[DESCRIPTION]10-Q FOR WEST SUBURBAN BANK
[TEXT]
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE 901(d) OF REGULATION S-T.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission File Number 0 -17609
WEST SUBURBAN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Illinois 36-3452469
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
711 South Meyers Road, Lombard, Illinois 60148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 629-4200
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 the number of shares outstanding of each of the Issuer's
classes of common stock as of the latest practicable date.
1,000,000 shares of Common Stock, Class A, no par value, were
authorized and 347,015 shares were issued and outstanding as of
September 30, 1994.
1,000,000 shares of Common Stock, Class B, no par value, were
authorized and 85,480 shares were issued and outstanding as of
September 30, 1994.
<PAGE>
WEST SUBURBAN BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
Page Number
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Form 10-Q Signature Page 14
<PAGE>
PART I
ITEM 1.FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks $37,595 $37,727
Interest-bearing deposits in financial
institutions 65 610
Federal funds sold 15,670 6,160
Total cash and cash equivalents 53,330 44,497
Investment securities:
Available for sale (amortized cost
of $138,834 in 1994; market value
of $174,088 in 1993) 134,186 171,475
Held to maturity (market value of
$84,865 in 1994; market value of
$19,251 in 1993) 88,675 19,119
Mortgage-backed securities available
for sale (amortized cost of $128
in 1994; market value of $19,501
in 1993 128 17,559
Loans, less allowance for loan
losses of $8,241 in 1994; $7,125
in 1993 686,645 692,274
Premises and equipment, net 25,702 25,401
Other real estate 4,815 9,954
Accrued interest and other assets 18,603 19,599
Total assets $1,012,084 $999,878
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $93,007 $94,268
Interest-bearing 810,127 789,196
Total deposits 903,134 883,464
Federal Home Loan Bank ("FHLB")
advances 2,000 8,220
Real Estate Mortgage Investment
Conduit ("REMIC") --- 3,541
Subordinated convertible capital notes 10 50
Accrued interest and other liabilities 8,363 8,780
Total liabilities 913,507 904,055
Shareholders' equity
Common Stock, Class A, no par value;
1,000,000 shares authorized;
347,015 shares issued and
outstanding 2,774 2,774
Common Stock, Class B, no par value;
1,000,000 shares authorized;
85,480 shares issued and
outstanding 683 683
Surplus 38,066 38,066
Retained earnings 59,855 54,300
Unrealized losses on securities
available for sale, (net of taxes) (2,801) ---
Total shareholders' equity 98,577 95,823
Total liabilities and shareholders'
equity $1,012,084 $999,878
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Interest Income
Loans, including fees $38,649 $37,418
Investment securities:
Corporate 4,919 9,034
U.S. government agencies and
corporations 3,835 1,481
States and political subdivisions 887 554
U.S. Treasury securities 522 2
Mortgage-backed securities 734 1,826
Deposits in financial institutions 84 98
Federal funds sold 520 258
Total interest income 50,150 50,671
Interest Expense
Deposits 19,384 19,596
Other 182 659
Total interest expense 19,566 20,255
Net interest income 30,584 30,416
Provision for Loan Losses 1,643 2,274
Net Interest Income after Provision for
Loan Losses 28,941 28,142
Other Income
Service fees 2,562 2,623
Net gain on sale of investment
securities available for sale 336 49
Net gain on sale of mortgage-backed
securities available for sale 1,188 ---
Trust fees 229 240
Net gain on sale of loans originated for
sale 208 1,021
Loan servicing 652 691
Other 2,267 2,843
Total other income 7,442 7,467
Other Expense
Salaries and employee benefits 9,261 9,579
Occupancy 1,592 1,723
Premises and equipment 1,598 1,653
FDIC insurance premiums 1,490 1,278
Professional fees 738 693
Other 5,210 5,046
Total other expense 19,889 19,972
Income Before Income Taxes 16,494 15,637
Applicable income taxes 6,505 5,980
Income before cumulative effect of
accounting change 9,989 9,657
Cumulative effect of accounting change ---- 359
Net Income $9,989 $10,016
Earnings Per Share
Before cumulative effect of
accounting change:
Primary $23.94
Fully diluted $22.58
Primary $23.10 $24.83
Fully diluted $23.10 $23.41
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Interest Income
Loans, including fees $13,533 $12,679
Investment securities:
Corporate 1,357 2,905
U.S. government agencies and
corporations 1,639 492
States and political subdivisions 303 225
U.S. Treasury securities 200 1
Mortgage-backed securities 44 619
Deposits in financial institutions 4 32
Federal funds sold 220 97
Total interest income 17,300 17,050
Interest Expense
Deposits 7,059 6,347
Other 52 159
Total interest expense 7,111 6,506
Net interest income 10,189 10,544
Provision for Loan Losses 543 721
Net Interest Income after Provision for
Loan Losses 9,646 9,823
Other Income
Service fees 882 889
Net gain (loss) on sale of investment
securities available for sale 9 (1)
Net gain on sale of mortgage-backed
securities available for sale 23 --
Trust fees 53 52
Net gain on sale of loans originated for
sale 8 267
Loan servicing 214 225
Other 731 987
Total other income 1,920 2,419
Other Expense
Salaries and employee benefits 2,921 3,441
Occupancy 517 575
Premises and equipment 486 518
FDIC insurance premiums 503 463
Professional fees 93 292
Other 1,439 1,783
Total other expense 5,959 7,072
Income Before Income Taxes 5,607 5,170
Applicable income taxes 2,317 2,076
Net Income $3,290 $3,094
Earnings Per Share
Primary $7.61 $7.67
Fully diluted $7.61 $7.24
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net income $9,989 $10,016
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 1,801 1,825
Cumulative effect of accounting change ---- (359)
Provision for loan losses 1,643 2,274
Provision for deferred income taxes 1,905 (880)
Premium amortization of securities, net 1,282 2,863
Net gain on sale of investment
securities available for sale (336) (49)
Net gain on sale of mortgage-backed
securities available for sale (1,188) ---
Net gain on sale of loans originated
for sale (208) (1,021)
Sale of loans originated for sale 7,968 60,265
Loans originated for sale (11,881) (59,420)
(Gain) loss on sale of premises and
equipment 267 (29)
Gain on sale of other real estate (393) (162)
(Increase) decrease in other assets (2,489) 787
Increase in other liabilities 922 140
Total adjustments (707) 6,234
Net cash provided by operating
activities 9,282 16,250
Cash flows from investing activities
Proceeds from sales of investment
securities available for sale 54,162 36,028
Proceeds from sales of mortgage-backed
securities available for sale 15,973 ---
Proceeds from maturities of investment
securities 48,440 59,906
Purchases of investment securities (138,615) (74,055)
Proceeds from payments on
mortgage-backed securities 2,644 6,125
Net (increase) decrease in loans 6,284 (27,368)
Purchases of premises and equipment (2,392) (689)
Proceeds from sale of premises and
equipment 23 40
Proceeds from sale of other real estate 7,355 2,296
Net cash provided by (used in)
investing activities ($6,126) $2,283
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (CONTINUED)
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in demand
deposits, NOW accounts and savings
accounts ($8) $2,908
Net (decrease) increase in
certificates of deposit 19,677 (14,709)
Net increase in federal funds
purchased --- 4,875
Decrease in FHLB advances (6,220) (1,950)
Repayment of REMIC (3,541) (6,513)
Repayment of note payable ---- (2,000)
Cash dividends paid (4,231) (3,833)
Net cash provided by (used in)
financing activities 5,677 (21,222)
Net increase (decrease) in cash and
cash equivalents 8,833 (2,689)
Cash and cash equivalents at
beginning of period 44,497 43,817
Cash and cash equivalents
end of period $53,330 $41,128
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest on deposits and other
borrowings $19,718 $20,084
Income Taxes $4,885 $5,472
Supplemental schedule of noncash
investing and financing activities:
Decrease in allowance for unrealized
losses on marketable equity securities ---- ($548)
Securities fair value adjustment $4,648 ----
Unrealized losses on securities
available for sale,(net of taxes) ($2,801) ----
Transfers to other real estate $1,823 $5,302
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim consolidated financial statements include the
accounts of the Company and its subsidiaries and are prepared pursuant
to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures normally accompanying the
annual financial statements have been omitted. The interim financial
statements and notes should be read in conjunction with the consolidated
financial statements and notes thereto included in the latest Annual Report
on Form 10-K filed by West Suburban Bancorp, Inc. (the "Company").
The consolidated financial statements include all adjustments (none of which
were other than normal recurring adjustments) necessary for a fair statement
of the results for the interim periods.
Earnings per share are calculated on the basis of the daily weighted
average number of shares outstanding.
NOTE 2- SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires
that all debt and equity securities be classified as held to maturity,
trading account assets or available for sale. Securities held to
maturity are classified as such only when the Company determines it
has the ability and intent to hold these securities to maturity.
Trading account assets include securities acquired as part of trading
activities and are typically purchased with the expectation of near-
term profit. All securities not qualifying for held to maturity or
trading treatment are classified as available for sale, even if the
Company has no current intention to sell the securities.
Application of SFAS No. 115 to prior periods is not permitted and,
accordingly, prior period financial statements have not been restated
to reflect the change in accounting principle. There is no cumulative
effect on the Company's Consolidated Statements of Income for the nine
or three months ended September 30, 1994 from adopting SFAS No. 115.
Shareholders' equity at September 30, 1994 was decreased by $2.8
million, which represents the unrealized losses on securities
classified as available for sale, net of deferred income taxes. The
effect of adopting SFAS No. 115 at January 1, 1994 resulted in an
increase to shareholders' equity of approximately $2.7 million, net of
deferred income taxes.
NOTE 3- OUTSTANDING LINES OF CREDIT AVAILABLE -(PRESENTED IN
THOUSANDS)
<TABLE>
<CAPTION>
September December
30, 1994 31, 1993
<S> <C> <C>
Home equity lines $95,581 $85,687
Time loans in process 131,254 145,121
Visa credit lines 49,964 56,879
Total commitments $276,799 $287,687
</TABLE>
The Company had $8.2 million and $7.7 million of commitments to
originate residential mortgage loans as of September 30, 1994 and
December 31, 1993, respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - OVERVIEW
The Company's net income and net interest margin for the nine months
ended September 30, 1994 remained stable when compared to the same
period in 1993. A more detailed discussion follows under "Results of
Operations for the Nine Months Ended September 30, 1994 and 1993."
The Company experienced growth in its net income caused primarily by
lower noninterest expenses which were partially offset by a minimal
decline in its net interest margin for the three months ended September 30,
1994 when compared to the same period in 1993. A more detailed discussion
follows under "Results of Operations for the Three Months Ended September 30,
1994 and 1993."
LIQUIDITY
Management believes that the Company continues to maintain an adequate
level of liquidity while seeking to maximize income. Cash and cash
equivalents increased $8.8 million (19.9%) during the first nine
months of 1994. An increase in federal funds sold of $9.5 million
(154.4%) was partially offset by decreases in cash and due from banks
along with interest-bearing deposits in financial institutions.
The Company depends primarily upon cash and cash equivalents, which
includes federal funds sold, for liquidity. As in the past, the
Company has not relied on brokered deposits as a source of liquidity.
The Company has used, however, FHLB advances as a short-term means of
funding the residential real estate loan volume of its thrift
subsidiary. Additionally, the Company occasionally has used federal
funds purchased to fund its short term liquidity needs.
ASSET DISTRIBUTION
Investment securities increased $32.3 million (16.9%) from $190.6
million at December 31, 1993 to $222.9 million at September 30, 1994.
The Company increased its holdings in investment securities with cash
received from increased deposits and due to reduced loan demand. The
mortgage-backed securities portfolio was liquidated in connection with
the termination of the REMIC during 1994. As of September 30, 1994,the
investment securities portfolio had an amortized cost of $227.5 million
and an estimated fair value of $219.0 million compared to December 31,
1993 at which time the amortized cost of the Company's investment securities
portfolio was $190.6 million and the estimated market value was $193.3
million. The primary cause of the decline in market value of the Company's
investment securities portfolio was the increase in interest rates which
occurred during 1994. Management reviews its portfolio on an ongoing basis
and in doing so reviews market conditions and trends.
Total loans decreased $4.5 million (.6%) during the first nine months
of 1994. The decline in loans resulted from reduced residential
mortgage loan demand caused by a less favorable interest rate environment.
As a result of the decline in loan funding, the Company reduced its balance
of FHLB advances from $8.2 million at December 31, 1993 to $2.0 million
at September 30, 1994.
<PAGE>
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY
The allowance for loan losses represents the amount which management
has determined will be adequate to cover probable future losses in the
Company's current loan portfolio. Management's determination is based
upon its consideration of the risk presented by the various components
in the loan portfolio, past loan loss experience and trends, current
loan holdings and delinquencies and anticipated economic conditions in
the Company's market area. The allowance for loan losses increased
$1.1 million from $7.1 million at December 31, 1993 to $8.2 million at
September 30, 1994. This represents an increase in the allowance for
loan losses to total loans outstanding from 1.02% at December 31, 1993
to 1.19% at September 30, 1994. This increase was attributable in
part to the decrease in total loans outstanding, stable loan quality,
and a decrease in charge-offs during the first nine months of 1994
when compared to the same period in 1993. Nonaccrual loans decreased
$1.0 million (15.2%) from $6.5 million at December 31, 1993 to $5.5
million at September 30, 1994, and represented .92% and .79% of total
loans as of such dates respectively. For the three month period ended
September 30, 1994, nonaccrual loans decreased $.4 million from $5.9
million at June 30, 1994 to $5.5 million at September 30, 1994. As of
September 30, 1994 and December 31, 1993, the ratio of nonperforming
loans to total loans was 1.5%. Loans 90 days or more past due
increased $.7 million (19.3%) from $4.0 million at December 31, 1993
to $4.7 million at September 30, 1994. For the three month period
ended September 30, 1994, loans 90 days or more past due decreased $.2
million from $4.9 million at June 30, 1994 to $4.7 million at
September 30, 1994.
During 1993, property securing a significant commercial real estate
loan was transferred to other real estate and,in June 1994, the
property was sold. During the nine months ended September 30, 1994,
other real estate decreased $5.1 million (51.6%) primarily as a result
of the sale of this and one other property.
LIABILITY DISTRIBUTION
Total liabilities increased $9.5 million (1.0%) from $904.0 million at
December 31, 1993 to $913.5 million at September 30, 1994. This increase
was due to deposit growth which was offset by a paydown of the REMIC
along with the repayment of $6.2 million of FHLB advances.
Total deposits increased $19.7 million (2.2%) to $903.1 million during
the first nine months of 1994. Non-interest bearing deposits
decreased $1.3 million (1.3%) for the nine months ended September 30,
1994. Interest-bearing deposits increased $21.0 million (2.7%) during
this period. Certificates of deposit accounted for most of the increase
in interest-bearing deposits, with money market savings also
increasing. Management believes this to be a shift from short-term
to longer-term savings resulting from recent increases in interest
rates. If interest rates continue to increase, management expects
further growth in long-term deposits.
The Company will attempt to remain highly competitive in its market
by offering competitive rates of return on its savings and certificate
of deposit instruments. Although the Company promotes its savings
products when appropriate, management does not intend to compromise
its net interest margin to attract deposits.
SHAREHOLDERS' EQUITY
Shareholders equity increased $2.8 million (2.9%) from $95.8 million
at December 31, 1993 to $98.6 million at September 30, 1994. This
increase was primarily the result of net income of $10.0 million
reduced by dividend declarations of $4.4 million and unrealized
losses on securities available for sale of $2.8 million (net of
taxes).
<PAGE>
RATE SENSITIVITY GAPS AND NET INTEREST MARGIN
The Company attempts to maintain a conservative posture with regard to
interest rate risk actively managing its asset/liability gap positions
and constantly monitoring the direction and magnitude of gaps and risk.
The Company attempts to moderate the effects of changes in interest
rates by adjusting its asset and liability mix to achieve desired
relationships between rate sensitive assets and rate sensitive
liabilities. Rate sensitive assets and liabilities are those
instruments that reprice within a given time period. An asset or
liability reprices when it is subject to change in its interest rate.
The consolidated rate sensitivity position of the Company at September
30, 1994, representing cumulative interest rate sensitive assets
compared to interest rate sensitive liabilities of 107.6% and the
cumulative net position to total assets is positive 5.0% considering a
twelve month time frame.
Movements in general market interest rates are a key element in
changes in the net interest margin. During a period of falling
interest rates, a negative gap would tend to result in an increase in
net interest income. Conversely during a period of rising interest
rates, a positive gap would tend to adversely affect net interest
income. The Company's policy is to manage its balance sheet so that
fluctuations in net interest margin are minimized regardless of the
level of, or movements in,interest rates. The net interest margin
has varied somewhat due to management's response to increasing
competition from other financial institutions.
Listed below are the balances in the major categories of rate
sensitive assets and liabilities that are subject to repricing
as of September 30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Over Over
three one
months year
Three to to Over
months twelve five five
or less months years years Total
<S> <C> <C> <C> <C> <C>
Rate Sensitive assets:
Interest-bearing
deposits in financial
institutions $65 -- -- -- $65
Federal funds sold 15,670 -- -- -- 15,670
Investment securities 33,778 52,850 87,737 48,624 222,989
Loans 234,812 383,431 38,007 33,151 689,401
Total $284,325 $436,281 $125,744 $81,775 $928,125
Rate sensitive
liabilities:
Money market savings $311,584 -- -- -- $311,584
Now accounts 175,203 -- -- -- 175,203
Time deposits:
Less than $100,000 47,047 103,659 126,655 -- 277,361
$100,000 and over 15,200 15,097 15,684 -- 45,981
Nondeposit liabilitie 2,010 -- -- -- 2,010
Total $551,044 $118,756 $142,339 -- $812,139
Interest sensitivity
gap ($266,719) $317,525 ($16,595) $81,775
Cumulative interest
sensitivity gap ($266,719) $50,806 $34,211 $115,986
Cumulative net
interest-earning
assets as a
percentage of net
interest-bearing
liabilities 51.6% 107.6% 104.2% 114.3%
Cumulative interest
sensitivity gap as
a percentage of
total assets -26.4% 5.0% 3.4% 11.5%
</TABLE>
The above table does not necessarily indicate the future impact of
general interest rate movements on the Company's net interest income
because the repricing of certain assets and liabilities is discretionary
and is subject to competitive and other pressures. As a result, assets
and liabilities indicated as repricing within the same period may in fact
reprice at different times and at different rate levels.Assets and
liabilities are reported in the earliest time frame in which maturity
or repricing may occur. The percentage indicated for the cumulative
net interest-earning assets as a percentage of net interest-bearing
liabilities is well within the Company's target range of acceptable
gap values for the three month to twelve month time frame.
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
AND 1993
Net Income- The Company's net income for both the nine months ended
September 30, 1994 and 1993 was $10.0 million. During 1993, the Company
adopted SFAS No. 109 which caused a one-time increase to net income
of approximately $.4 million . The Company's net interest margin on a
tax equivalent basis increased $.4 million (1.3%) from $30.9 million
at September 30, 1993 to $31.3 million at September 30, 1994. This
increase primarily due to a shift to interest-bearing liabilities
with a lower cost of funds combined with a decline in the average yield
on interest-earning assets.
Interest Income- Total interest income, on a tax equivalent basis,
decreased $.3 million for the nine months ended September 30, 1994
compared to the same period in 1993. The largest component of this
decrease was interest on corporate securities which decreased $4.1
million. Of this decrease, $3.9 million was the result of lower average
balances during the period. This decrease is, in part, due to a modest
decline in the average yield on interest earning assets for the 1994
period as a result of refinancing loans and reinvesting securities
proceeds at lower yields. Offsetting the effects of lower average yields
was the favorable impact of higher average loan balances during the nine
months ended September 30, 1994, particularly due to high loan demand in
the first half of 1994. The average balance of investment and
mortgage-backed securities declined during the 1994 period, in part, to the
need to fund the high loan demand the Company experienced during the
first nine months of 1994. This decrease was offset by an increase
in interest on loans of $1.3 million, on securities held in state and
political subdivisions of $.5 million and on U.S. government agencies
and corporations of $2.6 million.
Interest Expense- Totalinterest expense decreased $.7 million for the
nine months ended September 30, 1994 compared to the same period during
1993.The largest component of this decrease was interest on borrowed funds
which decreased $.5 million due to a decline in FHLB Advances. Total
interest expense also decreased due to the termination of the REMIC.
The following table reflects the extent to which changes in the volume
of interest-earning assets and interest-bearing liabilities and
changes in interest rates have affected net interest income for the
nine-month period ended September 30, 1994 as compared to the same
period in 1993 (dollars in thousands):
<TABLE>
<CAPTION>
Change
Due To:
Volume Rate Total
<S> <C> <C> <C>
Interest income
Interest-bearing deposits in
financial institutions ($22) $26 $4
Federal funds sold 195 67 262
Investment securities (400) (346) (746)
Mortgage-backed securities (982) (110) (1,092)
Loans 1,906 (615) 1,291
Total interest income 697 (978) (281)
Interest expense
Interest-bearing deposits 192 (402) (210)
Borrowed funds (216) (261) (477)
Total interest expense (24) (663) (687)
Net interest income $721 ($315) $406
</TABLE>
Provision for loan losses- The Company's provision for loan losses
decreased $.6 million (27.8%) for the nine months ended September 30,
1994 when compared to the same period in 1993 as a result of the
Company's analysis of the overall credit risk in its loan portfolio.
<PAGE>
Other Income- Total other income remained flat for the nine months
ended September 30, 1994 compared to the same period in 1993. The net
gains on sale of securities available for sale increased $1.5 million
over this period, principally due to the sale of the mortgage-backed
securities in connection with the termination of the REMIC. However,
these gains were largely offset by reduced gains on the sale of
mortgage loans in the secondary market.
Other Expense-Total other expenses were stable at $20.0 million for
the nine months ended September 30, 1993 when compared to $19.9 million
for the nine months ended September 30, 1994. Salary and employee
benefits declined $.3 million. This was due to decreased insurance and
profit-sharing expenses. FDIC insurance premiums increased $.2 million
for the nine month period ended September 30, 1994 as compared to
September 30, 1993 due to an increase in average deposit balances held
during the 1994 period and, additionally, West Suburban Bank of Aurora
("WSB Aurora") received a credit toward its premiums during the 1993
period. Other operating expenses increased $.2 million during this period.
This increase was principally due to increased maintenance costs on computer
equipment along with higher public relations expense. Professional fees
have stabilized due to continued reduction of properties held in Other
Real Estate.
Income Tax Expense- Income tax expense increased $.5 million (8.8%)
for the nine months ended September 30, 1994 compared to the same
period in 1993 due to higher corporate tax rates and higher income
before taxes of $.9 million.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994
AND 1993
Net Income-The Company experienced an increase in net income of $.2
million (6.4%) for the three months ended September 30, 1994 compared
to the same period in 1993. The decreases in net interest margin were
offset by favorable decreases in salaries and employee benefits.
Net Interest Income- The Company's net interest income decreased $.3
million (3.4%) from $10.5 million for the three months ended September
30, 1993 to $10.2 million for the same period in 1994. This was
primarily due to increased cost of funds. While the change in net
interest income from the comparable 1993 third quarter is not
significant, management will continue to monitor its rate sensitive
gaps.
Other Income- Total other income decreased $.5 million from $2.4 million
to $1.9 million for the three months ended September 30, 1993 compared
to the same period in 1994. Loan originations decreased $.3 million during
this period as a result of decreased mortgage loan refinancing demand due
to higher interest rates.
Other Expense- Total other expense decreased $1.1 million from $7.1
million to $6.0 million for the three months ended September 30, 1993
compared to the same period in 1994. Salary and employee benefits and
professional fees decreased by $.5 million and $.2 million, respectively.
OTHER CONSIDERATIONS
Earnings of bank and thrift holding companies and their subsidiaries
are affected by general economic conditions and also by the fiscal and
monetary policies of federal regulatory agencies, including the Board
of Governors of the Federal Reserve System. Such policies have affected
the operating results of all commercial banks and thrifts in the past
and are expected to do so in the future. The Company cannot accurately
predict the nature or the extent of any effects which fiscal or
monetary policies may have on its subsidiaries' business and
earnings.
The Internal Revenue Service (the "IRS") is currently examining the
income tax returns of WSB Aurora for 1988, 1989 and 1990. The IRS
has proposed certain adjustments to the income tax returns of WSB
Aurora for 1988, 1989 and 1990. The periods under examination are
prior to the acquisition of WSB Aurora by the Company. The Company
continues to contest the adjustments proposed by the IRS.
<PAGE>
Recent Regulatory Developments
On September 23, 1994, the "Riegle Community Development and
Regulatory Improvement Act of 1994" (the "Riegle Act") was signed into
law. The provisions of Title III of the Riegle Act are intended to reduce
the paperwork and regulatory burdens of federally-insured financial
institutions and their holding companies. These provisions require the
federal banking regulators, among other things: (i) to consider the
burdens and benefits to depository institutions and their customers of
proposed regulatory and administrative requirements; (ii) within two years
of the enactment of the Riegle Act, to eliminate from their regulations
and written supervisory policies regulatory inconsistencies, outmoded or
duplicative requirements and unwarranted constraints on credit
availability and to adopt uniform requirements to implement common
statutory schemes or regulatory concerns; (iii) to create a unified
examination process for financial institutions subject to the jurisdiction
of more than one regulator; (iv) within six months of enactment of the
Riegle Act, to establish an internal regulatory appeals process
by which regulated institutions may obtain review of agency determinations
relating to such matters as examination ratings, adequacy of loan loss
reserves and significant loan classifications; (v) to streamline the
quarterly call report format; and (vi) in considering revisions to
risk-based capital requirements, to ensure that the standards take into
account the size, activities and reporting burdens of institutions. The
Riegle Act also gives the federal banking agencies greater flexibility
with respect to the implementation and enforcement of certain provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), including the FDICIA provisions regarding safety and soundness
standards, examination frequency and independent audit requirements.
Because the federal banking regulators have not yet taken action to
implement the regulatory reforms contemplated by the Riegle Act, it is not
possible at this time to determine the impact of these reforms on the
Company and its subsidiaries.
In addition, on September 29, 1994, the "Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994" (the "Riegle-Neal Act")
was signed into law. Effective September 29, 1995, the Riegle-Neal
Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions
or reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits
that may be held by the acquiring holding company and all of its insured
depository institution affiliates. Effective June 1, 1997, the Riegle-Neal
Act allows banks to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions, including
certain limitations on the aggregate amount of deposits that may be held
by the surviving bank and all of its insured depository institution
affiliates. Effective immediately, the Riegle- Neal Act allows banks
to establish de novo interstate branches or to acquire individual branches
of a bank in another state (rather than acquiring an out-of-state bank in
its entirety), but only if specifically authorized by state law. The
legislation allows individual states to "opt-out" of certain provisions
of the Riegle-Neal Act by enacting appropriate legislation prior to
June 1, 1997. As a result of the delayed effective dates of the interstate
banking provisions of the Riegle-Neal Act, and the fact that presently no
state authorizes the establishment of de novo branches by out of state
banks, the Riegle-Neal Act is not expected to have an immediate
significant impact on the Company or its subsidiaries. Over time,
however, the provisions of the Riegle-Neal Act may increase
competition in the market served by the Company and its subsidiaries.
Federal savings associations currently have the ability under Office
of Thrift Supervision regulations to establish interstate branch
networks.
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party other than ordinary routine
litigation incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. None
B. None
<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.
WEST SUBURBAN BANCORP, INC.
(Registrant)
Date: November 14, 1994
/s/ KEVIN J. ACKER
CHAIRMAN OF THE BOARD
/s/ DUANE G. DEBS
CHIEF ACCOUNTING OFFICER
