<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 March 31, 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 check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of April 30, 1999.
Class A 3,699,743
- ------------------------------- ----------------
CLASS NUMBER OF SHARES
Common 2,908,583
- ------------------------------- ----------------
CLASS NUMBER OF SHARES
1
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
INDEX
Page
----
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
March 31, 1999 and December 31, 1998 3
Condensed consolidated statements of income
Three months ended March 31, 1999 and 1998 5
Condensed consolidated statements of cash flows
Three months ended March 31, 1999 and 1998 7
Notes to condensed consolidated financial
statements -- March 31, 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
- ----------
* Not applicable
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
March 31, December 31,
1999 1998
----------- -------------
Assets
------
Cash and due from banks $ 40,927 $ 41,759
Federal funds sold 30,472 362
Interest-bearing deposits with banks 11,607 11,402
Securities held-to-maturity, at
amortized cost (fair value, $107,436
and $143,980 at March 31, 1999
and December 31, 1998, respectively) 105,389 141,253
Securities available-for-sale, at
fair value 150,154 156,421
Loans, net of unearned discount 660,792 631,987
Less allowance for loan losses (4,379) (4,445)
---------- ----------
Net loans 656,413 627,542
---------- ----------
Premises and equipment, net 20,914 21,032
Other assets 9,499 9,504
---------- ----------
Total assets $1,025,375 $1,009,275
========== ==========
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE INFORMATION)
March 31, December 31,
1999 1998
----------- -------------
Liabilities
- -----------
Noninterest-bearing demand deposits $ 182,594 $ 187,209
Interest-bearing deposits:
Savings deposits and NOW accounts 179,418 177,572
Money market accounts 51,004 44,375
Time deposits
Under $100,000 221,620 181,924
$100,000 and over 179,452 186,722
---------- ----------
Total interest-bearing deposits 631,494 590,593
---------- ----------
Total deposits 814,088 777,802
Federal funds purchased and securities
sold under agreements to repurchase 48,150 83,586
Treasury, tax and loan demand notes 6,263 3,682
Federal Home Loan Bank borrowings 68,000 57,500
Other liabilities 9,691 9,644
---------- ----------
Total liabilities 946,192 932,214
---------- ----------
Shareholders' Equity
- --------------------
Preferred stock - -
Class A common stock (aggregate
liquidation preference of $11,616
or $3.16 per share) 8,058 8,040
Common stock 6,509 6,527
Surplus 11,988 11,955
Accumulated other comprehensive income 2,251 2,263
Retained earnings 56,294 54,406
Less cost of shares in treasury,
353,000 Class A common
shares at March 31, 1999 and
December 31, 1998 and 320,830
and 347,416 common shares at
March 31, 1999 and December 31,
1998, respectively. (5,917) (6,130)
---------- ----------
Total shareholders' equity 79,183 77,061
---------- ----------
Total liabilities and
shareholders' equity $1,025,375 $1,009,275
========== ==========
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS)
1999 1998
------- -------
Interest income:
Interest on loans $11,909 $ 9,154
Interest on securities:
U.S. Treasury and Government agencies 2,937 3,455
Obligations of states and political
subdivisions 665 608
Other securities 371 301
Interest on Federal funds sold and
securities purchased under
agreements to resell 171 266
Interest on deposits with banks 196 185
------- -------
Total interest income 16,249 13,969
------- -------
Interest expense:
Interest on savings deposits and
NOW accounts 1,219 1,458
Interest on money market accounts 318 285
Interest on time deposits 5,199 4,295
Interest on Federal funds purchased
and securities sold under
agreements to repurchase 586 569
Interest on treasury, tax and loan
demand notes 69 110
Interest on Federal Home Loan Bank
borrowings 939 783
------- -------
Total interest expense 8,330 7,500
------- -------
Net interest income 7,919 6,469
Provision for loan losses 210 60
Net interest income after provision for ------- -------
loan losses $ 7,709 $ 6,409
------- -------
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE INFORMATION)
1999 1998
------- -------
Other income:
Service charges on deposit accounts $ 822 $ 772
Investment management and trust fees 247 216
Merchant card processing fees 380 292
Income from revenue sharing agreement 225 225
Investment securities gains - 79
Other operating income 382 291
------ ------
Total other income 2,056 1,875
------ ------
Other expenses:
Salaries and employee benefits 3,933 3,425
Occupancy expense 428 382
Equipment expense 438 420
Data processing 240 167
Postage, stationery and supplies 203 211
Advertising and business development 305 279
Merchant interchange expense 294 212
Other operating expenses 439 278
------ ------
Total other expenses 6,280 5,374
------ ------
Income before income taxes 3,485 2,910
Income tax expense 992 832
------ ------
Net income $2,493 $2,078
====== ======
Earnings per share:
Basic $ .38 $ .31
====== ======
Diluted $ .37 $ .30
====== ======
Dividends paid per share:
Class A Common $0.100 $0.075
====== ======
Common $0.083 $0.063
====== ======
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS)
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ 2,493 $ 2,078
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, accretion and amortization 425 600
Provision for loan losses 210 60
Investment securities gains - (79)
Revenue sharing agreement 112 132
Increase in other assets (300) (84)
Increase (decrease) in other liabilities 53 (72)
-------- --------
Net cash provided by operating activities 2,993 2,635
-------- --------
Cash flows from investing activities:
Purchase of securities held-to-maturity (10,557) (11,000)
Purchase of securities available-for-sale (45,251) (23,075)
Proceeds from maturities, calls and
paydowns of securities held-to-maturity 46,642 12,125
Proceeds from maturities, calls and
paydowns of securities available-for-sale 21,691 5,279
Proceeds from sales of securities available-
for-sale 29,657 4,135
Increase in loans (29,081) (26,131)
Additions to premises and equipment (376) (1,449)
-------- --------
Net cash provided by (used in) investing
activities 12,725 (40,116)
-------- --------
Cash flows from financing activities:
Increase (decrease) in demand deposits (4,615) 15,574
Increase in savings and NOW accounts 1,846 3,234
Increase in money market accounts 6,629 3,168
Increase in time deposits 32,426 72,891
Increase (decrease) in treasury, tax
and loan demand notes 2,581 (129)
Proceeds from Federal Home Loan Bank
borrowings 10,500 41,000
Repayment of Federal Home Loan Bank
borrowings - (27,500)
Decrease in federal funds
purchased and securities sold
under agreements to repurchase (35,436) (14,616)
Exercise of stock options 284 145
Purchase of treasury stock (38) -
Cash dividends (605) (567)
-------- --------
Net cash provided by financing
activities 13,572 93,200
-------- --------
7
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS)
1999 1998
------- -------
Net increase in cash and cash equivalents 29,290 55,719
Cash and cash equivalents at beginning
of period 42,432 32,954
------- -------
Cash and cash equivalents at end of period $71,722 $88,673
======= =======
Supplemental disclosures:
Interest paid $ 7,966 $ 6,798
Income taxes paid 500 427
======= =======
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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-month period ended March 31, 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 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 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):
March 31, December 31,
1999 1998
--------- ------------
Commercial $58,598 $64,364
Commercial mortgage 30,554 39,973
Home equity 97,664 94,500
Check credit 850 872
9
<PAGE>
3. Shareholders' Equity:
Shares authorized, issued and outstanding are as follows:
March 31, December 31,
1999 1998
----------- ------------
Preferred Stock, Series B,
no par value:
Authorized 100,000 100,000
Issued - -
Outstanding - -
Class A Common Stock,
$2.00 par value:
Authorized 10,000,000 10,000,000
Issued 4,028,843 4,019,902
Outstanding 3,675,843 3,666,902
Common Stock,
$2.00 par value:
Authorized 6,000,000 6,000,000
Issued 3,254,413 3,263,354
Outstanding 2,933,583 2,915,938
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 entitled to receive an aggregate amount per share equal to the
$3.16 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.
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 weighted average
number of common shares adjusted for the diluted effect of outstanding stock
options.
10
<PAGE>
The following table sets forth the denominator used for basic and diluted
earnings per share for the periods ended March 31, 1999 and 1998:
March 31, March 31,
1999 1998
--------- ---------
Denominator for basic earnings
per share - weighted average
shares 6,587,459 6,695,294
Effect of diluted securities:
Stock options issued to
employees and directors 136,866 172,730
--------- ---------
Denominator for diluted
earnings per share 6,724,325 6,868,024
========= =========
5. 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 periods ended March 31, 1999 and 1998 is as follows:
March 31, March 31,
1999 1998
---------- ----------
Net income $2,493 $2,078
Other comprehensive income,
net of tax:
Unrealized holding gain
(loss) on securities
during the period (12) 189
Reclassification adjustment
of realized gain on
investment sales included
in net income - (52)
------ ------
Total comprehensive income $2,481 $2,215
====== ======
6. Restatement and Reclassification:
Certain amounts in the March 31, 1998 interim condensed consolidated
financial statements have been reclassified to conform to their 1999
presentation and restated to give effect to the 100% stock dividend declared
on July 21, 1998 (which was distributed to shareholders on September 3,
1998).
11
<PAGE>
7. Subsequent Event
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 stock of the Company and has been
renamed "Common Stock". The Shareholders also approved various Corporate
Governance changes and the Board approved a Rights Plan, both of which were
disclosed in the Company's 8-K filed on May 6, 1999.
This subsequent event had no effect on the reported earnings per share for
the quarters ended March 31, 1999 or 1998.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Earnings Highlights
- -------------------
Net income for the first quarter of 1999 was $2,493,000 compared with $2,078,000
earned in the first quarter of 1998, an increase of 20%. Basic earnings per
share for the first quarter of 1999 were $.38 as compared to $.31 for 1998,
while diluted earnings per share were $.37 for 1999 compared with $.30 for 1998,
an increase of 23%.
Key performance indicators for the 1999 first quarter show a return on average
assets of 1.01% compared with .99% for the 1998 first quarter. For the first
quarter of 1999, the return on average shareholders' equity was 12.99% compared
with 11.61% 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 $1,482,000 or 22% from the first quarter of 1998. This increase is
attributable to a 19% increase in average interest earning assets and an 8 basis
point increase in the net interest margin to 3.57% from 3.49% for the same
period last year.
Average balances and effective interest yields and rates on a tax equivalent
basis for the first quarters of 1999 and 1998 were as follows (dollars in
thousands):
13
<PAGE>
<TABLE>
<CAPTION>
1999 1998
-------------------- ----------------------
Average Effective Average Effective
Balance Yield Balance Yield
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Earning assets:
Federal funds sold $ 14,699 4.73% $ 19,708 5.47%
Interest-bearing
deposits with banks 11,518 6.88 10,987 6.82
Investment securities/1/ 260,541 6.61 291,367 6.42
Loans/1/ 648,317 7.48 462,074 8.07
-------- ---- -------- ----
Total earning assets/
yield $935,075 7.18% $784,136 7.37%
======== ==== ======== ====
Interest bearing liabilities:
Interest-bearing
deposits $604,679 4.52% $497,909 4.92%
Short-term debt 66,406 4.00 52,823 5.22
FHLB borrowings 65,850 5.78 55,011 5.77
-------- ---- -------- ----
Total interest-bearing
liabilities/cost of
funds $736,935 4.58% $605,743 5.02%
======== ==== ======== ====
Net interest spread 2.60% 2.35%
==== ====
Net interest margin 3.57% 3.49%
==== ====
</TABLE>
Average loans for the first quarter of 1999 grew $186 million or 40%, in
comparison to the first quarter of 1998, led by indirect auto loans (up $58
million), along with commercial (up $50 million), commercial real estate loans
(up $48 million), residential real estate (up $23 million), and home equity (up
$8 million). Loan growth since December 31, 1998 of $29 million was primarily
due to commercial real estate (up $19 million) and indirect auto (up $7
million).
Average interest-bearing liabilities increased $131 million or 22% since the
first quarter of 1998 due primarily to increases in average time deposits (up
$87 million) and average Federal Home Loan Bank borrowings (up $11 million). In
addition, time deposits increased $32 million since December 31, 1998 in
response to successful retail deposit promotions.
Based on management's review of the adequacy of the loan loss reserve, the
Company recorded a provision for loan losses of $210,000 for the first quarter
of 1999 compared to $60,000 for the first quarter of 1998. This increase was
due to the continued growth and risk characteristics of the total loan
portfolio.
______________________
/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%.
14
<PAGE>
Total other income increased $181,000 or 10%. Service charges on deposit
accounts increased $50,000 primarily due to an increase in business account
analysis fees.
Merchant card processing fees increased $88,000 primarily due to several new
merchant accounts. Merchant interchange expense (in other operating expenses)
also rose $82,000 as compared to the first quarter of 1998.
Other operating income increased $91,000 primarily due to gains on mortgages
sold, servicing released, into the secondary market.
Total other expenses increased $906,000 or 17% to $6.3 million in 1999 from $5.4
million in 1998. Annualized operating expenses as a percentage of average assets
decreased slightly to 2.7% for 1999 compared with 2.8% for 1998. Annualized net
overhead expenses as a percentage of average assets remained constant at 1.8%
for both periods and the efficiency ratio (other expenses to net interest income
and other income) improved to 63.0% in 1999 from 64.4% in 1998. The increase in
operating expenses was primarily due to staffing increases to support growing
areas of the bank in addition to infrastructure costs and related expenses to
support the branches opened during 1998 in Aurora and Glen Ellyn, Illinois.
Asset Quality
- -------------
Asset quality remains strong, with non-performing assets (non-accrual loans,
renegotiated loans, loans past due 90 days or more and still accruing and other
real estate owned) totaling $348,000 at March 31, 1999. Net charge-offs for the
first quarter of 1999 totaled $276,000 compared to $498,000 in 1998. Management
believes the allowance is at an adequate level commensurate with the risks
inherent in the loan portfolio.
The following table summarizes the Company's non-performing assets (in
thousands):
March 31, December 31,
1999 1998
---------- -------------
Nonaccrual $ 229 $ -
Loans which are past due
90 days or more 119 272
----- -----
Total nonperforming loans 348 272
Other real estate owned - -
----- -----
Total nonperforming assets $ 348 $ 272
===== =====
Nonperforming loans to loans
outstanding .05% .04%
Nonperforming assets to loans
outstanding and other real
estate owned .05% .04%
Allowance for loan losses to
nonperforming loans 12.58x 16.34x
Allowance for loan losses to
loans outstanding .66 .70
Net charge offs to average loans
outstanding (annualized) .17 .10
15
<PAGE>
Capital
- -------
Shareholders' equity remains strong at $79.2 million. The Company and its
subsidiary bank's Tier 1, total risk-based capital and leverage ratios are in
excess of minimum regulatory guidelines and 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 March 31, 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 greater than or equal to 6% 10.68% 10.15%
Total Capital
Ratio greater than or equal to 10% 11.29% 10.75%
Tier 1 Capital
leverage greater than or equal to 5% 7.63% 7.25%
</TABLE>
On January 27, 1998, the Board of Directors authorized a stock repurchase
program. The program allows the Company to repurchase up to 200,000 shares of
its Class A Common stock through mid 1999. Repurchases can be 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 March 31, 1999, approximately 114,000 shares
are available to be purchased.
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 aggregating $110 million with six correspondent
banks, subject to continued good financial standing. As of March 31,
1999, all $110 million was available for use under these lines.
. Reverse repurchase agreement lines totaling $150 million with two
brokerage firms, subject to the availability of
16
<PAGE>
collateral and continued good financial standing of the Bank. As of March
31, 1999, $73 million was available to the Bank based upon 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 March 31, 1999, approximately $12 million remains
available to the Bank under the FHLB agreements.
. The Bank is in the process of establishing a $150 million line at the
discount window of the Federal Reserve Bank. This will enable the Bank to
obtain additional liquidity as part of the Year 2000 contingency
planning.
Parent Company:
. Revolving credit arrangement for $5 million. The line was unused at March
31, 1999 and matured on May 1, 1999. The line was renewed on May 1, 1999
for $15 million 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 $4.9 million at March 31, 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, not-mission critical and, not-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
17
<PAGE>
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. The Company
estimates that the out-of-pocket costs for testing will not exceed $100,000.
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.
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. The Company has written business resumption contingency plans which will
be tested in May and November, 1999. The testing of all non-mission critical
systems should be completed by May 30, 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.
The Company has also established and is implementing its customer awareness
program. The Company will communicate to its customers through various media
its Year 2000 readiness and compliance.
Branch Expansion
- ----------------
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. Upon
completion, for a time, expenses exceed the income of the branch. While new
branches retard short-term earnings, we believe our market warrants judicious
office additions.
In December, 1998, the Company purchased a site for a branch in LaGrange,
Illinois. This branch is expected to open in the third quarter of 1999. Costs
incurred for the LaGrange branch have been capitalized. The Company will begin
to incur more expenses, including depreciation, when the branch is put into
service.
18
<PAGE>
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 March 31, 1999 has changed materially from that at
December 31, 1998.
Forward Looking
- ---------------
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 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 and depositor preferences. 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 (27) Financial Data Schedule
(B) Reports on Form 8-K
Item 5. Other Events filed May 6, 1999
------------
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 May 12, 1999 /s/ RICHARD M. RIESER, JR.
----------------- -----------------------------------
Richard M. Rieser, Jr.,
President, Assistant
Secretary, and Director
Date May 12, 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> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 40,927 47,727
<INT-BEARING-DEPOSITS> 11,606 11,420
<FED-FUNDS-SOLD> 30,472 40,057
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 150,154 179,258
<INVESTMENTS-CARRYING> 105,389 135,535
<INVESTMENTS-MARKET> 107,436 138,353
<LOANS> 660,792 472,965
<ALLOWANCE> 4,379 3,891
<TOTAL-ASSETS> 1,025,375 911,558
<DEPOSITS> 814,088 722,630
<SHORT-TERM> 54,413 50,371
<LIABILITIES-OTHER> 9,691 9,103
<LONG-TERM> 68,000 56,000
<COMMON> 14,567 14,564
0 0
0 0
<OTHER-SE> 64,616 58,890
<TOTAL-LIABILITIES-AND-EQUITY> 1,025,375 911,558
<INTEREST-LOAN> 11,909 9,154
<INTEREST-INVEST> 3,973 4,364
<INTEREST-OTHER> 367 451
<INTEREST-TOTAL> 16,249 13,969
<INTEREST-DEPOSIT> 6,736 6,038
<INTEREST-EXPENSE> 8,330 7,500
<INTEREST-INCOME-NET> 7,919 6,469
<LOAN-LOSSES> 210 60
<SECURITIES-GAINS> 0 79
<EXPENSE-OTHER> 6,280 5,374
<INCOME-PRETAX> 3,485 2,910
<INCOME-PRE-EXTRAORDINARY> 3,485 2,910
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,493 2,078
<EPS-PRIMARY> .38 .31
<EPS-DILUTED> .37 .30
<YIELD-ACTUAL> 3.57 3.49
<LOANS-NON> 229 0
<LOANS-PAST> 119 347
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,445 4,329
<CHARGE-OFFS> 302 587
<RECOVERIES> 26 89
<ALLOWANCE-CLOSE> 4,379 3,891
<ALLOWANCE-DOMESTIC> 4,379 3,891
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
