<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 0-14468
-------
First Oak Brook Bancshares, Inc.
--------------------------------
(Exact Name of registrant as specified in its charter)
Delaware 36-3220778
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1400 Sixteenth Street, Oak Brook, Illinois 60523
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 571-1050
----------------------------
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares of the registrant's common stock outstanding as of November
1, 1999 was 6,611,114.
1
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
- ------- ---------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
September 30, 1999 and December 31, 1998 3
Condensed consolidated statements of income
Three months ended September 30, 1999 and 1998 and
Nine months ended September 30, 1999 and 1998 5
Condensed consolidated statements of cash flows
Nine months ended September 30, 1999 and 1998 7
Notes to condensed consolidated financial
statements -- September 30, 1999 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. Other Information
- ------- ------------------
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
- ----------
</TABLE>
*Not applicable
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 34,827 $ 41,759
Federal funds sold 31,600 362
Interest-bearing deposits with banks 65 11,402
Securities held-to-maturity, at amortized cost
(fair value, $101,173 and $143,980 at
September 30, 1999 and December 31, 1998,
respectively) 101,267 141,253
Securities available-for-sale, at fair value 237,818 156,421
Loans, net of unearned discount 687,822 631,987
Less allowance for loan losses (4,687) (4,445)
---------- ----------
Net loans 683,135 627,542
---------- ----------
Premises and equipment, net 21,273 21,032
Other assets 11,896 9,504
---------- ----------
Total assets $1,121,881 $1,009,275
========== ==========
</TABLE>
3
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands Except Share Information)
<TABLE>
<CAPTION>
September 30, December 31,
Liabilities 1999 1998
- ----------- ---- ----
<S> <C> <C>
Noninterest-bearing demand deposits $ 187,758 $ 187,209
---------- ----------
Interest-bearing deposits:
Savings deposits and NOW accounts 167,720 177,572
Money market accounts 47,398 44,375
Time deposits
Under $100,000 240,947 181,924
$100,000 and over 231,373 186,722
---------- ----------
Total interest-bearing deposits 687,438 590,593
---------- ----------
Total deposits 875,196 777,802
---------- ----------
Federal funds purchased and securities
sold under agreements to repurchase 71,375 83,586
Treasury, tax and loan demand notes 14,877 3,682
Federal Home Loan Bank borrowings 68,000 57,500
Other liabilities 11,231 9,644
---------- ----------
Total liabilities $1,040,679 $ 932,214
---------- ----------
Shareholders' Equity
- --------------------
Preferred Stock - -
Class A common stock - 8,040
Common stock 14,567 6,527
Surplus 11,983 11,955
Accumulated other comprehensive income 260 2,263
Retained earnings 60,278 54,406
Less cost of shares in treasury, 661,142 common shares
at September 30, 1999, and 353,000 Class A and
347,416 common shares at December 31, 1998 (5,886) (6,130)
---------- ----------
Total shareholders' equity 81,202 77,061
---------- ----------
Total liabilities and shareholders' equity $1,121,881 $1,009,275
========== ==========
</TABLE>
See Notes to Condensed consolidated Financial Statements.
4
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $12,762 $10,403 $37,057 $29,336
Interest on securities:
U.S. Treasury and Government
agencies 3,926 3,778 9,977 10,996
Obligations of states and political
subdivisions 711 664 2,100 1,901
Other securities 144 329 626 929
Interest on federal funds sold and
securities purchased under agreements
to resell 252 655 827 1,700
Interest on deposits with banks 1 194 398 570
------- ------- ------- -------
Total interest income 17,796 16,023 50,985 45,432
------- ------- ------- -------
Interest expense:
Interest on savings deposits and
NOW accounts 1,193 1,437 3,611 4,395
Interest on money market accounts 405 345 1,131 937
Interest on time deposits 6,076 5,147 16,880 14,730
Interest on federal funds purchased
and securities sold under agreements
to repurchase 832 672 2,121 1,840
Interest on treasury, tax and loan
demand notes 104 145 255 414
Interest on Federal Home Loan Bank
borrowings 991 820 2,910 2,414
------- ------- ------- -------
Total interest expense 9,601 8,566 26,908 24,730
------- ------- ------- -------
Net interest income 8,195 7,457 24,077 20,702
Provision for loan losses 210 90 630 240
------- ------- ------- -------
Net interest income after provision for
loan losses $ 7,985 $ 7,367 $23,447 $20,462
------- ------- ------- -------
</TABLE>
5
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
(In Thousands Except Share Information)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
---------------------- ----------------------
<S> <C> <C> <C> <C>
Other income:
Service charges on deposit accounts $ 924 $ 826 $ 2,667 $ 2,390
Investment management and trust fees 268 257 834 762
Merchant card processing fees 486 351 1,345 980
Income from revenue sharing agreement 225 225 675 675
Fees on mortgages sold 86 134 353 304
Other operating income 240 257 749 755
Investment securities gains - - 101 79
---------- ---------- ---------- ----------
Total other income 2,229 2,050 6,724 5,945
---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits 3,965 3,601 11,879 10,487
Occupancy expense 429 374 1,241 1,133
Equipment expense 462 531 1,344 1,394
Data processing 240 212 725 558
Professional fees 112 131 460 375
Postage, stationery and supplies 194 192 616 628
Advertising and business development 341 307 956 881
Merchant interchange expense 350 245 1,025 720
Other operating expenses 316 307 977 735
---------- ---------- ---------- ----------
Total other expenses 6,409 5,900 19,223 16,911
---------- ---------- ---------- ----------
Income before income taxes 3,805 3,517 10,948 9,496
---------- ---------- ---------- ----------
Income tax expense 1,111 1,038 3,143 2,758
---------- ---------- ---------- ----------
Net income $ 2,694 $ 2,479 $ 7,805 $ 6,738
========== ========== ========== ==========
Earnings per share:
Basic $ .41 $ .37 $ 1.18 $ 1.01
========== ========== ========== ==========
Diluted .40 .37 1.16 .99
========== ========== ========== ==========
Dividends paid per share $ .10 $ .09 $ .30 $ .27
========== ========== ========== ==========
Weighted average number of shares:
Basic 6,621,626 6,632,127 6,608,349 6,666,533
========== ========== ========== ==========
Diluted 6,751,415 6,789,943 6,739,785 6,834,588
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 & 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,805 $ 6,738
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, accretion, and amortization 1,764 1,670
Provision for loan losses 630 240
Investment securities gains (101) (79)
Origination of real estate loans for sale (32,899) (37,910)
Proceeds from sale of real estate loans originated for sale 34,984 35,443
Increase in other assets (2,392) (994)
Increase (decrease) in other liabilities 2,619 (453)
--------- ---------
Net cash provided by operating activities 12,410 4,655
--------- ---------
Cash flows from investing activities:
Securities held-to-maturity:
Purchases (21,941) (34,506)
Proceeds from maturities, calls and paydowns 69,249 50,041
Securities available-for-sale:
Purchases (262,981) (72,729)
Proceeds from maturities, calls and paydowns 75,791 40,861
Proceeds from sales 106,366 38,522
Increase in loans (58,308) (122,977)
Additions to premises and equipment (1,743) (3,357)
--------- ---------
Net cash used in investing activities (93,567) (104,145)
--------- ---------
Cash flows from financing activities:
Increase in demand deposits 549 21,730
Increase in interest-bearing deposit accounts 96,845 97,231
Increase in treasury, tax and loan demand notes 11,195 3,167
Increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (12,211) 5,705
Proceeds from Federal Home Loan Bank borrowings 10,500 41,000
Repayment of Federal Home Loan Bank borrowings - (27,500)
Exercise of stock options 469 173
Purchase of treasury stock (197) (2,123)
Cash dividends (1,933) (1,682)
--------- ---------
Net cash provided by financing activities $ 105,217 $ 137,701
--------- ---------
</TABLE>
7
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1999 & 1998
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net increase in cash and cash equivalents $24,060 $38,211
Cash and cash equivalents at beginning
of period 42,432 32,954
------- -------
Cash and cash equivalents at end
of period $66,492 $71,165
======= =======
Supplemental disclosures:
Interest paid $25,616 $24,303
Income taxes paid 3,472 2,184
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring items) considered necessary
for a fair presentation have been included. Operating results for the three
and nine month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1998.
2. Commitments and Contingent Liabilities:
In the normal course of business, there are various outstanding commitments
and contingent liabilities, including commitments to extend credit, which
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 totheir contractual amount. Many
commitments to extend credit expire without being used. Therefore, the
amunts stated below do not necessarily represent future cash commitments.
These commitments are subject to the same credit policy as followed for
loans recorded in the financial statements.
The summary of these commitments to extend credit follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Commercial $ 78,178 $64,364
Commercial mortgage 20,168 39,973
Home equity 107,026 94,500
Check credit 822 872
</TABLE>
9
<PAGE>
3. Shareholders' Equity:
Shares authorized, issued and outstanding are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Preferred Stock,
no par value:
Authorized 100,000 100,000
Issued - -
Outstanding - -
Class A Common Stock,
$2.00 par value:
Authorized - 10,000,000
Issued - 4,019,902
Outstanding - 3,666,902
Common Stock,
$2.00 par value:
Authorized 16,000,000 6,000,000
Issued 7,283,256 3,263,354
Outstanding 6,622,114 2,915,938
</TABLE>
On May 4, 1999, the Shareholders of the Company approved the
reclassification of the Common Stock into Class A Common Stock on a
one-for-one basis, having one vote per share. As a result of the
reclassification,the Class A Common Stock is now the only class of
outstanding common stock of the Company and has been renamed "Common
Stock".
On May 4, 1999, the Company's Board of Directors adopted a shareholder
rights plan by providing for a dividend distribution of one preferred stock
purchase right for each share of the Company's common stock held of record
on May 21, 1999.
The September 30, 1999 presentation of shareholders' equity on the
condensed consolidated balance sheet as well as the presentation here
reflects the reclassification of the common stock. December 31, 1998
amounts have not been reclassified. As a result of the reclassification,
the dividend paid amounts shown on the condensed consolidated statements of
income is that of the Class A common stock.
On July 20, 1999 the Board declared the quarterly cash dividend of $.10 per
share payable October 22, 1999 to shareholders of record on October 11,
1999.
4. Earnings per share:
Basic earnings per share (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 denominator for basic
EPS adjusted for the diluted effect of outstanding stock options. Shares of
common stock issuable for deferred directors fees are considered
outstanding for EPS calculations.
10
<PAGE>
The following table sets forth the denominator used for basic and diluted
earnings per share for the periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
------------------ -------------------
<S> <C> <C> <C> <C>
Denominator for basic
earnings per share - weighted
average shares outstanding 6,621,626 6,632,127 6,608,349 6,666,533
Effect of diluted securities:
Stock options issued to
employees and directors 129,789 157,816 131,436 168,055
--------- --------- --------- ---------
Denominator for diluted
earnings per share 6,751,415 6,789,943 6,739,785 6,834,588
========= ========= ========= =========
</TABLE>
5. Loans:
The following table provides the book value, by major classification, as of
the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Commercial $ 99,357 $ 108,685
Real estate loans:
Construction and land 34,134 42,342
Commercial mortgage 134,061 113,671
Residential mortgage 120,719 113,869
Residential mortgages held for sale 1,484 3,569
Home equity loans 79,811 73,149
Indirect automobile loans 207,275 165,341
Consumer loans 11,374 11,993
---------- ----------
Total loans 688,215 632,619
Less unearned discount (393) (632)
---------- ----------
Loans, net of unearned discount $ 687,822 $ 631,987
========== ==========
</TABLE>
6. Comprehensive Income
The Company's comprehensive income consists of net income and unrealized gains
or losses on securities available-for-sale, net of tax, and is presented as a
separate component of Shareholders' Equity. Comprehensive income for the
three and nine month periods ended September 30, 1999 and 1998 is as follows
(in thousands):
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income $2,694 $2,479 $ 7,805 $6,738
Other comprehensive income,
net of tax:
Unrealized holding gain (loss) on
securities held during the
period (net of tax) 191 1,334 (1,936) 1,251
Reclassification adjustment of
realized gain on investment
sales included in net income - - (67) (52)
------ ------ ------- ------
Total comprehensive income $2,885 $3,813 $ 5,802 $7,937
====== ====== ======= ======
</TABLE>
7. Restatement and Reclassification:
Certain amounts in the September 30, 1998 interim condensed consolidated
financial statements have been reclassified to conform to their 1999
presentation and restated for the reclassification of common stock.
12
<PAGE>
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Earnings Highlights - Third Quarter Results
Net income for the third quarter of 1999 was $2,694,000 compared with $2,479,000
in the third quarter of 1998, an increase of 9%. Basic earnings per share for
the third quarter of 1999 were $.41 as compared to $.37 for 1998, while diluted
earnings per share were $.40 for 1999 compared with $.37 for 1998, an increase
of 8%.
Key performance indicators for the 1999 third quarter show a return on average
assets of .98% compared with 1.05% for the 1998 third quarter. For the third
quarter of 1999, the return on average shareholders' equity was 13.33% compared
with 13.26% for the same quarter of 1998.
Net interest income is the difference between interest earned on loans,
investments and other earning assets and interest paid on deposits and other
interest-bearing liabilities. Net interest income, on a tax-equivalent basis,
increased $762,000 or 10% as compared to the same period in 1998. This increase
is attributable to a 17% increase in average interest earning assets offset by a
decrease in the net interest margin to 3.29% from 3.50% for the same period last
year.
Average balances and effective interest yields and rates on a tax equivalent
basis for the quarters ended September 30, 1999 and 1998 were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 19,463 $ 253 5.16% $ 46,830 $ 655 5.55%
Interest-bearing deposits
with banks - - - 11,226 194 6.86
Securities/1/ 322,981 5,057 6.21 289,259 5,038 6.91
Loans/1/ 683,814 12,812 7.43 531,484 10,438 7.79
---------- ------- ---- -------- ------- ----
Total earning assets/
interest income $1,026,258 $18,122 7.01% $878,799 $16,325 7.37%
Cash and due from banks 38,639 37,106
Other assets 31,454 29,004
Allowance for loan losses (4,585) (3,995)
---------- --------
Total average assets $1,091,766 $940,914
========== ========
Interest-bearing deposits $ 666,637 $ 7,674 4.57% $567,378 $ 6,929 4.85%
Short-term debt 77,361 936 4.80 63,459 817 5.11
FHLB borrowings 68,000 991 5.78 56,000 820 5.81
---------- ------- ---- -------- ------- ----
Total interest-bearing liabilities/
interest expense $ 811,998 $ 9,601 4.69% $686,837 $ 8,566 4.95%
Demand deposits 189,150 171,051
Other liabilities 10,438 8,839
---------- --------
Total liabilities $1,011,586 $866,727
Shareholders' equity 80,180 74,187
---------- --------
Total liabilities and shareholders'
equity $1,091,766 $940,914
========== ========
Net interest income/1//spread $ 8,521 2.32% $ 7,759 2.42%
======= ==== ======= ====
Net interest margin 3.29% 3.50%
==== ====
</TABLE>
- --------------------
/1/ Tax 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 34%.
13
<PAGE>
Average loans for the third quarter of 1999 grew 29%, or $152.3 million compared
to the same period in 1998, led by indirect auto loans (up $55.4 million),
commercial real estate loans (up $53.0 million), commercial loans (up $19.1
million), residential real estate loans (up $12.8 million) and home equity loans
(up $9.8 million). Loan growth since December 31, 1998 of $55.8 million was
primarily due to indirect auto loans (up $42.2 million) and commercial real
estate loans (up $12.2 million). See Note 5.
Average interest-bearing deposits increased $99.3 million or 17% as compared to
the third quarter of 1998 due primarily to an increase in time deposits (up
$95.1 million). In addition, time deposits have increased $103.7 million since
December 31, 1998 primarily in response to successful retail deposit promotions.
Total other income increased $179,000 or 9%. Service charges on deposit
accounts increased $98,000 primarily due to an increase in business account
analysis fees.
Fees on mortgages sold, servicing released, decreased $48,000 due to slowdown of
residential loan originations in the third quarter of 1999. This fee income is
shown net of the commissions paid to the loan officers that originate the loan
activity.
Merchant card processing fees increased $135,000 primarily due to several new
merchant accounts and rate increases as a result of higher interchange fees.
Merchant interchange expense (in other operating expenses) also rose $105,000 as
compared to the third quarter of 1998.
Total other expenses increased $509,000 or 9%. The increase in operating
expenses was primarily due to staffing increases to support growing areas of the
bank, infrastructure costs and related expenses to support new branches and
merchant interchange expenses referred to above. Annualized operating expenses
as a percentage of average assets decreased slightly to 2.3% for 1999 compared
with 2.5% for 1998. Annualized net overhead expenses as a percentage of average
assets decreased to 1.6% from 1.7% in 1998 and the efficiency ratio (other
expenses to net interest income and other income) improved to 61.5% in 1999 from
62.1% in 1998.
Earnings Highlights - Nine Month Results
Net income for the nine months ended September 30, 1999 was $7,805,000, compared
with $6,738,000 earned in 1998, an increase of 16%. Basic earnings per share
for the first nine months of 1999 were $1.18 as compared to $1.01 earned in 1998
while diluted earnings per share were $1.16 in 1999 as compared to $.99 in 1998,
an increase of 17%.
Key performance indicators for the nine month period show a return on average
assets of 1.00% compared with .99% for the comparable period in 1998. The
return on average shareholders' equity for the first nine months of 1999 was
13.18% compared with 12.29% for 1998.
Net interest income for the first nine months of 1999, on a tax equivalent
basis, increased $3,482,000 or 16%. This increase is due to a 17% increase in
average earning assets offset by a slight decrease in the net interest margin to
3.41% in 1999 from 3.42% in 1998.
14
<PAGE>
Average balances and effective interest yields and rates on a tax equivalent
basis for the first nine months of 1999 and 1998 were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------ ----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 22,644 $ 827 4.88% $ 41,009 $ 1,700 5.54%
Interest-bearing deposits
with banks 7,748 398 6.87 11,217 570 6.79
Securities/1/ 285,044 13,543 6.35 297,234 14,594 6.57
Loans/1/ 668,278 37,193 7.44 494,368 29,437 7.96
---------- ------- ---- -------- ------- ----
Total earning assets/
interest income $ 983,714 $51,961 7.06% $843,828 $46,301 7.34%
Cash and due from banks 39,016 40,727
Other assets 30,567 28,099
Allowance for loan losses (4,508) (4,087)
---------- --------
Total average assets $1,048,789 $908,567
========== ========
Interest-bearing deposits $ 638,155 $21,622 4.53% $545,514 $20,062 4.92%
Short-term debt 68,399 2,376 4.64 58,154 2,254 5.18
FHLB borrowings 67,291 2,910 5.78 55,674 2,414 5.80
---------- ------- ---- -------- ------- ----
Total interest-bearing liabilities/
interest expense $ 773,845 $26,908 4.65% $659,342 $24,730 5.02%
Demand deposits 185,982 167,177
Other liabilities 9,802 8,773
---------- --------
Total liabilities $ 969,629 $835,292
Shareholders' equity 79,160 73,275
---------- --------
Total liabilities and shareholders'
equity $1,048,789 $908,567
========== ========
Net interest income/1//spread $25,053 2.41% $21,571 2.32%
======= ==== ======= ====
Net interest margin 3.41% 3.42%
==== ====
</TABLE>
Average loans for the first nine months of 1999 grew 35%, or $174 million
compared to the same period of 1998, led by indirect auto loans (up $56.7
million), commercial real estate loans (up $53.5 million), commercial loans (up
$36.9 million), residential real estate loans (up $17.3 million) and home equity
loans (up $9.4 million).
Average interest-bearing deposits increased $92.6 million or 17% as compared to
the first nine months of 1998 due primarily to an increase in average time
deposits (up $78.7 million) and interest-bearing demand deposit accounts (up
$10.8 million).
Total other income increased $779,000 or 13%. Service charges on deposit
accounts increased $277,000 primarily due to an increase in business account
analysis fees.
Merchant card processing fees increased $365,000 primarily due to several new
merchant accounts and rate increases as a result of higher interchange fees.
Merchant interchange expense (in the other operating expenses) also rose
$305,000 as compared to the same period in 1998.
- -----------------------
/1/Tax 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 34%.
15
<PAGE>
Investment management and trust fee income rose $72,000 primarily due to an
increase in discretionary assets under management. Discretionary assets under
investment management totaled $232 million at September 30, 1999 compared to
$190 million at September 30, 1998.
Total other expenses increased $2,312,000 or 14%. The increase in operating
expenses was primarily due to staffing increases to support growing areas of the
bank, infrastructure costs and related expenses to support new branches and
merchant interchange expenses referred to above. In addition, professional fees
increased $85,000 primarily due to additional services related to the changes in
corporate structure approved by shareholders at the annual meeting. Annualized
operating expenses as a percentage of average assets remained constant at 2.5%
for both periods. Annualized net overhead expenses as a percentage of average
assets also remained constant at 1.7% for both periods and the efficiency ratio
(other expenses to net interest income and other income) improved to 62.4% in
1999 from 63.5% in 1998.
Asset Quality
- -------------
Asset quality remains strong, with nonperforming assets (nonaccrual loans, loans
past due 90 days or more and still accruing and other real estate owned)
totaling $432,000 at September 30, 1999 as compared to $272,000 at December 31,
1998. Net charge-offs through September 30, 1999 totaled $388,000 or .08%
(annualized) of average loans outstanding as compared to $525,000 or .14%
(annualized) for the same period in 1998.
The Company's provision for possible loan losses was $210,000 for the third
quarter of 1999 as compared to $90,000 for 1998. The year-to-date provisions
through September 30 were $630,000 and $240,000 for 1999 and 1998, respectively.
The Company's provision for loan losses is determined based upon management's
periodic evaluation of the risks inherent in the loan portfolio. The allowance
for possible loan losses was $4,687,000 at September 30, 1999 and $4,445,000 at
December 31, 1998. Management believes the allowance at September 30, 1999 is
at an adequate level.
The following table summarizes the Company's nonperforming assets (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Nonaccrual $ 119 $ -
Loans which are past due
90 days or more 313 272
----- -----
Total nonperforming loans 432 272
Other real estate owned - -
----- -----
Total nonperforming assets $ 432 $ 272
===== =====
Nonperforming loans to loans outstanding .06% .04%
Nonperforming assets to loans outstanding
and other real estate owned .06% .04%
Allowance for loan losses to nonperforming loans 10.85x 16.34x
Allowance for loan losses to loans outstanding .68% .70%
Net charge offs to average loans outstanding (annualized) .08% .10%
Capital
- -------
</TABLE>
16
<PAGE>
Shareholders' equity totaled $81.2 million at September 30, 1999. The Company
and its subsidiary bank's Tier 1, total risk-based capital and leverage ratios
are in excess of minimum regulatory guidelines and the Bank's ratios also exceed
the FDIC criteria for "well capitalized" banks. The following table shows the
capital ratios of the company and its subsidiary bank as of September 30, 1999
and the minimum ratios for "well capitalized" banks.
<TABLE>
<CAPTION>
Well Company Oak Brook
Capitalized Consolidated Bank
------------ ------------- ----------
<S> <C> <C> <C>
Tier 1
Risk-based >6% 10.46% 10.19%
Total Capital
Ratio >10% 11.07% 10.80%
Tier 1 Capital
Leverage >5% 7.28% 7.08%
</TABLE>
On January 27, 1998, the Board of Directors authorized a stock repurchase
program. This program allows the Company to repurchase up to 200,000 shares of
its common stock. The program originally was to expire in July 1999, but it has
been extended through December 31, 2000. Repurchases are being made in the open
market or through negotiated transactions from time to time depending on market
conditions. The repurchased stock is held as treasury stock to be used for
general corporate purposes. As of September 30, 1999, approximately 105,000
shares of stock are available to be purchased under this repurchase plan.
Liquidity
Effective management of balance sheet liquidity is necessary to fund growth in
earning assets and to pay liability maturities, depository customers' withdrawal
requirements and shareholders' dividends.
The Company has numerous sources of liquidity including a significant 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:
Oak Brook Bank:
* Federal funds lines of $98 million with five correspondent banks,
subject to continued good financial standing. As of September 30,
1999, all $98 million was available for use under these lines.
* Reverse repurchase agreement lines of $350 million with four
brokerage firms, subject to the availability of collateral and
continued good financial standing of the Bank. As of September 30,
1999, approximately $210 million was available to the Bank subject
to the Bank's excess collateral available to pledge to these lines.
* Additional advances from the Federal Home Loan Bank of Chicago are
available based on the pledge of specific collateral and FHLB stock
ownership. As of September 30,
17
<PAGE>
1999, approximately $17 million remains available to the Bank under the
FHLB agreements.
. The Bank has a borrowing line of approximately $176 million at the
discount window of the Federal Reserve Bank, subject to the availability
of collateral. This allows the Bank to obtain additional liquidity as
part of the Year 2000 contingency planning.
Parent Company:
. Revolving credit arrangement for $15 million. The line is currently
unused and matures on May 1, 2000. It is anticipated to be renewed
annually.
. The parent company also had cash, short-term investments, and other
readily marketable securities totaling $4.0 million at September 30,
1999.
Year 2000 Compliance
- --------------------
The Company, through its subsidiary bank, established a Year 2000 Task Force
comprised of over thirty employees headed by senior officers from the
Information Technology and Legal Departments. In accordance with the guidelines
established by the Federal Financial Institutions Examination Council, the Task
Force developed a project plan consisting of five phases: Awareness and
Planning, Assessment, Renovation, Validation and Implementation.
During the Awareness and Planning phase, the Company's Task Force was
established. The Task Force coordinated and developed a comprehensive plan to
insure that the Company's computer programs and systems become Year 2000
compliant. The Task Force conducted a Company-wide survey of all hardware and
software programs and systems and designated a Task Force member to monitor Year
2000 compliance. This monitoring function included contacting vendors regarding
their Year 2000 efforts and obtaining the vendors' certification that their
systems are fully tested and Year 2000 compliant. The systems were prioritized
into mission critical, non-mission critical and, non-critical, and target dates
for testing were established.
During the second phase, Assessment, the Task Force identified and prioritized
all Bank systems and developed standard testing criteria. Mission critical
systems were given highest priority. The Bank completed its assessment of all
computer programs and systems and physical facilities. The Bank also assessed
its borrowers' readiness pursuant to established criteria for identifying,
monitoring, and assessing Year 2000 risks.
During the Renovation phase, the Company established timelines for installation
of Year 2000 compliant systems and system upgrades. The Bank's core data
processing system, a mission critical system, was tested during the week of
February 8, 1999 and the system performed all functions in compliance with the
Year 2000. All mission critical systems are 100% tested.
Also, during the Renovation Phase, the Company estimated the costs for Year 2000
testing and replacement of systems not Year 2000 compliant. Through September
30, 1999 the Company's out-of-pocket costs for testing and replacement of non-
compliant systems was approximately $175,000. Costs not quantified are the
number of internal man-hours expended to assess, test and certify that the
systems are Year 2000 compliant. The Company believes that the costs will not
have a material effect on its costs of operations. The Company will continue to
expense costs for Year 2000 compliance as they occur consistent with generally
accepted accounting principles.
18
<PAGE>
The fourth phase, Validation, is still progressing, as the Company continues to
test and verify the test results for all of its systems and business resumption
plans. Testing of mission critical systems was successfully completed by June
30, 1999. The Company has written business resumption contingency plans which
were satisfactorily tested in May and which will be re-tested in November 1999.
The testing of non-mission critical systems was completed as of August 6, 1999.
During the fifth and final phase, Implementation (currently in process), the
Company continues to implement only those systems certified to be Year 2000
compliant. The Company has completed and established written remediation
contingency plans for all required mission critical and non-mission critical
systems.
The Company has also established and is implementing its customer awareness
program. The Company is communicating to its customers through various media its
Year 2000 readiness and compliance.
Branch Expansion
- ----------------
On September 27, 1999, the Company opened its twelfth branch in LaGrange,
Illinois. The Company's strategy is to invest in future growth through branch
expansion in the Chicago metropolitan area. This form of growth requires a
significant investment in non-earning assets during the construction phase.
Going forward, for a time, expenses will likely exceed the revenues of the
branch. While new branches retard short-term earnings, the Company believes the
market warrants judicious office additions.
Qualitative and Quantitative Disclosures about Market Risk
- ----------------------------------------------------------
As described in the 1998 Annual Report to shareholders, the Company manages its
interest rate risk through measurement techniques which include a simulation
model and gap analysis. As part of the risk management process, asset liability
management policies are established and monitored by management. The 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.
Based on the Company's most recent evaluation, management does not believe the
Company's risk position at September 30, 1999 has changed materially from that
at December 31, 1998.
Forward Looking Statements
- --------------------------
Except for historical matters, this report contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, changes in: general
economic conditions, interest rates, legislative or regulatory changes, stock
market performance, Year 2000 issues, loan demand, depositor preferences and
construction or other delays relating to branch expansion. These risks and
uncertainties should be considered in evaluating forward-looking statements.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit (11) See footnote 4.
Exhibit (27) Financial Data Schedule
(B) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements 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)
Date November 10, 1999 /s/ ROSEMARIE BOUMAN
----------------- -------------------------------
Rosemarie Bouman,
Vice President, Chief
Financial Officer and
Chief Accounting Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 34,827 35,160
<INT-BEARING-DEPOSITS> 65 11,290
<FED-FUNDS-SOLD> 31,600 35,615
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 237,818 154,310
<INVESTMENTS-CARRYING> 101,267 127,545
<INVESTMENTS-MARKET> 101,173 131,145
<LOANS> 687,822 572,251
<ALLOWANCE> 4,687 4,044
<TOTAL-ASSETS> 1,121,881 961,947
<DEPOSITS> 875,196 746,724
<SHORT-TERM> 86,252 73,988
<LIABILITIES-OTHER> 11,231 9,269
<LONG-TERM> 68,000 56,000
0 0
0 0
<COMMON> 14,567 14,567
<OTHER-SE> 66,635 61,399
<TOTAL-LIABILITIES-AND-EQUITY> 1,121,811 961,947
<INTEREST-LOAN> 37,057 29,336
<INTEREST-INVEST> 12,703 13,826
<INTEREST-OTHER> 1,225 2,270
<INTEREST-TOTAL> 50,985 45,432
<INTEREST-DEPOSIT> 21,622 20,062
<INTEREST-EXPENSE> 26,908 24,730
<INTEREST-INCOME-NET> 24,077 20,702
<LOAN-LOSSES> 630 240
<SECURITIES-GAINS> 101 79
<EXPENSE-OTHER> 19,223 16,911
<INCOME-PRETAX> 10,948 9,496
<INCOME-PRE-EXTRAORDINARY> 10,948 9,496
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,805 6,738
<EPS-BASIC> 1.18 1.01
<EPS-DILUTED> 1.16 .99
<YIELD-ACTUAL> 3.41 3.42
<LOANS-NON> 119 0
<LOANS-PAST> 313 664
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,445 4,329
<CHARGE-OFFS> 444 707
<RECOVERIES> 56 183
<ALLOWANCE-CLOSE> 4,687 4,044
<ALLOWANCE-DOMESTIC> 4,687 4,044
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
