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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For transition period from __________ to __________
Commission File Number 0 -17609
WEST SUBURBAN BANCORP, INC.
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(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
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 629-4200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
- -----------------------------------------------------------
Name of Each Exchange
Title of Each Class on which Registered
------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
CLASS A COMMON STOCK, NO PAR VALUE
----------------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this 10-K or
any amendment to this form 10-K [X]
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The aggregate market value of voting common stock of Registrant held by
non-affiliates as of December 31, 1996 was $80,663,100 (1). At December 31,
1996, the total number of shares of Class A Common Stock outstanding was
347,015 and the total number of shares of Class B Common Stock outstanding
was 85,480.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1996 are incorporated by reference into Parts I, II and IV hereof,
to the extent indicated herein. Portions of the Proxy Statement for the Annual
Meeting of Shareholders to be held May 14, 1997 are incorporated by reference
in Part III hereof, to the extent indicated herein.
________________________
(1) Based on the last reported price of an actual transaction in Registrant's
common stock on February 17, 1997, and reports of beneficial ownership
filed by directors and executive officers of Registrant and by beneficial
owners of more than 5% of the outstanding shares of common stock of
Registrant; however, such determination of shares owned by affiliates does
not constitute an admission of affiliate status or beneficial interest in
shares of common stock of Registrant.
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WEST SUBURBAN BANCORP, INC.
1996 Form 10-K Annual Report
Table of Contents
PART I
SEQUENTIAL
PAGE NUMBER
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 25
Item 4. Submission of Matters to a Vote of Security Holders. . 25
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . 26
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 27
Item 8. Financial Statements and Supplementary Data . . . . . 27
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Matters . . . . . . . . . 27
PART III
Item 10. Directors and Executive Officers of the Registrant . . 28
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . 28
Item 13. Certain Relationships and Related Transactions . . . . 28
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . 29
Form 10-K Signature Page . . . . . . . . . . . . . . . . . . . . 31
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This report may contain certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of indicating such intent.
Forward-looking statements which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors which could have a material adverse affect
on the operations and future prospects of West Suburban Bancorp, Inc. and its
subsidiaries include, but are not limited to, changes in interest rates,
general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles, policies and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements. Further information
concerning the Company and its business, including additional factors that
could materially affect the Company's financial results, is included in the
Company's filings with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
REGISTRANT AND ITS SUBSIDIARIES
West Suburban Bancorp, Inc., an Illinois corporation (the "Company"), is a
multi-bank holding company registered under the Bank Holding Company Act of
1956, as amended (the "BHC Act"), and a thrift holding company registered
under the Home Owner's Loan Act, as amended (the "HOLA"). The Company's
operating subsidiaries consist of: West Suburban Bank, Lombard, Illinois;
West Suburban Bank of Downers Grove/Lombard, Downers Grove, Illinois; West
Suburban Bank of Darien, Darien, Illinois; West Suburban Bank of Carol
Stream/Stratford Square, Bloomingdale, Illinois; and West Suburban Bank of
Aurora, F.S.B., Aurora, Illinois. West Suburban Bank, West Suburban Bank of
Downers Grove/Lombard, West Suburban Bank of Darien and West Suburban Bank of
Carol Stream/Stratford Square may be referred to collectively as the "Bank
Subsidiaries", West Suburban Bank of Aurora, F.S.B. may be referred to as
"WSB Aurora" and the Bank Subsidiaries and WSB Aurora may be referred to
collectively as the "Subsidiaries".
The Company was incorporated in 1986 and became the parent bank holding
company of the Bank Subsidiaries in 1988. On July 13, 1990, the Company
acquired WSB Aurora, a federally-chartered thrift, thereby also becoming a
thrift holding company.
The Subsidiaries are headquartered in the western suburbs of Chicago among
some of the faster growing areas in Illinois. Due to the nature of the market
areas served by the Subsidiaries, the Subsidiaries provide a wide range of
financial services to individuals and small and medium sized businesses. The
western suburbs of Chicago have a diversified economy, with many new
corporate headquarters and numerous small and medium sized industrial and
non-industrial businesses providing employment.
The Subsidiaries engage in a general full service retail banking business and
offer a broad variety of consumer and commercial products and services. The
Subsidiaries also offer trust services, safe deposit boxes and extended
banking hours, including Sunday hours and 24-hour banking through either a
proprietary network of 36 automated teller machines ("ATMs") or Tele-Bank 24,
a bank-by-phone system. Other consumer related services are available
including financial services and a competitively priced VISA card through
West Suburban Bank Card Services. During 1995, the Subsidiaries began to
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offer their customers a debit card called the West Suburban Bank Check Card.
The West Suburban Bank Check Card allows customers to make purchases with
funds from their checking accounts without writing checks.
Although each Subsidiary operates under the direction of its own board of
directors, the Company has standard operating policies regarding
asset/liability management, liquidity management, investment management,
lending practices and deposit structure management. The Company has
historically centralized certain operations where economies of scale can be
achieved. Additionally, during January, 1997, the Subsidiaries entered into
an agreement pursuant to which they will be merged into a single bank that
will operate under the name "West Suburban Bank". The Company anticipates
that the merger of the Subsidiaries will be completed during the second
quarter of 1997.
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The following table sets forth financial and other information concerning the
Subsidiaries as of December 31, 1996:
<TABLE>
<CAPTION>
SUBSIDIARIES OF WEST SUBURBAN BANCORP, INC. (1)
(Dollars in thousands)
Name of Subsidiary Return on Average
(Year Formed/Year Shareholder's ----------------------
Affiliated With the Parent) Number of Locations(2) Total Assets Equity Net Income Assets Equity
- ---------------------------- ------------------------ --------------- ------------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
West Suburban Bank
(1962/1988) 29 $486,789 $37,825 $4,794 1.1% 12.9%
West Suburban Bank of
Downers Grove/
Lombard
(1972/1988) 29 147,596 15,761 2,336 1.6% 15.2%
West Suburban Bank of
Darien
(1973/1988) 29 236,723 20,959 3,532 1.6% 17.6%
West Suburban Bank
of Carol Stream/
Stratford Square
(1975/1988) 29 214,295 16,385 2,842 1.5% 18.0%
West Suburban Bank
of Aurora, F.S.B.
(1926/1990) 3 159,477 17,663 2,587 1.7% 14.9%
</TABLE>
________________
(1) The data presented in this table is not intended to present the
Company's consolidated financial results for 1996. The Company's
consolidated financial statements are provided in this Form 10-K in
response to Item 14.
(2) The number of locations reflected for the Bank Subsidiaries includes all
facilities at which customers of any Bank Subsidiary can conduct their
banking business, and includes a facility which consists solely of a
proprietary stand-alone ATM facility.
COMPETITION
The Company encounters competition in all areas of its business pursuits. It
competes for loans, deposits, fiduciary and other services with financial and
other institutions located both within and outside of its market area. In order
to compete effectively, to develop its market base, to maintain flexibility and
to move in pace with changing economic and social conditions, the Company
continuously refines and develops its products and services. The principal
methods of competition in the financial services industry are price, service
and convenience.
EMPLOYEES
The Company employed 646 persons (533 full time equivalent employees) on
December 31, 1996. The Company believes that its relations with its employees
are good.
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SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance
of the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Board of Governors
of the Federal Reserve System (the "FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Illinois Commissioner of Banks and Real Estate
(the "Commissioner"), the Office of Thrift Supervision (the "OTS"), the
Internal Revenue Service and state taxing authorities and the Securities and
Exchange Commission (the "SEC"). The effect of such statutes, regulations and
policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits,
capital levels relative to operations, the nature and amount of collateral
for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to the Company
and the Subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds and the depositors, rather than the
shareholders, of financial institutions.
The following references to material statutes and regulations affecting the
Company and the Subsidiaries are brief summaries thereof and do not purport
to be complete, and are qualified in their entirety by reference to such
statutes and regulations. Any change in applicable law or regulations may
have a material effect on the business of the Company and the Subsidiaries.
Recent Regulatory Developments
On September 30, 1996, President Clinton signed into law the "Economic Growth
and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory Reduction
Act"). Subtitle G of the Regulatory Reduction Act consists of the "Deposit
Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a one-time
special assessment on each depository institution holding deposits subject to
assessment by the FDIC for the Savings Association Insurance Fund (the
"SAIF") in an amount which, in the aggregate, will increase the designated
reserve ratio of the SAIF (I.E., the ratio of the insurance reserves of the
SAIF to total SAIF-insured deposits) to 1.25% on October 1, 1996. Subject to
certain exceptions, the special assessment was payable in full on November
27, 1996. As a SAIF-member, WSB Aurora was subject to the special assessment.
None of the Bank Subsidiaries, however, holds any SAIF-assessable deposits
and, therefore, none of the Bank Subsidiaries was subject to the special
assessment.
Under the DIFA, the amount of the special assessment payable by an
institution was determined on the basis of the amount of SAIF-assessable
deposits held by the institution on March 31, 1995, or acquired by the
institution after March 31, 1995 from another institution which held the
deposits on March 31, 1995, but was no longer in existence on November 27,
1996. The DIFA provides for a 20% discount in calculating the SAIF-assessable
deposits of certain "Oakar" banks (I.E., Bank Insurance Fund ("BIF") member
banks that hold deposits acquired from a SAIF member that remain SAIF
insured) and certain "Sasser" banks (I.E., institutions that converted from
thrift to bank charters but remain SAIF members). The DIFA also exempts
certain institutions from payment of the special assessment (including
institutions that are undercapitalized or that would become undercapitalized
as a result of payment of the special assessment), and allows an institution
to pay the special assessment in two installments if there is a significant
risk that by paying the special assessment in a lump sum, the
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institution or its holding company would be in default under or in violation
of terms or conditions of debt obligations or preferred stock issued by the
institution or its holding company and outstanding on September 13, 1995.
On October 8, 1996, the FDIC adopted a final regulation implementing the SAIF
special assessment. In that regulation, the FDIC set the special assessment
rate at 0.657% of SAIF-assessable deposits held on March 31, 1995. The amount
of the special assessment paid by WSB Aurora was $.8 million, which was
recorded as a charge against earnings for the quarter ended September 30,
1996. As discussed below, however, the recapitalization of the SAIF resulting
from the special assessment should significantly reduce WSB Aurora's ongoing
deposit insurance expense.
In light of the recapitalization of the SAIF pursuant to the special
assessment authorized by the DIFA, the FDIC, on December 11, 1996, took
action to reduce regular semi-annual SAIF assessments from the range of 0.23%
- - 0.31% of deposits to a range of 0% - 0.27% of deposits. The new rates were
effective October 1, 1996 for Oakar and Sasser banks, but did not take effect
for other SAIF-assessable institutions until January 1, 1997. From October 1,
1996 through December 31, 1996, assessments payable by SAIF-assessable
institutions other than Oakar and Sasser banks ranged from 0.18% to 0.27% of
deposits, which represents the amount the FDIC calculates as necessary to
cover the interest due for that period on outstanding obligations of the
Financing Corporation (the "FICO"), discussed below. Because SAIF-assessable
institutions were previously assessed at higher rates (I.E., 0.23% - 0.31% of
deposits) for the semi-annual period ending December 31, 1996, the FDIC will
refund or credit back the amount collected from such institutions for the
period from October 1, 1996 through December 31, 1996 which exceeds the
amount due for that period under the reduced assessment schedule. As a result
of the FDIC's action, the deposit insurance assessments payable by WSB Aurora
have been reduced significantly.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the
FICO, the entity created in 1987 to finance the recapitalization of the
Federal Savings and Loan Insurance Corporation (the "FSLIC"), the SAIF's
predecessor insurance fund. Pursuant to the DIFA, the interest due on
outstanding FICO bonds will be covered by assessments against both SAIF and
BIF member institutions beginning January 1, 1997. Between January 1, 1997
and December 31, 1999, FICO assessments against BIF-member institutions
cannot exceed 20% of the FICO assessments charged SAIF-member institutions.
From January 1, 2000 until the FICO bonds mature in 2019, FICO assessments
will be shared by all FDIC-insured institutions on a PRO RATA basis. The FDIC
estimates that the FICO assessments for the period January 1, 1997 through
December 31, 1999 will be approximately 0.013% of deposits for BIF members
versus approximately 0.064% of deposits for SAIF members, and will be less
than 0.025% of deposits thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January 1,
1999, provided there are no state or federally chartered, FDIC-insured
savings associations existing on that date. To facilitate the merger of the
BIF and the SAIF, the DIFA directs the Treasury Department to conduct a study
on the development of a common charter and to submit a report, along with
appropriate legislative recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new
nonbanking activities by bank holding companies, and generally exempts bank
holding companies that own one or more savings associations from regulation
by the OTS as savings and loan holding companies. The Regulatory Reduction
Act also removes the percentage of assets limitations on the aggregate amount
of credit card and education loans that may be made by a savings association,
such as WSB Aurora; increases from 10% to 20% of total assets the aggregate
amount of commercial loans that a savings association may make, provided that
any amount in excess of 10% of total assets
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represents small business loans; allows education, small business and credit
card loans to be counted in full in determining a savings association's
compliance with the qualified thrift lender ("QTL") test; and provides that a
savings association may be deemed to meet the QTL test if it qualifies as a
domestic building and loan association under the Internal Revenue Code.
Finally, the Regulatory Reduction Act establishes time frames within which
the FDIC must act on applications by state banks to engage in activities
which, although permitted for state banks under applicable state law, are not
permissible activities for national banks, and clarifies the liability of a
financial institution, when acting as a lender or in a fiduciary capacity,
under the federal environmental laws. Although the full impact of the
Regulatory Reduction Act on the operations of the Company and the
Subsidiaries cannot be determined at this time, management believes that the
legislation may reduce compliance costs to some extent and allow the Company
and the Subsidiaries somewhat greater operating flexibility.
On August 10, 1996, President Clinton signed into law the Small Business Job
Protection Act of 1996 (the "Job Protection Act"). Among other things, the
Job Protection Act eliminates the percent-of-taxable-income ("PTI") method
for computing additions to a savings association's tax bad debt reserves for
tax years beginning after December 31, 1995, and requires all savings
associations that have used the PTI method to recapture, over a six year
period, all or a portion of their tax bad debt reserves added since the last
taxable year beginning before January 1, 1988.
The Company
GENERAL. The Company, as the controlling shareholder of the Bank
Subsidiaries, is a bank holding company. As a bank holding company, the
Company is registered with, and is subject to regulation by, the FRB under
the BHC Act. In accordance with FRB policy, the Company is expected to act as
a source of financial strength to the Bank Subsidiaries and to commit
resources to support the Bank Subsidiaries in circumstances where the Company
might not do so absent such policy. Under the BHC Act, the Company is subject
to periodic examination by the FRB and is required to file with the FRB
periodic reports of its operations and such additional information as the FRB
may require. The Company is also subject to the requirements of the Illinois
Bank Holding Company Act, as amended.
The Company's ownership of WSB Aurora makes the Company a savings and loan
holding company, as defined in the HOLA, and prior to September 30, 1996, the
Company was subject to OTS examination, supervision and reporting
requirements under the HOLA. Effective September 30, 1996, the Regulatory
Reduction Act exempted companies, like the Company, that are both bank
holding companies and savings and loan holding companies from OTS regulation,
but requires the FRB and the OTS to cooperate in any enforcement actions
taken against such companies.
INVESTMENTS AND ACTIVITIES. Under the BHC Act, a bank holding company must
obtain FRB approval before: (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank holding
company. Subject to certain conditions (including certain deposit
concentration limits established by the BHC Act), the FRB may allow a bank
holding company to acquire banks located in any state of the United States
without regard to whether the acquisition is prohibited by the law of the
state in which the target bank is located. In approving interstate
acquisitions, however, the FRB is required to give effect to applicable state
law limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution
affiliates in the state in which the target bank is located or which require
that the target bank have been in existence
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for a minimum period of time (not to exceed five years) before being acquired
by an out-of-state bank holding company.
The BHC Act also prohibits, with certain exceptions noted below, the Company
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that bank holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the FRB to be "so closely related to banking ... as to be
a proper incident thereto". Under current regulations of the FRB, the Company
and its non-bank subsidiaries are permitted to engage in, among other
activities, such banking-related businesses as the operation of a thrift,
sales and consumer finance, equipment leasing, the operation of a computer
service bureau, including software development, and mortgage banking and
brokerage. The BHC Act generally does not place territorial restrictions on
the activities of non-bank subsidiaries of bank holding companies.
Federal legislation also prohibits acquisition of "control" of a bank holding
company, such as the Company, without prior notice to certain federal bank
regulators. "Control" is defined in certain cases as acquisition of 10% of
the outstanding shares of a bank holding company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company,
among other things, may be denied approval to acquire or establish additional
banks or non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital. The leverage requirement consists of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly rated companies, with
minimum requirements of 4% to 5% for all others. For purposes of these
capital standards, Tier 1 capital consists primarily of permanent
stockholders' equity less intangible assets (other than certain mortgage
servicing rights and purchased credit card relationships) and total capital
means Tier 1 capital plus certain other debt and equity instruments which do
not qualify as Tier 1 capital and a portion of the Company's allowance for
loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (I.E., Tier 1 capital less all intangible assets),
well above the minimum levels.
As of December 31, 1996, the Company had regulatory capital in excess of the
FRB's minimum requirements, with a total risk-based capital ratio of 13.0%
and a leverage ratio of 9.8%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment
of cash dividends by bank holding companies. In the policy statement, the FRB
expressed its view that a bank holding company experiencing earnings
weaknesses should not pay cash dividends exceeding its net income or which
could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the FRB possesses
enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to proscribe the payment of dividends by banks and bank
holding companies. In addition to the restrictions on dividends that may be
imposed by the FRB, the Illinois Business Corporation Act, as
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amended, prohibits the Company from paying a dividend if, after giving effect
to the dividend, the Company would be insolvent or the net assets of the
Company would be less than zero or less than the maximum amount then payable
to shareholders of the Company who would have preferential distribution
rights if the Company were liquidated.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered with
the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the
Company is subject to the information, proxy solicitation, insider trading
and other restrictions and requirements of the SEC under the Exchange Act.
The Subsidiaries
GENERAL. The Bank Subsidiaries are Illinois-chartered banks, the deposit
accounts of which are insured by the BIF of the FDIC. As BIF-insured,
Illinois-chartered banks, the Bank Subsidiaries are subject to the
examination, supervision, reporting and enforcement requirements of the
Commissioner, as the chartering authority for Illinois banks, and the FDIC,
as administrator of the BIF.
WSB Aurora is a federally chartered savings association, the deposits of
which are insured by the SAIF of the FDIC. As a SAIF-insured, federally
chartered savings association, WSB Aurora is subject to the examination,
supervision, reporting and enforcement requirements of the OTS, as the
chartering authority for federal savings associations, and the FDIC as
administrator of the SAIF. WSB Aurora is also a member of the Federal Home
Loan Bank System, which provides a central credit facility primarily for
member institutions.
DEPOSIT INSURANCE. As FDIC-insured institutions, the Subsidiaries are
required to pay deposit insurance premium assessments to the FDIC. The FDIC
has adopted a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and supervisory
evaluations. Institutions classified as well-capitalized (as defined by the
FDIC) and considered healthy and well managed pay the lowest premium while
institutions that are less than adequately capitalized (as defined by the
FDIC) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
During the year ended December 31, 1996, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. The FDIC has announced that for the
semi-annual assessment period beginning January 1, 1997, BIF assessment rates
will continue to range from 0% of deposits to 0.27% of deposits. During the
period January 1, 1996 through September 30, 1996, SAIF assessment rates
ranged from 0.23% of deposits to 0.31% of deposits. As a result of the
recapitalization of the SAIF on October 1, 1996, SAIF assessment rates were
reduced, effective October 1, 1996, to a range of 0.18% of deposits to 0.27%
of deposits and were further reduced, effective January 1, 1997, to a range
of 0% of deposits to 0.27% of deposits. SEE "--Recent Regulatory
Developments".
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of
insurance if the institution has no tangible capital. Management of the
Company is not aware of any activity or condition that could result in
termination of the deposit insurance of any of the Bank Subsidiaries.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members, such as WSB Aurora, has been used to cover interest
payments due on the outstanding obligations of the FICO, the entity created
to finance the recapitalization of the FSLIC, the SAIF's predecessor
11
<PAGE>
insurance fund. Pursuant to federal legislation enacted September 30, 1996,
commencing January 1, 1997, SAIF members and BIF members will be subject to
assessments to cover the interest payment on outstanding FICO obligations.
Such FICO assessments will be in addition to amounts assessed by the FDIC for
deposit insurance. Until January 1, 2000, the FICO assessments made against
BIF members may not exceed 20% of the amount of the FICO assessments made
against SAIF members. It is estimated that SAIF members will pay FICO
assessments equal to 0.064% of deposits while BIF members will pay FICO
assessments equal to 0.013% of deposits. Between January 1, 2000 and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a PRO RATA
basis. It is estimated that FICO assessments during this period will be less
than 0.025% of deposits.
SUPERVISORY ASSESSMENTS. Illinois banks and federal savings associations are
required to pay supervisory fees to the Commissioner and the OTS,
respectively, to fund the operations of each agency. The amount of such
supervisory fees is based upon each institution's total assets, including
consolidated subsidiaries, as reported to the agency. During the year ended
December 31, 1996, the Bank Subsidiaries paid supervisory fees to the
Commissioner totaling $102.2 thousand and WSB Aurora paid supervisory fees to
the OTS totaling $46.3 thousand.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum capital
standards for state-chartered insured non-member banks, such as the Bank
Subsidiaries: a leverage requirement consisting of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly-rated banks with minimum
requirements of 4% to 5% for all others, and a risk-based capital requirement
consisting of a minimum ratio of total capital to total risk-weighted assets
of 8%, at least one-half of which must be Tier 1 capital. For purposes of
these capital standards, Tier 1 capital and total capital consist of
substantially the same components as Tier 1 capital and total capital under
the FRB's capital guidelines for bank holding companies (SEE "--The
Company--Capital Requirements").
The OTS has established the following minimum capital standards for savings
associations, such as WSB Aurora: a core capital requirement, consisting of a
minimum ratio of core capital to total assets of 3%; a tangible capital
requirement consisting of a minimum ratio of tangible capital to total assets
of 1.5%; and a risk-based capital requirement, consisting of a minimum ratio
of total capital to total risk-weighted assets of 8%, at least one-half of
which must consist of core capital. For purposes of these capital standards,
core capital consists primarily of permanent stockholders' equity less
intangible assets other than certain supervisory goodwill, certain mortgage
servicing rights and certain purchased credit card relationships and less
investments in subsidiaries engaged in activities not permitted for national
banks; tangible capital is substantially the same as core capital except that
all intangible assets other than certain mortgage servicing rights must be
deducted; and total capital means core capital plus certain debt and equity
instruments that do not qualify as core capital and a portion of WSB Aurora's
allowances for loan and lease losses.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances
or risk profiles of individual institutions. For example, the regulations of
the FDIC and the OTS provide that additional capital may be required to take
adequate account of interest rate risk or the risks posed by concentrations
of credit or nontraditional activities.
During the year ended December 31, 1996, none of the Subsidiaries was
required by its primary federal regulator to increase its capital to an
amount in excess of the minimum regulatory requirement. As of December 31,
1996, each of the Subsidiaries exceeded its minimum regulatory capital
requirements.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" or "critically
undercapitalized". Depending upon the capital category to
12
<PAGE>
which an institution is assigned, the regulators' corrective powers include:
requiring the submission of a capital restoration plan; placing limits on
asset growth and restrictions on activities; requiring the institution to
issue additional capital stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rate the institution may pay on deposits; ordering a new election of
directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits
from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions
or any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks, such as
the Bank Subsidiaries, may not pay, without prior regulatory approval,
dividends in excess of their adjusted profits.
OTS regulations impose limitations upon all capital distributions by savings
associations, including cash dividends. The rule establishes three tiers of
institutions. An institution that exceeds all fully phased-in capital
requirements before and after the proposed capital distribution (a "Tier 1
Institution") could, after prior notice to, but without the approval of, the
OTS, make capital distributions during a calendar year of up to the higher of
(i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (I.E., the excess
capital over its fully phased-in capital requirements) at the beginning of
the calendar year, or (ii) 75% of its net income over the most recent
preceding four quarter period. Any additional capital distributions would
require prior regulatory approval. As of December 31, 1996, WSB Aurora
qualified as a Tier 1 Institution.
The payment of dividends by any financial institution or its holding company
is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, each of the Subsidiaries exceeded its minimum capital requirements
under applicable guidelines as of December 31, 1996. As of December 31, 1996,
approximately $25.0 million was available to be paid as dividends to the
Company by the Subsidiaries. Notwithstanding the availability of funds for
dividends, however, the federal banking regulators may prohibit the payment
of any dividends if they determine such payment would constitute an unsafe or
unsound practice.
INSIDER TRANSACTIONS. The Subsidiaries are subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the Company and
its subsidiaries, on investments in the stock or other securities of the
Company and its subsidiaries and the acceptance of the stock or other
securities of the Company or its subsidiaries as collateral for loans.
Certain limitations and reporting requirements are also placed on extensions
of credit by the Subsidiaries to their respective directors and officers, to
directors and officers of the Company and its subsidiaries, to principal
stockholders of the Company, and to "related interests" of such directors,
officers and principal stockholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a director or
officer of the Company or one of its subsidiaries or a principal stockholder
of the Company may obtain credit from banks with which one of the
Subsidiaries maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The FDIC and the OTS have adopted guidelines
which establish operational and managerial standards to promote the safety
and soundness of state non-member banks and savings associations,
respectively. The guidelines set forth standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, asset quality and earnings. In general, the guidelines prescribe
the goals to be achieved in each area, and each institution is responsible
for
13
<PAGE>
establishing its own procedures to achieve those goals. If an institution
fails to comply with any of the standards set forth in the guidelines, the
agency may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the
agencies expect to require a compliance plan from an institution whose
failure to meet one or more of the guidelines is of such severity that it
could threaten the safety and soundness of the institution. Failure to submit
an acceptable plan, or failure to comply with a plan that has been accepted
by the agency, would constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as the Bank Subsidiaries, have the
authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (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. The establishment of DE NOVO interstate branches or the
acquisition of individual branches of a bank in another state (rather than
the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegel-Neal Act 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.
Illinois has enacted legislation permitting interstate mergers beginning on
June 1, 1997.
Federally chartered savings associations which qualify as "domestic building
and loan associations", as defined in the Internal Revenue Code, or meet the
QTL test (SEE "-The Subsidiaries -- Qualified Thrift Lender Test") have the
authority, subject to receipt of OTS approval, to establish branch offices
anywhere in the United States, either DE NOVO or through acquisitions of all
or part of another financial institution. If a federal savings association
fails to qualify as a "domestic building and loan association", as defined in
the Internal Revenue Code, or fails to meet the QTL test, the association
generally may establish a branch in a state other than the state of its home
office only to the extent authorized by the law of the state in which the
branch is to be located. As of December 31, 1996, WSB Aurora qualified as a
"domestic building and loan association", as defined in the Internal Revenue
Code, and met the QTL test.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also
prohibit FDIC insured state banks and their subsidiaries, subject to certain
exceptions, from engaging as principal in any activity that is not permitted
for a national bank or its subsidiary, respectively, unless the bank meets,
and continues to meet, its minimum regulatory capital requirements and the
FDIC determines the activity would not pose a significant risk to the deposit
insurance fund of which the bank is a member. Impermissible investments and
activities must be divested or discontinued within certain time frames set by
the FDIC. These restrictions have not had, and are not currently expected to
have, a material impact on the operations of the Bank Subsidiaries.
QUALIFIED THRIFT LENDER TEST. Under the QTL test in effect prior to September
30, 1996, WSB Aurora generally was required to invest at least 65% of its
portfolio assets in "qualified thrift investments", as measured on a monthly
average basis in nine out of every 12 months. Qualified thrift investments
for purposes of the QTL test consist principally of residential mortgage
loans, mortgage-backed securities and other housing and consumer-related
investments. The term "portfolio assets" is statutorily defined to mean a
savings association's total assets less goodwill and other intangible assets,
the association's business property and a limited amount of its liquid
assets. Under amendments to the HOLA enacted September 30, 1996, WSB Aurora
will be deemed to satisfy the QTL test if it either holds qualified thrift
investments equaling 65% or more of its portfolio assets or qualifies as a
14
<PAGE>
domestic building and loan association under the Internal Revenue Code. The
new legislation also expanded somewhat the definition of qualified thrift
investments. SEE "--Recent Regulatory Developments". As of December 31, 1996,
WSB Aurora satisfied with the QTL test and qualified as a "domestic building
and loan association", as defined in the Internal Revenue Code.
LIQUIDITY REQUIREMENTS. OTS regulations currently require each savings
association to maintain, for each calendar month, an average daily balance of
liquid assets (including cash, certain time deposits, bankers' acceptances,
and specified United States Government, state or federal agency obligations)
equal to at least 5% of the average daily balance of its net withdrawable
accounts plus short-term borrowings (I.E., those repayable in 12 months or
less) during the preceding calendar month. This liquidity requirement may be
changed from time to time by the OTS to an amount within a range of 4% to 10%
of such accounts and borrowings, depending upon economic conditions and the
deposit flows of savings associations. OTS regulations also require each
savings association to maintain, for each calendar month, an average daily
balance of short-term liquid assets (generally liquid assets having
maturities of 12 months or less) equal to at least 1% of the average daily
balance of its net withdrawable accounts plus short-term borrowings during
the preceding calendar month. Penalties may be imposed for failure to meet
liquidity ratio requirements. At December 31, 1996, WSB Aurora was in
compliance with OTS liquidity requirements.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves against
their transaction accounts (primarily NOW and regular checking accounts), as
follows: for accounts aggregating $49.3 million or less, the reserve
requirement is 3% of total transaction accounts; and for accounts aggregating
in excess of $49.3 million, the reserve requirement is $1.479 million plus
10% of the aggregate amount of total transaction accounts in excess of $49.3
million. The first $4.4 million of otherwise reservable balances are exempted
from the reserve requirements. These reserve requirements are subject to
annual adjustment by the FRB. Each of the Subsidiaries is in compliance with
the foregoing requirements. The balances used to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements
imposed on WSB Aurora by the OTS.
15
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the executive officers of the Company, along with a
brief description of the business experience of each such person, during the
past five years, and certain other information is set forth below:
<TABLE>
<CAPTION>
Name (Age) and Position
and Offices with the Company Principal Occupations and Employment
(year first elected to office) for Past Five Years and Other Information
- ----------------------------------------------------------------- -----------------------------------------------------
<S> <C>
Kevin J. Acker (47) Director and President of West Suburban Bank of
Chairman of the Board (1993) and Vice President (1986) Carol Stream/Stratford Square since 1982.
John A. Clark (48) Director and Executive Vice President of West
President and Chief Executive Officer Suburban Bank since 1984, Vice President Loans
(1986) for West Suburban Bank of Downers
Grove/Lombard, West Suburban Bank of Darien
and West Suburban Bank of Carol
Stream/Stratford Square since 1988. Director and
President of WSB Aurora from July, 1990 to
January, 1992 and Director and Executive Vice
President of WSB Aurora since January, 1992.
Keith W. Acker (47) Director, President and Chairman of the Board of
Chief Operating Officer (1996) West Suburban Bank since 1986.
Duane G. Debs (40) Vice President and Comptroller of the Bank
Chief Financial Officer, Vice President, Subsidiaries since 1987 and of WSB Aurora since
Secretary and Treasurer (1993) July, 1990. Director of West Suburban Bank of
Downers Grove/Lombard since January, 1993.
</TABLE>
16
<PAGE>
STATISTICAL DATA
The statistical data required by Securities and Exchange Act of 1934, as
amended (the "1934 Act") Industry Guide 3, "Statistical Disclosure By Bank
Holding Companies", has been incorporated by reference from the Company's
1996 Annual Report to Shareholders (attached as Exhibit 13.1 hereto) or is
set forth below. This data should be read in conjunction with the Company's
1996 Consolidated Financial Statements and related notes, and the discussion
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations as set forth in the Company's 1996 Annual Report to
Shareholders. All dollar amounts of the statistical data included below are
expressed in thousands.
Investment Securities
The following table sets forth by category the amortized cost of securities
at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Available For Sale:
Corporate $64,634 $69,731 $45,623
U.S. Government agencies and corporations 63,591 36,119 51,638
U. S. Treasury 16,151 16,291 16,427
States and political subdivisions 1,168 1,157 -
Equity securities 14,070 10,841 11,942
---------- ---------- ----------
Total investment securities available for sale 159,614 134,139 125,630
---------- ---------- ----------
Held To Maturity:
Corporate - - 30,645
U.S. Government agencies and corporations 130,250 83,237 55,783
States and political subdivisions 39,941 32,800 22,131
---------- ---------- ----------
Total investment securities held to maturity 170,191 116,037 108,559
---------- ---------- ----------
Total investment securities $329,805 $250,176 $234,189
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table sets forth by contractual maturity the amortized cost and
weighted average yield (not tax-effected) of investment securities available
for sale at December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
U.S. Government
Agencies and States and Political
Corporate Corporations U.S. Treasury Subdivisions
------------------- --------------------- ------------------- ------------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- -------- ---------- --------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year $17,773 7.53% $11,738 7.22% $4,019 5.50% $---- ----%
After 1 year but within 5 46,861 6.93 27,096 6.47 12,132 5.72 565 3.63
After 5 years but within 10 - - 24,662 6.48 - - 403 5.45
After 10 years - - 95 - - - 200 5.45
--------- -------- ---------- --------- --------- -------- ---------- --------
Total $64,634 7.10% $63,591 6.60% $16,151 5.67% $1,168 4.57%
--------- -------- ---------- --------- --------- -------- ---------- --------
--------- -------- ---------- --------- --------- -------- ---------- --------
</TABLE>
17
<PAGE>
The following table sets forth, by contractual maturity, the amortized cost
and weighted average yield of investment securities held to maturity at
December 31, 1996. Yields on tax-exempt securities represent actual coupon
yields (dollars in thousands):
<TABLE>
<CAPTION>
U.S. Government
Agencies and States and Political
Corporations Subdivisions
---------------------------- -------------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Within one year $9,662 6.98% $3,477 3.98%
After 1 year but within 5 108,695 6.43 13,864 4.19
After 5 years but within 10 11,893 6.91 8,770 4.50
After 10 years - - 13,830 6.11
-------------- ------------ -------------- -------------
Total $130,250 6.51% $39,941 4.91%
-------------- ------------ -------------- -------------
-------------- ------------ -------------- -------------
</TABLE>
Loan Portfolio
The following table sets forth the major loan categories at December 31
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Commercial $232,210 $200,986 $156,896 $177,054 $144,581
Installment 37,511 37,986 33,542 33,714 43,700
Real estate:
Mortgage 299,664 302,062 305,010 288,683 272,199
Home equity 124,805 120,802 120,373 115,910 121,918
Construction 73,432 81,787 72,990 47,442 42,321
Held for sale 1,043 1,523 449 4,543 3,527
VISA-credit card 17,951 19,034 21,342 22,601 27,138
Other 7,229 5,407 7,048 11,479 4,647
-------------- -------------- -------------- ------------- --------------
Total loans 793,845 769,587 717,650 701,426 660,031
Less:
Allowance for loan losses 9,603 8,900 8,445 7,125 8,024
-------------- -------------- -------------- ------------- --------------
Loans, net $784,242 $760,687 $709,205 $694,301 $652,007
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
</TABLE>
The following table sets forth the maturity and interest rate sensitivity of
selected loan categories at December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Remaining Maturity
------------------------------------------------------------------------------
One year One to Over
or less five years five years Total
--------------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Commercial $179,555 $- $52,655 $232,210
Real estate-construction 73,432 - - 73,432
--------------------- ----------------- ----------------- --------------
Total $252,987 $- $52,655 $305,642
--------------------- ----------------- ----------------- --------------
--------------------- ----------------- ----------------- --------------
Variable rate $- $- $-
Fixed rate - 52,655 52,655
----------------- ----------------- --------------
Total $- $52,655 $52,655
----------------- ----------------- --------------
----------------- ----------------- --------------
</TABLE>
18
<PAGE>
Nonperforming Loans
The following table sets forth the aggregate amount of nonperforming loans
and selected ratios at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,283 $1,478 $279 $3,234 $8,468
Restructured loans - - - 3,234 6,000
Accruing loans past due over 90 days 6,072 11,405 4,448 3,958 5,295
----------- ----------- ------------ ------------- -------------
Total nonperforming loans 8,355 12,883 4,727 10,426 19,763
Other real estate 2,757 8,317 10,458 9,954 4,584
----------- ----------- ------------ ------------- -------------
Total nonperforming assets $11,112 $21,200 $15,185 $20,380 $24,347
----------- ----------- ------------ ------------- -------------
----------- ----------- ------------ ------------- -------------
Ratio of nonperforming loans to
net loans 1.1% 1.7% .7% 1.5% 3.0%
----------- ----------- ------------ ------------- -------------
----------- ----------- ------------ ------------- -------------
Ratio of nonperforming assets to
total assets .9% 1.8% 1.5% 2.0% 2.4%
----------- ----------- ------------ ------------- -------------
----------- ----------- ------------ ------------- -------------
</TABLE>
The Company's policy is to discontinue accruing interest on a loan when it
becomes 90 days past due or when management believes, after considering
economic and business conditions and collection efforts, that the borrower's
financial condition is such that collection of principal or interest is
doubtful. In some circumstances a loan that is more than 90 days past due can
remain on accrual status if it can be established that payment will be
received within another 90 days or if it is adequately secured. When a loan
has been placed on nonaccrual status, interest that has been earned but not
collected is charged back to the appropriate interest income account. When
payments are received on nonaccrual loans they are first applied to
principal, then to expenses incurred for collection and finally to interest
income. The gross amount of interest that would have been recorded if all
nonperforming loans had been accruing interest at their original terms was
approximately $136 for the year ended December 31, 1996 and no interest
was recorded in operations for the year ended December 31, 1996.
As of December 31, 1996, due to information regarding possible credit
problems of borrowers or possible deficits in the cash flow of property given
as collateral, management had doubts as to the ability of certain borrowers
to comply with the present repayment terms of loans, which are not nonaccrual
and not nonperforming, with an aggregate principal amount of $8.7 million.
Accordingly, management may be required to categorize some or all of the
loans as nonperforming assets in the future.
The Company's impaired loans consisted of commercial loans totaling $17,755
at December 31, 1996 and $13,351 at December 31, 1995. Of these impaired
loans, $1,422 required a valuation allowance of $182 at December 31, 1996
compared to impaired loans of $2,522 with a valuation allowance of $408 at
December 31, 1995. The average outstanding balance of impaired loans was
approximately $17,120 and $10,043 for the years ended December 31, 1996 and
1995, respectively. The interest income recognized on impaired loans was
approximately $1,706 and $897 for the years ended December 31, 1996 and 1995,
respectively. The Company had no impaired real estate construction or
non-residential loans during 1996 or 1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reduces the level of gross loans outstanding by
an estimate of uncollectible loans. When management determines that loans are
uncollectible, they are charged-off against the allowance. Periodically, a
provision for loan losses is charged against current income. Management
attempts to maintain the allowance for loan losses at a level adequate to
absorb anticipated loan losses. The amount of the allowance is established
based upon past loan loss
19
<PAGE>
experience and other factors which, in management's judgment, deserve
consideration in estimating loan losses. Other factors considered by
management in this regard include growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans and economic conditions in the Company's market area. Based on such
reviews, management at this time does not anticipate any increase in
nonperforming assets that will have a significant effect on its operations
because the estimated exposure to losses has already been substantially
reflected in its allowance for loan losses. This could, however, change
dramatically if a significant decline in the real estate market area served
by the Company occurs.
The following table sets forth the activity in the allowance for loan losses
for the years ended and at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of period $8,900 $8,445 $7,125 $8,024 $6,489
Loans charged-off:
Commercial 484 914 302 5,862 1,697
Installment 87 47 162 245 516
Real estate mortgages 4 311 463 318 33
Home equity - 46 7 21 65
VISA - credit card 495 404 356 531 1,110
Other 27 7 2 50 14
------- ------- ------- ------- ------
Total loans charged-off 1,097 1,729 1,292 7,027 3,435
Loan recoveries:
Commercial 112 100 66 274 236
Installment 31 56 98 186 446
Real estate mortgages 6 8 5 8 -
Home equity 1 - - - -
VISA - credit card 142 169 227 318 365
Other 3 1 - 3 18
------- ------- ------- ------- -------
Total loan recoveries 295 334 396 789 1,065
------- ------- ------- ------- -------
Net loans charged-off 802 1,395 896 6,238 2,370
Provision for loan losses 1,505 1,850 2,216 5,339 3,905
------- ------- ------- ------- ------
Allowance for loan losses at end of period $9,603 $8,900 $8,445 $7,125 $8,024
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Allowance for loan losses to total loans 1.21% 1.16% 1.18% 1.02% 1.22%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net chargeoffs to average total loans .10% .19% .13% .96% .35%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
The entire allowance for loan losses is available to absorb losses in any
particular category of loans, notwithstanding management's allocation of the
allowance. The following table sets forth the allocation of allowance for
loan losses and the percentage of loans in each category to total loans at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $4,299 38.5% $4,403 36.7% $3,714 32.0% $3,312 24.8% $4,406 21.9%
Installment and other 392 5.6 385 5.6 331 5.7 369 6.5 492 7.3
Real estate 1,895 37.9 1,877 39.4 576 42.5 1,273 48.9 1,113 48.2
Home equity 312 15.7 302 15.7 301 16.8 290 16.6 305 18.5
VISA - credit card 493 2.3 523 2.6 664 3.0 626 3.2 676 4.1
Unallocated 2,212 - 1,410 - 2,859 - 1,255 - 1,032 -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total $9,603 100.0% $8,900 100.0% $8,445 100.0% $7,125 100.0% $8,024 100.0%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
20
<PAGE>
Deposits
The following table sets forth by category average daily deposits and rates
for the years ended December 31 (dollars in thousands):
1996 1995 1994
----------------- ---------------- ----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ------ --------- ------ --------- ------
Demand and other
noninterest-
bearing $103,448 --- $100,299 --- $96,428 --
NOW accounts and
savings
deposits 524,669 2.9% 498,191 3.4% 486,863 2.6%
Time deposits:
Less than
$100,000 334,177 5.7 308,039 5.6 275,693 4.6
$100,000 and
over 63,079 5.8 49,427 5.8 37,849 4.7
----------- ----- --------- ----- --------- ---
Total $1,025,373 3.7% $ 955,926 3.9% $ 896,833 3.0%
----------- ----- --------- ----- --------- ---
----------- ----- --------- ----- --------- ---
The following table sets forth by maturity time deposits $100 and over at
December 31 (dollars in thousands):
1996
---------
Within 3 months $47,464
After 3 months but within 12 months 23,195
After 1 year but within 5 years --
After 5 years 15,684
---------
Total $86,343
---------
---------
Return on Equity and Assets and Other Financial Ratios
The following table sets forth selected financial ratios at and for the years
ended December 31:
1996 1995 1994
-------- ------- -------
Return on average total
assets 1.38% 1.27% 1.29%
Return on average
shareholders' equity 13.93 13.03 13.29
Cash dividends declared to
net income 42.73 47.16 44.10
Average shareholders' equity
to average total assets 9.90 9.71 9.67
21
<PAGE>
ITEM 2. PROPERTIES
The Company and the Subsidiaries occupy a total of approximately 223,000
square feet in 32 locations. The Company's principal offices are located in
approximately 32,500 square feet of office space at 711 South Meyers Road,
Lombard, Illinois. As indicated below, West Suburban Bank also operates the
facility located at 711 South Meyers Road, Lombard, Illinois as a branch.
The following table sets forth certain information concerning the facilities
of the Subsidiaries:
Location of Approximate
Name of Subsidiary Facilities Square Feet Status
- --------------------- ------------------- ------------ --------
West Suburban Bank 711 S. Meyers Rd. 32,500 Owned
Lombard, IL
West Suburban Bank 701 S. Meyers Rd. 5,200 Owned
Lombard, IL
West Suburban Bank 717 S. Meyers Rd. 7,100 Owned
Lombard, IL
West Suburban Bank 100 S. Main St. 325 Owned
Lombard, IL
West Suburban Bank Mr. Z's 100 Lease
401 S. Main St. expires
Lombard, IL 1998
West Suburban Bank 707 N. Main St. 4,100 Owned
Lombard, IL
West Suburban Bank 29 E. St. Charles Rd. 3,200 Lease
Villa Park, IL expires
2000
West Suburban Bank 17 W. 754 22nd St. 6,100 Owned
Oakbrook, IL
West Suburban Bank Lexington Square 100 Lease
400 W. Butterfield Rd. expires
Elmhurst, IL 1998
West Suburban Bank 2200 Feldot Ln. 4,430 Owned
Naperville, IL
West Suburban Bank 879 Geneva Rd. 3,550 Lease
Carol Stream, IL expires
2003
West Suburban Bank 6400 S. Cass Ave. 3,090 Lease
Westmont, IL expires
2000
22
<PAGE>
Location of Approximate
Name of Subsidiary Facilities Square Feet Status
- --------------------- ------------------- ------------ --------
West Suburban Bank 221 S. West St. 800 Owned
Wheaton, IL
West Suburban Bank 1104 W. Boughton Rd. 4,500 Owned
Bolingbrook, IL
West Suburban Bank 295 W. Loop Rd. 4,500 Owned
Wheaton, IL
West Suburban Bank 2800 S. Finley Rd. 10,700 Owned
of Downers Grove/ Downers Grove, IL
Lombard
West Suburban Bank Route 59 and 1,800 Lease
of Downers Grove/ Meadow Ave. expires
Lombard Warrenville, IL 1999
West Suburban Bank Beacon Hill 100 Month
of Downers Grove/ 2400 S. Finley Rd. to month
Lombard Lombard, IL
West Suburban Bank Lexington Square 100 Lease
of Downers Grove/ 555 Foxworth Blvd. expires
Lombard Lombard, IL 1997
West Suburban Bank 100 S. Main St. 325 Owned
of Downers Grove/ Lombard, IL
Lombard
West Suburban Bank 1122 S. Main St. 6,400 Owned
of Downers Grove/ Lombard, IL
Lombard
West Suburban Bank 8001 S. Cass Ave. 17,800 Owned
of Darien Darien, IL
West Suburban Bank 1005 75th St. 800 Owned
of Darien Darien, IL
West Suburban Bank 672 E. Boughton Rd. 7,100 Owned
of Darien Bolingbrook, IL
West Suburban Bank 355 W. Army Trail Rd. 10,700 Owned
of Carol Stream/ Bloomingdale, IL
Stratford Square
West Suburban Bank 401 N. Gary Ave. 6,400 Owned
of Carol Stream/ Carol Stream, IL
Stratford Square
23
<PAGE>
Location of Approximate
Name of Subsidiary Facilities Square Feet Status
- --------------------- ------------------- ------------ --------
West Suburban Bank 1380 Army Trail Rd. 2,300 Lease
of Carol Stream/ Carol Stream, IL expires
Stratford Square 2000
West Suburban Bank 1657 Bloomingdale Rd. 4,100 Owned
of Carol Stream/ Glendale Heights, IL
Stratford Square
West Suburban Bank 1061 W. Stearns Rd. 3,400 Owned
of Carol Stream/ Bartlett, IL
Stratford Square
West Suburban Bank 315 S. Randall Rd. 1,400 Owned
of Carol Stream/ St. Charles, IL
Stratford Square
West Suburban Bank 101 N. Lake St. 19,000 Owned
of Aurora, F.S.B. Aurora, IL
West Suburban Bank 2000 W. Galena Blvd. 48,000 Owned
of Aurora, F.S.B Aurora, IL
West Suburban Bank 1830 Douglas St. 2,500 Owned
of Aurora, F.S.B. Montgomery, IL
24
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or the
Subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
25
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's authorized and outstanding equity securities consist of Class A
Common Stock, no par value, and Class B Common Stock, no par value. Except as
required by law, rights and privileges of the holders of the Class A Common
Stock and Class B Common Stock are identical.
The Company's per share book value as of the end of each quarter and dividend
information for each quarter is set forth in the following table:
<TABLE>
<CAPTION>
Class A and Class B
-----------------------------------
Year Quarter Book Value Dividends Declared
---- ------- ---------- -------------------
<S> <C> <C> <C>
1996 4th $ 273.62 $4.00
3rd 266.00 4.00
2nd 265.31 4.00
1st 258.36 4.00
1995 4th $254.73 $3.75
3rd 246.47 3.75
2nd 242.69 3.75
1st 237.68 3.75
</TABLE>
The Company's common stock is not traded on any national or regional exchange.
While there is no established trading market for the Company's common stock,
the Company is aware that from time to time limited or infrequent quotations
are made with respect to the Company's common stock and that there occurs
limited trading in the Company's common stock resulting from private
transactions not involving brokers or dealers. Transactions in the Company's
common stock have been infrequent. As of March 15, 1997, the Company had
347,015 shares of Class A Common Stock outstanding and approximately 908
shareholders of record, and had 85,480 shares of Class B Common Stock
outstanding and approximately 218 shareholders of record. Management is aware
of approximately 41 transactions during 1996 involving the sale of
approximately 4,196 shares of Class A Common Stock and approximately 2
transactions during 1996 involving the sale of approximately 17 shares of Class
B Common Stock. The average sale price in such transactions was approximately
$296.42.
ITEM 6. SELECTED FINANCIAL DATA
The Company hereby incorporates by reference the information called for by Item
6 of this Form 10-K from the section entitled "Selected Financial Data" of the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1996 (attached as Exhibit 13.1 hereto).
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company hereby incorporates by reference the information called for by Item
7 of this Form 10-K from the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1996
(attached as Exhibit 13.1 hereto).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company hereby incorporates by reference the information called for by Item
8 of this Form 10-K from the Consolidated Financial Statements and from the
section entitled "Selected Quarterly Financial Data" as set forth in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1996 (attached as Exhibit 13.1 hereto).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
None.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference the information called for by Item
10 of this Form 10-K regarding directors of the Company from the section
entitled "Election of Directors" of the Company's 1997 Proxy Statement.
Section 16(a) of the 1934 Act requires that the Company's executive officers
and directors and persons who own more than 10% of their Company's Common Stock
file reports of ownership and changes in ownership with the Securities and
Exchange Commission and with the exchange on which the Company's shares of
common stock are traded. Such persons are also required to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on the Company's
review of the copies of such forms furnished to the Company and, if
appropriate, representations made to the Company by any such reporting person
concerning whether a Form 5 was required to be filed for the 1996 fiscal year,
the Company is not aware that any of its directors and executive officers or
10% shareholders failed to comply with the filing requirements of Section 16(a)
during the period commencing January 1, 1996 through December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information called for by Item
11 of this Form 10-K from the section entitled "Executive Compensation" of the
Company's 1997 Proxy Statement; provided, however, Report of the Board of
Directors on Executive Compensation is specifically not incorporated into this
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information called for by Item
12 of this Form 10-K from the section entitled "Security Ownership of Certain
Beneficial Owners" of the Company's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information called for by Item
13 of this Form 10-K from the section entitled "Transactions with Directors,
Officers and Associates" of the Company's 1997 Proxy Statement.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM (A)1 AND 2. FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following audited Consolidated Financial Statements of the Company and its
subsidiaries and related notes and independent auditors' report are
incorporated by reference from the Company's Annual Report to Shareholders for
the fiscal year ended December 31, 1996 (attached as Exhibit 13.1 hereto).
<TABLE>
<CAPTION> Annual Report
Page No.
--------------
<S> <C>
Report of Independent Auditors 5
Consolidated Balance Sheets - December 31, 1996 and 1995 6
Consolidated Statements of Income - Years Ended
December 31, 1996, 1995 and 1994 7
Consolidated Statements of Changes in Shareholders'
Equity - Years Ended December 31, 1996, 1995 and 1994 8
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, 1995 and 1994 9
Notes to Consolidated Financial Statements 11
</TABLE>
The following Condensed Financial Information-Parent Only is incorporated by
reference from Note 16 to the Company's audited Consolidated Financial
Statements as set forth in the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 (attached as Exhibit 13.1).
<TABLE>
<CAPTION>
Annual Report
Page No.
---------------
<S> <C>
Condensed Balance Sheets - December 31, 1996 and 1995 22
Condensed Statements of Income - Years Ended
December 31, 1996, 1995 and 1994 22
Condensed Statements of Cash Flows - Years Ended
December 31, 1996, 1995 and 1994 22
</TABLE>
SCHEDULES
- ---------
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable or the required information is shown in
the financial statements incorporated by reference or notes thereto.
29
<PAGE>
ITEM 14(a)3. EXHIBITS
The exhibits required by Item 601 of Regulation S-K are included with this Form
10-K and are listed on the "Index to Exhibits" immediately following the
signature page.
ITEM 14(b). REPORTS ON FORM 8-K
None
***
Upon written request to the Chief Financial Officer of West Suburban Bancorp,
Inc., 711 South Meyers Road, Lombard, Illinois, 60148, copies of the exhibits
listed above are available to shareholders of the Company by specifically
identifying each exhibit desired in the request. A fee of $.20 per page of
exhibit will be charged to shareholders requesting copies of exhibits to cover
copying and mailing costs.
30
<PAGE>
FORM 10-K SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ John A. Clark
--------------------------------
John A. Clark
Chief Executive Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 28th day of March, 1997.
SIGNATURE TITLE
/s/ Kevin J. Acker 3/28/97
- -------------------------- ------------ Chairman of the Board and
Kevin J. Acker Date Director
/s/ John A. Clark 3/28/97
- -------------------------- ------------ Chief Executive Officer
John A. Clark Date and Director
/s/ Duane G. Debs 3/28/97
- -------------------------- ------------ Chief Financial Officer
Duane G. Debs Date and Chief Accounting
Officer
/s/ David Bell 3/28/97
- -------------------------- ------------ Director
David Bell Date
/s/ Peggy P. LoCicero 3/28/97
- -------------------------- ------------ Director
Peggy P. LoCicero Date
/s/ Charles P. Howard 3/28/97
- -------------------------- ------------ Director
Charles P. Howard Date
The foregoing includes all of the Board of Directors of the Company.
31
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page No.
- ------- ----------- -----------
3.1 Articles of Incorporation - Incorporated by reference N/A
from Exhibit 3.1 of Form S-1 of the Company dated
November 10, 1988, under Registration No. 33-25225
3.2 Form of Certificate of Amendment to Articles of N/A
Incorporation - Incorporated by reference from
Exhibit 3.2 of Form S-1 of the Company dated November
10, 1988, under Registration No. 33-25225
3.3 Certificate of Amendment to Articles of Incorporation N/A
dated May 10, 1990 - Incorporated by reference from
Exhibit 3.3 of the Form 10-K of the Company dated March
28, 1991, Commission File No. 0-17609
3.4 By-Laws - Incorporated by reference from Exhibit 3.3 of N/A
Form S-1 of the Company dated November 10, 1988,
Registration No. 33-25225
4.1 Specimen of Class A Common Stock certificate - N/A
Incorporated by reference from Exhibit 4.1 of the
Form 10-K of the Company dated March 28, 1991,
Commission File No. 0-17609
4.2 Specimen of Class B Common Stock certificate - N/A
Incorporated by reference from Exhibit 4.1 of the Form
S-1 of the Company dated November 10, 1988, Registration
No. 33-25225
4.3 Articles of Incorporation of the Company N/A
(see Exhibits 3.1, 3.2, 3.3 and 3.4 above)
4.4 By-Laws of the Company (see Exhibit 3.4 above) N/A
32
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit Sequential
Number Description Page No.
- ------- ----------- -----------
10.1 Employment Agreement between one of the N/A
Company's subsidiaries and Ralph Acker, dated
December 31, 1985 - Incorporated by reference from
Exhibit 10.1 of Form S-1 of the Company dated November
10, 1988, Registration No. 33-25225
10.2 Employment Agreement between one of the N/A
Company's subsidiaries and John A. Clark, dated May
10, 1989 - Incorporated by reference from Exhibit 10.2
of Form 10-K of the Company dated March 28, 1990,
Commission File No. 0-17609
10.3 Employment Agreement between one of the N/A
Company's subsidiaries and Keith W. Acker, dated
November 10, 1989 - Incorporated by reference from
Exhibit 10.3 of Form 10-K of the Company dated March
28, 1990, Commission File No. 0-17609
10.4 Employment Agreement between one of the N/A
Company's subsidiaries and Alana S. Acker, dated May
9, 1989 - Incorporated by reference to Exhibit 10.5 of
Form 10-K of the Company dated March 28, 1990,
Commission File No. 0-17609
10.5 Employment Agreement between one of the N/A
Company's subsidiaries and Kevin J. Acker, dated May
9, 1989 - Incorporated by reference from Exhibit 10.6
of Form 10-K of the Company dated March 28, 1990,
Commission File No. 0-17609
10.6 Employment Agreement between one of the N/A
Company's subsidiaries and Gregory Ruffolo, dated
May 9, 1989 - Incorporated by reference from Exhibit
10.7 of Form 10-K of the Company dated March 28, 1990,
Commission File No. 0-17609
33
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit Sequential
Number Description Page No.
- ------- ----------- -----------
10.7 Employment Agreement between one of the N/A
Company's subsidiaries and Michael P. Brosnahan,
dated May 10, 1989 - Incorporated by reference from
Exhibit 10.8 of Form 10-K of the Company dated March
28, 1990, Commission File No. 0-17609
10.8 Employment Agreement between one of the N/A
Company's subsidiaries and Gregory L. Young, dated
November 14, 1990 - Incorporated by reference from
Exhibit 10.9 of Form 10-K of the Company dated March
28, 1991, Commission File No. 0-17609
10.9 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and John A. Clark, dated
November 14, 1990 - Incorporated by reference from
Exhibit 10.10 of Form 10-K of the Company dated
March 28, 1991, Commission File No. 0-17609
10.10 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Keith W. Acker, dated
November 14, 1990 - Incorporated by reference from
Exhibit 10.11 of Form 10-K of the Company dated March
28, 1991, Commission File No. 0-17609
10.11 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Michael P. Brosnahan,
dated November 14, 1990 - Incorporated by reference
from Exhibit 10.13 of Form 10-K of the Company dated
March 28, 1991, Commission File No. 0-17609
34
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit Sequential
Number Description Page No.
- ------- ----------- -----------
10.12 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Gregory L. Young,
dated November 14, 1990 - Incorporated by reference
from Exhibit 10.14 of Form 10-K of the Company dated
March 28, 1991, Commission File No. 0-17609
10.13 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Alana S. Acker, dated
November 13, 1990 - Incorporated by reference from
Exhibit 10.15 of Form 10-K of the Company dated March
28, 1991, Commission File No. 0-17609
10.14 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Gregory M. Ruffolo,
dated November 13, 1990 - Incorporated by reference
from Exhibit 10.16 of Form 10-K of the Company dated
March 28, 1991, Commission File No. 0-17609
10.15 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Kevin J. Acker, dated
November 13, 1990 - Incorporated by reference from
Exhibit 10.17 of Form 10-K of the Company dated March
28, 1991, Commission File No. 0-17609
10.16 Employment Agreement between one of the Company's N/A
subsidiaries and Stanley C. Celner, Jr., dated December
10, 1991 - Incorporated by reference from Exhibit 10.18
of Form 10-K of the Company dated March 28, 1992,
Commission File No. 0-17609
35
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
10.17 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Stanley C. Celner,
Jr., dated December 10, 1991 - Incorporated by
reference from Exhibit 10.19 of Form 10-K of the
Company dated March 28, 1992, Commission File
No. 0-17609
10.18 Employment Agreement between one of the Company's N/A
subsidiaries and Duane G. Debs, dated as of March 8,
1993 - Incorporated by reference from Exhibit 10.20 of
Form 10-K of the Company dated March 28, 1994,
Commission File No. 0-17609
10.19 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Duane G. Debs, dated
as of March 8, 1993 - Incorporated by reference from
Exhibit 10.21 of Form 10-K of the Company dated March
28, 1994, Commission File No. 0-17609
10.20 Employment Agreement between one of the Company's N/A
subsidiaries and Jacqueline R. Weigand, dated as of
March 8, 1993 - Incorporated by reference from Exhibit
10.22 of Form 10-K of the Company dated March 28,
1994, Commission File No. 0-17609
10.21 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Jacqueline R.
Weigand, dated as of March 8, 1993 - Incorporated by
reference from Exhibit 10.23 of Form 10-K of the
Company dated March 28, 1994, Commission File No.
0-17609
10.22 Employment Agreement between one of the Company's N/A
subsidiaries and Timothy P. Dineen, dated as of
March 8, 1993 - Incorporated by reference from Exhibit
10.24 of Form 10-K of the Company dated March 28,
1994, Commission File No. 0-17609
36
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
10.23 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and Timothy P. Dineen,
dated as of March 8, 1993 - Incorporated by reference
from Exhibit 10.25 of Form 10-K of the Company dated
March 28, 1994, Commission File No. 0-17609
10.24 Employment Agreement between one of the Company's N/A
subsidiaries and Steven A. Jennrich, dated as of
January 12, 1994 - Incorporated by reference from
Exhibit 10.28 of Form 10-K of the Company dated
March 28, 1995, Commission File No. 0-17609
10.25 Deferred Compensation Agreement between one of the N/A
Company's subsidiaries and Steven A. Jennrich, dated
as of January 12, 1994 - Incorporated by reference from
Exhibit 10.29 of Form 10-K of the Company dated
March 28, 1995, Commission File No. 0-17609
10.26 Amended Employment Agreement between one of the N/A
Company's subsidiaries and Jacqueline R. Weigand,
dated as of August 9, 1994 - Incorporated by reference
from Exhibit 10.30 of Form 10-K of the Company dated
March 28, 1995, Commission File No. 0-17609
10.27 Amended Employment Agreement between one of the N/A
Company's subsidiaries and Timothy P. Dineen, dated
as of August 9, 1994 - Incorporated by reference from
Exhibit 10.31 of Form 10-K of the Company dated
March 28, 1995, Commission File No. 0-17609
10.28 Employment Agreement between one of the N/A
Company's subsidiaries and George E. Ranstead,
dated as of November 9, 1994 - Incorporated by
reference from Exhibit 10.32 of Form 10-K of the
Company dated March 28, 1995, Commission File
No. 0-17609
37
<PAGE>
INDEX TO EXHIBITS
(continued)
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
10.29 Deferred Compensation Agreement between one N/A
Company's subsidiaries and George E. Ranstead,
dated as of November 9, 1994 - Incorporated by
reference from Exhibit 10.33 of Form 10-K of the
Company dated March 28, 1995, Commission File
No. 0-17609
10.30 Employment Agreement between one of the N/A
Company's subsidiaries and David S. Orr, dated as
of November 9, 1994 - Incorporated by reference
from Exhibit 10.34 of Form 10-K of the Company
dated March 28, 1995, Commission File No. 0-17609
10.31 Deferred Compensation Agreement between one of N/A
the Company's subsidiaries and David S. Orr,
dated as of November 9, 1994 - Incorporated by
reference from Exhibit 10.35 of Form 10-K of the
Company dated March 28, 1995, Commission File
No. 0-17609
10.32 Employment Compensation Agreement Amendment N/A
between the Company's Subsidiaries and John Clark,
Kevin Acker, Keith Acker and Alana Acker,- Incorporated
by reference from Exhibit 10.36 of Form 10-K of the
Company dated March 28, 1996, Commission File
No. 0-17609.
10.33 Employment Compensation Agreement Amendment N/A
between the Company's subsidiaries and the
Company's other contract employees except for John
Clark, Kevin Acker, Keith Acker and
Alana Acker, - Incorporated by reference from Exhibit
10.37 of Form 10-K of the Company dated March
28, 1996, Commission File No. 0-17609.
13.1 Annual Report to Shareholders of the 39
Company for fiscal year ended December 31, 1996
21.1 Subsidiaries of Registrant 79
27 Financial Data Schedule 80
38
<PAGE>
<PAGE>
PROFILE
West Suburban Bancorp, Inc. (the "Parent"), a bank and thrift holding company,
is the parent company of the following (the "Subsidiaries", and together with
the Parent, the "Company" or "West Suburban"): West Suburban Bank, Lombard,
Illinois; West Suburban Bank of Downers Grove/Lombard, Downers Grove, Illinois;
West Suburban Bank of Darien, Darien, Illinois; West Suburban Bank of Carol
Stream/Stratford Square, Bloomingdale, Illinois; and West Suburban Bank of
Aurora, F.S.B., Aurora, Illinois ("WSB Aurora"). The Company had total
consolidated assets at December 31, 1996 of approximately $1.24 billion.
WEST SUBURBAN BANCORP, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share data)
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income $15,942 $13,525 $13,026 $11,824 $11,996
Per share data
Net income fully diluted 36.86 31.27 30.12 27.72 28.74
Book value 273.62 254.73 226.53 221.56 209.31
Net loans 784,242 760,687 709,205 694,301 652,007
Total assets 1,235,604 1,154,349 1,041,495 999,878 1,000,200
Deposits 1,099,397 1,029,789 923,257 883,464 877,923
Shareholders' equity 118,338 110,168 97,971 95,822 84,444
TABLE OF CONTENTS
Profile........................................1 Distribution of Assets and Net Interest
Letter to Our Shareholders, Income and Average Rates
Customers and Friends........................2 and Yields on a Tax Equivalent Basis..........24
Corporate Information..........................3 Management's Discussion
Business Review................................3 and Analysis of Financial
Selected Quarterly Financial Data..............3 Condition and Results of Operations...........26
Review of Operations...........................4 Boards of Directors............................35
Independent Auditors' Report...................5 Officers.......................................36
Consolidated Financial Statements..............6 Addresses of Locations.........................38
Notes to Consolidated Financial Statements....11 Map of Locations...............................39
Selected Financial Data.......................23 Shareholder Information........................40
</TABLE>
THIS REPORT, INCLUDING THE CHAIRMAN'S LETTER, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY INTENDS SUCH FORWARD-LOOKING
STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING
STATEMENTS CONTAINED IN THE PRIVATE SECURITIES REFORM ACT OF 1995, AND IS
INCLUDING THIS STATEMENT FOR PURPOSES OF INDICATING SUCH INTENT.
FORWARD-LOOKING STATEMENTS WHICH ARE BASED ON CERTAIN ASSUMPTIONS AND
DESCRIBE FUTURE PLANS, STRATEGIES AND EXPECTATIONS OF THE COMPANY, ARE
GENERALLY IDENTIFIABLE BY USE OF THE WORDS "BELIEVE", "EXPECT", "INTEND",
"ANTICIPATE", "ESTIMATE", "PROJECT" OR SIMILAR EXPRESSIONS. THE COMPANY'S
ABILITY TO PREDICT RESULTS OR THE ACTUAL EFFECT OF FUTURE PLANS OR STRATEGIES
IS INHERENTLY UNCERTAIN. FACTORS WHICH COULD HAVE A MATERIAL ADVERSE AFFECT ON
THE OPERATIONS AND FUTURE PROSPECTS OF THE PARENT AND THE SUBSIDIARIES
INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN INTEREST RATES, GENERAL ECONOMIC
CONDITIONS, LEGISLATIVE/REGULATORY CHANGES, MONETARY AND FISCAL POLICIES OF
THE U.S. GOVERNMENT, INCLUDING POLICIES OF THE U.S. TREASURY AND THE FEDERAL
RESERVE BOARD, THE QUALITY OR COMPOSITION OF THE LOAN OR INVESTMENT
PORTFOLIOS, DEMAND FOR LOAN PRODUCTS, DEPOSIT FLOWS, COMPETITION, DEMAND FOR
FINANCIAL SERVICES IN THE COMPANY'S MARKET AREA AND ACCOUNTING PRINCIPLES,
POLICIES AND GUIDELINES. THESE RISKS AND UNCERTAINTIES SHOULD BE CONSIDERED
IN EVALUATING FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE SHOULD NOT BE
PLACED ON SUCH STATEMENTS. FURTHER INFORMATION CONCERNING THE COMPANY AND ITS
BUSINESS, INCLUDING ADDITIONAL FACTORS THAT COULD MATERIALLY AFFECT THE
COMPANY'S FINANCIAL RESULTS, IS INCLUDED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
1
<PAGE>
TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS:
West Suburban looks forward to 1997 with great enthusiasm and pride as we
celebrate our 35th anniversary. We hope that our shareholders, customers, and
friends join in our excitement. As consolidation in the banking industry
continues and community banks throughout our market area continue to be
absorbed by larger institutions, West Suburban remains committed to
maintaining its independence and to providing its customers with superior
service, innovative products and local decision making.
While we are committed to maintaining many aspects of our organization and
operations, as the banking industry changes, West Suburban continues to adapt
in order to remain competitive. In this regard, we plan to consolidate our
four banks and our thrift into one bank that will operate under the name "West
Suburban Bank". This consolidation will create efficiencies which will allow
us to continue to compete successfully with other financial institutions and
will reduce certain regulatory burdens.
In 1996, our assets grew by $81.3 million (7.0%) from $1,154.3 million at
year end 1995 to $1,235.6 million. Our net income increased by $2.4 million
(17.9%) from $13.5 million for the year ended December 31, 1995 to $15.9
million in 1996. Our assets and net income both represent record levels. West
Suburban increased its return on average assets in 1996 to 1.38% from 1.27%
for the year ending December 31, 1995. During 1996, our per share book value
increased by $18.89 (7.4%) to $273.62 from $254.73 at year end 1995 and the
dividends paid to our shareholders increased to $15.75 from $14.75 in 1995.
Additionally, in June of 1996, we opened our first banking facility in
Naperville. We welcome Naperville into the communities that we serve.
We are proud of our many accomplishments during our first 35 years. We look
forward to the challenges of offering innovative products and increased
locations in the upcoming years as we hope to be your bank now and in the
future.
While we are excited about the future, we would like to announce, with
regret, the resignation of John A. Clark, President and Chief Executive
Officer. John joined West Suburban in 1980. His efforts and leadership
contributed in a significant manner to the growth and profitability of West
Suburban. We thank John for his significant contributions and wish him well
in his future endeavors.
As always, we appreciate your continued support and welcome your comments,
criticisms and suggestions. We could not have achieved our accomplishments of
the past 35 years without the support of our shareholders, customers,
communities, friends and employees. Thank you everyone.
Sincerely,
Kevin J. Acker
Chairman of the Board
2
<PAGE>
CORPORATE INFORMATION
The Company is a multi-bank and thrift holding company for four banks
headquartered in DuPage County, Illinois and WSB Aurora, a federally charted
thrift headquartered in Aurora, Illinois.
The Company has two classes of common stock issued and outstanding and, in
accordance with the terms of its articles of incorporation and bylaws, the
Company treats both classes equally for all purposes including book value and
dividend purposes. The shares of the Company's common stock are not traded on
any stock exchange or on the over-the-counter market. The Company's per share
book value as of the end of the indicated periods and dividends declared for
the last two years are set forth in the following table:
YEAR QUARTER BOOK VALUE DIVIDENDS DECLARED
1996 4TH $273.62 $4.00
3RD 266.00 4.00
2ND 265.31 4.00
1ST 258.36 4.00
1995 4th $254.73 $3.75
3rd 246.47 3.75
2nd 242.69 3.75
1st 237.68 3.75
BUSINESS REVIEW
The Subsidiaries ranged in size from total assets at December 31, 1996 of
$148 million to $487 million. As of December 31, 1996, the Subsidiaries
operated 32 facilities throughout DuPage, Kane, Kendall and Will Counties,
with their business activities focusing primarily on the retail and
commercial banking markets. The Company had a total of 533 full-time
equivalent employees at December 31, 1996.
SELECTED QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(Dollars in thousands, except per share data)
1996
INTEREST INCOME $22,021 $21,378 $21,782 $23,377
NET INTEREST INCOME 12,774 12,480 12,193 12,752
PROVISION FOR LOAN LOSSES 458 338 388 321
OTHER OPERATING INCOME 2,276 3,187 2,155 2,278
OTHER OPERATING EXPENSE 7,674 6,982 11,616 7,878
NET INCOME 4,583 5,274 1,640 4,445
NET INCOME PER SHARE 10.60 12.19 3.79 10.28
1995
Interest income $19,192 $21,020 $21,376 $21,840
Net interest income 10,969 11,466 11,598 11,981
Provision for loan losses 463 462 463 462
Other operating income 1,789 1,983 1,811 2,241
Other operating expense 7,322 7,180 8,122 7,568
Net income 2,967 3,428 3,238 3,892
Net income per share 6.86 7.92 7.49 9.00
3
<PAGE>
REVIEW OF OPERATIONS
In 1996, West Suburban was presented with a number of opportunities and
challenges. We believe that our abundance of innovative products and quality
services, as well as our commitment to profitable growth have allowed us to
meet these challenges successfully. We continued to expand into new markets
by opening our first facility in Naperville at 2020 Feldott Lane in June.
Over the past year, West Suburban continued to develop new and innovative
products that serve the varied needs of our customers. In March, we
introduced our Master Equity Line. This new home equity product features a
traditional line of credit that allows customers to "carve out" fully
amortizing installment loans with competitive interest rates. By combining
the best features of a line of credit (check writing capability and interest
only payments) with the advantages of a fully amortizing loan (regular
principal reduction and fixed rates), our Master Equity Line appeals to a
broad range of customers.
On the deposit side, we maintained our emphasis on providing customers
flexible deposit products that would allow our customers to maximize yields.
We continued to promote our 5-Year Look-In Certificate of Deposit, a product
that guarantees a high 5-year rate while allowing customers an annual "look-in"
on the certificate of deposit's anniversary when they may withdraw any or all
of their deposit without penalty. In February, we introduced our 4-Year
Maximum Yield Certificate of Deposit to give our customers another
high-yielding option for their savings. This certificate of deposit has an
initial annual percentage yield that matches our 5-Year Look-In Certificate
of Deposit - the highest standard yield that we offer. We believe it is
important to offer products like the 5-Year Look-In Certificate of Deposit
and the 4-Year Maximum Yield Certificate of Deposit to provide customers with
a competitive alternative to nonbank investments.
In addition to these new certificates of deposit, we also offered a number of
short-to-medium term promotional certificates of deposit, including a 7%
7-Month Certificate of Deposit that coincided with our Naperville grand
opening, as well as a 6.5% 15-Month Certificate of Deposit offered during
September. Aggressively priced certificates of deposit like these have
allowed us to attract funds and new customers even as money has been moving
out of banks and into mutual funds at a record pace. We remain committed to
retaining these funds and expanding our relationships with our existing
customers.
These product introductions, along with existing products and services,
reflect our dedication to meeting the needs of our customers. At West
Suburban, we believe our responsibility extends beyond our customer base and
into the communities we serve. As in the past, we have expressed this at the
institutional and individual levels.
West Suburban welcomes the challenges and opportunities that 1997 presents.
We continue to streamline operations to create greater efficiencies and we
will aggressively pursue new customers and new relationships with our
existing customers. We anticipate that our innovative financial thinking and
our dedication to serving our customers and shareholders will lead to
continued success in the years ahead.
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Suburban Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of West Suburban
Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of West Suburban
Bancorp, Inc. and subsidiaries at December 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELIOTTE & TOUCHE LLP
January 30, 1997
5
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in thousands)
ASSETS
1996 1995
----------- -----------
Cash and due from banks $38,520 $50,094
Interest-bearing deposits in financial institutions 240 141
Federal funds sold 29,890 38,110
----------- -----------
Total cash and cash equivalents 68,650 88,345
Investment securities:
Available for sale (amortized cost of $159,614 in
1996; $134,139 in 1995) 158,578 134,519
Held to maturity (fair value of $170,202 in
1996; $116,199 in 1995) 170,191 116,037
Loans, less allowance for loan losses of $9,603 in
1996; $8,900 in 1995 784,242 760,687
Premises and equipment, net 30,130 29,206
Other real estate 2,757 8,317
Accrued interest and other assets 21,056 17,238
----------- -----------
TOTAL ASSETS $1,235,604 $1,154,349
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $102,583 $104,821
Interest-bearing 996,814 924,968
----------- -----------
Total Deposits 1,099,397 1,029,789
FHLB advances 1,350
Accrued interest and other liabilities 16,519 14,392
----------- -----------
TOTAL LIABILITIES 1,117,266 1,044,181
----------- -----------
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 77,439 68,416
Unrealized (loss) gain on securities available
for sale, net of taxes (benefit) of ($412) in
1996; $151 in 1995 (624) 229
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 118,338 110,168
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,235,604 $1,154,349
----------- -----------
----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands, except per share data)
1996 1995 1994
---------- --------- ---------
INTEREST INCOME
Loans, including fees $70,759 $67,381 $53,570
---------- --------- ---------
Investment securities:
Taxable 13,859 12,801 13,572
Nontaxable 2,084 1,290 1,194
---------- --------- ---------
Total investment securities 15,943 14,091 14,766
Deposits in financial institutions 16 7 33
Federal funds sold 1,840 1,949 743
---------- --------- ---------
Total interest income 88,558 83,428 69,112
---------- --------- ---------
INTEREST EXPENSE
Deposits 37,787 36,988 27,093
Other 572 426 338
---------- --------- ---------
Total interest expense 38,359 37,414 27,431
---------- --------- ---------
Net interest income 50,199 46,014 41,681
PROVISION FOR LOAN LOSSES 1,505 1,850 2,216
---------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 48,694 44,164 39,465
---------- --------- ---------
OTHER OPERATING INCOME
Service fees 3,746 3,529 3,496
Trust fees 157 243 280
Gain on sales of loans 151 110 213
Loan servicing 899 941 876
Net realized gain on sales of investment
securities available for sale 449 41 1,524
Other 4,494 2,960 3,296
---------- --------- ---------
Total other operating income 9,896 7,824 9,685
---------- --------- ---------
OTHER OPERATING EXPENSE
Salaries and employee benefits 14,954 13,228 12,860
Occupancy 2,743 2,604 2,127
Furniture and equipment 2,655 2,413 2,186
FDIC insurance premiums 1,113 1,213 1,997
Professional fees 1,062 1,106 1,180
Data processing 827 967 916
Other real estate 5,042 3,516 824
Other 5,754 5,145 5,083
---------- --------- ---------
Total other operating expense 34,150 30,192 27,173
---------- --------- ---------
INCOME BEFORE INCOME TAXES 24,440 21,796 21,977
Income taxes 8,498 8,271 8,951
---------- --------- ---------
NET INCOME $15,942 $13,525 $13,026
---------- --------- ---------
---------- --------- ---------
EARNINGS PER PRIMARY AND FULLY DILUTED SHARE $36.86 $31.27 $30.12
---------- --------- ---------
---------- --------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities Total
Class A Class B Available For Share-
Common Common Retained Sale, Net of holders'
Stock Stock Surplus Earnings Taxes Equity
--------- ---------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $2,774 $683 $38,066 $54,299 $95,822
Net unrealized gain on
securities available for
sale, net of taxes, at
January 1, 1994 $1,574 1,574
Net income 13,026 13,026
Cash dividends declared (5,947) (5,947)
Change in net
unrealized gain (loss)
on securities available
for sale, net of taxes (6,504) (6,504)
--------- ---------- --------- ---------- ------------- ---------
BALANCE, DECEMBER 31,
1994 2,774 683 38,066 61,378 (4,930) 97,971
Net income 13,525 13,525
Cash dividends declared (6,487) (6,487)
Change in net
unrealized gain (loss)
on securities available
for sale, net of taxes 5,159 5,159
--------- ---------- --------- ---------- ------------- ---------
BALANCE, DECEMBER 31,
1995 2,774 683 38,066 68,416 229 110,168
Net income 15,942 15,942
Cash dividends declared (6,919) (6,919)
Change in net
unrealized gain (loss)
on securities available
for sale, net of taxes (853) (853)
--------- ---------- --------- ---------- ------------- ---------
BALANCE, DECEMBER 31,
1996 $2,774 $683 $38,066 $77,439 ($624) $118,338
--------- ---------- --------- ---------- ------------- ---------
--------- ---------- --------- ---------- ------------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $15,942 $13,525 $13,026
-------- -------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,974 2,720 2,426
Provision for loan losses 1,505 1,850 2,216
Provision for deferred income tax benefit (2,185) (593) (18)
Net premium amortization and discount
accretion of investment securities 487 463 1,523
Net realized gain on sales of
securities available for sale (449) (41) (1,524)
Gain on sale of loans held for sale (151) (110) (213)
Proceeds from sale of loans held for sale 727 1,964 8,599
Origination of loans held for sale (1,043) (3,038) (12,693)
Provision for loss on other real estate 5,460 1,543
Loss (gain) on sale of premises and
equipment 90 (31) 266
Gain on sale of other real estate (55) (12) (481)
(Increase) decrease in accrued interest
and other assets (1,165) 2,835 1,715
Increase (decrease) in accrued interest
and other liabilities 2,114 3,606 (1,960)
-------- -------- --------
Total adjustments 8,309 11,156 (144)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,251 24,681 12,882
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 30,160 9,087 70,135
Proceeds from maturities 16,721 3,162 68,117
Purchases (72,537) (24,676) (72,249)
Investment securities held to maturity:
Proceeds from maturities 48,343 55,632 2,380
Purchases (102,353) (63,016) (91,166)
Net increase in loans (26,697) (53,869) (21,773)
Purchases of premises and equipment (4,017) (5,273) (3,966)
Proceeds from sale of premises and
equipment 29 32 23
Proceeds from sale of other real estate 2,259 2,330 8,937
--------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES ($108,092) ($76,591) ($39,562)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits $ 69,608 $ 106,531 $ 39,793
Increase (decrease) in FHLB advances 1,350 (9,940) 1,720
Repayment of REMIC (3,541)
Cash dividends paid (6,812) (6,379) (5,745)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 64,146 90,212 32,227
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents (19,695) 38,302 5,547
Cash and cash equivalents at beginning
of year 88,345 50,043 44,496
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 68,650 $ 88,345 $ 50,043
-------- -------- --------
-------- -------- --------
Supplemental cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings $37,694 $35,707 $27,417
Income taxes 10,244 7,673 6,090
Transfers from loans to other real estate 2,104 1,721 8,960
Transfer of investment securities from
held to maturity to available for sale 32,288
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE>
WEST SUBURBAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of West Suburban
Bancorp, Inc. (the "Parent") and its subsidiaries (collectively, the
"Subsidiaries" and together with the Parent, the "Company"): West Suburban Bank;
West Suburban Bank of Downers Grove/Lombard; West Suburban Bank of Darien;
West Suburban Bank of Carol Stream/Stratford Square; and West Suburban Bank
of Aurora, F.S.B. ("WSB Aurora"). Significant intercompany accounts and
transactions have been eliminated.
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles and conform to general practices
within the banking industry. A summary of accounting policies follows.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
primarily the allowance for loan losses, and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
INVESTMENT SECURITIES
Debt and marketable equity securities are classified into two categories, "held
to maturity" and "available for sale." Held to maturity securities include those
securities where the Company has both the ability and positive intent to hold
them to maturity. Securities not meeting this criteria are classified as
available for sale. Held to maturity securities are carried at amortized
historical cost while available for sale securities are carried at fair value
with net unrealized gains and losses (net of tax) reported as a separate
component of shareholders' equity. Gains or losses on disposition are based on
the net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method. The Company does not engage in trading
activities. The Company has not utilized futures, forwards, swaps or option
contracts in order to manage its interest rate risk or otherwise.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is recognized based upon the principal amount
outstanding. Accrual of interest is generally discontinued on a loan when it
becomes 90 days past due or when management believes, after considering
economic and business conditions and collection efforts, that the borrowers'
financial condition is such that collection of principal or interest is
doubtful. In some circumstances, a loan that is more than 90 days past due can
remain on accrual status if it can be established that payment will be received
within another 90 days or if it is fully secured and in the process of
collection. When a loan has been placed on nonaccrual status, interest that has
been earned but not collected is charged back to the appropriate interest
income account. When payments are received on nonaccrual loans they are first
applied to principal, then to expenses incurred for collection and finally to
interest income.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers'
ability to pay.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," which addresses the accounting by creditors for
impairment of certain loans. SFAS 114 defines a loan as impaired when it is
probable that the creditor will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the loan
agreement. Impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the loan's collateral, if
repayment of the loan is collateral dependent. A valuation allowance is
required for the amount of impairment. The Company reviews its commercial and
real estate construction and non-residential loans on a quarterly basis to
determine impairment. Generally, loans 90 or more days
11
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
past due and all loans on a nonaccrual basis are considered impaired. Interest
income on impaired loans is recognized in a manner consistent with the
Company's interest policy. The adoption of SFAS 114 and SFAS 118 did not have a
material effect on the Company's financial condition or results of operations.
LOANS HELD FOR SALE
Loans are identified as either held for investment or held for sale upon their
origination. Loans held for sale are recorded at the lower of amortized cost or
market value, determined on an aggregate basis. Unrealized losses, if any, are
recognized on a current basis.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted SFAS 122, "Accounting for
Mortgage Servicing Rights," which requires certain accounting for mortgage
servicing rights and the valuation and recognition of impairment of mortgage
servicing rights. The adoption of SFAS 122 did not have a material effect on
the Company's financial condition or results of operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation, which
is generally computed on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the estimated useful lives of the improvements or
the terms of the related leases.
OTHER REAL ESTATE
Other real estate includes properties acquired in partial or total settlement
of problem loans. The properties are recorded at the lower of cost or fair
value less estimated selling costs at the date acquired. Losses arising at the
time of acquisition of such properties are charged to the allowance for loan
losses. Any subsequent decline in value is charged to current operations. The
revenue received from, and expenses incurred in maintaining, such properties
are also included in current operations. The amounts the Company could
ultimately recover from other real estate could differ materially from the
amounts used in determining the net carrying value of the assets because of
future market factors beyond the Company's control or changes in the Company's
strategy for recovering its investment. Management believes the net carrying
value of other real estate is a reasonable estimate of its net realizable
value.
INTANGIBLES
The Company accounted for the acquisition of its thrift subsidiary, WSB Aurora,
using the purchase method of accounting. The related intangibles are being
amortized over 15 years on the straight-line method.
Effective January 1, 1996 the Company adopted SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires that long-lived assets and certain identifiable intangibles that
are used in operations be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets might not be
recoverable. The adoption of SFAS 121 did not have a material effect on the
Company's financial condition or result of operation.
TRUST ASSETS AND FEES
Assets held in fiduciary or agency capacities are not included in the
consolidated balance sheets since such items are not assets of the Company.
Income from trust fees is recorded when received. This income does not differ
materially from trust fees computed on an accrual basis.
INCOME TAXES
The Parent files consolidated federal and state income tax returns with the
Subsidiaries.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the daily weighted average
number of shares outstanding.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest-bearing deposits in financial institutions and
federal funds sold. Generally, federal funds are sold for one day periods.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements
to conform with the current year's presentation.
12
<PAGE>
- ------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and fair value of investment securities available for sale
are as follows at December 31:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Corporate $64,634 $283 ($322) $64,595
U.S. government agencies and
corporations 63,591 134 (890) 62,835
U.S. Treasury 16,151 (206) 15,945
States and political subdivisions 1,168 8 (3) 1,173
-------------- -------------- -------------- --------------
Total debt securities 145,544 425 (1,421) 144,548
Federal Home Loan
Mortgage Corp. Preferred
Stock and other equity
securities 14,070 16 (56) 14,030
-------------- -------------- -------------- --------------
Total $159,614 $441 ($1,477) $158,578
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Corporate $69,731 $1,053 ($105) $70,679
U.S. government agencies and
corporations 36,119 254 (783) 35,590
U.S. Treasury 16,291 (107) 16,184
States and political subdivisions 1,157 14 (33) 1,138
-------------- -------------- -------------- --------------
Total debt securities 123,298 1,321 (1,028) 123,591
Federal Home Loan
Mortgage Corp. Preferred
Stock and other equity
securities 10,841 117 (30) 10,928
-------------- -------------- -------------- --------------
Total $134,139 $1,438 ($1,058) $134,519
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
13
<PAGE>
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities held to maturity are
as follows at December 31:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. government agencies and
corporations $130,250 $164 ($383) $130,031
States and political subdivisions 39,941 312 (82) 40,171
-------------- -------------- -------------- --------------
Total $170,191 $476 ($465) $170,202
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. government agencies and
corporations $83,237 $159 ($140) $83,256
States and political subdivisions 32,800 216 (73) 32,943
-------------- -------------- -------------- --------------
Total $116,037 $375 ($213) $116,199
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report on Implementation of SFAS 115. In applying the provisions of
this report, the Company transferred to available for sale those corporate
bonds that had previously been classified as held to maturity. These corporate
bonds had an aggregate market value of $32.8 million, and an unrealized gain,
net of tax, of $.3 million at the transfer date.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The amortized cost and fair value of debt securities
available for sale and held to maturity at December 31, 1996 by contractual
maturity are as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------ ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Due in 1 year or less $33,530 $33,587 $13,139 $13,170
Due after 1 year through 5 years 86,654 86,396 122,559 122,467
Due after 5 years through 10 years 25,065 24,270 20,663 20,667
Due after 10 years 295 295 13,830 13,898
-------------- -------------- -------------- --------------
Total $145,544 $144,548 $170,191 $170,202
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Gross gains and gross (losses) of $476 and ($27), $161 and ($120), $1,639 and
($115) were realized on sales in 1996, 1995 and 1994, respectively.
Investment securities with a carrying value of approximately $29,848 and
$21,125 at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits, fiduciary activities and for other purposes required or
permitted by law.
14
<PAGE>
NOTE 3 - LOANS
Major classifications of loans were as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Commercial $232,210 $200,986
Installment 37,511 37,986
Real estate:
Mortgage 299,664 302,062
Home equity 124,805 120,802
Construction 73,432 81,787
Held for sale 1,043 1,523
VISA - credit card 17,951 19,034
Other 7,229 5,407
-------------- --------------
Total 793,845 769,587
Allowance for loan losses (9,603) (8,900)
-------------- --------------
Loans, net $784,242 $760,687
-------------- --------------
-------------- --------------
</TABLE>
The Company makes commercial, personal and residential loans primarily to
customers throughout the western suburbs of Chicago. The Company's loans to the
construction and land development industries represented 9.3% and 10.6% of
total loans at December 31, 1996 and 1995, respectively. The Company's real
estate construction loans are generally made within the market areas of the
Subsidiaries. The Company manages this exposure by continually reviewing local
market conditions and closely monitoring collateral values. No unusual losses
are anticipated as a result of these concentrations.
Loans on which the accrual of interest has been discontinued or reduced
amounted to $2,283, $1,478 and $279 at December 31, 1996, 1995 and 1994,
respectively. If interest on those loans had been accrued, such income would
have approximated $136, $146 and $15 for 1996, 1995 and 1994, respectively.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, beginning of year $8,900 $8,445 $7,125
Provision for loan losses 1,505 1,850 2,216
Loans charged-off (1,097) (1,729) (1,292)
Recoveries 295 334 396
-------------- -------------- --------------
Balance, end of year $9,603 $8,900 $8,445
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Company's impaired loans consisted of commercial loans totaling $17,555 at
December 31, 1996 and $13,351 at December 31, 1995. Of these impaired loans,
$1,422 required a valuation allowance of $182 at December 31, 1996 compared to
impaired loans of $2,522 with a valuation allowance of $408 at December 31,
1995. The average outstanding balance of impaired loans was approximately
$17,120 and $10,043 for the years ended December 31, 1996 and 1995,
respectively. The interest income recognized on impaired loans was
approximately $1,706 and $897 for the years ended December 31, 1996 and 1995,
respectively. The Company had no impaired real estate construction or non-
residential loans during 1996 or 1995.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain
charges collected from borrowers. At December 31, 1996 and 1995, the Company
was servicing loans for the benefit of others with aggregate unpaid principal
balances of $296,282 and $330,042, respectively.
15
<PAGE>
NOTE 3 - LOANS (CONTINUED)
At December 31, 1996 and 1995, the Company had outstanding banker's acceptances
of $304 and $753, respectively. A banker's acceptance is a draft that has been
drawn on and accepted by the Company for payment at a future date. Funds are
advanced to the drawer of the acceptance by discounting the accepted draft. The
Company has an unconditional obligation to fund the holder upon presentation of
the draft. Likewise, the customer has an unconditional obligation to fund the
Company at or before the maturity date specified in the instrument.
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Land $5,848 $5,848
Premises 24,944 23,160
Leasehold improvements 679 652
Furniture and equipment 25,612 24,008
-------------- --------------
57,083 53,668
Less accumulated depreciation and amortization (26,953) (24,462)
-------------- --------------
Total $30,130 $29,206
-------------- --------------
-------------- --------------
</TABLE>
NOTE 5 - DEPOSITS
The major categories of deposits are summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Demand and other noninterest-bearing $102,582 $104,821
NOW accounts 182,862 191,626
Money market savings 342,872 340,714
Time, $100,000 and over 86,343 68,063
Time, other 384,738 324,565
-------------- --------------
Total $1,099,397 $1,029,789
-------------- --------------
-------------- --------------
</TABLE>
Interest expense on interest-bearing deposits is summarized as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NOW accounts $2,836 $3,057 $3,004
Money market savings 12,314 13,836 9,656
Time, $100,000 and over 3,675 2,848 1,788
Time, other 18,962 17,247 12,645
-------------- -------------- --------------
Total $37,787 $36,988 $27,093
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
NOTE 6 - BORROWINGS
Federal Home Loan Bank ("FHLB") advances are used as a source of liquidity to
meet cash demands. There were FHLB advances outstanding of $1.35 million with
an annual rate of 6.5% at December 31, 1996. At December 31, 1995, there were
no FHLB advances outstanding.
16
<PAGE>
NOTE 7 - INCOME TAXES
The income tax provision (benefit) reflected in the Consolidated Statements of
Income is as follows for the years ended December 31:
1996 1995 1994
------- ------- -------
Current:
Federal $9,068 $7,593 $7,656
State 1,615 1,271 1,313
Deferred (2,185) (593) (18)
------- ------- -------
Total $8,498 $8,271 $8,951
------- ------- -------
------- ------- -------
A reconciliation between taxes computed at the statutory income tax rates and
the consolidated effective tax rates follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Statutory income tax rates 35.0% 35.0% 35.0%
(Decrease) increase in taxes resulting from:
Federal tax-exempt income (3.9) (2.3) (2.4)
State income taxes, net of federal tax benefit 4.8 4.8 4.8
Other (1.1) 0.4 3.3
------- ------- -------
Consolidated effective tax rates 34.8% 37.9% 40.7%
------- ------- -------
------- ------- -------
</TABLE>
The temporary differences which created deferred tax assets and liabilities at
December 31 are detailed below:
1996 1995
------- -------
Deferred tax assets:
Allowance for loan loss $3,208 $2,929
Deferred compensation 991 837
Unrealized loss on securities available for sale 412
Other 1,892 365
------- -------
Total deferred tax assets 6,503 4,131
------- -------
Deferred tax liabilities:
Depreciation 935 1,160
Unrealized gain on securities available for sale 151
------- -------
Total deferred tax liabilities 935 1,311
------- -------
Net deferred tax assets $5,568 $2,820
------- -------
------- -------
NOTE 8 - EMPLOYEE BENEFIT PLANS
Historically, the Company maintained a stock ownership plan covering
substantially all full-time employees who have satisfied specific age and
service requirements. During the first quarter of 1994, the West Suburban
Bank Stock Bonus Trust Plan was converted into an employee stock ownership
plan and renamed the West Suburban Bank Employee Stock Ownership Plan (the
"Plan"). The respective boards of directors of the Subsidiaries took the
actions necessary to allow their respective employees to participate in the
Plan. The Plan is a tax-qualified stock bonus plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Plan is
designed to provide incentives to participants by granting them an interest
in the Company's common stock in which the Plan invests. The Plan is an
individual account defined contribution plan, which means that an individual
account is established for each participant of the Plan and that the amount
of benefits payable upon retirement, termination, disability or death is
based upon service and the amount of the employer's contributions and any
income, expenses, gains or losses which may have been allocated to the
participant's account. Annual contributions to the current and former plans
were made in accordance with resolutions passed by the boards of directors of
the Subsidiaries and in aggregate amounted to $1,221 in 1996, $1,117 in 1995
and $1,112 in 1994. The Subsidiaries also maintain deferred compensation
plans in which former and current executive officers participate. The
deferred compensation expense for the years ended December 31, 1996, 1995 and
1994 amounted to $406, $219, and $180, respectively. These plans are not
qualified under the Code and, therefore, tax deductions are allowed only when
benefits are paid.
17
<PAGE>
NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)
During 1996, the Company terminated the Aurora Federal Savings Bank, F.S.B.
Pension Plan (the "Aurora Pension Plan"). The Aurora Pension Plan was a
successor plan to the Financial Institutions Retirement Fund program (the
"FIRF Plan") which WSB Aurora maintained prior to its acquisition by the
Company. As a result of the termination of the Aurora Pension Plan,
approximately $1.1 million of excess assets reverted to the Company. This
amount was recognized as income by the Company during 1996 and is reflected
in other operating income-other.
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These financial instruments involve, to
varying degrees, elements of credit and interest rate risks in addition to
the amount recognized in the consolidated balance sheets. The contractual
amounts of those instruments reflect the extent of involvement the Company
has in particular classes of financial instruments.
The Company's exposure to credit risk in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Company requires collateral or other security to
support financial instruments with credit risk. A summary of the contractual
amount of the Company's exposure to off-balance-sheet risk as of December 31
is as follows:
1996 1995
-------- --------
Financial instruments whose contractual amounts
represent credit risks:
Commitments to extend credit $353,460 $329,372
Letters of credit 32,566 31,373
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being exercised, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies and may include accounts receivable, inventory,
property and equipment and commercial or residential properties.
Letters of credit written are conditional commitments issued by the Company
to either extend credit to a customer or to guarantee the performance of a
customer to a third party. Guarantees of performance are primarily issued to
support public and private borrowing arrangements. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Company holds collateral
supporting those commitments for which collateral is deemed necessary. The
extent of collateral held for those commitments varies.
NOTE 10 - CONTINGENT LIABILITIES
The Company is a party to various legal actions arising from normal business
activities. Management believes that pending actions are either without merit
or that the ultimate liability, if any, resulting from them will not
materially affect the Company's consolidated financial position or results of
operations.
NOTE 11 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
Estimated fair values of financial instruments have been calculated based on
certain assumptions and selected data from within the Company's various
financial instrument classifications. For short-term maturing assets (i.e.
cash and due from banks, federal funds sold and interest-bearing deposits
with financial institutions) it has been assumed that their estimated fair
values approximate their carrying values. Similarly, for loans and deposits
with variable interest rates, it has been assumed that their estimated fair
values also approximate their carrying values.
18
<PAGE>
NOTE 11 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (CONTINUED)
The estimated fair values of the Company's financial instruments as of
December 31 are set forth in the table below:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $68,650 $68,650 $88,345 $88,345
Investment securities:
Available for sale 158,578 158,578 134,519 134,519
Held to maturity 170,191 170,202 116,037 116,199
Loans, less allowance for loan losses 784,242 779,945 760,687 760,420
----------- ------------ ---------- ------------
Total financial assets $1,181,661 $1,177,375 $1,099,588 $1,099,483
----------- ------------ ---------- ------------
----------- ------------ ---------- ------------
Financial liabilities:
Deposits $1,099,397 $1,100,862 $1,029,789 $1,031,926
Short-term borrowings 3,271 3,271 1,825 1,825
---------- ---------- ---------- ----------
Total financial liabilities $1,102,668 $1,104,133 $1,031,614 $1,033,751
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The fair values for investment securities were derived from quoted market
values as of the close of business December 31, 1996 and 1995 when available,
or when quotes were not available, the fair value was estimated based on
quoted prices of comparable securities. The fair values for loans, less
allowance for loan losses were estimated by discounting the future cash flows
from loan repayments using current interest rates for loans having comparable
maturities. The fair values for deposits were estimated using the present
value discounted cash flow method at discount rates comparable to current
market rates for similar liabilities.
There is no material difference between the contractual amount and the
estimated fair value of off-balance-sheet items which totaled $386,026 at
December 31, 1996 and $360,745 at December 31, 1995 and are primarily
comprised of unfunded loan commitments which are generally priced at market
at the time of funding.
NOTE 12 - RELATED PARTY TRANSACTIONS
Certain directors and officers of the Company, and some of the corporations
and firms with which these individuals are associated, are customers of the
Subsidiaries in the ordinary course of business, and/or are indebted to a
Subsidiary for loans in the amounts of $60,000 or more. It is anticipated
that they will continue to be customers of and indebted to the Subsidiaries
in the future. All such loans, however, were made in the ordinary course of
business, did not involve more than the normal risk of collectibility or
present other unfavorable features, and were made on substantially the same
terms, including interest rates and collateral provided, as those prevailing
at the same time for comparable loans made by the Subsidiaries in
transactions with unaffiliated persons, although directors were regularly
allowed the lowest interest rate given to others on personal loans.
Certain officers and directors of the Company, their affiliates and companies
in which they have 10% or more beneficial ownership, were indebted to the
Company in the aggregate amount of $20,376 and $27,279 at December 31, 1996
and 1995, respectively. During 1996, $17,558 in additions and $24,461 in
reductions were made.
NOTE 13 - INVESTMENTS IN SUBSIDIARIES AND REGULATORY RESTRICTIONS
The Parent is economically dependent on the cash dividends received from the
Subsidiaries. These dividends represent the primary cash flow used to fund
dividend payments to the Parent's shareholders. Cash dividends received by
the Parent amounted to $8,136, $7,401 and $7,292 for the years ended December
31, 1996, 1995 and 1994, respectively.
19
<PAGE>
NOTE 13 - INVESTMENTS IN SUBSIDIARIES AND REGULATORY RESTRICTIONS (CONTINUED)
The Company and the Subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, each entity must meet specific capital
guidelines that involve quantitative measures of each entity's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Subsidiaries to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets. Management
believes as of December 31, 1996, that the Company and the Subsidiaries meet
all capital adequacy requirements to which it is subject.
Management's present policy is to limit the amount of dividends from each
Subsidiary such that each Subsidiary qualifies as a "well-capitalized"
institution as defined by the Federal Deposit Insurance Corporation
Improvement Act of 1991, as amended, thereby minimizing the amount of Federal
Deposit Insurance Corporation ("FDIC") insurance premiums paid by the
Subsidiary and providing capital to fund growth. As of December 31, 1996, the
Subsidiaries could pay, in aggregate, dividends totaling $24,983 to the
Parent while remaining "well-capitalized" institutions. The Subsidiaries could
pay additional dividends without seeking regulatory approval.
To be categorized as "well-capitalized" the Parent and the Subsidiaries must
maintain total risk-based, Tier I risk-based and Tier I leverage ratios as
set forth in the table. The Company's capital amounts and ratios are also
presented in the table:
<TABLE>
<CAPTION>
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
----------------- ---------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. $126,811 13.0% $78,199 8.0% N/A N/A
West Suburban Bank 41,682 10.8 30,834 8.0 $38,543 10.0%
West Suburban Bank of Downers Grove/Lombard 17,310 16.6 8,344 8.0 10,429 10.0
West Suburban Bank of Darien 23,045 14.0 13,178 8.0 16,473 10.0
West Suburban Bank of Carol Stream/Stratford Square 17,723 11.8 12,004 8.0 15,005 10.0
WSB Aurora 19,065 14.2 10,713 8.0 13,392 10.0
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 117,208 12.0 39,099 4.0 N/A N/A
West Suburban Bank 38,036 9.9 15,417 4.0 23,126 6.0
West Suburban Bank of Downers Grove/Lombard 16,000 15.3 4,172 4.0 6,258 6.0
West Suburban Bank of Darien 21,023 12.8 6,589 4.0 9,884 6.0
West Suburban Bank of Carol Stream/Stratford Square 16,490 11.0 6,002 4.0 9,003 6.0
WSB Aurora 17,673 13.2 5,357 4.0 8,035 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 117,208 9.8 47,843 4.0 N/A N/A
West Suburban Bank 37,825 8.0 18,921 4.0 23,651 5.0
West Suburban Bank of Downers Grove/Lombard 15,761 10.8 5,822 4.0 7,277 5.0
West Suburban Bank of Darien 20,959 9.1 9,204 4.0 11,506 5.0
West Suburban Bank of Carol Stream/Stratford Square 16,385 7.9 8,256 4.0 10,320 5.0
WSB Aurora 17,663 11.3 6,237 4.0 7,797 5.0
</TABLE>
20
<PAGE>
NOTE 13 - INVESTMENTS IN SUBSIDIARIES AND REGULATORY RESTRICTIONS (CONTINUED)
<TABLE>
<CAPTION>
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1995
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. $117,121 12.9% $72,641 8.0% N/A N/A
West Suburban Bank 39,258 11.2 27,934 8.0 $34,917 10.0%
West Suburban Bank of Downers Grove/Lombard 16,075 14.6 8,803 8.0 11,004 10.0
West Suburban Bank of Darien 20,925 12.1 13,828 8.0 17,286 10.0
West Suburban Bank of Carol Stream/Stratford Square 16,283 12.0 10,880 8.0 13,600 10.0
WSB Aurora 17,674 13.9 10,154 8.0 12,692 10.0
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 108,221 11.9 36,320 4.0 N/A N/A
West Suburban Bank 35,816 10.3 13,967 4.0 20,950 6.0
West Suburban Bank of Downers Grove/Lombard 14,796 13.4 4,402 4.0 6,602 6.0
West Suburban Bank of Darien 19,195 11.1 6,914 4.0 10,371 6.0
West Suburban Bank of Carol Stream/Stratford Square 15,122 11.1 5,440 4.0 8,160 6.0
WSB Aurora 16,386 12.9 5,077 4.0 7,615 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 108,221 9.7 44,537 4.0 N/A N/A
West Suburban Bank 35,821 8.8 16,246 4.0 20,308 5.0
West Suburban Bank of Downers Grove/Lombard 14,709 10.1 5,802 4.0 7,275 5.0
West Suburban Bank of Darien 19,354 8.7 8,911 4.0 11,139 5.0
West Suburban Bank of Carol Stream/Stratford Square 15,215 7.9 7,701 4.0 9,626 5.0
WSB Aurora 16,392 11.0 5,936 4.0 7,420 5.0
</TABLE>
In accordance with the regulations of the Board of Governors of the Federal
Reserve System, the Subsidiaries must maintain noninterest-bearing cash
balances with the Federal Reserve Bank of Chicago. The average amount of these
balances for years ended December 31, 1996 and 1995 was approximately $7,767
and $7,124, respectively.
NOTE 14 - COMMON STOCK
The Company's common stock is divided into two classes consisting of Class A
and Class B common stock. Except as required by law, the rights, powers and
limitations of the Class A common stock and Class B common stock are identical.
NOTE 15 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, FASB issued SFAS 125, "Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides new accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. Those standards are
based on consistent application of a "financial-components" approach that
focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
SFAS 125 is effective for the Company beginning January 1, 1997. Management
believes that the adoption of SFAS 125 will not have a material impact on the
Company's financial condition or results of operations.
In December 1996, FASB issued SFAS 127, "Deferral of the Effective Date of
Certain Provisions of SFAS 125", which defers the effective date of certain of
the provisions of SFAS 125 for one year.
21
<PAGE>
NOTE 16 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
------- -------
Cash on deposit in Subsidiaries $9,740 $8,354
Equity investment in Subsidiaries 108,594 101,492
Intangibles, net 1,731 1,935
Other assets 3 9
------- ------
TOTAL ASSETS $120,068 $111,790
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $1,730 $1,622
------- -------
TOTAL LIABILITIES 1,730 1,622
Shareholders' equity 118,338 110,168
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $120,068 $111,790
------- -------
------- -------
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OPERATING INCOME 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Dividends from Subsidiaries $8,136 $7,401 $7,292
Interest income 337 279 144
------- ------- -------
Total operating income 8,473 7,680 7,436
------- ------- -------
OPERATING EXPENSE
Amortization of intangibles 204 204 266
Other 240 205 238
------- ------- -------
Total operating expense 444 409 504
------- ------- -------
Income before income taxes 8,029 7,271 6,932
Income tax (benefit) expense 41 10 (37)
------- ------- -------
Income before equity in undistributed
net income of Subsidiaries 7,988 7,261 6,969
Equity in undistributed net income of Subsidiaries 7,954 6,264 6,057
------- ------- -------
NET INCOME $15,942 $13,525 $13,026
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $15,942 $13,525 $13,026
------- ------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
Subsidiaries (7,954) (6,264) (6,057)
Amortization of intangibles 204 204 266
Decrease in other assets 6 29 62
------- ------- -------
Total adjustments (7,744) (6,031) (5,729)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,198 7,494 7,297
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (6,812) (6,379) (5,745)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES (6,812) (6,379) (5,745)
------- ------- -------
Net increase in cash 1,386 1,115 1,552
Cash at beginning of year 8,354 7,239 5,687
------- ------- -------
Cash at end of year $9,740 $8,354 $7,239
------- ------- -------
------- ------- -------
</TABLE>
22
<PAGE>
SELECTED FINANCIAL DATA
(UNAUDITED)
The following table consists of financial data derived from the Consolidated
Financial Statements of the Company. This information should be read together
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Consolidated Financial Statements included
elsewhere in this report (dollars in thousands, except per share data).
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Interest income $88,558 $83,428 $69,112 $67,396 $74,098
Interest expense 38,359 37,414 27,431 26,728 34,376
-------- -------- -------- -------- --------
Net interest income 50,199 46,014 41,681 40,668 39,722
Provision for loan losses 1,505 1,850 2,216 5,339 3,905
-------- -------- -------- -------- --------
Net interest income after
provisions 48,694 44,164 39,465 35,329 35,817
Other operating income(1) 9,896 7,824 9,685 10,056 11,145
Other operating expense 34,150 30,192 27,173 26,886 28,071
-------- -------- -------- -------- --------
Income before income taxes 24,440 21,796 21,977 18,499 18,891
Income taxes 8,498 8,271 8,951 7,035 6,895
Cumulative effect of accounting
change 360
-------- -------- -------- -------- --------
Net income $15,942 $13,525 $13,026 $11,824 $11,996
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PER SHARE DATA
Income before cumulative
effect of accounting change:
Primary $36.86 $31.27 $30.12 $28.41 $29.73
Fully diluted 36.86 31.27 30.12 26.85 28.74
Net income:
Primary 36.86 31.27 30.12 29.30 29.73
Fully diluted 36.86 31.27 30.12 27.72 28.74
Cash dividends declared 16.00 15.00 13.75 12.75 12.00
Book value 273.62 254.73 226.53 221.56 209.31
SELECTED BALANCES
Investment securities $328,769 $250,556 $226,007 $190,594 $231,121
Net loans 784,242 760,687 709,205 694,301 652,007
Total assets 1,235,604 1,154,349 1,041,495 999,878 1,000,200
Deposits 1,099,397 1,029,789 923,257 883,464 877,923
Long-term debt 13,348
Shareholders' equity 118,338 110,168 97,971 95,822 84,444
RATIOS
Return on average total assets 1.38% 1.27% 1.29% 1.20% 1.20%
Return on average
shareholders' equity 13.93 13.03 13.29 13.25 14.84
Cash dividends to net income 42.73 47.16 44.10 42.65 40.36
Average equity to average total
assets 9.90 9.71 9.67 9.03 8.12
Net interest margin (FTE)(2) 4.47 4.40 4.21 4.19 4.06
</TABLE>
(1) Other operating income includes the following gains on sales of loans for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively: $151, $110, $213, $1,362 and $2,050.
(2) Net interest margin is presented on a tax equivalent basis, assuming a
federal income tax rate of 35% for the years ended December 31, 1996,
1995, 1994 and 1993 and 34% for the year ended December 31, 1992.
23
<PAGE>
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME AND
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, and the resultant costs, expressed both in dollars and rates.
All average balances are daily average balances. To the extent received,
interest on nonaccruing loans has been included in the table (dollars in
thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- -----------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------- ------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing
deposits in financial
institutions $301 $16 5.3% $127 $7 5.5% $552 $33 6.0%
----------------------------------- -------------------------------- -----------------------------
Federal funds sold 34,719 1,840 5.3 34,422 1,949 5.7 17,819 743 4.2
----------------------------------- -------------------------------- -----------------------------
Investment securities:
Corporate 67,382 4,453 6.6 63,302 4,581 7.2 90,831 6,300 6.9
U.S. Treasury 19,308 975 5.0 16,363 798 4.9 14,923 72 4.8
U.S. government
agencies and
corporations 136,029 8,379 6.2 118,453 7,369 6.2 91,291 5,746 6.3
States and political
subdivisions (1) 39,626 3,137 7.9 23,678 1,985 8.4 21,630 1,837 8.5
FHLB stock 748 52 7.0 854 53 6.2 845 64 7.6
----------------------------------- -------------------------------- -----------------------------
Total investment
securities (1) 263,093 16,996 6.5 222,650 14,786 6.6 219,520 14,669 6.7
----------------------------------- -------------------------------- -----------------------------
Mortgage-backed
securities 7,246 740 10.2
----------------------------------- -------------------------------- -----------------------------
Loans:
Commercial and
industrial (1) 298,872 28,307 9.5 248,544 25,706 10.3 212,147 18,878 8.9
Real estate 299,492 24,812 8.3 305,822 23,777 7.8 295,559 20,415 6.9
Home equity 121,543 11,161 9.2 119,013 11,475 9.6 116,827 8,818 7.5
Installment 37,883 3,487 9.2 36,399 3,516 9.7 33,342 2,656 8.0
Visa and other 23,582 3,390 14.4 26,619 3,238 12.2 25,662 3,148 12.3
----------------------------------- -------------------------------- -----------------------------
Total loans (1) 781,372 71,157 9.1 736,397 67,712 9.2 683,537 53,915 7.9
----------------------------------- -------------------------------- -----------------------------
Total interest-
bearing
assets (1) 1,079,485 $90,009 8.3% 993,596 $84,454 8.5% 928,674 $70,100 7.5%
Cash and due from banks 37,349 35,666 37,428
Premises and equipment,
net 29,935 27,849 25,554
Other real estate 5,208 7,993 6,873
Allowance for loan losses (9,432) (8,909) (7,907)
Accrued interest and
other assets (2) 13,907 12,683 22,519
-------------- -------------- -------------
Total assets $1,156,452 $1,068,878 $1,013,141
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
(1) Interest income and yields are presented on a tax equivalent basis,
assuming a federal income tax rate of 35%.
(2) The average balances of nonaccrual loans are included in accrued interest
and other assets.
24
<PAGE>
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- ------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts and
savings deposits $524,669 $15,152 2.9% $498,191 $16,893 3.4% $486,863 $12,660 2.6%
Time deposits:
Less than $100,000 334,177 18,960 5.7 308,039 17,248 5.6 275,693 12,645 4.6
$100,000 and greater 63,079 3,675 5.8 49,427 2,847 5.8 37,849 1,788 4.7
------------------------------- ------------------------------ ------------------------------
Total interest-
bearing deposits 921,925 37,787 4.1 855,657 36,988 4.3 800,405 27,093 3.4
Federal funds purchased 7,710 419 5.4 3,216 189 5.9 3,526 158 4.5
Deferred compensation 1,684 79 4.7 1,318 81 6.1 1,077 35 3.3
Real Estate Mortgage
Investment Conduit 579 18 3.1
FHLB advances 1,366 74 5.4 2,071 156 7.5 2,558 126 4.9
Subordinated convertible
capital notes 10 1 6.5
------------------------------- ------------------------------ -----------------------------
Total interest-
bearing liabilities 932,685 38,359 4.1 862,262 37,414 4.3 808,155 27,431 3.4
------------------- ------------------ -------------------
Demand deposits 103,448 100,269 96,428
Other liabilities 5,864 2,535 10,564
Shareholders' equity 114,455 103,812 97,994
--------- ---------- ---------
Total liabilities and
shareholders' equity $1,156,452 $1,068,878 $1,013,141
--------- ---------- ---------
--------- ---------- ---------
Net interest income $51,650 $47,040 $42,669
------- ------ ------
------- ------ ------
Net interest margin 4.5% 4.4% 4.2%
-------- -------- -------
-------- -------- -------
Net yield on interest
earning assets 4.8% 4.7% 4.6%
-------- -------- -------
-------- -------- -------
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's financial condition as of December 31, 1996 and 1995 and results of
operations for the years ended December 31, 1996, 1995 and 1994. The
discussion and analysis should be read in conjunction with the financial
statements, notes and tables included elsewhere in this annual report. The
financial information provided below may be rounded to the nearest decimal in
order to simplify the presentation of management's discussion and analysis.
However, the ratios and percentages provided below are calculated (adjusted
for rounding) using the detailed financial information contained in the
financial statements, notes and tables included elsewhere in this annual
report.
BALANCE SHEET ANALYSIS
TOTAL CONSOLIDATED ASSETS. Total consolidated assets of the Company
increased $81.3 million (7.0%) to $1,235.6 million at December 31, 1996 from
$1,154.3 million at December 31, 1995. Increases in investment securities
were the largest component of this increase.
CASH AND CASH EQUIVALENTS. The Company's cash and cash equivalents decreased
$19.7 million (22.3%) to $68.6 million at December 31, 1996 from $88.3
million at December 31, 1995. This resulted primarily from the Company's
decreased holdings in cash and due from banks along with federal funds sold
as the Company shifted a portion of these funds into investment securities.
INVESTMENT SECURITIES. Aggregate holdings in investment securities increased
$78.2 million (31.2%) to $328.8 million at December 31, 1996 from $250.6
million at December 31, 1995. The Company's objectives in managing its
securities portfolio are driven by the dynamics of the entire balance sheet
which includes monitoring the maturity structure of its portfolio along with
general economic conditions including the interest rate environment. In
managing its portfolio, the Company seeks to provide liquidity, minimize
exposure to interest rate risk and achieve an acceptable rate of return. The
increase in the portfolio is primarily attributable to growth in deposits
which resulted in additional funds available for investing purposes. The
Company will continue to seek high quality securities for the investment
portfolio and remain conservative in its management.
LOANS. Total loans outstanding increased $24.2 million (3.2%) to $793.8
million at December 31, 1996 from $769.6 million at December 31, 1995. The
Company benefitted from continued growth in the commercial and home equity
sector due in part to the strength of the economy, stable interest rates and
promotional efforts. Specifically, commercial loans increased $31.2 million
to $232.2 million at December 31, 1996 from $201.0 million at December 31,
1995. Home equity loans increased $4.0 million to $124.8 million at December
31, 1996 from $120.8 million at December 31, 1995. The Company will attempt
to remain competitive in its market by offering competitive rates on its loan
products while not compromising its credit evaluation standards or its net
interest margins to attract new business.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY. The allowance for loan losses is
an amount that management believes is adequate to absorb losses on existing
loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. In determining a
proper level of the allowance, management evaluates the adequacy of the
allowance based on past loan loss experience, known and inherent risks in the
loan portfolio, adverse situations that may affect the borrowers' ability to
repay, estimated value of any underlying collateral and current and
prospective economic conditions. The allowance for loan losses increased $.7
million (7.9%) to $9.6 million at December 31, 1996 from $8.9 million at
December 31, 1995. The ratio of the allowance for loan losses to total loans
outstanding increased to 1.21% at December 31, 1996 from 1.16% at December
31, 1995. The increase in this ratio was principally due to net charge-offs
on loans declining during 1996 when compared to 1995. Additionally, it should
be noted that the allowance for loan losses as of December 31, 1996 was
approximately 115% of the level of nonperforming loans. This is an increase
over the 69% coverage ratio of nonperforming loans at December 31, 1995. As
of December 31, 1996, the total nonperforming loans to total loans was 1.1%
compared to 1.7% at December 31, 1995. This decrease was principally due to
the reclassification of an $8.0 million commercial loan to accruing status.
The loan's maturity date was extended to January 2, 1997 and interest
payments were current as of December 31, 1996. The borrower, a not-for-profit
health care provider, filed for Chapter 11 bankruptcy protection in May 1995.
In those proceedings, the Company and certain other secured creditors
proposed a plan of reorganization which is proposed to reorganize the
borrower and appoint a new board and a third-party manager. The plan was
approved and
26
<PAGE>
is presently being implemented. Pursuant to the plan, the taxable notes
that evidence the borrower's obligations will be exchanged for tax free
bonds. The exchange requires certain regulatory approvals, which are
presently being sought. The Company has not been made aware of any
circumstances that are reasonably expected to result in a denial of the
regulatory approvals that are necessary to the exchange. Management will
continue to monitor this loan closely and will take additional action, if
appropriate.
The following table is an analysis of the Company's nonperforming loans for
December 31, 1996 and 1995 (dollars in thousands):
1996 1995 Dollar Change
---------- --------- ---------------
Nonaccrual loans $2,283 $1,478 $805
Accruing loans 90 days past due 6,072 11,405 (5,333)
---------- ---------- ---------------
Total nonperforming loans $8,355 $12,883 ($4,528)
---------- ---------- ---------------
---------- ---------- ---------------
Nonperforming loans as a percent
of total loans 1.1% 1.7%
Other real estate $2,757 $8,317 ($5,560)
---------- ---------- --------------
---------- ---------- --------------
OTHER REAL ESTATE. During 1996, other real estate decreased $5.5 million
(66.9%) to $2.8 million at December 31, 1996 from $8.3 million at December
31, 1995. This decrease includes a $5.0 million reduction for a property that
was written off with the Company's interest of $3.8 million charged to
earnings. Sales of properties had an aggregate carrying value of $2.3 million
while additions of properties totaled of $2.1 million. Management continues
its efforts to reduce its holdings in other real estate.
DEPOSITS. Total deposits increased $69.6 million (6.8%) to $1,099.4 million
at December 31, 1996 from $1,029.8 million at December 31, 1995. This
increase was principally due to the successful marketing of certificates of
deposit. The proceeds from the increases in deposits were used to meet loan
demand and to purchase investment securities.
Year-end balances in the Company's major categories of deposits for December
31 are summarized in the following table (dollars in thousands):
Dollar Percent
1996 1995 Change Change
--------- ---------- -------- --------
Demand and other
noninterest-bearing $102,582 $104,821 ($2,239) (2.1)%
NOW accounts 182,862 191,626 (8,764) (4.6)
Money market savings 342,872 340,714 2,158 0.6
Time, $100,000 and over 86,343 68,063 18,280 26.9
Time, other 384,738 324,565 60,173 18.5
---------- ---------- -------- --------
Total $1,099,397 $1,029,789 $69,608 6.8%
---------- ---------- -------- --------
---------- ---------- -------- --------
The Company attempts to remain highly competitive in its market by offering
competitive rates on its savings and certificate of deposit products.
Although the Company promotes its deposit products when appropriate,
management does not intend to compromise its net interest margin to attract
deposits.
CAPITAL RESOURCES
Shareholders' equity increased $8.1 million (7.4%) to approximately $118.3
million at December 31, 1996 from $110.2 million at December 31, 1995. This
increase was the result of the net retention of 1996 earnings of $9.0 million
in addition to the change in the unrealized loss on securities available for
sale of $.9 million (net of taxes).
Management has been advised that as of December 31, 1996 and 1995, each of
the Subsidiaries qualified as a "well-capitalized" institution as defined by
the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended.
27
<PAGE>
LIQUIDITY
Effective liquidity management allows a banking institution to accommodate
the changing net funds flow requirements of customers who may deposit or
withdraw funds, or modify their credit requirements. One of the principal
obligations of the banking system, and individual banks, is to provide for
the withdrawal of funds by depositors and the credit demands of customers.
The Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality, interest rate sensitivity, maturity
schedules of earning assets and liabilities. Appropriate responses to changes
in these conditions preserve customer confidence in the ability of the
Company to continually meet the deposit withdrawal and credit requirements of
its customers.
Generally, the Company uses cash and cash equivalents to meet its liquidity
needs. Additional liquidity is provided by maintaining assets which mature
within a short time-frame or which may be quickly converted to cash without
significant loss. These assets include interest-bearing deposits in financial
institutions and the FHLB, federal funds sold and investment securities
available for sale. As of December 31, 1996 and 1995, liquid assets
represented 18.4% and 19.3% of total assets, respectively.
During 1996, the Company's cash and cash equivalents decreased approximately
$19.7 million. Operating activities caused an increase to cash and cash
equivalents of approximately $24.3 million from the prior year. Investing
activities caused a decrease of approximately $108.1 million while financing
activities resulted in an increase of approximately $64.1 million.
INCOME STATEMENT ANALYSIS -- 1996 COMPARED TO 1995
GENERAL. The Company's 1996 net income of $15.9 million represented an
increase of $2.4 million (17.9%) from 1995 net income of $13.5 million. This
increase was primarily due to a $4.2 million improvement in net interest income
and other operating income also increased by $2.1 million during this period.
These increases were offset by an increase in total other operating expense of
$4.0 million.
NET INTEREST INCOME. Net interest income is the primary source of income for
the Company. Net interest income is the difference between interest income
earned on earning assets and interest expense paid on interest-bearing
liabilities. As such, net interest income is affected by changes in the
volume and yields on earning assets and the volume and rates paid on
interest-bearing liabilities. Interest-earning assets consist of loans,
deposits in financial institutions, deposits in the FHLB, federal funds sold
and investment securities. Interest-bearing liabilities primarily consist of
deposits, federal funds purchased and FHLB advances. Net interest margin is
the difference between tax equivalent net interest income and average earning
assets. Total interest income, on a tax equivalent basis, increased $5.5
million (6.6%) to $90.0 million for the year ended December 31, 1996 from
$84.5 million for year ended December 31, 1995. This increase resulted from
an increase of $6.9 million due to growth in average balances which was
offset by a ($1.4) million decrease due to declining interest rates. The
Company's average interest-earning assets grew $85.9 million (8.6%) to
$1,079.5 million at December 31, 1996 from $993.6 million at December 31,
1995. Yields on total interest-earning assets decreased primarily due to
decreases in average interest rates on the Company's commercial loan
portfolio and federal funds sold portfolio. Specifically, the Company's
average prime rate decreased to 8.3% for 1996 from 8.8% for 1995. The average
federal funds rate decreased to 5.3% for 1996 from 5.7% for 1995. Average
rates on the securities portfolio remained level as the Company sought to
minimize credit risk to the portfolio while achieving an acceptable rate of
return.
Total interest expense increased $1.0 million (2.5%) to $38.4 million for the
year ended December 31, 1996 from $37.4 million for the year ended December
31, 1995. Of this increase, $3.3 million was due to growth in average
balances while ($2.3) million was due to declining interest rates. Average
interest-bearing liabilities increased $70.4 million (8.2%) to $932.7 million
for the year ended December 31, 1996 from $862.3 million for the year ended
December 31, 1995 primarily due to deposit promotions.
28
<PAGE>
The following table reflects the impact of changes in volume and interest
rates on interest-earning assets and interest-bearing liabilities for each of
the two years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
compared to 1995 compared to 1994
Change due to: Change due to:
Volume Rate Total Volume Rate Total
-------- ------ ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning deposits in
financial institutions $9 $9 ($23) ($3) ($26)
Federal funds sold 16 ($125) (109) 940 266 1,206
Investment securities 2,752 (542) 2,210 (80) 197 117
Mortgage-backed securities (740) (740)
Loans 4,095 (650) 3,445 4,861 8,936 13,797
-------- ------ ------- -------- ------ --------
Total interest income 6,872 (1,317) 5,555 4,958 9,396 14,354
-------- ------ ------- -------- ------ --------
INTEREST EXPENSE
Interest-bearing deposits 3,043 (2,244) 799 2,862 7,033 9,895
Borrowed funds 223 (77) 146 (40) 128 88
-------- ------ ------- -------- ------ --------
Total interest expense 3,266 (2,321) 945 2,822 7,161 9,983
-------- ------ ------- -------- ------ --------
Net interest income $3,606 $1,004 $4,610 $2,136 $2,235 $4,371
-------- ------ ------- -------- ------ --------
-------- ------ ------- -------- ------ --------
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $.3
million (18.6%) to $1.5 million in 1996 compared to $1.8 million in 1995. The
lower provision was the result of management determining the level of the
allowance for loan losses. A more detailed discussion concerning the
allowance for loan losses is presented in the Allowance for Loan Losses and
Asset Quality section of this report.
OTHER OPERATING INCOME. During 1996, other operating income increased $2.1
million (26.5%) to $9.9 million in 1996 compared to $7.8 million in 1995.
This increase was primarily due to the recording of $1.1 million of income
from a refund of the over funding of a terminated benefits plan of WSB
Aurora. The Company also experienced a gain on investment securities
available for sale of $.4 million during this period. Additionally, the
Company also recognized increased service fees along with increased
interchange income brought about from the Company's check card which was
introduced during mid-1995.
OTHER OPERATING EXPENSE. Other operating expense increased $4.0 million
(13.1%) to $34.2 million in 1996 from $30.2 million in 1995. Salary and
employee benefits increased $1.7 million due to increased salary levels and
the operation of additional facilities. FDIC insurance declined $.1 million
(8.2%) to $1.1 million for the year ended December 31, 1996 from $1.2 million
for the year ended December 31, 1995. This occurred due to reduced insurance
premiums being paid by the Company's bank subsidiaries. The reduced premiums
of the subsidiaries were offset by the payment by WSB Aurora of a special
assessment to the FDIC of $.8 million, which was imposed under the Deposit
Insurance Funds Act of 1996 (the "DIFA"). Other real estate expense increased
$1.5 million during the same period. This increase reflects a $3.8 million
write-down of a property and approximately $.9 million in expenses related to
this property during the year ended December 31, 1996. During 1995, the
Company incurred a $1.5 million write-down and approximately $1.8 million in
expenses related to this same property. Occupancy expense and furniture and
equipment expense increased $.1 million and $.2 million, respectively, for
the year ended December 31, 1996. These increases were primarily due to
expenses incurred with the opening and operation of new facilities. Data
processing expense decreased $.1 million during this period. Other operating
expense increased $.6 million during this period. This was principally due to
increased loan expense.
INCOME TAXES. Income tax expense increased $.2 million (2.7%) to $8.5
million in 1996 from $8.3 million in 1995. This increase was principally due
to higher taxable income and was offset by provisions made during the first
six months of 1995 for potential adjustments to prior years' income tax
returns.
RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.38% for
1996 and 1.27% for 1995 as net income and average total assets grew. The
Company has consistently achieved at least a 1.0% annual return on average
total assets, which is considered an industry benchmark.
29
<PAGE>
INCOME STATEMENT ANALYSIS -- 1995 COMPARED TO 1994
GENERAL. The Company's 1995 net income of $13.5 million represented an
increase of $.5 million (3.8%) from 1994 net income of $13.0 million. This
increase was primarily due to a $4.4 million improvement in net interest
income on a fully tax equivalent basis and reductions of $.4 million and $.7
million in the provision for loan losses and income tax expense,
respectively. Offsetting a portion of the rise in net income was a decrease
in total other operating income of $1.9 million and an increase in total
other operating expense of $3.0 million.
NET INTEREST INCOME. Net interest income is the primary source of income for
the Company. Net interest income is the difference between interest income
earned on earning assets and interest expense paid on interest-bearing
liabilities. As such, net interest income is affected by changes in the
volume and yields on earning assets and the volume and rates paid on
interest-bearing liabilities. Interest-earning assets consist of loans,
deposits in financial institutions, deposits in the FHLB, federal funds sold
and securities. Interest-bearing liabilities primarily consist of deposits,
federal funds purchased and FHLB advances. Net interest margin is the ratio
of tax equivalent net interest income to average earning assets. Total
interest income, on a tax equivalent basis, increased $14.4 million (20.5%)
to $84.5 million for the year ended December 31, 1995 from $70.1 million for
the year ended December 31, 1994. Of this increase, $5.0 million was due to
average balance changes while $9.4 million was due to interest rate changes.
The Company's average interest-earning assets grew $64.9 million (7.0%) to
$993.6 million at December 31, 1995 from $928.7 million at December 31, 1994.
Yields on total interest-earning assets increased primarily due to increases
in average interest rates on the loan portfolio as the Company's average
prime rate increased to 8.8% for 1995 from 7.2% for 1994. Average rates on
the securities portfolio remained level as the Company sought to minimize
credit risk to the portfolio while achieving an acceptable rate of return.
Additionally, the Company took advantage of higher yields on federal funds
sold during 1995.
Total interest expense increased $10.0 million (36.4%) to $37.4 million for
the year ended December 31, 1995 from $27.4 million for the year ended
December 31, 1994. Of this increase, $2.8 million was due to average balance
increases while $7.2 million was due to increases in interest rates. Average
interest-bearing liabilities increased $54.1 million (6.7%) to $862.3 million
at December 31, 1995 from $808.2 million at December 31, 1994 due to
customers taking advantage of the availability of higher rates on deposit
products.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $.4
million (16.5%) to $1.8 million in 1995 compared to $2.2 million in 1994. The
lower provision was the result of management determining the level of the
allowance for loan losses.
OTHER OPERATING INCOME. During 1995, other operating income decreased $1.9
million (19.2%) to $7.8 million in 1995 compared to $9.7 million in 1994.
This decrease was primarily attributable to the $1.5 million net realized
gain on sales of securities available for sale during 1994. The 1994 income
was principally due to the liquidation of the mortgage-backed securities
portfolio. The Company also recognized a $.4 million gain on sale of other
real estate during 1994.
OTHER OPERATING EXPENSE. Other operating expense increased $3.0 million
(11.1%) to $30.2 million in 1995 from $27.2 million in 1994. Salary and
employee benefits increased $.4 million primarily due to expenses relating to
the opening of new facilities. Other real estate expense increased $2.7
million during this same period. This increase reflects a $1.5 million
write-down of a property classified as other real estate during 1995. In
addition, the Company incurred approximately $1.1 million in expenses related
to this property during the year ended December 31, 1995. FDIC insurance
premiums declined $.8 million (39.3%) to $1.2 million for the year ended
December 31, 1995 from $2.0 million for the year ended December 31, 1994.
This occurred due to the receipt by the Company's bank subsidiaries of
reimbursement credits of approximately $.5 million as a result of being
well-capitalized institutions and the over-funding of the insurance reserve
of the Bank Insurance Fund of the FDIC and reduced FDIC insurance premiums.
Occupancy expense and furniture and equipment expense increased $.5 million
and $.2 million, respectively, for the year ended December 31, 1995. These
increases were primarily due to expenses incurred with the opening and
operation of new facilities.
INCOME TAXES. Income tax expense declined $.7 million (7.6%) to $8.3 million
in 1995 from $9.0 million in 1994. The lower income tax expense in 1995 was
due to a reduction in the amounts provided for potential adjustments to prior
years' income tax returns.
30
<PAGE>
RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.27% for
1995 and 1.29% for 1994 as net income and average total assets grew. The
Company has consistently achieved at least a 1.0% annual return on average
total assets, which is considered an industry benchmark.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, FASB issued SFAS 125, "Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides new accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. Those standards are
based on consistent application of a "financial-components" approach that
focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
SFAS 125 is effective for the Company beginning January 1, 1997. Management
believes that the adoption of SFAS 125 will not have a material impact on the
Company's financial condition or results of operations.
In December 1996, FASB issued SFAS 127, "Deferral of the Effective Date of
Certain Provisions of SFAS 125", which defers the effective date of certain
of the provisions of SFAS 125 for one year.
INTEREST RATE SENSITIVITY
The Company attempts to maintain a conservative posture with regard to interest
rate risk by actively managing its asset/liability gap position 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 its interest rate is subject to change or upon maturity.
Movements in general market interest rates are a key element in changes in the
net interest margin. The Company's policy is to manage its balance sheet so
that fluctuations in net interest margin are minimized regardless of the level
of interest rates, although the net interest margin does vary somewhat due to
management's response to increasing competition from other financial
institutions.
31
<PAGE>
Listed below are the balances in the major categories of rate sensitive assets
and liabilities that are subject to repricing as of December 31, 1996 (dollars
in thousands):
<TABLE>
<CAPTION>
Over
Three Over One
Three Months To Year 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 $240 $240
Federal funds sold 29,890 29,890
Investment securities 18,910 $49,980 $198,248 $61,631 328,769
Loans 282,050 360,790 451 148,271 791,562
-------------------------------------------------
Total $331,090 $410,770 $198,699 $209,902 $1,150,461
-------------------------------------------------
-------------------------------------------------
Rate sensitive liabilities:
Money market savings $342,872 $342,872
NOW accounts 182,862 182,862
Time deposits:
Less than $100,000 107,854 $157,169 $119,715 384,738
$100,000 and over 47,464 23,195 $15,684 86,343
FHLB advances 1,350 1,350
-------------------------------------------------
Total $682,402 $180,364 $119,715 $15,684 $998,165
-------------------------------------------------
-------------------------------------------------
Interest sensitivity gap ($351,312) $230,406 $78,984 $194,218 $152,296
Cumulative interest
sensitivity gap (351,312) (120,906) (41,922) 152,296
Cumulative net interest-
earning assets as a
percentage of net
interest-bearing
liabilities 48.5% 86.0% 95.7% 115.3%
Cumulative interest
sensitivity gap as a
percentage of total assets (28.4) (9.8) (3.4) 12.3
</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 consolidated interest
rate sensitivity position of the Company within the one year window at December
31, 1996 reflects cumulative net interest-earning assets compared to cumulative
net interest-bearing liabilities of 86.0% and cumulative net interest-earning
assets that reprice or mature within one year compared to similarly sensitive
liabilities of negative 9.8%. The percentage indicated for the cumulative net
interest-earning assets as a percentage of net interest-bearing liabilities is
within the Company's target range of acceptable gap values for the three-month
to twelve-month time frame.
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of change as goods and services,
since such prices are affected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
32
<PAGE>
RECENT DEVELOPMENTS
During January 1997, the Company settled a claim relating to an investment that
it made during the late 1980's. The settlement amount of $2.3 million was
received in February 1997 and recognized as other operating income in 1997.
During January 1997, the Company filed with the appropriate regulatory
authorities, applications to merge its four bank subsidiaries and its thrift
subsidiary into a single bank under the name "West Suburban Bank". The Company
anticipates that this merger will be completed during the second quarter of
1997.
During March 1997, the Company sold its interest in a property held as other
real estate for $1.5 million. As the property was previously written off, this
amount represents a gain recognized during 1997 as other operating income.
Effective April 1, 1997, John A. Clark, President, Chief Executive Officer and
a director of the Company, will retire from service for the Company.
33
<PAGE>
[INSERT WSB LOGO]
34
<PAGE>
BOARDS OF DIRECTORS
<TABLE>
<S> <C>
WEST SUBURBAN BANCORP, INC.
Kevin J. Acker Chairman of the Board
John A. Clark President and Chief Executive Officer
David Bell Certified Public Accountant
Charles P. Howard Business Operations Director, Inner City Impact
Peggy P. LoCicero Former Banker
WEST SUBURBAN BANK
Keith W. Acker President and Chairman of the Board
David Bell Certified Public Accountant
John A. Clark Executive Vice President
Richard Hill Lauber J & E Duff, Inc.
Peggy P. LoCicero Former Banker
James Bell Director Emeritus
Harold Moser Director Emeritus
WEST SUBURBAN BANK OF DOWNERS GROVE/LOMBARD
Craig R. Acker Chairman of the Board
Eileen V. Abbamonte Former Banker
Jeffrey J. Bell Member Board of Directors, Lexington Health Care &
Retirement Communities
Duane G. Debs President and Comptroller
Randall Patterson Senior Systems Analyst
George Hazdra Director Emeritus
Harry Kuhn Director Emeritus
WEST SUBURBAN BANK OF DARIEN
Alana S. Acker President and Chairman of the Board
F. Willis Caruso Attorney
Richard P. McCarthy Vice President, Macom Corporation
Thomas Patterson Contractor
Gregory M. Ruffolo Executive Vice President
WEST SUBURBAN BANK OF CAROL STREAM/STRATFORD SQUARE
Paul J. Lehman Chairman of the Board; President, Macom Corporation
Kevin J. Acker President
Earl K. Harbaugh President, Ditch Witch of Illinois
Brian Howard President, Howard Concrete
Ronald Kuhn Contractor
Walter Myers President, Terrace Supply
John G. Williams Vice President, Bracing Systems
WEST SUBURBAN BANK OF AURORA, F.S.B.
John A. Clark Chairman of the Board and Executive Vice President
Jacqueline R. Weigand President
Craig R. Acker Chairman of the Board, West Suburban Bank of Downers
Grove/Lombard
Alejandro Benavides President, Pomona Valley Farms, Inc.
Michael P. Brosnahan Senior Vice President
Timothy P. Dineen Vice President, Loans
Robert W. Schulz Vice President and Treasurer, Oliver Hoffman Corporation
Ralph Weber Director Emeritus
</TABLE>
35
<PAGE>
OFFICERS
<TABLE>
<S> <C>
WEST SUBURBAN BANCORP, INC.
John A. Clark President and Chief Executive Officer
Keith W. Acker Vice President, Chief Operations Officer
Duane G. Debs Vice President, Chief Financial Officer, Secretary to the Board
and Treasurer
David J. Mulkerin Chief Compliance Officer
George Ranstead Assistant Secretary to the Board and Assistant Treasurer
Michael J. Lynch Director of Internal Audit
WEST SUBURBAN BANK
Keith W. Acker President and Data Processing Manager
John A. Clark Executive Vice President
Michael P. Brosnahan Senior Vice President and Community Reinvestment Act Officer
Raymond P. Rynne Senior Vice President, Business Administration
Danielle Budig Vice President, Operations
Duane G. Debs Vice President and Comptroller
Edward J. Garvey Vice President, Facility Management
Steven A. Jennrich Vice President, Data Processing
John A. Machonga Vice President, Investments and Trust Officer
David S. Orr Vice President, Loans
George Ranstead Vice President, Cashier and Secretary to the Board
Gregory M. Ruffolo Vice President, Loans
Allison J. Triplett Vice President, Loss Prevention Officer
Jaqueline R. Weigand Vice President, Operations and VISA
Marcia K. Worobec Vice President, Facility Manager - Westmore
Gregory L. Young Vice President, Loans
Michael Abbatacola Assistant Vice President, Financial Services
Barbara Darden Assistant Vice President, Facility Manager - Westmont
Jill C. Davenport Assistant Vice President, Operations
Joyce Dudek Assistant Vice President, Facility Manager - Danada
Marie V. Dunk Assistant Vice President, Personnel Director
Marlene A. Johnson Assistant Vice President, Facility Manager - Oakbrook Terrace
Hanif Kolata Assistant Vice President, Facility Manager - Bolingbrook West
Ronaele Lewand Assistant Vice President, Facility Manager - Wheaton
Mark Mascarella Assistant Vice President, Facility Manager - Villa Park
Gwen B. O'Loughlin Assistant Vice President, Facility Manager - North Main
Kay J. Piotrowski Assistant Vice President, Facility Manager - Naperville
Helen Schmitt Assistant Vice President, Purchasing
Joanne T. Tosch Assistant Vice President, Director of Employee Development
Nelda D. Walters Assistant Vice President, Facility Manager - President Street
Patricia L. Fleischman Trust Officer
Debra H. Kolze Commercial Loan Operations Manager
Michael J. Lynch Director of Internal Audit
Joseph Maloney Director of Marketing
Cynthia A. Meredith Home Equity Loan Operations Manager
David J. Mulkerin Compliance Officer
David Wanek Loan Officer
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
WEST SUBURBAN BANK OF DOWNERS GROVE/LOMBARD
Duane G. Debs President and Comptroller
Beverly J. Viscariello Vice President, Cashier
Michael P. Brosnahan Vice President and Community Reinvestment Act Officer
John A. Clark Vice President, Loans
David S. Orr Vice President, Loans
Gregory L. Young Vice President, Loans
Michael Abbatacola Assistant Vice President, Financial Services
Norine LaPrall Assistant Vice President, Facility Manager - Warrenville
Jerome Sheeman Assistant Vice President, Facility Manager - Finley Road
Jay J.P. Greifenkamp Secretary to the Board
Michael J. Lynch Director of Internal Audit
WEST SUBURBAN BANK OF DARIEN
Alana S. Acker President
Gregory M. Ruffolo Executive Vice President and Secretary to the Board
Rose Marie Little Vice President, Facility Manager - Cass Ave. and Cashier
Michael P. Brosnahan Vice President and Community Reinvestment Act Officer
John A. Clark Vice President, Loans
Duane G. Debs Vice President and Comptroller
Michael Abbatacola Assistant Vice President, Financial Services
Terry L. Leitner Assistant Vice President, Facility Manager - 75th Street
Sue Nuestrom Assistant Vice President, Facility Manager - Bolingbrook East
Michael J. Lynch Director of Internal Audit
WEST SUBURBAN BANK OF CAROL STREAM/STRATFORD SQUARE
Kevin J. Acker President
Michael P. Brosnahan Vice President and Community Reinvestment Act Officer
Stanley C. Celner, Jr. Vice President, Loans
John A. Clark Vice President, Loans
Duane G. Debs Vice President and Comptroller
Michael Abbatacola Assistant Vice President, Financial Services
Sharon Buck Assistant Vice President, Facility Manager - St. Charles
Betty Carbonara Assistant Vice President, Facility Manager - Fair Oaks
Sharon A. Fonte Assistant Vice President, Facility Manager - Glendale Heights
Roseann Hamilton Assistant Vice President, Facility Manager - Carol Stream
Robert L. Pauling Assistant Vice President, Facility Manager - Stratford Square
Paula Sissel Assistant Vice President, Facility Manager - Bartlett
Jay J.P. Greifenkamp Secretary to the Board
Michael J. Lynch Director of Internal Audit
WEST SUBURBAN BANK OF AURORA, F.S.B.
Jacqueline R. Weigand President
John A. Clark Executive Vice President
Michael P. Brosnahan Senior Vice President and Community Reinvestment Act Officer
Karin I. Choate Vice President, Loan Servicing
Duane G. Debs Vice President and Comptroller
Timothy P. Dineen Vice President, Loans
George Ranstead Vice President, Secretary to the Board and Treasurer
Michael Abbatacola Assistant Vice President, Financial Services
Amy L. Andrews Assistant Vice President, Facility Manager - Montgomery
Kathleen Brockman Assistant Vice President, Facility Manager - Lake Street
Cynthia Picton Assistant Vice President, Facility Manager - Galena Blvd.
Tammy Hatcher Mortgage Operations Manager
Michael J. Lynch Director of Internal Audit
</TABLE>
37
<PAGE>
WEST SUBURBAN BANCORP, INC.
711 S. MEYERS ROAD
LOMBARD, ILLINOIS
<TABLE>
<S><C>
WEST SUBURBAN BANK
- - West Suburban Bank: 711 S. Meyers Rd., Lombard, IL 60148 - (630) 629-4200
- - North Main Street Facility: 707 N. Main St., Lombard, IL 60148 - (630) 691-8558
- - Villa Park Facility: 29 E. St. Charles Rd., Villa Park, IL 60181 - (630) 832-8775
- - Oakbrook Terrace Facility: 17W754 22nd St., Oakbrook Terrace, IL 60181 - (630) 916-1195
- - Metra Main Facility: 100 S. Main St., Lombard, IL 60148 - (630) 268-9010
- - President Street Facility: 879 Geneva Rd., Carol Stream, IL 60188 - (630) 752-1175
- - Bolingbrook West Facility: 1104 W. Boughton Rd., Bolingbrook, IL 60440 - (630) 378-9680
- - Danada Square Facility: 295 W. Loop Rd., Wheaton, IL 60187 - (630) 871-9890
- - Wheaton Facility: 221 S. West St., Wheaton, IL 60187 - (630) 221-8220
- - Westmont Facility: 6400 S. Cass Ave., Westmont, IL 60559 - (630) 963-2735
- - Naperville Facility: 2020 Feldott Ln., Naperville, IL 60540 - (630) 416-3800
WEST SUBURBAN BANK OF DOWNERS GROVE/LOMBARD
- - West Suburban Bank of Downers Grove/Lombard: 2800 S. Finley Rd., Downers Grove, IL 60515 - (630) 495-3600
- - S. Main Street Facility: 1122 S. Main St., Lombard, IL 60148 - (630) 495-3605
- - Warrenville Facility: 3S041 Rte. 59, Warrenville, IL 60555 - (630) 393-6060
- - Mr. Z's: 401 S. Main St., Lombard, IL 60148
WEST SUBURBAN BANK OF DARIEN
- - West Suburban Bank of Darien: 8001 S. Cass Ave., Darien, IL 60561 - (630) 852-6900
- - 75th Street Facility: 1005 75th St., Darien, IL 60561 - (630) 852-9226
- - Bolingbrook East Facility: 672 E. Boughton Rd., Bolingbrook, IL 60440 - (630) 972-9550
WEST SUBURBAN BANK OF CAROL STREAM/STRATFORD SQUARE
- - West Suburban Bank of Carol Stream/Stratford Square: 355 W. Army Trail Rd., Bloomingdale, IL 60108 - (630) 351-0600
- - Carol Stream Facility: 401 N. Gary Ave., Carol Stream, IL 60188 - (630) 690-8700
- - Fair Oaks Facility: 1380 Army Trail Rd., Carol Stream, IL 60188 - (630) 213-5920
- - Glendale Heights Facility: 1657 Bloomingdale Rd., Glendale Heights, IL 60139 - (630) 690-8600
- - Bartlett Facility: 1061 W. Stearns Rd., Bartlett, IL 60103 - (630) 830-5330
- - St. Charles Facility: 315 S. Randall Rd., St. Charles, IL 60174 - (630) 377-6930
WEST SUBURBAN BANK OF AURORA, F.S.B.
- - West Suburban Bank - Aurora, F.S.B.: 101 N. Lake St., Aurora, IL 60507 - (630) 844-5200
- - Galena Facility: 2000 W. Galena Blvd., Aurora, IL 60507 - (630) 896-7000
- - Montgomery Facility: 1830 Douglas Rd., Montgomery, IL 60538 - (630) 844-5600
WS 24 ATMs are available at all of the above banking locations.
VISA HEADQUARTERS, 701 S. MEYERS RD., LOMBARD, IL 60148 - (630) 629-4200
FINANCIAL CENTER, 717 S. MEYERS RD., LOMBARD, IL 60148 - (630) 629-4200
LEXINGTON SQUARE OF ELMHURST, ELMHURST, IL 60126
LEXINGTON SQUARE OF LOMBARD, LOMBARD, IL 60148
BEACON HILL, LOMBARD, IL 60148
</TABLE>
WHERE STRENGTH IS MATCHED BY SERVICE
38
<PAGE>
[INSERT MAP]
39
<PAGE>
ANNUAL REPORT ON FORM 10-K
A copy of West Suburban Bancorp, Inc.'s Annual Report on Form 10-K, filed with
the Securities and Exchange Commission, is available without charge by writing:
Mr. Duane G. Debs, Chief Financial Officer
West Suburban Bancorp, Inc., 2800 S. Finley Road, Downers Grove, Illinois
60515.
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of West Suburban Bancorp, Inc. will be held
at West Suburban Bank, 711 South Meyers Road, Lombard, Illinois on Wednesday,
May 14, 1997 at 8:00 a.m. All shareholders are cordially invited to attend.
STOCK TRANSFER AGENT AND REGISTRAR
Inquiries regarding stock transfer, registration, lost certificates or changes
of name and address should be directed to the stock transfer agent and
registrar by writing:
Patricia L. Fleischman, Trust Officer
West Suburban Bank, 17W754 22nd Street, Oakbrook Terrace, Illinois 60181.
COMMUNITY REINVESTMENT ACT
West Suburban Bancorp, Inc. adheres to a well-established policy of helping to
meet the credit needs of our local communities, consistent with safe and sound
lending practices, in accordance with the Community Reinvestment Act. For
additional information, contact:
Mr. Michael P. Brosnahan, Senior Vice President and Community Reinvestment Act
Officer.
West Suburban Bank, 711 South Meyers Road, Lombard, Illinois 60148.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
MEMBER FDIC
40
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Subsidiary State Of Incorporation
- ---------- ----------------------
West Suburban Bank Illinois
West Suburban Bank of Downers Grove/Lombard Illinois
West Suburban Bank of Darien Illinois
West Suburban Bank of Carol Stream/Stratford Square Illinois
West Suburban Bank of Aurora, F.S.B. Federally-chartered
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,650
<SECURITIES> 328,769
<RECEIVABLES> 0
<ALLOWANCES> 9,603
<INVENTORY> 0
<CURRENT-ASSETS> 741,860
<PP&E> 30,130
<DEPRECIATION> 26,953
<TOTAL-ASSETS> 1,235,604
<CURRENT-LIABILITIES> 862,765
<BONDS> 0
0
0
<COMMON> 3,457
<OTHER-SE> 114,881
<TOTAL-LIABILITY-AND-EQUITY> 1,235,604
<SALES> 0
<TOTAL-REVENUES> 98,454
<CGS> 0
<TOTAL-COSTS> 37,787
<OTHER-EXPENSES> 34,150
<LOSS-PROVISION> 1,505
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> 24,440
<INCOME-TAX> 8,498
<INCOME-CONTINUING> 15,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,942
<EPS-PRIMARY> 36.86
<EPS-DILUTED> 36.86
</TABLE>
