------------------------------------------------------------------------
Cumulative total $210,771 $ 258,250 $ 340,930 $759,669
- -------------------------------------------------------------------------------
Rate sensitive
liabilities:
Savings and NOW
accounts/1/ $104,438 $ 1,616 $ 4,038 $ 55,948 $166,040
Money market accounts 33,139 -- -- -- 33,139
Time deposits 86,526 58,780 65,830 63,642 274,778
Short-term and long-term
debt 86,312 56 6,248 15,000 107,616
- -------------------------------------------------------------------------------
Total $310,415 $ 60,452 $ 76,116 $134,590 $581,573
- -------------------------------------------------------------------------------
Cumulative total $310,415 $ 370,867 $ 446,983 $581,573
- -------------------------------------------------------------------------------
Cumulative gap $(99,644) $(112,617) $(106,053) $178,096
- -------------------------------------------------------------------------------
Cumulative gap to total
assets ratio (12.21)% (13.80)% (12.99)%
- -------------------------------------------------------------------------------
</TABLE>
/1/The decay assumptions on savings and NOW accounts are based on historical
analysis and experience.
INVESTMENT SECURITIES
1997
The Company's investment portfolio increased $36 million, or 14%, during 1997
to $302 million at year-end from $266 million at year-end 1996. The proceeds
from the sale of the credit card portfolio were reinvested in U.S. Government
agency securities, corporate securities and a time deposit of $10 million with
the buyer. Proceeds from maturing U.S. Treasuries were used to fund continued
loan demand. The Company continued its strategy to shelter current and future
income from state taxation by primarily investing in U.S. Treasury and state
income tax exempt U.S. Government agency securities and to improve the portfo-
lio's overall yield by increasing investment in U.S. Government agency securi-
ties.
U.S. Treasury Securities: The Company reduced its holdings of U.S. Treasuries
by $20 million to $71 million at year-end from $91 million at year-end 1996.
Proceeds from maturing U.S. Treasuries were used to fund loan demand. The av-
erage maturity of the U.S. Treasury portfolio was reduced to 1.3 years in 1997
from 1.9 years in 1996.
U.S. Government Agency and Mortgage Backed Securities: The U.S. Government
agency securities (including U.S. Government agency mortgage backed securities
and agency collateralized mortgage obligations) portfolio rose $48 million in
1997 to $168 million at year-end from $120 million at year-end 1996. The
growth was mainly from the reinvestment of $40 million of proceeds from the
sale of the credit card portfolio in short to medium term U.S. Government
agency and mortgage-backed securities. To minimize the Company's state tax li-
ability, the majority of U.S. Government securities purchased were exempt from
state income taxes. The average maturity of this sector of the portfolio was
increased to 3.8 years in 1997 from 2.8 years in 1996.
First Oak Brook Bancshares, Inc. 17
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
Municipal Securities: The Company's municipal security holdings declined $5
million to $47 million at year-end from $52 million at year-end 1996. Due to
their high yields, low credit risk, and pledgability for public deposits, mu-
nicipal securities remain attractive as investments. All municipal securities
held are rated "A" or better by one or more of the national rating services or
are "non-rated" issues of local communities which, through the bank's own anal-
ysis, are deemed to be of satisfactory quality.
Corporate and Other Securities: Holdings of corporate and other securities in-
creased $14 million. The growth was mainly from the reinvestment of $12 million
of proceeds from the sale of the credit card portfolio in a corporate collater-
alized mortgage obligation. The remainder of the portfolio consists primarily
of preferred stocks held by the parent company and Federal Home Loan Bank
stock.
1996
In 1996, the Company's investment portfolio increased $10 million, or 4%, to
$266 million. The increases were primarily in the U.S. Government agency sector
of the portfolio. The Company continued its strategy to shelter current and fu-
ture income from state taxation by primarily investing in U.S. Treasury and
state income tax exempt U.S. Government agency securities and to improve the
portfolio's overall yield by increasing investment in U.S. Government agency
securities.
The following table sets forth the book values of investment securities held on
the dates indicated.
<TABLE>
<CAPTION>
INVESTMENTS BY TYPE (AT BOOK VALUE) December 31,
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury $ 70,614 $ 91,141 $105,167
U.S. Government agencies 113,730 65,278 33,825
Agency mortgage-backed securities 29,770 54,247 61,683
Agency collateralized mortgage obligations 24,154 -- 1,013
State and municipal 47,350 52,484 51,593
Corporates and other 16,480 2,804 2,911
- ----------------------------------------------------------------------
Total investment portfolio $302,098 $265,954 $256,192
- ----------------------------------------------------------------------
</TABLE>
At December 31, 1997 there are no investment securities of any one issuer in
excess of 10% of shareholders' equity other than securities of the U.S. Govern-
ment and its agencies.
The maturity distribution and weighted average yield of investment securities
at December 31, 1997 are presented in the following table:
ANALYSIS OF INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
U.S. State & Corporate and
U.S. Treasury Government Municipal Other
Securities Agencies/1/ Securities Securities
(Dollars in
thousands) Amount Yield Amount Yield Amount Yield/2/ Amount Yield
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturities:
Within 1 year $26,502 5.90% $ 21,718 6.16% $ 3,152 7.30% $ 237 5.75%
1-5 years 44,112 6.19 100,380 6.51 17,518 7.70 -- --
5-10 years -- -- 45,556 6.88 25,198 7.57 251 7.20
After 10 years -- -- -- -- 1,482 7.80 15,992/3/ 7.13
- -----------------------------------------------------------------------------------
$70,614 6.08% $167,654 6.57% $47,350 7.61% $16,480 7.12%
- -----------------------------------------------------------------------------------
Average months to
maturity 15 45 60 103
- -----------------------------------------------------------------------------------
</TABLE>
/1/Included in U.S. Government agencies are agency mortgage-backed securities
(MBS) and agency collateralized mortgage obligations (CMOs). Given the amortiz-
ing nature of MBS and CMOs, the maturities presented in the table are based on
their estimated average lives at December 31, 1997. The estimated average lives
may differ from actual principal cash flows. Principal cash flows include pre-
payments and scheduled principal amortization.
/2/Yields on state and municipal securities are calculated on a tax-equivalent
basis using a tax rate of 34%.
/3/Included in this amount are corporate CMOs with maturities that are esti-
mated based on the estimated average lives. Also included are preferred stocks
and Federal Home Loan Bank of Chicago stock, which have no maturity date and
are not included in the average months to maturity. Yields on the stocks are
calculated on a tax-equivalent basis using a tax rate of 34% and the 70% divi-
dend received deduction.
18
First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
LOANS
1997
At year-end 1997, loans outstanding, net of unearned discount, increased $27.2
million, or 6%, compared to 1996. Indirect auto loans, commercial, home equity
and commercial real estate loans led the 1997 loan growth. Substantially all
of the credit card loans were sold during 1997.
Indirect automobile loans increased $47.2 million, or 81%, to $105.8 million
in 1997 primarily due to additional marketing efforts and competitive pricing.
The Company does not buy subprime auto paper.
Commercial loans increased $13.8 million and commercial mortgage loans in-
creased $10 million primarily due to competitive pricing strategies and suc-
cessful marketing efforts.
Home equity loans increased $10 million, or 18%, to $65.3 million in 1997 pri-
marily due to successful mass marketing efforts.
There are no loan concentrations exceeding 10% of total loans at December 31,
1997, which are not otherwise disclosed below. The Company has no foreign
loans; therefore, no loans to Less Developed Countries (LDCs). The Company has
no agricultural loans.
1996
At year-end 1996, loans outstanding, net of unearned discount, increased $57.4
million, or 16%, compared to 1995. Consumer loans, residential real estate and
commercial real estate loans led the 1996 loan growth. Commercial and credit
card loan growth was constrained as a result of vigorous competition.
Indirect automobile loans increased $19 million, or 48%, to $58.6 million in
1996. The Company did not buy subprime auto paper.
Residential real estate loans increased $12.5 million, or 15%, due to in-
creased mortgage originations and retaining the majority of these originations
for the Company's loan portfolio.
Real estate construction loans increased $7.1 million, or 25%, due to lending
to Chicago area home builders. Commercial mortgage loans increased $8 million,
or 14%, primarily due to interim financing provided for several multi-family
properties.
There were no loan concentrations exceeding 10% of total loans at December 31,
1996, which were not otherwise disclosed below. The Company had no foreign
loans; therefore, no loans to Less Developed Countries (LDCs). The Company had
no agricultural loans.
<TABLE>
<CAPTION>
LOANS BY TYPE December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans $ 54,658 $ 40,895 $ 38,171 $ 33,351 $ 29,035
Real estate loans--
Construction and land
acquisition loans 36,525 35,902 28,770 14,789 12,098
Commercial mortgage loans 73,376 63,394 55,437 56,149 44,977
Residential mortgage loans 96,766 93,730 81,226 62,557 66,972
Home equity loans 65,273 55,297 47,357 47,192 47,463
Indirect automobile loans/1/ 105,807 58,578 39,636 23,651 7,577
Consumer loans/2/ 14,932 14,993 14,784 13,416 14,373
Credit card loans 631 58,114 58,592 59,984 56,003
- --------------------------------------------------------------------------
$447,968 $420,903 $363,973 $311,089 $278,498
Less:
Unearned discount 636 739 1,245 1,408 321
Allowance for loan losses 4,329 4,109 3,932 3,859 3,231
- --------------------------------------------------------------------------
Loans, net $443,003 $416,055 $358,796 $305,822 $274,946
- --------------------------------------------------------------------------
</TABLE>
/1/Indirect automobile loans represent consumer auto loans made through a net-
work of new car dealers.
/2/Included in this amount are student loans, direct automobile loans and
check credit loans.
As evidenced by the previous table, loans secured by real estate comprise the
greatest percentage of total loans. Most of the Company's residential real es-
tate loans are secured by first mortgages and the home equity loans are se-
cured primarily by junior liens on one-to-four family residences in the Chi-
cago Metropolitan area. The Company generally limits total advances to a loan
to value ratio of eighty percent or less. Commercial mortgages are generally
secured by properties in the Chicago Metropolitan area.
19
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
The following table indicates the maturity distribution of selected loans at
December 31, 1997:
MATURITY DISTRIBUTION OF SELECTED LOANS
<TABLE>
<CAPTION>
One One to Over
year or five five
(Dollars in thousands) less/1/ years years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial loans $26,931 $ 17,115 $ 10,612 $ 54,658
Real estate--construction and land acquisi-
tion loans 35,277 1,248 -- 36,525
Commercial and residential mortgage loans 5,336 65,569 99,237 170,142
Home equity loans 5,362 59,911 -- 65,273
- -------------------------------------------------------------------------------
$72,906 $143,843 $109,849 $326,598
- -------------------------------------------------------------------------------
</TABLE>
/1/Includes demand loans.
The following table indicates, for the loans in the Maturity Distribution ta-
ble, the amounts due after one year which
have fixed and variable interest rates at December 31, 1997:
<TABLE>
<CAPTION>
Fixed Variable
(Dollars in thousands) Rate Rate Total
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial loans $ 19,824 $ 7,903 $ 27,727
Real estate--construction and land acquisition
loans -- 1,248 1,248
Commercial and residential mortgage loans 116,116 48,690 164,806
Home equity loans 1,854 58,057 59,911
- --------------------------------------------------------------------------
$137,794 $115,898 $253,692
- --------------------------------------------------------------------------
</TABLE>
Variable rate loans are those on which the interest rate can be adjusted for
changes in the Company's index rate (similar to prime rate), The Wall Street
Journal's published prime rate, U.S. Treasury securities, LIBOR or the brokers'
call money rate. Fixed rate loans are those on which the interest rate cannot
be changed during the term of the loan.
DEPOSITS
1997
At year-end 1997, total deposits decreased $20.5 million or 3%. This decrease
was primarily due to a $14 million decrease in savings deposits and NOW ac-
counts and a $13.9 million decrease in time deposits, offset by a $6.3 million
increase in demand deposits. The Company chose to increase its Federal Home
Loan Bank borrowings
rather than run retail time deposit promotions in 1997. At December 31, 1997,
there are no brokered deposits.
Average deposits for 1997 increased $26.1 million, or 4%, as compared to 1996.
The increase in average deposits is primarily due to a $14.4 million increase
in noninterest-bearing demand deposits, primarily business accounts, and a
$21.2 million increase in time deposits, primarily from public funds and 1996
retail promotions, offset by a $13.7 million decrease in savings deposits.
1996
Average deposits for 1996 increased $75.6 million or 14%. The increase in aver-
age deposits is primarily related to a $69.2 million increase in time deposits
and a $17 million increase in non-interest bearing demand deposits, offset by a
$13.3 million decrease in savings deposits and NOW accounts.
AVERAGE DEPOSITS AND RATE BY TYPE
<TABLE>
<CAPTION>
1997 1996 1995
(Dollars in thousands) AMOUNT RATE Amount Rate Amount Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $151,257 --% $136,866 --% $119,812 --%
Savings deposits and NOW accounts 172,533 3.57 186,195 3.68 199,523 3.90
Money market accounts 34,071 3.20 29,865 3.01 27,205 3.07
Time deposits 277,727 5.81 256,520 5.76 187,281 5.87
- -------------------------------------------------------------------------------
Total $635,588 3.68% $609,446 3.70% $533,821 3.67%
- -------------------------------------------------------------------------------
</TABLE>
20
First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
As of December 31, 1997, the scheduled maturities of time deposits are as fol-
lows:
MATURITY DISTRIBUTION OF TIME DEPOSITS
<TABLE>
<CAPTION>
(Dollars in
thousands)
- -----------------------------
<S> <C>
1998 $211,821
1999 23,750
2000 20,861
2001 and thereafter 18,346
- -----------------------------
Total $274,778
- -----------------------------
</TABLE>
BORROWINGS
Short-term borrowings, which include Federal funds purchased, securities sold
under agreements to repurchase and treasury, tax and loan demand notes, were
$65.1 million at December 31, 1997 up $9.9 million from $55.2 million at the
end of 1996. The 1997 increase was primarily due to an increase in Federal
funds purchased partially offset by a decline in securities sold under agree-
ments to repurchase. In 1996, short-term borrowings decreased from $60.7 mil-
lion to $55.2 million due to a decrease in securities sold under agreements to
repurchase partially offset by an increase in the treasury, tax and loan
notes.
As a member of the Federal Home Loan Bank, the bank may obtain advances se-
cured by certain of its residential mortgage loans and other assets. The Com-
pany significantly expanded its utilization of the Federal Home Loan Bank ad-
vances due to the comparatively favorable terms available. Borrowings in-
creased to $42.5 million at December 31, 1997, while there were no such
borrowings outstanding at December 31, 1996. Borrowings mature from 1998 to
2002 and bear fixed interest rates ranging from 5.48% to 6.41%. See
"Borrowings" note to the financial statements for additional information.
CAPITAL RESOURCES
One of the Company's primary objectives is to maintain strong capital to war-
rant the confidence of our customers, shareholders and bank regulatory agen-
cies. A strong capital base is needed to take advantage of profitable growth
opportunities that arise and to provide assurance to depositors and creditors.
Banking is inherently a risk-taking activity requiring a sufficient level of
capital to effectively and efficiently manage inherent business risks. The
Company's capital objectives are to:
. maintain sufficient capital to support the risk characteristics of the Com-
pany and the Company's subsidiary bank; and
. maintain capital ratios which meet and exceed the "well-capitalized" regula-
tory capital ratio guidelines for the Company and the Company's subsidiary
bank,
thereby minimizing regulatory intervention and lowering FDIC assessments.
At December 31, 1997, the Company achieved record shareholders' equity of
$71.7 million. The Company's and its subsidiary bank's capital ratios not only
exceeded minimum regulatory guidelines but also the FDIC criteria for "well-
capitalized" banks. See the "Regulatory Capital" note to the financial state-
ments for further discussion.
In 1997, cash dividends declared totaled $1,711,000, a 29% increase from 1996.
The Board increased the quarterly cash dividends in January and October based
on strong earnings and capital. In January, 1998, the Board increased its cash
dividend by 20% on both the Class A and common stock. The new quarterly divi-
dend payable in April, 1998 on the Class A common and common stock will be
$.18 per share and $.15 per share, respectively. When annualized, this new
quarterly dividend rate equates to $.72 per share and $.60 per share, on Class
A and common stock respectively. In 1996, cash dividends declared totaled
$1,324,000, a 35% increase from 1995.
On January 28, 1997, the Company's Board of Directors authorized a stock re-
purchase program. The program allows the Company to repurchase up to 4%, or
approximately 135,000 shares, of its Class A or common stock through mid-1998.
As of February 15, 1998, a total of 119,496 shares of stock had been repur-
chased at a cost of $2,815,000.
On January 27, 1998, the Board of Directors authorized another stock repur-
chase program. The program allows the Company to repurchase up to an addi-
tional 100,000 shares of its Class A common stock over the next 18 months. Re-
purchases can be made in the open market or through negotiated transactions
from time to time depending on market conditions. The stock, if repurchased,
will be held as treasury stock to be used for general corporate purposes.
YEAR 2000 COMPLIANCE
The Company has developed and is implementing its Year 2000 Project Plan. The
Company is conducting a review and an assessment of its computer systems and
is contacting its software vendors in determining their Year 2000 readiness.
The Company believes that future releases of current software and conversion
to new software will minimize the Year 2000 problem. However, due to possible
interaction with noncompliant third party computer systems, the Company could
encounter unanticipated problems. The financial impact of Year 2000 compliance
is not anticipated to be material to the Company's financial condition. The
Company will continue to expense costs for Year 2000 compliance as they occur
consistent with generally accepted accounting principles.
21
First Oak Brook Bancshares, Inc.
<PAGE>
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1997, the FASB issued Statement 130, "Reporting Comprehensive Income."
Statement 130 established standards for reporting and presentation of compre-
hensive income and its components in a full set of general-purpose financial
statements. Statement 130 is effective for both interim and annual periods be-
ginning after December 15, 1997, and is not expected to have a material impact
on the consolidated financial statements.
In June, 1997, the FASB issued Statement 131. "Disclosures about Segments of an
Enterprise and Related Information." Statement 131 established standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to re-
port selected information about operating segments in interim financial reports
issued to shareholders. Statement 131 is effective for financial periods begin-
ning after December 15, 1997, and is not expected to have a material impact on
the Company.
22
First Oak Brook Bancshares, Inc.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors and Shareholders
First Oak Brook Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of First Oak Brook
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996, and the re-
lated consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Oak Brook
Bancshares, Inc. and subsidiary at December 31, 1997 and 1996, and the consoli-
dated results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally ac-
cepted accounting principles.
LOGO
Chicago, Illinois
January 20, 1998
23
First Oak Brook Bancshares, Inc.
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 32,893 $ 38,816
Federal funds sold -- 22,150
Interest-bearing deposits with banks 10,239 289
Investment securities:
Securities held-to-maturity, at amortized cost (fair
value, $145,639 and $132,057 for 1997 and 1996) 142,682 130,408
Securities available-for-sale, at fair value 159,416 135,546
Loans, net of unearned discount 447,332 420,164
Less-allowance for loan losses (4,329) (4,109)
- -------------------------------------------------------------------------------
Net loans 443,003 416,055
Premises and equipment, net 18,773 17,470
Other assets 9,138 7,921
- -------------------------------------------------------------------------------
Total Assets $816,144 $768,655
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing demand deposits $153,806 $147,497
Interest-bearing deposits:
Savings deposits and NOW accounts 166,040 180,083
Money market accounts 33,139 32,027
Time deposits
Under $100,000 113,839 141,291
$100,000 and over 160,939 147,405
- -------------------------------------------------------------------------------
Total interest-bearing deposits 473,957 500,806
- -------------------------------------------------------------------------------
Total deposits 627,763 648,303
Federal funds purchased and securities sold under
agreements to repurchase 52,608 43,205
Treasury, tax and loan demand notes 12,508 11,982
Federal Home Loan Bank borrowings 42,500 --
Other liabilities 9,104 5,612
- -------------------------------------------------------------------------------
Total Liabilities 744,483 709,102
- -------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock, series B, no par value, authorized--
100,000 shares, issued--none -- --
Class A common stock, $2 par value, (aggregate
liquidation preference of $11,790 or $6.31 per share)
authorized--4,000,000 shares, issued--1,986,407
shares in 1997 and 1,854,482 shares in 1996,
outstanding--1,868,407 shares in 1997 and 1,854,482
shares in 1996 3,973 3,709
Common stock, $2 par value, authorized--3,000,000
shares, issued--1,648,896 shares in 1997 and
1,691,138 shares in 1996, outstanding--1,474,873
shares in 1997 and 1,518,611 shares in 1996 3,298 3,382
Surplus 11,802 10,472
Unrealized gains on securities available-for-sale, net
of taxes 1,644 273
Retained earnings 54,529 42,487
Less cost of shares in treasury, 174,023 common shares
and 118,000 Class A common shares in 1997 and 172,527
common shares in 1996 (3,585) (770)
- -------------------------------------------------------------------------------
Total Shareholders' Equity 71,661 59,553
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $816,144 $768,655
- -------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
24
First Oak Brook Bancshares, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest on loans $36,305 $36,163 $32,287
Interest on securities:
U.S. Treasury and Government agencies 14,412 12,139 11,529
Obligations of states and political subdivisions 2,517 2,848 3,098
Other securities 631 366 326
Interest on Federal funds sold and securities
purchased under agreements to resell 460 943 1,024
Interest on deposits with banks 362 13 8
- -----------------------------------------------------------------------------
Total interest income 54,687 52,472 48,272
Interest expense:
Interest on savings deposits and NOW accounts 6,159 6,852 7,785
Interest on money market accounts 1,089 900 835
Interest on time deposits 16,125 14,786 10,989
Interest on Federal funds purchased and securities
sold under agreements to repurchase 2,612 2,701 2,805
Interest on Treasury, tax and loan demand notes 489 357 188
Interest on Federal Home Loan Bank borrowings 781 42 194
- -----------------------------------------------------------------------------
Total interest expense 27,255 25,638 22,796
- -----------------------------------------------------------------------------
Net interest income 27,432 26,834 25,476
Provision for loan losses 1,550 1,510 1,050
- -----------------------------------------------------------------------------
Net interest income after provision for loan losses 25,882 25,324 24,426
- -----------------------------------------------------------------------------
Other income:
Service charges on deposit accounts 2,730 2,381 2,263
Investment management and trust fees 1,025 653 592
Other operating income 2,544 1,599 1,204
Investment securities gains (losses) (9) 14 127
Gain on sale of credit card portfolio 9,251 -- --
- -----------------------------------------------------------------------------
Total other income 15,541 4,647 4,186
- -----------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 12,293 11,766 10,921
Occupancy expense 1,457 1,430 1,315
Equipment expense 1,566 1,737 1,702
Data processing 1,301 1,625 1,473
Postage, stationery and supplies 768 752 815
Advertising and business development 1,191 1,205 1,394
Other operating expenses 2,132 1,920 2,304
- -----------------------------------------------------------------------------
Total other expenses 20,708 20,435 19,924
- -----------------------------------------------------------------------------
Income before provision for income taxes 20,715 9,536 8,688
Provision for income taxes 6,962 2,429 1,996
- -----------------------------------------------------------------------------
Net income $13,753 $ 7,107 $ 6,692
- -----------------------------------------------------------------------------
Basic earnings per share $ 4.18 $ 2.11 $ 1.99
- -----------------------------------------------------------------------------
Diluted earnings per share $ 4.06 $ 2.06 $ 1.95
- -----------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
25
First Oak Brook Bancshares, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Unrealized
Common Stock Common Stock Gains
(Dollars in thousands (Losses) on
except Securities Total
shares and per share Par Par Available- Retained Treasury Shareholders'
amounts) Shares Value Shares Value Surplus For-Sale Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994 1,835,666 $3,671 1,697,903 $3,396 $10,364 $(4,780) $30,991 $ (733) $42,909
Net income 6,692 6,692
Conversion of common
stock into Class A
common stock 3,016 6 (3,016) (6)
Dividends declared,
$.275 per share common
and $.330 per share
Class A common (979) (979)
Exercise of stock
options 300 4 4
Change in unrealized
gains on securities
available-for-sale 5,136 5,136
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1995 1,838,682 $3,677 1,695,187 $3,390 $10,368 $ 356 $36,704 $ (733) $53,762
- -----------------------------------------------------------------------------------------------------------------------
Net income 7,107 7,107
Conversion of common
stock into Class A
common stock 15,800 32 (15,800) (32)
Dividends declared,
$.345 per share common
and $.420 per share
Class A common (1,324) (1,324)
Exercise of stock
options 11,751 24 104 128
Change in unrealized
gains on securities
available-for-sale (83) (83)
Purchase of treasury
stock (1,500 shares of
common stock) (37) (37)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1996 1,854,482 $3,709 1,691,138 $3,382 $10,472 $ 273 $42,487 $ (770) $59,553
- -----------------------------------------------------------------------------------------------------------------------
Net income 13,753 13,753
Conversion of common
stock into Class A
common stock 134,774 270 (134,774) (270)
Dividends declared, $.46
per share common and
$.56 per share Class A
common (1,711) (1,711)
Exercise of stock
options (2,849) (6) 92,532 186 1,330 1,510
Change in unrealized
gains on securities
available-for-sale 1,371 1,371
Purchase of treasury
stock (1,496 shares of
common and 118,000
shares of Class A
common) (2,815) (2,815)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 1,986,407 $3,973 1,648,896 $3,298 $11,802 $ 1,644 $54,529 $(3,585) $71,661
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
First Oak Brook Bancshares, Inc.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,753 $ 7,107 $ 6,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on credit card portfolio sale (9,251) -- --
Depreciation 1,762 1,904 1,915
Discount accretion (839) (557) (388)
Premium amortization 1,500 1,843 1,916
Provision for loan losses 1,550 1,510 1,050
Investment securities (gains) losses 9 (14) (127)
Increase in other assets (1,260) (287) (721)
Increase in other liabilities 2,786 603 1,273
Amortization of intangible assets 43 70 204
- ------------------------------------------------------------------------------
Net cash provided by operating activities 10,053 12,179 11,814
Cash flows from investing activities:
Purchase of interest bearing deposits with
banks (10,177) -- --
Purchase of securities held-to-maturity (80,742) (50,330) (57,458)
Purchase of securities available-for-sale (85,931) (79,094) (26,447)
Proceeds from maturities of securities held-to-
maturity 61,863 41,898 70,240
Proceeds from sales and maturities of
securities available-for-sale 70,073 76,366 27,797
Proceeds from credit card portfolio sale 64,000 -- --
Increase in loans (83,248) (58,769) (54,024)
Additions to premises and equipment (3,065) (1,475) (825)
- ------------------------------------------------------------------------------
Net cash used in investing activities (67,227) (71,404) (40,717)
Cash flows from financing activities:
Increase in demand deposits 6,309 19,261 18,999
Decrease in savings and NOW accounts (14,043) (11,880) (31,391)
Increase (decrease) in money market accounts 1,112 5,433 (8)
Increase (decrease) in time deposits (13,918) 80,403 53,863
Increase (decrease) in Federal funds purchased
and securities sold under agreements to
repurchase 9,403 (11,452) (7,331)
Increase (decrease) in treasury, tax and loan
demand notes 526 5,937 (544)
Proceeds from Federal Home Loan Bank borrowings 42,500 -- --
Repayment of Federal Home Loan Bank borrowings -- (3,500) (2,500)
Purchase of treasury stock (2,815) (37) --
Exercise of stock options 1,510 128 4
Cash dividends (1,711) (1,324) (979)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 28,873 82,969 30,113
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (28,301) 23,744 1,210
Cash and cash equivalents at beginning of year 61,255 37,511 36,301
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 32,954 $ 61,255 $ 37,511
- ------------------------------------------------------------------------------
Supplemental disclosures:
Interest paid $ 27,195 $ 24,495 $ 22,121
Income taxes paid 5,795 2,399 1,926
- ------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
27
First Oak Brook Bancshares, Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of First Oak Brook
Bancshares, Inc. (the Company) and its wholly-owned subsidiary, Oak Brook
Bank. The accounting and reporting policies of the Company and its subsidiary
conform to generally accepted accounting principles and to general practice
within the banking industry.
The Company, through its subsidiary bank, operates in a single segment engag-
ing in the general retail and commercial banking business, primarily in the
Chicago Metropolitan area. The services offered include demand, savings and
time deposits, corporate cash management services, commercial lending products
such as commercial loans, mortgages and letters of credit, and personal lend-
ing products such as residential mortgages, home equity lines and auto loans.
In addition, related products and services are offered including discount bro-
kerage, mutual funds and annuity sales and foreign currency sales. The subsid-
iary bank has a full service investment management and trust department.
USE OF ESTIMATES: The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the con-
solidated financial statements and accompanying notes. Actual results could
differ from those estimates.
INVESTMENT SECURITIES: Securities are classified as held-to-maturity, avail-
able-for-sale or trading at the time of purchase and reevaluated as of each
balance sheet date. Securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturi-
ty. Held-to-maturity securities are stated at amortized cost. Available-for-
sale securities are stated at fair value, with the unrealized gains and loss-
es, net of tax, reported in a separate component of shareholders' equity. The
Company does not carry any securities for trading purposes.
The amortized cost of securities classified as held-to-maturity or available-
for-sale is adjusted for amortization of premiums and accretion of discounts
to maturity, or in the case of mortgage-backed securities, over the estimated
life of the security. The cost of securities sold is based on the specific
identification method.
LOAN FEES AND RELATED COSTS: Loan origination and commitment fees and certain
direct loan origination costs are deferred and amortized as an adjustment of
the related loan's yield over the contractual life of the loan using the lev-
el-yield method.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is comprised of both
general and specific valuation allowances. The Company records specific valua-
tion allowances on commercial, commercial mortgage and construction loans when
a loan is considered to be impaired. A loan is impaired when, based on an
evaluation of current information and events, it is probable that the Company
will not be able to collect all amounts due (principal and interest) pursuant
to the original contractual terms. The Company measures impairment based upon
the present value of expected future cash flows discounted at the loan's orig-
inal effective interest rate or the fair value of the collateral if the loan
is collateral dependent. Interest income on impaired loans is recognized using
either the cash basis method or a cost recovery method depending upon the cir-
cumstances. General valuation allowances are maintained at a level believed
adequate by management to absorb estimated probable loan losses. Management's
periodic evaluation of the adequacy of the allowance is based on the Company's
past loan loss experience, peer loan loss experience, known and inherent risks
in the portfolio, composition of the loan portfolio, current economic condi-
tions, and other relevant factors.
Commercial and retail loans are placed on non-accrual status when the
collectibility of the contractual principal or interest is deemed doubtful by
management or becomes 90 days or more past due and the loan is not well se-
cured or in the process of collection.
PREMISES AND EQUIPMENT: Premises, leasehold improvements and equipment are
stated at cost less accumulated depreciation and amortization. For financial
reporting purposes, depreciation is charged to expense by the straight-line
method over the estimated useful life of the asset. Leasehold improvements are
amortized over a period not exceeding the term of the lease, including renewal
option periods.
INCOME TAXES: The Company and its subsidiary file consolidated income tax re-
turns. The subsidiary provides for income taxes on a separate return basis and
remits to the Company amounts determined to be currently payable. Under this
method, deferred tax assets and liabilities are determined based on differ-
ences between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 128, "Earnings per
Share" (Statement 128). Statement 128 replaces the presentation of primary
earnings per share (EPS) with basic EPS and fully diluted EPS with diluted
EPS.
Basic EPS is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed by dividing
net income by the weighted average number of common shares and common equiva-
lent shares for the period. EPS
28
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
calculations for prior periods have been restated to reflect the adoption of
Statement 128.
STOCK OPTIONS: The Company accounts for stock options in accordance with Ac-
counting Principles Board Opinion No. 25, "Accounting for Stock Issued to Em-
ployees" (APB 25). Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. The Company has expanded
its disclosure of stock-based compensation plans and disclosed pro forma data
for new grants of stock-based instruments.
CASH AND CASH EQUIVALENTS: For purposes of the Consolidated Statements of Cash
Flows, cash and cash equivalents include cash and due from banks, Federal funds
sold, securities purchased under agreements to resell and interest bearing de-
posits with banks with original maturities of 90 days or less.
RESTATEMENT AND RECLASSIFICATION: Certain amounts in the 1996 and 1995 consoli-
dated financial statements have been reclassified to conform to their 1997 pre-
sentation.
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the disclosure of the fair value of
certain financial instruments. Fair value of a financial instrument is defined
as the amount at which the instrument could be exchanged in a current transac-
tion between willing parties other than in a forced or liquidation sale. The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported on the balance sheet
for cash and short-term instruments approximate those assets' fair values.
INTEREST-BEARING DEPOSITS WITH BANKS: The fair value of interest-bearing depos-
its with banks is estimated using a discounted cash flow calculation that util-
izes interest rates currently being offered for similar maturities.
INVESTMENT SECURITIES: Fair values for investment securities are based on
quoted market prices.
LOANS: For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
value for all other loans is estimated using discounted cash flow analyses,
which use interest rates currently being offered for similar loans of similar
credit quality. The fair value does not include potential premiums available in
a portfolio sale. The carrying amount of accrued interest approximates its fair
value.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Company's off-balance sheet
instruments (letters of credit and lending commitments) are generally based on
fees currently charged to enter into similar agreements.
DEPOSIT LIABILITIES: The fair values for certain deposits (e.g., interest and
noninterest-bearing demand deposits, savings deposits and NOW accounts) are, by
definition, equal to the amount payable on demand. The fair value estimates do
not include the intangible value of the existing customer base. The carrying
amounts for variable rate money market accounts approximate their fair values.
Fair values for time deposits are estimated using a discounted cash flow calcu-
lation that applies interest rates currently being offered on time deposits to
a schedule of aggregated expected monthly maturities.
SHORT-TERM DEBT: The carrying amounts of Federal funds purchased, overnight re-
purchase agreements and Treasury, tax and loan demand notes approximate their
fair values. The fair values of term repurchase agreements are estimated using
a discounted cash flow calculation that utilizes interest rates currently being
offered for similar maturities.
LONG-TERM DEBT: The fair value of the Federal Home Loan Bank borrowings is es-
timated using a discounted cash flow calculation that utilizes interest rates
currently being offered for similar maturities.
The assumptions and estimates used in the fair value determination process are
subjective in nature and involve uncertainties and significant judgment and,
therefore, fair values cannot be determined with precision. Changes in assump-
tions could significantly affect these estimated values.
29
First Oak Brook Bancshares, Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The estimated fair values of the Company's significant financial instruments as
of December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
CARRYING FAIR Carrying Fair
(in thousands) AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 32,893 $ 32,893 $ 60,966 $ 60,966
Interest-bearing deposits with banks 10,239 10,411 289 289
Investment securities 302,098 305,055 265,954 267,603
Loans 447,332 447,438 420,164 418,209
Financial Liabilities
Time deposits 274,778 276,121 288,696 290,392
Other deposits 352,985 352,985 359,607 359,607
Short-term debt 65,116 65,103 55,187 55,199
Long-term debt 42,500 42,348 -- --
Off-balance sheet commitments
Commercial -- 90 -- 77
Home equity -- 113 -- 92
Check credit and credit card -- -- -- 209
- -------------------------------------------------------------------------
</TABLE>
NOTE 3. CASH AND DUE FROM BANKS
Cash and due from banks include reserve balances that the Company's subsidiary
bank is required to maintain with the Federal Reserve Bank of Chicago. These
required reserves are based principally on deposits outstanding. The average
reserves required for the year ended December 31, 1997 and 1996 were $4,266,000
and $9,990,000, respectively.
30
First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
NOTE 4. INVESTMENT SECURITIES
The aggregate amortized cost and fair values of securities, and gross
unrealized gains and unrealized losses at December 31 follow:
<TABLE>
<CAPTION>
1997 1996
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Unrealized Unrealized Fair
(in thousands) COST GAINS LOSSES VALUE Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-
for-sale:
U.S. Treasury $ 41,245 $ 210 $ 99 $ 41,356 $ 52,699 $ -- $ 12 $ 52,687
U.S. Government
agencies 67,384 1,531 4 68,911 28,484 68 -- 28,552
Agency mortgage-backed
securities 18,763 110 66 18,807 24,875 -- 311 24,564
Agency collateralized
mortgage obligations 6,633 57 7 6,683 -- -- -- --
Obligations of states
and political
subdivisions 18,419 914 4 19,329 25,888 1,121 -- 27,009
Other securities 4,330 -- -- 4,330 2,728 6 -- 2,734
- ----------------------------------------------------------------------------------------------------------
Total securities
available-for-sale $156,774 $2,822 $180 $159,416 $134,674 $1,195 $323 $135,546
- ----------------------------------------------------------------------------------------------------------
Securities held-to-
maturity:
U.S. Treasury $ 29,258 $ 249 $ -- $ 29,507 $ 38,454 $ 460 $ -- $ 38,914
U.S. Government
agencies 44,819 1,381 10 46,190 36,726 193 -- 36,919
Agency mortgage-backed
securities 10,963 197 1 11,159 29,683 166 -- 29,849
Agency collateralized
mortgage obligations 17,471 63 15 17,519 -- -- -- --
Obligations of states
and political
subdivisions 28,021 852 93 28,780 25,475 830 -- 26,305
Other securities 12,150 334 -- 12,484 70 -- -- 70
- ----------------------------------------------------------------------------------------------------------
Total securities held-
to-maturity $142,682 $3,076 $119 $145,639 $130,408 $1,649 $ -- $132,057
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair values of investment securities at December 31,
1997, by contractual maturity, are shown below. Agency mortgage-backed securi-
ties and collateralized mortgage obligations are presented in the table based
on their estimated average lives, which will differ from contractual maturi-
ties due to principal prepayments. Other securities include corporate collat-
eralized mortgage obligations, preferred stock and Federal Home Loan Bank of
Chicago stock, which have no stated maturity date.
<TABLE>
<S> <C> <C>
1997
Amortized Fair
(in thousands) Cost Value
- ----------------------------------------------------------
Securities available-for-sale:
Due in one year or less $ 22,170 $ 22,138
Due after one year through five years 89,509 90,292
Due after five years through ten years 40,214 42,047
Over ten years 764 822
Other securities 4,117 4,117
- ----------------------------------------------------------
$ 156,774 $159,416
- ----------------------------------------------------------
Securities held-to-maturity:
Due in one year or less $ 29,471 $ 29,579
Due after one year through five years 71,718 72,596
Due after five years through ten years 28,958 30,604
Over ten years 12,535 12,860
- ----------------------------------------------------------
$ 142,682 $145,639
- ----------------------------------------------------------
</TABLE>
31
First Oak Brook Bancshares, Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1997, investment securities with a book value of $237,116,000
were pledged as collateral to secure certain deposits and for other purposes as
required by law.
Proceeds from sales of investments in debt and equity securities during 1997,
1996 and 1995 were $22,524,000, $8,025,000 and $8,967,000 respectively. Gross
gains of $194,000 and gross losses of $203,000 were realized on those sales in
1997. Gross gains of $21,000 and gross losses of $7,000 were realized on those
sales in 1996. Gross gains of $138,000 and gross losses of $11,000 were real-
ized on those sales in 1995.
NOTE 5. LOANS
Loans outstanding at December 31 follow:
<TABLE>
<CAPTION>
1997 1996
CARRYING FAIR Carrying Fair
(in thousands) AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial loans $ 54,658 $ 54,490 $ 40,895 $ 40,666
Real estate loans--
Construction and land acquisition 36,525 36,525 35,902 35,502
Commercial mortgage 73,376 73,566 63,394 63,013
Residential mortgage 96,766 97,578 93,730 92,215
Home equity loans 65,273 65,227 55,297 55,316
Indirect automobile loans 105,807 104,743 58,578 57,734
Consumer loans 14,932 14,872 14,993 15,706
Credit card loans 631 437 58,114 58,057
- ------------------------------------------------------------------------
Total loans 447,968 447,438 420,903 418,209
Less unearned discount (636) -- (739) --
- ------------------------------------------------------------------------
Loans, net of unearned discount $447,332 $447,438 $420,164 $418,209
- ------------------------------------------------------------------------
</TABLE>
The Company grants real estate, commercial and consumer loans primarily within
the Chicago Metropolitan area. Generally, real estate and consumer loans are
secured by various items of property such as first and second mortgages, auto-
mobiles and cash collateral. The majority of the commercial portfolio is se-
cured by business assets.
Loans secured by residential real estate are expected to be paid by the borrow-
ers' cash flows or proceeds from the sale or refinancing of the underlying real
estate. Almost all of these loans are secured by real estate within the Chicago
Metropolitan area. Performance of these loans may be affected by conditions in-
fluencing the local economy and real estate market. However, the Company's loan
policy addresses this issue, as funds loaned for portfolio loans generally may
not exceed eighty percent of the appraised value of the real estate.
In the normal course of business, there are various outstanding commitments and
contingent liabilities, including commitments to extend credit, that are not
reflected in the financial statements. The Company's exposure to credit loss in
the event of nonperformance by the other party to the commitments and lines of
credit is limited to their contractual amount. Many commitments to extend
credit expire without being used. Therefore, the amounts stated below do not
necessarily represent future cash commitments. These commitments (including
letters of credit) and credit lines are subject to the same credit policies
followed for loans recorded in the financial statements.
32 First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A summary of these commitments to extend credit at December 31 follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ---------------------------------------------
<S> <C> <C>
Commercial $46,831 $41,279
Commercial mortgage 37,834 48,518
Home equity 80,338 66,772
Check credit and credit card 969 305,061
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,109 $ 3,932 $ 3,859
Provision for loan losses 1,550 1,510 1,050
Recoveries 175 178 135
Charge-offs (1,505) (1,511) (1,112)
- --------------------------------------------------------
Balance at end of year $ 4,329 $ 4,109 $ 3,932
- --------------------------------------------------------
</TABLE>
The Company had no impaired loans, as defined, at year-end 1997. At December
31, 1996, the recorded investment in loans considered impaired was $1,730,000.
The allowance for loan losses related to impaired loans was $400,000 at year-
end 1996. The Company did not recognize any interest income associated with
impaired loans during 1997 or 1996. If interest had been accrued at their
original terms, such income would have approximated $52,000 in 1997 and
$101,000 in 1996. The Company had no impaired loans in 1995.
The Company's bank subsidiary has granted loans to its officers and directors,
as well as to the officers and directors of the Company and to their associ-
ates. Related-party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties and do not involve more than normal risk
of collectibility. The aggregate amount of these loans was $8,145,000 and
$6,571,000 at December 31, 1997 and 1996, respectively. During 1997, new loans
totaled $2,777,000 and repayments totaled $1,203,000.
Certain principal shareholders of the Company are also principal shareholders
of Amalgamated Investments Company, parent of Amalgamated Bank of Chicago. The
Company's subsidiary bank periodically enters into loan participations with
Amalgamated Bank of Chicago. At December 31, 1997 and 1996, the Company had
outstanding loan participations sold of $4,231,000 and $1,049,000 respectively
with Amalgamated Bank of Chicago.
NOTE 6. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,272 $ 2,652
Buildings and improvements 15,270 15,247
Construction in progress 1,347 --
Leasehold improvements 997 985
Data processing equipment, office equipment and furniture 10,739 10,114
- ------------------------------------------------------------------------------
31,625 28,998
Less accumulated depreciation and amortization (12,852) (11,528)
- ------------------------------------------------------------------------------
Premises and equipment, net $ 18,773 $ 17,470
- ------------------------------------------------------------------------------
</TABLE>
The Company has entered into a number of noncancellable operating lease agree-
ments for certain of its subsidiary bank's office premises. The minimum annual
net rental commitments under these leases at December 31, 1997, are as fol-
lows:
<TABLE>
<CAPTION>
(in thousands)
- -------------------------
<S> <C>
1998 $190
1999 126
2000 100
2001 44
2002 33
2003 and thereafter 8
- -------------------------
$501
- -------------------------
</TABLE>
Total rental expense for 1997, 1996 and 1995 was approximately $194,000,
$193,000 and $188,000 respectively, which included payment of certain occu-
pancy expenses as defined in the lease agreements.
The Company's aggregate future minimum net rentals to be received under
noncancellable leases from third-party tenants are as follows:
<TABLE>
<CAPTION>
(in
thousands)
- ------------------
<S> <C>
1998 $ 338
1999 326
2000 335
2001 310
2002 --
- ------------------
$1,309
- ------------------
</TABLE>
The Company also receives reimbursement from its tenants for certain occupancy
expenses including taxes, insurance and operational expenses, as defined in
the lease agreements.
First Oak Brook Bancshares, Inc. 33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 7. BORROWINGS
Federal funds purchased, which totalled $19 million at December 31, 1997, gen-
erally represent one day borrowings obtained from a correspondent bank. Securi-
ties sold under repurchase agreements (repos), which totalled $33.6 million at
December 31, 1997, represent borrowings which have maturities within one year
and are secured by U.S. Treasury and agency securities. Other borrowed funds
consist of treasury, tax and loan notes and Federal Home Loan Bank borrowings.
A summary of short term borrowings follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term Federal Home Loan Bank borrowings:
At December 31 $27,500 $ -- $ 3,500
Average during year 5,027 870 4,103
Maximum month-end balance 27,500 3,500 6,000
Average rate at year-end 5.74% -- 4.73%
Average rate during the year 5.78% 4.83% 4.73%
- ----------------------------------------------------------------------------
Federal funds purchased, repos and treasury, tax
and demand notes:
At December 31 $65,116 $55,187 $60,702
Average during year 59,881 60,753 56,245
Maximum month-end balance 76,158 73,804 69,490
Average rate at year-end 5.79% 5.44% 5.05%
Average rate during the year 5.18% 5.03% 5.32%
- ----------------------------------------------------------------------------
</TABLE>
A summary of the Federal Home Loan Bank borrowings at December 31, 1997 follows
(dollars in thousands):
<TABLE>
<CAPTION>
Amount Interest Rate Maturity
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
$25,000 5.73% 02/19/1998
2,500 5.85 02/20/1998
5,000 5.48 02/22/2000/1/
5,000 5.71 06/18/2002/2/
5,000 6.41 09/25/2002
- ---------------------------------------------------------------------------------------------------
$42,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
/1/callable after 2/21/98
/2/callable after 6/18/98
The Company has adopted a collateral pledge agreement whereby the Company has
agreed to keep on hand, at all times, free of all other pledges, liens, and en-
cumbrances, first mortgage loans with unpaid principal balances aggregating no
less than 167% of the outstanding borrowings from the Federal Home Loan Bank of
Chicago (FHLB). All stock in the FHLB of Chicago is pledged as additional col-
lateral for these borrowings.
NOTE 8. INCOME TAXES
The components of the provision for income taxes for the three years in the pe-
riod ended December 31 follow:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Current provision $6,729 $2,715 $2,375
Deferred provision (benefit) 233 (286) (379)
- --------------------------------------------------------
Total provision for income taxes $6,962 $2,429 $1,996
- --------------------------------------------------------
</TABLE>
The tax expense (benefit) related to investment securities gains (losses) for
1997, 1996 and 1995 totaled ($3,000), $5,000 and $43,000 respectively.
The net deferred tax asset (liability) at December 31 consists of the follow-
ing:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Gross deferred tax liabilities:
Unrealized gains on securities available-for-sale $ 847 $ 141
Accretion of discount on securities 539 401
Depreciation 653 421
Amortization of intangible assets 8 15
Other, net 158 61
- ----------------------------------------------------------------
Total deferred tax liabilities 2,205 1,039
Gross deferred tax assets:
Book over tax loan loss reserve 1,783 1,592
Deferred expenses 156 120
- ----------------------------------------------------------------
Total deferred tax assets 1,939 1,712
- ----------------------------------------------------------------
Net deferred tax asset(liability) $ (266) $ 673
- ----------------------------------------------------------------
</TABLE>
34
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The effect of significant temporary differences on the deferred tax provision
(benefit) for the three years in the period ended December 31 follow:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Deferred expenses $(36) $ 23 $ (43)
Accretion of discount on securities 138 172 29
Depreciation 232 (29) 35
Book over tax loan loss reserve (191) (323) (232)
Amortization of intangible assets (7) (24) (115)
Other, net 97 (105) (53)
- --------------------------------------------------------
Deferred provision (benefit) $233 $(286) $(379)
- --------------------------------------------------------
</TABLE>
The effective tax rates for 1997, 1996 and 1995 were 34%, 25% and 23% respec-
tively. Income tax expense was less than the amounts computed by applying the
Federal statutory rate of 35% in 1997 and 34% (for companies with taxable in-
come less than $10 million) in 1996 and 1995 because of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at statutory rate $7,250 $3,243 $2,954
Increase (decrease) in taxes resulting from:
Income from obligations of states and political
subdivisions and certain loans not subject to Federal
income taxes (870) (873) (1,007)
State income taxes 430 -- --
Other, net 152 59 49
- -------------------------------------------------------------------------------
Total provision for income taxes $6,962 $2,429 $1,996
- -------------------------------------------------------------------------------
</TABLE>
NOTE 9. SHAREHOLDERS' EQUITY
Each share of Class A common stock is entitled to one-twentieth of one vote and
a cash dividend of at least 120% of the dividend declared on the common stock.
Holders of the Class A common stock, upon liquidation of the Company, are enti-
tled to receive an aggregate amount per share equal to the $6.31 offering price
of the Class A common stock before any amount is paid to holders of the common
stock. The common stock is convertible into Class A common stock on a one-for-
one basis at any time.
At December 31, 1997, the Company has reserved for issuance 235,263 shares of
common stock for the Stock Option Plan and 1,884,159 shares of Class A common
stock for conversions of common stock into Class A common stock.
Payment of dividends by the Company's subsidiary bank is subject to both Fed-
eral and state banking laws and regulations that limit the amount of dividends
that can be paid by the bank without prior regulatory approval. At December 31,
1997, $18,853,000 of undistributed earnings was available for the payment of
dividends by the subsidiary bank without prior regulatory approval.
NOTE 10. REGULATORY CAPITAL
The Company and its bank subsidiary are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet min-
imum capital requirements can initiate certain mandatory, and possibly addi-
tional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital ad-
equacy guidelines and the regulatory framework for prompt corrective action,
the Company and its bank subsidiary must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. Capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Regulations require the Company and its bank subsidiary to maintain minimum
amounts of total and Tier 1 capital, minimum ratios of total and Tier 1 capital
to risk-weighted assets, and a minimum ratio of Tier 1 capital to average as-
sets to ensure capital adequacy. Management believes, as of December 31, 1997,
that the Company and its bank subsidiary meet all capital adequacy requirements
to which they are subject.
The Company and its bank subsidiary's actual capital amounts and ratios are
presented in the following table. As of December 31, 1997, the most recent reg-
ulatory notification categorized the bank subsidiary as well capitalized. There
are no conditions or events since that notification that management believes
have changed the institution's category.
35
First Oak Brook Bancshares, Inc.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital Required To Be
----------------------------
Adequately Well
Actual Capitalized Capitalized
-------------------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted
Assets)
Consolidated $74,317 14.55% $40,867 8% $51,084 10%
Oak Brook Bank 67,602 13.25 40,823 8 51,029 10
Tier 1 Capital (to Risk Weighted
Assets)
Consolidated $69,988 13.70% $20,433 4% $30,650 6%
Oak Brook Bank 63,273 12.40 20,412 4 30,618 6
Tier 1 Capital (to Average
Assets)
Consolidated $69,988 8.57% $32,650 4% $40,812 5%
Oak Brook Bank 63,273 7.76 32,625 4 40,781 5
As of December 31, 1996:
Total Capital (to Risk Weighted
Assets)
Consolidated $63,330 13.54% $37,429 8% $46,786 10%
Oak Brook Bank 55,579 11.90 37,354 8 46,692 10
Tier 1 Capital (to Risk Weighted
Assets)
Consolidated $59,221 12.66% $18,714 4% $28,072 6%
Oak Brook Bank 51,470 11.02 18,677 4 28,015 6
Tier 1 Capital (to Average
Assets)
Consolidated $59,221 7.69% $30,801 4% $38,501 5%
Oak Brook Bank 51,470 6.70 30,726 4 38,407 5
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE 11. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted earnings
per share for the years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 13,753 $ 7,107 $ 6,692
- ----------------------------------------------------------------------------
Denominator for basic earnings per share-
weighted average shares 3,291,678 3,364,851 3,362,631
Effect of diluted securities:
Stock options issued to employees and
directors 97,435 78,268 69,533
- ----------------------------------------------------------------------------
Denominator for diluted earnings per share 3,389,113 3,443,119 3,432,164
- ----------------------------------------------------------------------------
Earnings per share:
Basic $ 4.18 $ 2.11 $ 1.99
Diluted $ 4.06 $ 2.06 $ 1.95
- ----------------------------------------------------------------------------
</TABLE>
NOTE 12. CONTINGENT LIABILITIES
The Company and its subsidiary bank are not subject to any material pending or
threatened legal actions as of December 31, 1997.
NOTE 13. STOCK-BASED COMPENSATION
The Company has a nonqualified stock option plan for officers and directors.
Options may be granted at a price not less than the market value on the date of
grant, and are
subject to a 3-year vesting for outside directors or a 5-year vesting schedule
for all others and are exercisable, in part, beginning at least one year fol-
lowing the date of grant and no later than ten years from date of grant.
36
First Oak Brook Bancshares, Inc.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Pro forma information regarding net income and earnings per share is required
by Statement No. 123 "Accounting for Stock-Based Compensation" and has been
determined as if the Company had accounted for its employee stock options un-
der the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1997, 1996 and 1995, re-
spectively: risk-free interest rates of 5.5%, 6.4% and 5.5%; dividend yields
of 3.3%, 3.1% and 2.4%; volatility factor of the expected market price of the
Company's common stock of .18; and a weighted-average expected life of the op-
tion of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility. Be-
cause the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in manage-
ment's opinion, the existing models do not necessarily provide a reliable sin-
gle measure of the fair value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of the op-
tions is amortized to expense over the options' vesting period. The Company's
pro forma information follows (dollars in thousands, except for earnings per
share):
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $13,753 $7,107 $6,692
Pro forma net income $13,692 $7,071 $6,690
Earnings per share as reported:
Basic $ 4.18 $ 2.11 $ 1.99
Diluted $ 4.06 $ 2.06 $ 1.95
Pro forma earnings per share:
Basic $ 4.16 $ 2.10 $ 1.99
Diluted $ 4.04 $ 2.05 $ 1.95
Weighted-average fair value of options granted during
the year $ 4.73 $ 4.45 $ 4.18
- ----------------------------------------------------------------------------
</TABLE>
A summary of the Company's stock option activity, and related information for
the year ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
EXERCISE Exercise Exercise
OPTIONS PRICE Options Price Options Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year 309,619 $14.04 271,869 $12.06 209,369 $ 9.51
Granted 1,500 27.75 52,501 22.79 64,500 20.44
Exercised (92,532) 7.09 (11,751) 5.51 (300) 14.93
Forfeited (10,200) 19.79 (3,000) 20.50 (1,700) 15.39
- --------------------------------------------------------------------------------
Outstanding at the end
of the year 208,387 $16.95 309,619 $14.04 271,869 $12.06
- --------------------------------------------------------------------------------
Exercisable at the end
of the year 113,347 $13.92 169,044 $ 9.26 150,969 $ 7.32
- --------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstand-
ing as of December 31, 1997 ranged
from $5.24 to $27.75 per share. The
weighted-average remaining contrac-
tual life of those options is 7.1
years.
NOTE 14. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) savings plan that allows eligible employees to defer
a percentage of their salary, not to exceed 10%, which will be matched by the
Company based on a formula tied to Company profits. The maximum Company lia-
bility is 4% of aggregate eligible salaries. For 1997, 1996 and 1995, the
Company's contributions to the plan were $255,000, $246,000, and $205,000, re-
spectively.
The Company also has a profit sharing plan, under which the Company, at its
discretion, could contribute up to the maximum amount deductible for the year.
The Company contributed $139,000 in 1997, $128,000 in 1996 and $130,000 in
1995.
The Company also entered into supplemental pension agreements with certain ex-
ecutive officers. Under these agreements, the Company is obligated to provide
at a prescribed retirement date, a supplemental pension based upon a percent-
age of executive officer's final base salary. For 1997, 1996, and 1995, the
Company's accrued expense for the plan was $154,000, $146,000, and $133,000,
respectively.
First Oak Brook Bancshares, Inc. 37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following are the condensed balance sheets, statements of income and cash
flows for First Oak Brook Bancshares, Inc.:
BALANCE SHEETS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents on deposit with subsidiary $ 7,363 $ 6,884
Investment in subsidiary 64,965 51,825
Securities available-for-sale 501 1,746
Due from subsidiary 487 96
Equipment, net 44 141
Other assets 61 22
- ---------------------------------------------------------------------
Total assets $73,421 $60,714
- ---------------------------------------------------------------------
Liabilities and Shareholders' equity
Other liabilities $ 1,760 $ 1,161
- ---------------------------------------------------------------------
Total liabilities 1,760 1,161
Shareholders' equity 71,661 59,553
- ---------------------------------------------------------------------
Total Liabilities and Shareholders' equity $73,421 $60,714
- ---------------------------------------------------------------------
</TABLE>
STATEMENTS OF INCOME (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
Year Ended December
31,
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiary $ 5,094 $2,108 $3,967
Other income 1,067 2,140 1,887
- -----------------------------------------------------------------------------
Total income 6,161 4,248 5,854
- -----------------------------------------------------------------------------
Expenses:
Other expenses 2,978 2,740 2,629
- -----------------------------------------------------------------------------
Total expenses 2,978 2,740 2,629
- -----------------------------------------------------------------------------
Income before income taxes and equity in undistributed
net income of subsidiary 3,183 1,508 3,225
Income tax benefit 753 186 190
- -----------------------------------------------------------------------------
Income before equity in undistributed net income of
subsidiary 3,936 1,694 3,415
Equity in undistributed net income of subsidiary 9,817 5,413 3,277
- -----------------------------------------------------------------------------
Net income $13,753 $7,107 $6,692
- -----------------------------------------------------------------------------
</TABLE>
38
First Oak Brook Bancshares, Inc.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $13,753 $ 7,107 $ 6,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 27 43 39
Investment securities losses -- 7 6
Decrease (increase) in other assets (39) 22 37
Increase in other liabilities 599 371 117
Decrease (increase) in due from subsidiary (391) 714 (260)
Equity in undistributed net income of subsidiary (9,817) (5,413) (3,277)
Amortization of intangible assets 43 70 204
Other 75 (48) 28
- -------------------------------------------------------------------------------
Net cash provided by operating activities 4,250 2,873 3,586
Cash flows from investing activities:
Sales (purchases) of securities 1,245 (32) 2,625
Additions to equipment -- (38) (28)
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,245 (70) 2,597
Cash flows from financing activities:
Exercise of stock options 1,510 128 4
Purchase of treasury stock (2,815) (37) --
Cash dividends (1,711) (1,324) (979)
Capital contribution to subsidiary (2,000) -- --
- -------------------------------------------------------------------------------
Net cash used in financing activities (5,016) (1,233) (975)
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 479 1,570 5,208
Cash and cash equivalents at beginning of year 6,884 5,314 106
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,363 $ 6,884 $ 5,314
- -------------------------------------------------------------------------------
</TABLE>
39
First Oak Brook Bancshares, Inc.
<PAGE>
CORPORATE AND SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Executive Officer Directors
Eugene P. Heytow, Chairman of the Board and Chief Executive Officer
Richard M. Rieser, Jr., President
Frank M. Paris, Vice Chairman
Non-Officer Directors
Miriam Lutwak Fitzgerald, M.D.
Geoffrey R. Stone, Provost of the University of Chicago
Robert M. Wrobel, President, Amalgamated Bank of Chicago
- --------------------------------------------------------------------------------
Senior Corporate Officers
Rosemarie Bouman, Vice President and Chief Financial Officer
Mary C. Carnevale, Vice President and Chief Human Resources Officer
George C. Clam, Vice President and Chief Banking Officer
William E. Navolio, Vice President, General Counsel, and Secretary
CORPORATE OFFICE
The Corporate Office is located at 1400 Sixteenth Street, Oak Brook, Illinois,
60523. The telephone number is (630) 571-1050. You can E-mail us at
[email protected].
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10 a.m. on Tuesday, May 5,
1998, in the Conference Center at 1400 Sixteenth Street, Oak Brook, Illinois
60523.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share
----------------------------------------
Diluted Dividends Paid Class A/1/
Net -------------- Book --------------------
Quarter Ended Income Class A Common Value Low Price High Price
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997 $ .64 $.150 $.125 $20.75 $34.00 $50.38
SEPTEMBER 30, 1997 .66 .130 .105 20.28 30.25 35.25
JUNE 30, 1997 2.12 .130 .105 19.38 24.25 32.75
MARCH 31, 1997 .65 .130 .105 17.32 22.75 26.00
December 31, 1996 .61 .110 .090 17.26 21.13 23.75
September 30, 1996 .50 .090 .075 16.52 21.25 25.50
June 30, 1996 .50 .090 .075 15.94 22.50 24.75
March 31, 1996 .44 .090 .075 15.69 20.50 24.25
- ----------------------------------------------------------------------
</TABLE>
STOCK DATA
/1/ The prices shown represent the high and low closing sales price for the
quarter.
CLASS A COMMON STOCK
The Company's Class A Common Stock is listed on The Nasdaq Stock MarketSM. As
of January 31, 1998, there were approximately 184 holders of record of Class A
Common Stock; however, the Company believes the number of round lot beneficial
owners is greater than 400. Current market makers in the Class A Common Stock
are The Chicago Corporation; Everen Securities, Inc.; Howe Barnes Investments,
Inc.; Herzog, Heine, Geduld, Inc.; Island Systems and Ryan Beck & Co., Inc.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL FOR CLASS A COMMON STOCK
FOBBA
- --------------------------------------------------------------------------------
TRANSFER AGENT AND REGISTRAR
The Transfer agent and registrar is Oak Brook Bank, 1400 Sixteenth Street, Oak
Brook, Illinois 60523.
COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market through
market makers, primarily The Chicago Corporation. As of January 31, 1998, there
were approximately 188 holders of record of Common Stock.
Since the offering of the Class A Common Stock there has been limited trading
of the Common Stock; therefore, prices of the Common Stock are not shown. The
Common Stock is, however, convertible on a one-for-one basis into the Class A
Common Stock. As of January 31, 1998, a total of 1,028,059 shares of Common
Stock have been converted into Class A Common Stock.
- --------------------------------------------------------------------------------
FORM 10-K
Any individual requesting a copy of the Company's 1997 Form 10-K Annual Report
filed with the Securities and Exchange Commission may obtain it without charge
by writing to Rosemarie Bouman, Vice President and Chief Financial Officer, at
the Corporate Office. The 1997 Form 10-K may also be obtained from the SEC's
EDGAR database which is directly linked to the Company's Web site at
http://www.obb.com.
40
First Oak Brook Bancshares, Inc.
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
The Company's subsidiary is incorporated in the State of Illinois and does
business under its own name.
OAK BROOK BANK (100%)
<PAGE>
EXHIBIT (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of First Oak Brook Bancshares, Inc. of our report dated January 20, 1998,
included in the 1997 Annual Report to Shareholders of First Oak Brook
Bancshares, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-24145) pertaining to First Oak Brook Bancshares, Inc.
Employees' Savings and Stock Ownership Plan and the Registration Statement (Form
S-8 No. 33-82800) pertaining to First Oak Brook Bancshares, Inc. 1987 Stock
Option Plan of our report dated January 20, 1998, with respect to the
consolidated financial statements of First Oak Brook Bancshares, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
SEC Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 32,893 38,816 37,406
<INT-BEARING-DEPOSITS> 10,239 289 105
<FED-FUNDS-SOLD> 0 22,150 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 159,416 135,546 128,172
<INVESTMENTS-CARRYING> 142,682 130,408 128,020
<INVESTMENTS-MARKET> 145,639 132,057 130,214
<LOANS> 447,332 420,164 362,728
<ALLOWANCE> 4,329 4,109 3,932
<TOTAL-ASSETS> 816,144 768,655 678,102
<DEPOSITS> 627,763 648,303 555,086
<SHORT-TERM> 92,616 55,187 64,202
<LIABILITIES-OTHER> 9,104 5,612 5,052
<LONG-TERM> 15,000 0 0
<COMMON> 7,271 7,091 7,067
0 0 0
0 0 0
<OTHER-SE> 64,390 52,462 46,695
<TOTAL-LIABILITIES-AND-EQUITY> 816,144 768,655 678,102
<INTEREST-LOAN> 36,305 36,163 32,287
<INTEREST-INVEST> 17,560 15,353 14,953
<INTEREST-OTHER> 822 956 1,032
<INTEREST-TOTAL> 54,687 52,472 48,272
<INTEREST-DEPOSIT> 23,373 22,538 19,609
<INTEREST-EXPENSE> 27,255 25,638 22,796
<INTEREST-INCOME-NET> 27,432 26,834 25,476
<LOAN-LOSSES> 1,550 1,510 1,050
<SECURITIES-GAINS> (9) 14 127
<EXPENSE-OTHER> 20,708 20,435 19,924
<INCOME-PRETAX> 20,715 9,536 8,688
<INCOME-PRE-EXTRAORDINARY> 20,715 9,536 8,688
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 13,753 7,107 6,692
<EPS-PRIMARY> 4.18 2.11 1.99
<EPS-DILUTED> 4.06 2.06 1.95
<YIELD-ACTUAL> 3.97 4.20 4.54
<LOANS-NON> 0 1,730 0
<LOANS-PAST> 378 349 104
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 4,109 3,932 3,859
<CHARGE-OFFS> 1,505 1,511 1,112
<RECOVERIES> 175 178 135
<ALLOWANCE-CLOSE> 4,329 4,109 3,932
<ALLOWANCE-DOMESTIC> 4,329 4,109 3,932
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
