<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act to 1934
For the quarterly period ended: SEPTEMBER 30, 2000
Commission file number 0-14468
____________________
FIRST OAK BROOK BANCSHARES, INC.
DELAWARE 36-3220778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Sixteenth Street, Oak Brook, IL 60523 - Telephone Number (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 November 1, 2000, 6,368,845 shares of common stock were
outstanding.
================================================================================
1
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
------------------------------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
September 30, 2000 and December 31, 1999 3
Condensed consolidated statements of income
Three and nine months ended September 30, 2000 and 1999 5
Condensed consolidated statements of cash flows
Nine months ended September 30, 2000 and 1999 7
Notes to condensed consolidated financial
statements -- September 30, 2000 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
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 21
Signatures 22
----------
</TABLE>
* Not applicable
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
September 30, December 31,
2000 1999
---------- ----------
Assets
------
Cash and due from banks $ 41,570 $ 47,080
Federal funds sold and securities purchased
under agreements to resell 74,692 -
Interest-bearing deposits with banks 70 488
Securities held-to-maturity, at
amortized cost (fair value, $102,655
and $93,202 at September 30, 2000
and December 31, 1999, respectively) 103,143 94,425
Securities available-for-sale, at
fair value 217,758 254,182
Loans, net of unearned discount 810,686 719,969
Less allowance for loan losses (5,489) (4,828)
---------- ----------
Net loans 805,197 715,141
---------- ----------
Premises and equipment, net 22,257 21,809
Other assets 14,136 13,231
---------- ----------
Total assets $1,278,823 $1,146,356
========== ==========
3
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In Thousands Except Share Information)
September 30, December 31,
2000 1999
------------- ------------
Liabilities
-----------
Noninterest-bearing demand deposits $ 205,194 $ 196,243
Interest-bearing deposits:
Savings deposits and NOW accounts 132,921 171,135
Money market accounts 110,357 57,186
Time deposits
Under $100,000 288,806 236,108
$100,000 and over 251,236 233,400
---------- ----------
Total interest-bearing deposits 783,320 697,829
---------- ----------
Total deposits 988,514 894,072
Federal funds purchased and securities sold under
agreements to repurchase and other short term debt 85,889 78,008
Treasury, tax and loan demand notes 30,612 20,000
Federal Home Loan Bank borrowings 73,000 63,000
Trust Preferred Capital Securities 6,000 -
Other liabilities 11,622 11,277
---------- ----------
Total liabilities 1,195,637 1,066,357
---------- ----------
Shareholders' Equity
--------------------
Preferred stock, series B, no par value,
authorized--100,000 shares, issued--none - -
Common stock, $2 par value, authorized--16,000,000
shares at September 30, 2000 and December 31, 1999,
issued--7,283,256 shares at September 30, 2000 and
December 31, 1999, outstanding--6,368,445
shares at September 30, 2000 and 6,531,314 shares
at December 31, 1999. 14,567 14,567
Surplus 11,846 11,985
Accumulated other comprehensive loss (960) (1,245)
Retained earnings 68,177 62,356
Less cost of shares in treasury, 914,811 and
751,942 shares at September 30, 2000 and
December 31, 1999, respectively. (10,444) (7,664)
---------- ----------
Total shareholders' equity 83,186 79,999
---------- ----------
Total liabilities and shareholders' equity $1,278,823 $1,146,356
========== ==========
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,
------------------- -------------------
2000 1999 2000 1999
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $15,633 $12,762 $44,053 $37,057
Interest on securities:
U.S. Treasury and Government agencies 4,427 3,926 13,821 9,977
Obligations of states and political subdivisions 753 711 2,243 2,100
Other securities 214 144 610 626
Interest on Federal funds sold and securities
purchased under agreements to resell 690 252 1,374 827
Interest on deposits with banks 2 1 11 398
------- ------- ------- -------
Total interest income 21,719 17,796 62,112 50,985
------- ------- ------- -------
Interest expense:
Interest on savings deposits and NOW accounts 1,040 1,193 3,187 3,611
Interest on money market accounts 1,348 405 2,957 1,131
Interest on time deposits 8,582 6,076 22,975 16,880
Interest on Federal funds purchased and securities
sold under agreements to repurchase 1,246 832 4,190 2,121
Interest on treasury, tax and loan demand notes 223 104 909 255
Interest on Federal Home Loan Bank borrowings 1,102 991 3,126 2,910
Interest on Trust Preferred Capital Securities 40 - 40 -
------- ------- ------- -------
Total interest expense 13,581 9,601 37,384 26,908
------- ------- ------- -------
Net interest income 8,138 8,195 24,728 24,077
Provision for loan losses 225 210 675 630
------- ------- ------- -------
Net interest income after provision for loan losses $ 7,913 $ 7,985 $24,053 $23,447
------- ------- ------- -------
</TABLE>
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
(In Thousands Except Share Information)
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
--------------------- -------------------
2000 1999 2000 1999
--------------------- -------------------
<S> <C> <C> <C> <C>
Other income:
Service charges on deposit accounts $1,196 $ 924 $ 3,384 $ 2,667
Investment management and trust fees 276 268 860 834
Merchant card processing fees 673 486 1,861 1,345
Fees on mortgages sold 49 86 123 353
Income from revenue sharing agreement 225 225 675 675
Investment securities gains (losses), net (20) - 18 101
Other operating income 254 240 719 749
------ ------ ------- -------
Total other income 2,653 2,229 7,640 6,724
------ ------ ------- -------
Other expenses:
Salaries and employee benefits 3,982 3,965 12,451 11,879
Occupancy expense 437 429 1,308 1,241
Equipment expense 497 462 1,459 1,344
Data processing 244 240 726 725
Professional fees 128 112 405 460
Postage, stationery and supplies 216 194 632 616
Advertising and business development 368 341 1,074 956
Merchant interchange expense 507 350 1,414 1,025
Other operating expenses 342 316 1,013 977
------ ------ ------- -------
Total other expenses 6,721 6,409 20,482 19,223
------ ------ ------- -------
Income before income taxes 3,845 3,805 11,211 10,948
------ ------ ------- -------
Income tax expense 1,126 1,111 3,268 3,143
------ ------ ------- -------
Net income $2,719 $2,694 $ 7,943 $ 7,805
====== ====== ======= =======
Basic earnings per share $ .42 $ .41 $ 1.23 $ 1.18
====== ====== ======= =======
Diluted earnings per share $ .42 $ .40 $ 1.22 $ 1.16
====== ====== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) (In Thousands)
<TABLE>
<CAPTION>
Nine months
ended September 30,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,943 $ 7,805
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, accretion and amortization 1,865 1,764
Provision for loan losses 675 630
Investment securities gains, net (18) (101)
Revenue sharing agreement (354) (338)
FHLB stock dividend (204) -
Origination of real estate loans for sale (11,635) (32,899)
Proceeds from sale of real estate loans originated for sale 10,344 34,984
Increase in other assets (551) (2,054)
Increase in other liabilities 198 2,619
-------- ---------
Net cash provided by operating activities 8,263 12,410
-------- ---------
Cash flows from investing activities:
Securities held-to-maturity:
Purchases (32,769) (21,941)
Proceeds from maturities, call and paydowns 24,135 69,249
Securities available-for-sale:
Purchases (24,570) (262,981)
Proceeds from maturities, calls and paydowns 41,183 75,791
Proceeds from sales 20,133 106,366
Increase in loans (89,440) (58,308)
Purchases of premises and equipment (2,065) (1,743)
-------- ---------
Net cash used in investing activities (63,393) (93,567)
-------- ---------
Cash flows from financing activities:
Increase in noninterest-bearing demand deposits 8,951 549
Increase in interest-bearing deposit accounts 85,491 96,845
Increase in treasury, tax and loan demand notes 10,612 11,195
Proceeds from Federal Home Loan Bank borrowings 15,000 10,500
Repayment of Federal Home Loan Bank borrowings (5,000) -
Increase (decrease) in short term debt 7,881 (12,211)
Proceeds from Trust Preferred Capital Securities 6,000 -
Purchase of treasury stock (3,448) (197)
Exercise of stock options 529 469
Cash dividends (2,122) (1,933)
-------- ---------
Net cash provided by financing activities 123,894 105,217
-------- ---------
Net increase in cash and cash equivalents 68,764 24,060
Cash and cash equivalents at beginning of period 47,568 42,432
-------- ---------
Cash and cash equivalents at end of period $116,332 $ 66,492
======== =========
Supplemental disclosures:
Interest paid $ 38,948 $ 25,616
Income taxes paid 3,125 3,472
======== =========
</TABLE>
7
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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, 2000 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K/A for the year ended December 31, 1999.
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):
September 30, December 31,
2000 1999
------------- ------------
Commercial $ 74,929 $ 59,984
Commercial mortgage 37,276 24,389
Home equity 114,019 110,699
Check credit 821 834
8
<PAGE>
3. Shareholders' Equity:
Shares authorized, issued and outstanding are as follows:
September 30, December 31,
2000 1999
------------- ------------
Preferred Stock, Series B, no par value:
Authorized 100,000 100,000
Issued - -
Outstanding - -
Common Stock, $2.00 par value:
Authorized 16,000,000 16,000,000
Issued 7,283,256 7,283,256
Outstanding 6,368,445 6,531,314
On July 18, 2000 the Board declared the quarterly cash dividend of $.11 per
share payable October 20, 2000 to shareholders of record on October 10,
2000.
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.
The following table sets forth the denominator used for basic and diluted
earnings per share for the periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
2000 1999 2000 1999
---------------------- ---------------------------
<S> <C> <C> <C> <C>
Denominator for basic earnings
per share - weighted average
shares 6,410,626 6,621,626 6,456,446 6,608,349
Effect of diluted securities:
Stock options issued to
employees and directors 56,718 129,789 75,299 131,436
--------- --------- --------- ---------
Denominator for diluted
earnings per share 6,467,344 6,751,415 6,531,745 6,739,785
========= ========= ========= =========
</TABLE>
9
<PAGE>
5. Loans
The following table provides the book value of loans outstanding, by major
classification, as of the dates indicated:
September 30, December 31,
2000 1999
-------- --------
Commercial $133,325 $107,557
Real estate loans:
Construction loans 38,720 22,566
Commercial mortgage 173,270 158,008
Residential mortgage 130,108 120,191
Home equity loans 97,848 85,343
Indirect automobile loans 226,071 215,364
Consumer loans 11,521 11,274
-------- --------
Total loans 810,863 720,303
Less unearned discount (177) (334)
-------- --------
Loans, net of unearned discount $810,686 $719,969
======== ========
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 periods ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
2000 1999 2000 1999
-----------------------------------------
<S> <C> <C> <C> <C>
Net income $2,719 $2,694 $7,943 $ 7,805
Other comprehensive income, net of tax:
Unrealized holding gain (loss) on
securities during the period 1,535 191 297 (1,936)
Reclassification adjustment
of realized (gain) loss on investment
sales included in net income 13 - (12) (67)
------ ------ ------ -------
Total comprehensive income $4,267 $2,885 $8,228 $ 5,802
====== ====== ====== =======
</TABLE>
7. Reclassification:
Certain amounts in the September 30, 1999 interim condensed consolidated
financial statements have been reclassified to conform to their 2000
presentation.
10
<PAGE>
ITEM 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 2000 was $2,719,000 compared with $2,694,000
earned in the third quarter of 1999, an increase of 1%. Basic earnings per
share for the third quarter of 2000 were $.42 as compared to $.41 for 1999,
while diluted earnings per share were $.42 for 2000 compared with $.40 for 1999,
an increase of 5%. This increase is partially due to the purchase of
approximately 323,000 shares of treasury stock since the end of the third
quarter of 1999, reducing average shares outstanding.
Key performance indicators for the 2000 third quarter show a return on average
assets of .87% compared with .98% for the 1999 third quarter. For the third
quarter of 2000, the return on average shareholders' equity was 13.25% compared
with 13.33% for the same quarter of 1999.
Net interest income is the difference between interest earned on loans,
investment securities, and other earning assets and interest paid on deposits
and other interest-bearing liabilities. Net interest income, on a tax-
equivalent basis, decreased $44,000 or 1% from the third quarter of 1999. This
decrease is attributable to a 13% decrease in the net interest margin offset by
a 15% increase in earning assets.
The net interest margin narrowed to 2.87% from 3.29% due to the yield on average
earning assets increasing 44 basis points to 7.45% while the cost of deposits
and other borrowed funds rose 96 basis points to 5.65% for the third quarter of
2000.
11
<PAGE>
Average balances and effective interest yields and rates on a tax equivalent
basis for the third quarters ended September 30, 2000 and 1999 were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and
interest-bearing deposits $ 42,328 $ 692 6.50% $ 19,463 $ 253 5.16%
Investment securities/1/ 340,663 5,689 6.64 322,981 5,057 6.21
Loans/1/ 794,088 15,677 7.85 683,814 12,812 7.43
---------- ------- ----- ---------- ------- ----
Total earning assets/
interest income $1,177,079 $22,058 7.45% $1,026,258 $18,122 7.01%
Cash and due from banks 42,501 38,639
Other assets 35,223 31,454
Allowance for loan losses (5,389) (4,585)
---------- ----------
Total average assets $1,249,414 $1,091,766
========== ==========
Interest-bearing deposits $ 786,068 $10,970 5.55% $ 666,637 $ 7,674 4.57%
Short-term debt 95,160 1,469 6.15 77,361 936 4.80
FHLB borrowings 72,997 1,102 6.00 68,000 991 5.78
Trust Preferred Capital Securities 1,510 40 10.60 - - -
---------- ------- ----- ---------- ------- ----
Total interest-bearing liabilities/
interest expense $ 955,735 $13,581 5.65% $ 811,998 $ 9,601 4.69%
Demand deposits 201,112 189,150
Other liabilities 10,953 10,438
---------- ----------
Total liabilities $1,167,800 $1,011,586
Shareholders' equity 81,614 80,180
---------- ----------
Total liabilities and shareholders'
equity $1,249,414 $1,091,766
========== ==========
Net interest income/1//spread $ 8,477 1.80% $ 8,521 2.32%
======= ===== ======= ====
Net interest margin/1/ 2.87% 3.29%
===== ====
</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%.
12
<PAGE>
Average loans for the third quarter of 2000 grew $110 million or 16%, in
comparison to the third quarter of 1999. As shown in the following table, the
increase is primarily attributable to commercial real estate, indirect auto,
commercial and home equity loans. See Note 5 for comparative loan balances at
September 30, 2000 and December 31, 1999.
Average loans by type and yield for the quarter ended September 30,
(Dollars in thousands) 2000 1999
---------------------------------
Amount Yield Amount Yield
-------- ----- -------- -----
Commercial/1/ $124,505 8.62% $105,525 7.69%
Real estate loans:
Commercial real estate 207,277 8.49 171,550 8.10
Residential mortgage 128,571 7.12 121,392 6.94
Home equity loans 95,085 8.21 79,188 7.47
Indirect automobile loans 227,346 7.05 194,447 6.96
Consumer loans 11,304 9.29 11,712 8.15
-------- ---- -------- ----
Total loans/1/ $794,088 7.85% $683,814 7.43%
======== ==== ======== ====
In addition to loan growth, the average balance of securities increased $18
million due primarily to an increase in U.S. Government Agency Securities.
Average interest-bearing liabilities increased $144 million or 18% as compared
to the third quarter of 1999. Average interest-bearing deposits increased $119
million (primarily time deposits and money market accounts) due to successful
retail deposit promotions, increased municipal deposits and the opening of the
LaGrange office in 1999. Average short-term debt has also increased $18 million
due primarily to term repurchase agreements. Since December 31, 1999, time
deposits increased $71 million and money market accounts increased $53 million
primarily in response to successful retail deposit promotions. These increases
are partially offset by a $38 million decrease in savings deposits and NOW
accounts.
The Company recorded a provision for loan losses of $225,000 for the third
quarter of 2000 compared to $210,000 for the third quarter of 1999. This
increase was primarily due to the continued growth of the loan portfolio.
However, despite average growth in the loan portfolio of 16%, the Company
continues to experience low levels of nonperforming loans and net charge-offs.
Management believes the allowance for loan losses is at an adequate level
commensurate with the risks inherent in the loan portfolio.
Excluding net security losses, total other income increased $444,000 or 20%.
Service charges on deposit accounts increased $272,000 primarily due to an
increase in both retail and commercial deposit account service fees and new cash
management customers.
Merchant card processing fees increased $187,000 primarily due to new merchant
accounts. The number of merchant outlets at September 30, 2000 increased to 281
as compared to 249 at September 30, 1999. Merchant interchange expense (in
other expenses) rose $157,000 as compared to the third quarter of 1999.
_____________________
/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>
Fees on mortgages sold, servicing released, decreased $37,000 as compared to the
third quarter of 1999. During the third quarter of 1999, the mortgage market
was strong; however, due to higher interest rates late in 1999 and in 2000,
mortgage loan refinance activity has slowed. Fee income is shown net of
commissions paid to the mortgage originators.
The Company recognized net security losses totaling $20,000 during the third
quarter. This consisted of a loss of $274,000 from the sale of $17 million in
low-yielding investment securities that was primarily invested in higher-
yielding government agency securities. The loss was partially offset by a gain
of $254,000 from the revaluation of stock received in the exchange of the
Company's privately-held shares of Cash Station, Inc. (the Company's ATM service
provider) for publicly-traded shares of Concord EFS, Inc.
Total other expenses increased $312,000 or 5%. Annualized operating expenses as
a percentage of average assets improved to 2.1% for 2000 compared with 2.3% for
1999. Annualized net overhead expenses as a percentage of average earning
assets improved to 1.4% for 2000 compared to 1.6% for 1999. The efficiency
ratio (other expenses divided by net interest income and other income) was 62.3%
in 2000 as compared to 61.5% in 1999. The increase in operating expenses was
primarily due to costs associated with the LaGrange branch that opened in
September 1999 and the increase in merchant interchange expense. Salaries and
benefits increased slightly due to higher compensation costs and an increased
number of full time equivalents offset by a decrease in benefit expenses related
to incentive compensation.
Earnings Highlights - Nine Month Results
-------------------
Net income for the nine months ended September 30, 2000 was $7,943,000, compared
with $7,805,000 earned in 1999, an increase of 2%. Basic earnings per share for
the first nine months of 2000 were $1.23 as compared to $1.18 earned in 1999
while diluted earnings per share were $1.22 in 2000 as compared to $1.16 in
1999, an increase of 5%.
Key performance indicators for the nine month period show a return on average
assets of .87% compared with 1.00% for the comparable period in 1999. The
return on average shareholders' equity for the first nine months of 2000 was
13.20% compared with 13.18% for 1999.
Net interest income for the first nine months of 2000, on a tax equivalent
basis, increased $685,000 or 3%. This increase is due to a 17% increase in
average earning assets offset by a 42 basis point decrease in the net interest
margin to 2.99% in 2000 from 3.41% in 1999.
The net interest margin narrowed due to the yield on average earning assets
increasing 28 basis points to 7.34% while the cost of deposits and other
borrowed funds rose 71 basis points to 5.36% for the first nine months of 2000.
14
<PAGE>
Average balances and effective interest yields and rates on a tax equivalent
basis for the first nine months of 2000 and 1999 were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 29,583 $ 1,374 6.20% $ 22,644 $ 827 4.88%
Interest-bearing deposits
with banks 257 11 5.98 7,748 398 6.87
Investment securities/1/ 354,041 17,553 6.62 285,044 13,543 6.35
Loans/1/ 764,844 44,184 7.72 668,278 37,193 7.44
---------- ------- ----- ---------- ------- ----
Total earning assets/
interest income $1,148,725 $63,122 7.34% $ 983,714 $51,961 7.06%
Cash and due from banks 42,547 39,016
Other assets 34,842 30,567
Allowance for loan losses (5,175) (4,508)
---------- ----------
Total average assets $1,220,939 $1,048,789
========== ==========
Interest-bearing deposits $ 745,180 $29,119 5.22% $ 638,155 $21,622 4.53%
Short-term debt 115,927 5,099 5.88 68,399 2,376 4.64
FHLB borrowings 70,136 3,126 5.96 67,291 2,910 5.78
Trust Preferred Capital Securities 506 40 10.60 - - -
---------- ------- ----- ---------- ------- ----
Total interest-bearing liabilities/
interest expense $ 931,749 $37,384 5.36% $ 773,845 $26,908 4.65%
Demand deposits 198,592 185,982
Other liabilities 10,245 9,802
---------- ----------
Total liabilities $1,140,586 $ 969,629
Shareholders' equity 80,353 79,160
---------- ----------
Total liabilities and shareholders'
equity $1,220,939 $1,048,789
========== ==========
Net interest income/1/spread $25,738 1.98% $25,053 2.41%
======= ===== ======= ====
Net interest margin/1/ 2.99% 3.41%
===== ====
</TABLE>
Average loans for the first nine months of 2000 grew $97 million or 14%, in
comparison to the first nine months of 1999. As shown in the following table,
the increase is primarily attributable to indirect auto, commercial real estate,
home equity and commercial loans. See Note 5 for comparative loan balances at
September 30, 2000 and December 31, 1999.
______________________
/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>
Average loans by type and yield for the nine months ended September 30,
(Dollars in thousands) 2000 1999
---------------- ---------------
Amount Yield Amount Yield
-------- ----- -------- -----
Commercial/1/ $116,772 8.45% $107,931 7.64%
Real estate loans:
Commercial real estate 196,965 8.31 171,814 8.07
Residential mortgage 125,926 7.09 119,918 7.01
Home equity loans 91,808 8.06 76,478 7.34
Indirect automobile loans 221,891 6.96 180,458 7.00
Consumer loans 11,482 8.77 11,679 8.33
-------- ---- -------- ----
Total loans/1/ $764,844 7.72% $668,278 7.44%
======== ==== ======== ====
In addition to loan growth, the average balance of securities increased $69
million due primarily to an increase in U.S. Government Agency Securities.
Average interest-bearing liabilities for the nine months ended September 30,
2000 increased $158 million or 20% as compared to 1999. Average interest-bearing
deposits increased $107 million due to successful retail deposit promotions,
increased municipal deposits and the opening of the LaGrange office in 1999
offset by a decrease in savings deposits. Average short-term debt has also
increased $48 million due to special treasury, tax and loan short term funding
and term repurchase agreements.
The Company recorded a provision for loan losses of $675,000 for the first nine
months of 2000 compared to $630,000 for the first nine months of 1999. This
increase was primarily due to the continued growth of the loan portfolio.
However, despite average growth in the loan portfolio of 14%, the Company has
continued to experience low levels of nonperforming loans and net charge-offs.
Management believes the allowance for loan losses is at an adequate level
commensurate with the risks inherent in the loan portfolio.
Excluding net security gains, total other income increased $999,000 or 15%.
Service charges on deposit accounts increased $717,000 primarily due to an
increase in both retail and commercial deposit account service fees and new cash
management customers.
Merchant card processing fees increased $516,000 primarily due to new merchant
accounts and rate increases to offset higher interchange fees. Merchant
interchange expense (in other expenses) rose $389,000 as compared to the same
period of 1999.
Fees on mortgages sold, servicing released, decreased $230,000 as compared to
the first nine months of 1999. During 1999 the mortgage market was strong;
however, due to higher interest rates in 2000, mortgage loan refinance activity
has slowed. Fee income is shown net of commissions paid to the mortgage
originators.
Total other expenses increased $1,259,000 or 7%. Annualized operating expenses
as a percentage of average assets improved to 2.2% for 2000 compared with 2.5%
for 1999. Annualized net overhead expenses as a percentage of average earning
assets improved to 1.5% for 2000 compared to 1.7% for 1999. The efficiency
ratio (other expenses divided by net interest income and other income) was
_____________________
/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%
16
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63.3% in 2000 as compared to 62.4% in 1999. The increase in operating expenses
was primarily due to higher compensation costs and an increase in full time
equivalents, increased advertising and promotions and costs associated with the
LaGrange branch that opened in September 1999. The decrease in professional fees
is due to the 1999 fees associated with the corporate structure changes.
Asset Quality
-------------
Asset quality remains strong, with nonperforming assets (nonaccrual loans,
renegotiated loans, loans past due 90 days or more and still accruing and other
real estate owned) totaling $346,000 at September 30, 2000. Net charge-offs
through September 30, 2000 totaled $14,000 compared to $388,000 in 1999.
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 nonperforming assets (in
thousands):
September 30, December 31,
2000 1999
----- -----
Nonaccrual $ 165 $ 90
Loans which are past due 90 days or
more and still accruing 181 282
----- -----
Total nonperforming loans 346 372
Other real estate owned - -
----- -----
Total nonperforming assets $ 346 $ 372
===== =====
Nonperforming loans to loans outstanding .04% .05%
Nonperforming assets to loans outstanding
and other real estate owned .04% .05%
Allowance for loan losses to nonperforming loans 15.86x 12.98x
Allowance for loan losses to loans outstanding .68% .67%
Net charge offs to average loans
outstanding (annualized) * .07%
* Less than .01%
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Capital
-------
Shareholders' equity totals $83.2 million. The Company and its subsidiary
bank's Tier 1, total risk-based and leverage capital ratios are in excess of
minimum regulatory guidelines and the Bank's capital also exceeds 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, 2000 and the
minimum ratios for "well capitalized" banks.
Well Company Oak Brook
Capitalized Consolidated Bank
------------ ------------- ----------
Tier 1 Risk-based >6% 9.80% 9.54%
-
Total Capital Ratio >10% 10.40% 10.14%
-
Tier 1 Capital leverage >5% 7.13% 6.94%
-
On January 27, 1998, the Board of Directors authorized a stock repurchase
program allowing the Company to repurchase up to 200,000 shares of its common
stock. This plan was completed in February 2000 at an average price of $19.65.
On January 25, 2000, the Board of Directors authorized a stock repurchase
program allowing the Company to repurchase 200,000 shares of common stock
through mid 2001. This plan was completed in September 2000 at an average price
of $15.26.
On August 31, 2000 the Board of Directors authorized an additional stock
repurchase program which allows the Company to purchase up to 200,000 shares (or
approximately 3% of outstanding shares) of Common Stock through January 2002.
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 September 30,
2000, approximately 18,000 shares have been repurchased at an average price of
$14.56.
During the third quarter, the Company participated in a Pooled Trust Preferred
Program receiving $6 million in proceeds. The $6 million in proceeds bears an
interest rate of 10.6% and is recorded in the financial statements as a
liability and is reported as Tier 1 capital for regulatory purposes. Of the
proceeds received, $2.1 million was used to pay down short term debt, $1 million
was used as additional capital to support Bank growth and the remainder will be
used for the stock repurchase program and to provide capital to support future
growth.
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:
18
<PAGE>
Oak Brook Bank:
. Federal funds lines aggregating $118 million with six correspondent
banks, subject to continued good financial standing. As of September
30, 2000, all $118 million was available for use under these lines.
. Additional reverse repurchase agreements with four brokerage firms are
available based on the pledge of specific collateral and continued
good financial standing of the Bank. As of September 30, 2000,
approximately $27 million was available to the Bank under these
agreements.
. 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, 2000, approximately $16.6 million
remains available to the Bank under the FHLB agreements.
. The Bank has a borrowing line of approximately $146.4 million at the
discount window of the Federal Reserve Bank, subject to the
availability of collateral.
Parent Company:
. The Company has a revolving credit arrangement for $15 million. The
line was not used at September 30, 2000. The line matures on March 31,
2001 and is anticipated to be renewed annually.
Branch Expansion
----------------
The Company's primary strategy is to invest in future growth through branch
expansion in the Chicago metropolitan area. This form of growth requires a
significant investment in nonearning 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 January 2000, the Bank signed a lease for the rental of property at Huron and
Dearborn Streets in Chicago, Illinois. This branch is expected to open during
the fourth quarter of 2000. Costs incurred for the Chicago branch have been
capitalized. The Company will begin to incur expenses, including depreciation,
when the branch is put into service.
In April 2000, the Bank signed a contract to acquire commercial property in the
southwestern suburb of Bolingbrook, Illinois. The purchase is expected to close
in January 2001, (subject to regulatory approval) and the branch is anticipated
to open late in 2001.
New Subsidiary
--------------
In May 2000, Oak Brook Bank formed a wholly-owned subsidiary corporation for the
purpose of real estate development. The Bank received state and federal approval
for the subsidiary from the Illinois Office of Banks and Real Estate and the
FDIC. Oak Brook Bank is one of the first banks in Illinois to obtain such
approval. The approval allows Oak Real Estate Development Corporation to
acquire, develop, rehabilitate, sell and/or rent single and multi-family
residential real estate, residential apartment buildings and commercial
properties that are part of or ancillary to residential real estate in Illinois.
The
19
<PAGE>
Bank's current investment in this subsidiary is $100,000 and the maximum
investment is limited to 2% of Tier 1 capital which approximates $1.8 million as
of September 30, 2000.
Qualitative and Quantitative Disclosures about Market Risk
----------------------------------------------------------
As described in the 1999 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, 2000 has changed materially from that
at December 31, 1999.
New Accounting Standards
------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138. The Statement
is effective January 1, 2001 for the Company. SFAS No. 133 requires all
derivatives to be recognized as either assets or liabilities on the balance
sheet, measured at fair value. Gains and losses resulting from changes in the
values of those derivatives would be accounted for in earnings. Depending on
the use of the derivative and the satisfaction of other requirements, special
hedge accounting may apply. As the Company has no freestanding derivative
instruments in place and has not identified any embedded derivatives, the
adoption of SFAS No. 133 is not expected to materially impact the financial
statements of the Company upon adoption.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities--a replacement of FASB Statement No. 125". This Statement
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but carries
over most of SFAS No. 125's provisions without reconsideration. This Statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. This Statement is effective for
recognition and reclassification of collateral and for disclosures relative to
securitization transactions and collateral for fiscal years ending after
December 15, 2000.
Forward Looking Statements
--------------------------
This quarterly 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, loan demand, depositor preferences,
construction or other delays relating to branch expansion and the ability to
attract and retain experienced senior management. Therefore, there can be no
assurances that future actual results will correspond to these forward-looking
statements.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit (11) See Note 4 to the September 30, 2000 Form 10-Q.
Exhibit (27) Financial Data Schedule
(B) Reports on Form 8-K
None
21
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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, 2000 /s/ RICHARD M. RIESER, JR.
--------------------- --------------------------------
Richard M. Rieser, Jr.,
President, Assistant
Secretary, and Director
Date November 10, 2000 /s/ ROSEMARIE BOUMAN
--------------------- --------------------------------
Rosemarie Bouman,
Vice President, Chief
Financial Officer and
Chief Accounting Officer
22
