<PAGE>
================================================================================
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: JUNE 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 August 9, 2000, 6,386,195 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
June 30, 2000 and December 31, 1999 3
Condensed consolidated statements of income
Three and six months ended June 30, 2000 and 1999 5
Condensed consolidated statements of cash flows
Six months ended June 30, 2000 and 1999 7
Notes to condensed consolidated financial
statements -- June 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 20
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
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Assets
------
Cash and due from banks $ 53,115 $ 47,080
Federal funds sold and securities purchased
under agreements to resell 61,900 -
Interest-bearing deposits with banks 119 488
Securities held-to-maturity, at
amortized cost (fair value, $118,543
and $93,202 at June 30, 2000
and December 31, 1999, respectively) 119,875 94,425
Securities available-for-sale, at
fair value 236,744 254,182
Loans, net of unearned discount 789,586 719,969
Less allowance for loan losses (5,261) (4,828)
---------- ----------
Net loans 784,325 715,141
---------- ----------
Premises and equipment, net 21,992 21,809
Other assets 14,477 13,231
---------- ----------
Total assets $1,292,547 $1,146,356
========== ==========
</TABLE>
3
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In Thousands Except Share Information)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Liabilities
-----------
Noninterest-bearing demand deposits $ 203,397 $ 196,243
Interest-bearing deposits:
Savings deposits and NOW accounts 134,516 171,135
Money market accounts 97,420 57,186
Time deposits
Under $100,000 275,523 236,108
$100,000 and over 253,591 233,400
---------- ----------
Total interest-bearing deposits 761,050 697,829
---------- ----------
Total deposits 964,447 894,072
Federal funds purchased and securities sold under
agreements to repurchase and other short term debt 80,892 78,008
Treasury, tax and loan demand notes 83,630 20,000
Federal Home Loan Bank borrowings 73,000 63,000
Other liabilities 9,510 11,277
---------- ----------
Total liabilities 1,211,479 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 June 30, 2000 and December 31, 1999,
issued--7,283,256 shares at June 30, 2000 and
December 31, 1999, outstanding--6,461,195
shares at June 30, 2000 and 6,531,314 shares
at December 31, 1999. 14,567 14,567
Surplus 11,900 11,985
Accumulated other comprehensive loss (2,508) (1,245)
Retained earnings 66,172 62,356
Less cost of shares in treasury, 822,061 and
751,942 common shares at June 30, 2000 and
December 31, 1999, respectively. (9,063) (7,664)
---------- ----------
Total shareholders' equity 81,068 79,999
---------- ----------
Total liabilities and shareholders' equity $1,292,547 $1,146,356
========== ==========
</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 Six Months
ended June 30, ended June 30,
---------------- ----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $14,876 $12,387 $28,420 $24,295
Interest on securities:
U.S. Treasury and Government agencies 4,735 3,114 9,394 6,051
Obligations of states and political subdivisions 756 724 1,491 1,390
Other securities 178 111 395 482
Interest on Federal funds sold and securities
purchased under agreements to resell 542 404 684 575
Interest on deposits with banks 3 201 9 396
------- ------- ------- -------
Total interest income 21,090 16,941 40,393 33,189
------- ------- ------- -------
Interest expense:
Interest on savings deposits and NOW accounts 1,037 1,200 2,146 2,419
Interest on money market accounts 962 409 1,610 726
Interest on time deposits 7,554 5,605 14,393 10,804
Interest on Federal funds purchased and securities
sold under agreements to repurchase 1,551 703 2,944 1,289
Interest on treasury, tax and loan demand notes 548 81 686 150
Interest on Federal Home Loan Bank borrowings 1,089 980 2,024 1,919
------- ------- ------- -------
Total interest expense 12,741 8,978 23,803 17,307
------- ------- ------- -------
Net interest income 8,349 7,963 16,590 15,882
Provision for loan losses 225 210 450 420
------- ------- ------- -------
Net interest income after provision for loan losses $ 8,124 $ 7,753 $16,140 $15,462
------- ------- ------- -------
</TABLE>
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
(In Thousands Except Share Information)
<TABLE>
<CAPTION>
Three Months Six Months
ended June 30, ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Other income:
Service charges on deposit accounts $1,137 $ 921 $ 2,188 $ 1,743
Investment management and trust fees 317 320 585 566
Merchant card processing fees 630 479 1,188 859
Fees on mortgages sold 46 138 74 267
Income from revenue sharing agreement 225 225 450 450
Investment securities gains, net - 101 38 101
Other operating income 238 255 464 509
------ ------ ------- -------
Total other income 2,593 2,439 4,987 4,495
------ ------ ------- -------
Other expenses:
Salaries and employee benefits 4,259 3,981 8,469 7,914
Occupancy expense 420 384 871 812
Equipment expense 484 443 962 881
Data processing 249 245 483 485
Professional fees 128 223 277 349
Postage, stationery and supplies 225 219 417 422
Advertising and business development 338 310 706 615
Merchant interchange expense 469 381 907 675
Other operating expenses 362 348 670 660
------ ------ ------- -------
Total other expenses 6,934 6,534 13,762 12,813
------ ------ ------- -------
Income before income taxes 3,783 3,658 7,365 7,144
------ ------ ------- -------
Income tax expense 1,103 1,040 2,141 2,032
------ ------ ------- -------
Net income $2,680 $2,618 $ 5,224 $ 5,112
====== ====== ======= =======
Basic earnings per share $ .41 $ .40 $ .81 $ .77
====== ====== ======= =======
Diluted earnings per share $ .41 $ .39 $ .80 $ .76
====== ====== ======= =======
</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>
Six months
ended June 30,
-------------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,224 $ 5,112
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, accretion and amortization 1,259 1,106
Provision for loan losses 450 420
Investment securities gains, net (38) (101)
Revenue sharing agreement (130) (113)
FHLB stock dividend (106) -
Origination of real estate loans for sale (5,797) (23,758)
Proceeds from sale of real estate loans originated for sale 5,589 25,431
Increase in other assets (1,116) (1,873)
Increase (decrease) in other liabilities (1,116) 842
-------- ---------
Net cash provided by operating activities 4,219 7,066
-------- ---------
Cash flows from investing activities:
Securities held-to-maturity:
Purchases (32,769) (16,698)
Proceeds from maturities, call and paydowns 7,368 62,213
Securities available-for-sale:
Purchases (5,822) (198,887)
Proceeds from maturities, calls and paydowns 18,387 62,151
Proceeds from sales 2,858 87,297
Increase in loans (69,426) (50,720)
Purchases of premises and equipment (1,246) (705)
-------- ---------
Net cash used in investing activities (80,650) (55,349)
-------- ---------
Cash flows from financing activities:
Increase (decrease) in noninterest-bearing demand deposits 7,154 (2,384)
Increase in interest-bearing deposit accounts 63,221 67,330
Increase in treasury, tax and loan demand notes 63,630 13,753
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 2,884 (12,156)
Purchase of treasury stock (1,938) (154)
Exercise of stock options 454 411
Cash dividends (1,408) (1,220)
-------- ---------
Net cash provided by financing activities 143,997 76,080
-------- ---------
Net increase in cash and cash equivalents 67,566 27,797
Cash and cash equivalents at beginning of period 47,568 42,432
-------- ---------
Cash and cash equivalents at end of period $115,134 $ 70,229
======== =========
Supplemental disclosures:
Interest paid $ 25,437 $ 16,590
Income taxes paid 2,550 2,372
======== =========
</TABLE>
7
<PAGE>
FIRST OAK BROOK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six month periods ended June 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):
June 30, December 31,
2000 1999
------------------------------
Commercial $ 66,139 $ 59,984
Commercial mortgage 22,345 24,389
Home equity 112,887 110,699
Check credit 819 834
8
<PAGE>
3. Shareholders' Equity:
Shares authorized, issued and outstanding are as follows:
June 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 6,461,195 6,531,314
On April 18, 2000 the Board declared the quarterly cash dividend of $.11
per share payable July 21, 2000 to shareholders of record on July 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 June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Six Months
ended June 30, ended June 30,
2000 1999 2000 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Denominator for basic earnings
per share - weighted average
shares 6,465,515 6,615,588 6,479,608 6,601,601
Effect of diluted securities:
Stock options issued to
employees and directors 74,606 127,448 84,698 132,211
--------- --------- --------- ---------
Denominator for diluted
earnings per share 6,540,121 6,743,036 6,564,306 6,733,812
========= ========= ========= =========
</TABLE>
9
<PAGE>
5. Loans
The following table provides the book value of loans outstanding, by major
classification, as of the dates indicated:
June 30, December 31,
2000 1999
-------- ------------
Commercial $128,336 $107,557
Real estate loans:
Construction loans 33,310 22,566
Commercial mortgage 168,350 158,008
Residential mortgage 128,466 120,191
Home equity loans 93,988 85,343
Indirect automobile loans 226,444 215,364
Consumer loans 10,909 11,274
-------- --------
Total loans 789,803 720,303
Less unearned discount (217) (334)
-------- --------
Loans, net of unearned discount $789,586 $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 June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
ended June 30, ended June 30,
2000 1999 2000 1999
---------------- -----------------
<S> <C> <C> <C> <C>
Net income $2,680 $ 2,618 $ 5,224 $ 5,112
Other comprehensive income, net of tax:
Unrealized holding loss on
securities during the period (276) (2,115) (1,238) (2,127)
Reclassification adjustment
of realized gain on investment
sales included in net income - (67) (25) (67)
------ ------- ------- -------
Total comprehensive income $2,404 $ 436 $ 3,961 $ 2,918
====== ======= ======= =======
</TABLE>
7. Restatement and Reclassification:
Certain amounts in the June 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 - Second Quarter Results
-------------------
Net income for the second quarter of 2000 was $2,680,000 compared with
$2,618,000 earned in the second quarter of 2000, an increase of 2%. Basic
earnings per share for the second quarter of 2000 were $.41 as compared to $.40
for 1999, while diluted earnings per share were $.41 for 2000 compared with $.39
for 1999, an increase of 5%.
Key performance indicators for the 2000 second quarter show a return on average
assets of .87% compared with 1.00% for the 1999 second quarter. For the second
quarter of 2000, the return on average shareholders' equity was 13.49% compared
with 13.25% for the same quarter of 1999.
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 $386,000 or 5% from the second quarter of 1999. This increase is
attributable to an 18% increase in average interest earning assets offset by a
38 basis point decrease in the net interest margin to 2.99% from 3.37% for the
same period last year.
The net interest margin narrowed due to the yield on average earning assets
increasing 37 basis points to 7.38% while the cost of deposits and other
borrowed funds rose 75 basis points to 5.38% for the second quarter of 2000.
11
<PAGE>
Average balances and effective interest yields and rates on a tax equivalent
basis for the second quarters ended June 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 $ 35,106 $ 542 6.21% $ 33,869 $ 404 4.78%
Interest-bearing deposits with banks 204 3 6.18 11,701 201 6.90
Securities/1/ 360,591 5,965 6.65 270,919 4,242 6.28
Loans/1/ 772,064 14,919 7.77 672,313 12,433 7.42
---------- ------- ---- ---------- ------- ----
Total earning assets/interest income $1,167,965 $21,429 7.38% $ 988,802 $17,280 7.01%
Cash and due from banks 42,233 38,958
Other assets 35,431 30,524
Allowance for loan losses (5,193) (4,415)
---------- ----------
Total average assets $1,240,436 $1,053,869
========== ==========
Interest-bearing deposits $ 741,175 $ 9,553 5.18% $ 642,466 $ 7,214 4.50%
Short-term debt 138,636 2,099 6.09 67,590 784 4.65
FHLB borrowings 73,000 1,089 6.00 68,000 980 5.78
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities/
interest expense $ 952,811 $12,741 5.38% $ 778,056 $ 8,978 4.63%
Demand deposits 198,023 186,934
Other liabilities 9,728 9,622
---------- ----------
Total liabilities $1,160,562 $ 974,612
Shareholders' equity 79,874 79,257
---------- ----------
Total liabilities and shareholders' equity $1,240,436 $1,053,869
========== ==========
Net interest income/1//spread $ 8,688 2.00% $ 8,302 2.38%
======= ==== ======= ====
Net interest margin/1/ 2.99% 3.37%
==== ====
</TABLE>
Average loans for the second quarter of 2000 grew $100 million or 15%, in
comparison to the second quarter of 1999. As shown in the following table, the
increase is primarily attributable to indirect auto loans, commercial real
estate loans, home equity and commercial loans. See Note 5 for loan growth
since year end.
Average loans by type and yield for the quarter ended June 30,
(Dollars in thousands) 2000 1999
----------------------------------------
Amount Yield Amount Yield
----------------------------------------
Commercial/1/ $119,637 8.56% $108,259 7.57%
Real estate loans:
Commercial real estate 197,094 8.37% 177,654 8.01%
Residential mortgage 126,948 7.09% 119,251 6.98%
Home equity loans 92,986 8.19% 76,869 7.29%
Indirect automobile loans 223,895 6.98% 178,790 7.01%
Consumer loans 11,504 8.85% 11,490 8.46%
-------- ---- -------- ----
Total Loans/1/ $772,064 7.77% $672,313 7.42%
======== ==== ======== ====
_____________________
/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>
In addition to loan growth, the average balance of securities increased $90
million due primarily to an increase in U.S. Government Agency Securities.
Average interest-bearing liabilities increased $175 million or 22% as compared
to the second quarter of 2000. Average interest-bearing deposits increased $99
million (primarily time deposits) 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 $71 million due to special treasury,
tax and loan short term funding and repurchase agreements. Since December 31,
1999, time deposits increased $60 million and money market accounts increased
$40 million primarily in response to successful retail deposit promotions.
The Company recorded a provision for loan losses of $225,000 for the second
quarter of 2000 compared to $210,000 for the second quarter of 1999. This
increase was due to the continued growth of the loan portfolio. However,
despite average growth in the loan portfolio of 15%, 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 security gains, total other income increased $255,000 or 11%. Service
charges on deposit accounts increased $216,000 primarily due to an increase in
deposit account service fees and new cash management customers.
Merchant card processing fees increased $151,000 primarily due to new merchant
accounts and rate increases to offset higher interchange fees. The number of
merchant outlets at June 30, 2000 increased to 237 as compared to 212 at June
30, 1999. Merchant interchange expense (in other operating expenses) rose
$88,000 as compared to the second quarter of 1999.
Fees on mortgages sold, servicing released, decreased $92,000 as compared to the
second quarter of 1999. During the second quarter of 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 $400,000 or 6%. Annualized operating expenses as
a percentage of average assets decreased to 2.3% for 2000 compared with 2.5% for
1999. Annualized net overhead expenses as a percentage of average assets
decreased 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 63.4% in
2000 as compared to 62.8% in 1999. The increase in operating expenses was
primarily due to higher compensation costs and higher costs associated with the
LaGrange branch that opened in September 1999. The decrease in professional fees
is due to the 1999 corporate structure changes.
Earnings Highlights - Six Month Results
-------------------
Net income for the six months ended June 30, 2000 was $5,224,000, compared with
$5,112,000 earned in 1999, an increase of 2%. Basic earnings per share for the
first six months of 2000 were $.81 as compared to $.77 earned in 1999 while
diluted earnings per share were $.80 in 2000 as compared to $.76 in 1999, an
increase of 5%.
13
<PAGE>
Key performance indicators for the six 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 six months of 2000 was 13.18%
compared with 13.12% for 1999.
Net interest income for the first six months of 2000, on a tax equivalent basis,
increased $729,000 or 4%. This increase is due to a 18% increase in average
earning assets offset by a 41 basis point decrease in the net interest margin to
3.06% in 2000 from 3.47% in 1999.
The net interest margin narrowed due to the yield on average earning assets
increasing 19 basis points to 7.28% while the cost of deposits and other
borrowed funds rose 57 basis points to 5.20% for the first six months of 2000.
Average balances and effective interest yields and rates on a tax equivalent
basis for the first six 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 $ 23,229 $ 684 5.92% $ 24,337 $ 575 4.76%
Interest-bearing deposits with banks 298 9 6.22 11,610 396 6.89
Securities/2/ 360,803 11,864 6.61 265,759 8,487 6.44
Loans/1/ 750,061 28,508 7.64 660,381 24,382 7.45
---------- ------- ---- ---------- ------- ----
Total earning assets/interest income $1,134,391 $41,065 7.28% $ 962,087 $33,840 7.09%
Cash and due from banks 42,570 39,208
Other assets 34,651 30,117
Allowance for loan losses (5,066) (4,468)
---------- ----------
Total average assets $1,206,546 $1,026,944
========== ==========
Interest-bearing deposits $ 724,512 $18,149 5.04% $ 623,677 $13,949 4.51%
Short-term debt 126,452 3,630 5.77 63,845 1,439 4.55
FHLB borrowings 68,660 2,024 5.93 66,931 1,919 5.78
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities/
interest expense $ 919,624 $23,803 5.20% $ 754,453 $17,307 4.63%
Demand deposits 197,318 184,372
Other liabilities 9,889 9,566
---------- ----------
Total liabilities $1,126,831 $ 948,391
Shareholders' equity 79,715 78,553
---------- ----------
Total liabilities and shareholders'
equity $1,206,546 $1,026,944
========== ==========
Net interest income/1//spread $17,262 2.08% $16,533 2.46%
======= ==== ======= ====
Net interest margin/1/ 3.06% 3.47%
==== ====
</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%.
14
<PAGE>
Average loans for the first six month of 2000 grew $90 million or 14%, in
comparison to the first six months of 1999. As shown in the following table,
the increase is primarily attributable to indirect auto loans, commercial real
estate loans and home equity loans. See Note 5 for loan growth since year end.
Average loans by type and yield for the six months ended June 30,
<TABLE>
<CAPTION>
(Dollars in thousands) 2000 1999
-----------------------------------
Amount Yield Amount Yield
-----------------------------------
<S> <C> <C> <C> <C>
Commercial /1/ $112,863 8.35% $109,154 7.62%
Real estate loans:
Commercial real estate 191,752 8.21% 171,949 8.05%
Residential mortgage 124,590 7.08% 119,168 7.04%
Home equity loans 90,151 7.98% 75,101 7.26%
Indirect automobile loans 219,134 6.92% 173,347 7.02%
Consumer loans 11,571 8.51% 11,662 8.42%
-------- ---- -------- ----
Total Loans/1/ $750,061 7.64% $660,381 7.45%
======== ==== ======== ====
</TABLE>
In addition to loan growth, the average balance of securities increased $95
million due primarily to an increase in U.S. Government Agency Securities.
Average interest-bearing liabilities for the six months ended June 30, 2000
increased $165 million or 22% as compared to 1999. Average interest-bearing
deposits increased $101 million 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 $63 million due to special treasury,
tax and loan short term funding and repurchase agreements.
The Company recorded a provision for loan losses of $450,000 for the first six
months of 2000 compared to $420,000 for the first six months of 1999. This
increase was 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.
Total other income increased $492,000 or 11%. Service charges on deposit
accounts increased $445,000 primarily due to an increase in deposit account
service fees and new cash management customers.
Merchant card processing fees increased $329,000 primarily due to new merchant
accounts and rate increases to offset higher interchange fees. Merchant
interchange expense (in other operating expenses) rose $232,000 as compared to
the same period of 1999.
Fees on mortgages sold, servicing released, decreased $193,000 as compared to
the first six months of 1999. During the first half of 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.
15
<PAGE>
Total other expenses increased $949,000 or 7%. Annualized operating expenses as
a percentage of average assets decreased to 2.3% for 2000 compared with 2.5% for
1999. Annualized net overhead expenses as a percentage of average assets
decreased to 1.6% for 2000 compared to 1.7% for 1999. The efficiency ratio
(other expenses divided by net interest income and other income) was 63.8% in
2000 as compared to 62.9% in 1999. The increase in operating expenses was
primarily due to higher compensation costs and higher costs associated with the
LaGrange branch that opened in September 1999. The decrease in professional fees
is due to the 1999 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 $360,000 at June 30, 2000. Net charge-offs through
June 30, 2000 totaled $17,000 compared to $392,000 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):
June 30, December 31,
2000 1999
----------------------
Nonaccrual $ 127 $ 90
Loans which are past due 90 days or
more and still accruing 233 282
----- -----
Total nonperforming loans 360 372
Other real estate owned - -
----- -----
Total nonperforming assets $ 360 $ 372
===== =====
Nonperforming loans to loans outstanding .05% .05%
Nonperforming assets to loans outstanding
and other real estate owned .05% .05%
Allowance for loan losses to nonperforming loans 14.61x 12.98x
Allowance for loan losses to loans outstanding .67% .67%
Net charge offs to average loans
outstanding (annualized) * .07%
* Less than .01%
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<PAGE>
Capital
-------
Shareholders' equity totals $81.1 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 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 June 30, 2000 and the minimum ratios for
"well capitalized" banks.
Well Company Oak Brook
Capitalized Consolidated Bank
------------ ------------- ----------
Tier 1 Risk-based *6% 9.40% 9.61%
Total Capital Ratio *10% 10.00% 10.21%
Tier 1 Capital leverage *5% 6.69% 6.84%
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.
On January 25, 2000, the Board of Directors authorized a stock repurchase
program which allows the Company to repurchase 200,000 shares (or approximately
3% of outstanding shares) of common stock through mid 2001. 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.
During the second quarter, the Company repurchased 25,500 shares of its common
stock at an average price of $14.32. As of June 30, 2000, approximately 86,000
shares are remaining 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 $118 million with six correspondent
banks, subject to continued good financial standing. As of June 30,
2000, all $118 million was available for use under these lines.
* more than or equal to
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<PAGE>
. 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 June 30, 2000, approximately $43
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 June 30, 2000, approximately $17 million remains
available to the Bank under the FHLB agreements.
. The Bank has a borrowing line of approximately $140 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
had a balance of $1,400,000 at June 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
--------------
Oak Brook Bank recently 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 Bank's current investment in this subsidiary is $100,000 and the maximum
investment is limited to 2% of Tier 1 capital which approximates $1.7 million as
of June 30, 2000.
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<PAGE>
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 June 30, 2000 has changed materially from that at
December 31, 1999.
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.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held May 2, 2000 at 1400 Sixteenth
Street, Oak Brook Bank Conference Center, Oak Brook, Illinois.
Matters presented to the shareholders for vote were the election of directors,
and the ratification of the selection of the independent auditors. The results
of the votes on these matters are as follows:
ELECTION OF DIRECTORS
-----------------------
Votes Votes
For Withheld
--- --------
Frank Paris 5,414,109 84,308
Robert Wrobel 5,483,881 14,536
John Ballantine 5,487,801 10,616
RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE
-------------------------------------------------------------------------
COMPANY
-------
For Against Abstain
---------- -------- -------
Votes Received 5,551,951 7,961 9,140
Percent of Eligible Vote 86.1% .1% .1%
The number of Common shares eligible to vote were 6,445,782.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit (10.1) Loan agreement between First Oak Brook Bancshares, Inc.
and LaSalle National Bank dated December 1, 1991 as
amended May 1, 1999 filed herewith.
Exhibit (11) See Note 4 to the June 30, 2000 Form 10-Q.
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 August 9, 2000 /S/ RICHARD M. RIESER, JR.
---------------- --------------------------------
Richard M. Rieser, Jr.,
President, Assistant
Secretary, and Director
Date August 9, 2000 /S/ ROSEMARIE BOUMAN
---------------- --------------------------------
Rosemarie Bouman,
Vice President, Chief
Financial Officer and
Chief Accounting Officer
21
