<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission File Number 0 -17609
WEST SUBURBAN BANCORP, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
ILLINOIS 36-3452469
--------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
711 SOUTH MEYERS ROAD, LOMBARD, ILLINOIS 60148
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 629-4200
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock as of the latest practicable date.
1,000,000 shares of Common Stock, Class A, no par value, were authorized and
347,015 shares were issued and outstanding as of September 30, 1997.
1,000,000 shares of Common Stock, Class B, no par value, were authorized and
85,480 shares were issued and outstanding as of September 30, 1997.
<PAGE>
WEST SUBURBAN BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
Page Number
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . .10
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .17
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . .17
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . .17
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .17
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . .17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .17
Form 10-Q Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . .18
THIS REPORT INCLUDES 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. WEST SUBURBAN BANCORP, INC. (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, AS AMENDED, 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 COMPANY AND ITS SUBSIDIARY
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 OTHER FILINGS OF THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 32,369 $ 38,520
Interest-bearing deposits in financial institutions 322 240
Federal funds sold 34,300 29,890
---------- ----------
Total cash and cash equivalents 66,991 68,650
Investment securities:
Available for sale (amortized cost of $208,906 in
1997; $159,614 in 1996) 209,048 158,578
Held to maturity (fair value of $171,589 in
1997; $170,202 in 1996) 170,950 170,191
Loans, less allowance for loan losses of $9,980 in 1997;
$9,603 in 1996 780,850 784,242
Premises and equipment, net 30,990 30,130
Other real estate 2,065 2,757
Accrued interest and other assets 19,662 21,056
---------- ----------
TOTAL ASSETS $1,280,556 $1,235,604
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 105,183 $ 102,583
Interest-bearing 1,027,678 996,814
---------- ----------
Total deposits 1,132,861 1,099,397
FHLB advances 1,350
Accrued interest and other liabilities 18,174 16,519
---------- ----------
TOTAL LIABILITIES 1,151,035 1,117,266
---------- ----------
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 87,913 77,439
Unrealized gain (loss) on securities available for sale,
net of taxes 85 (624)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 129,521 118,338
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,280,556 $1,235,604
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 3
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $52,271 $52,629
------- -------
Investment securities:
Taxable 15,926 9,914
Nontaxable 1,582 1,474
------- -------
Total investment securities 17,508 11,388
Deposits in financial institutions 28 53
Federal funds sold 1,438 1,110
------- -------
Total interest income 71,245 65,180
------- -------
INTEREST EXPENSE
Deposits 32,833 27,294
Other 336 441
------- -------
Total interest expense 33,169 27,735
------- -------
Net interest income 38,076 37,445
PROVISION FOR LOAN LOSSES 847 1,183
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 37,229 36,262
------- -------
OTHER OPERATING INCOME
Service fees 2,574 2,756
Net realized gain on sales of securities available for sale 5 369
Trust fees 156 145
Net gain on sale of loans originated for sale 182 123
Loan servicing 544 680
Net gain on sale of other real estate 1,466 119
Other 5,074 3,426
------- -------
Total other operating income 10,001 7,618
------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 11,945 10,812
Occupancy 2,172 2,026
Furniture and equipment 1,945 1,986
FDIC insurance premiums 136 226
SAIF special assessment 816
Professional fees 581 810
Data processing 653 624
Other real estate 492 4,900
Other 4,081 4,071
------- -------
Total other operating expense 22,005 26,271
------- -------
INCOME BEFORE INCOME TAXES 25,225 17,609
Income taxes 8,704 6,112
------- -------
NET INCOME $16,521 $11,497
======= =======
NET INCOME PER SHARE $ 38.20 $ 26.58
======= =======
Cash Dividends Declared Per Share $ 13.50 $ 12.00
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 4
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $17,502 $17,448
------- -------
Investment securities:
Taxable 5,901 3,386
Nontaxable 511 518
------- -------
Total investment securities 6,412 3,904
Deposits in financial institutions 4 15
Federal funds sold 298 415
------- -------
Total interest income 24,216 21,782
------- -------
INTEREST EXPENSE
Deposits 11,409 9,396
Other 40 193
------- -------
Total interest expense 11,449 9,589
------- -------
Net interest income 12,767 12,193
PROVISION FOR LOAN LOSSES 276 388
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,491 11,805
------- -------
OTHER OPERATING INCOME
Service fees 849 971
Net realized gain on sales of securities available for sale 5
Trust fees 20 17
Net gain on sale of loans originated for sale 77 52
Loan servicing 126 215
Net (loss) gain on sale of other real estate (4) 99
Other 956 801
------- -------
Total other operating income 2,029 2,155
------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 3,694 3,619
Occupancy 708 678
Furniture and equipment 539 651
FDIC insurance premiums 52 75
SAIF special assessment 816
Professional fees 136 301
Data processing 248 242
Other real estate 110 3,919
Other 1,300 1,315
------- -------
Total other operating expense 6,787 11,616
------- -------
INCOME BEFORE INCOME TAXES 7,733 2,344
Income taxes 2,610 704
------- -------
NET INCOME $ 5,123 $ 1,640
======= =======
NET INCOME PER SHARE $ 11.85 $ 3.79
======= =======
CASH DIVIDENDS DECLARED PER SHARE $ 4.50 $ 4.00
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 5
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,521 $ 11,497
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,272 2,207
Provision for loan losses 847 1,183
Provision for deferred income taxes 1,609 3,051
Provision for loss on other real estate 5,460
Net premium amortization and discount accretion of investment
securities 394 361
Net realized gain on sales of investment securities available
for sale (5) (369)
Gain on sale of loans held for sale (182) (123)
Proceeds from sale of loans held for sale 1,675 552
Origination of loans held for sale (3,027) (475)
(Gain) loss on sale of premises and equipment (7) 38
Gain on sale of other real estate (1,466) (119)
Increase in accrued interest and other assets (684) (5,982)
Increase (decrease) in accrued interest and other liabilities 1,479 (505)
-------- -------
Total adjustments 2,905 5,279
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,426 16,776
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 20,649
Proceeds from maturities 46,408 12,486
Purchases (96,198) (30,700)
Investment securities held to maturity:
Proceeds from maturities 22,576 36,894
Purchases (23,226) (50,131)
Purchase of minority interest in subsidiaries (250)
Net decrease (increase) in loans 3,685 (25,244)
Purchases of premises and equipment (3,131) (3,427)
Proceeds from sale of premises and equipment 7 11
Proceeds from sale of other real estate 2,553 1,839
-------- -------
NET CASH USED IN INVESTING ACTIVITIES ($47,576) ($37,623)
-------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 6
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
(Dollars in thousands)
(UNAUDITED)
1997 1996
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits $33,463 $10,709
Decrease in FHLB advances (1,350)
Cash dividends paid (5,622) (5,082)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,491 5,627
------- -------
Net decrease in cash and cash equivalents (1,659) (15,220)
Cash and cash equivalents at beginning of period 68,650 88,345
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $66,991 $73,125
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits and other borrowings $29,857 $28,474
Income taxes $ 6,570 $ 8,063
Transfers from loans to other real estate $ 395 $ 668
The accompanying notes are an integral part of the consolidated financial
statements. 7
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
During the first quarter of 1997, West Suburban Bancorp, Inc. (the "Parent")
received approvals from the Federal Deposit Insurance Corporation, the Office
of the Illinois Commissioner of Banks and Real Estate and the Office of
Thrift Supervision to merge its four bank subsidiaries and its thrift into
one state chartered bank under the name "West Suburban Bank". The Parent
together with its subsidiary, West Suburban Bank may be referred to as the
"Company". On May 17, 1997, the Company's subsidiaries were merged and since
that date, the Company has conducted its banking activities through its
single bank subsidiary. The merger had no significant impact on the Company's
financial condition or results of operations.
The consolidated financial statements include the accounts of the Company and
its subsidiary. Significant intercompany accounts and transactions have been
eliminated. The unaudited interim consolidated financial statements include
the accounts of the Company and are prepared pursuant to the rules and
regulations for reporting on Form 10-Q. Accordingly, certain information and
footnote disclosures normally accompanying the annual financial statements
have been omitted. The interim financial statements and notes should be read
in conjunction with the consolidated financial statements and notes thereto
included in the latest Annual Report on Form 10-K filed by the Company. The
consolidated financial statements include all adjustments (none of which were
other than normal recurring adjustments) necessary for a fair statement of
the results for the interim periods. The results for the interim periods are
not necessarily indicative of the results to be expected for the entire
fiscal year. Certain amounts reported in prior periods have been reclassified
to conform to the 1997 presentation.
NOTE 2 - SECURITIES
The Company does not invest in trading securities. Securities held to
maturity are classified as such only when the Company determines it has both
the ability and positive intent to hold these securities to maturity. All
other securities are classified as available for sale. Held to maturity
securities are carried at amortized cost while available for sale securities
are carried at fair value with net unrealized gains and losses (net of taxes)
reported as a separate component of 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.
During the first nine months of 1997, the Company's unrealized loss on
securities available for sale improved $.7 million to a gain of $.1 million
at September 30, 1997 from a $.6 million loss at December 31, 1996, net of
taxes.
NOTE 3 - OUTSTANDING LINES OF CREDIT AVAILABLE - (Dollars in thousands)
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
Home equity lines $118,804 $108,526
Commercial credit lines 146,306 197,952
Letters of Credit 23,337 32,566
Visa credit lines 46,151 43,818
-------- --------
Total commitments $334,598 $382,862
======== ========
The Company had $2.5 million and $4.5 million of commitments to originate
residential mortgage loans as of September 30, 1997 and December 31, 1996,
respectively.
8
<PAGE>
NOTE 4 - ADOPTION OF NEW ACCOUNTING STANDARDS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards ("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 a 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.
The adoption of SFAS 125 did not have a material impact on the Company's
financial condition or results of operations.
In December 1996, the Financial Accounting Standards Board ("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.
In March 1997, the FASB issued SFAS 128, "Earnings Per Share", which
establishes new standards for computing and presenting earnings per share and
requires dual presentation of basic and diluted earnings per share. SFAS 128
is effective for financial statements for years ending after December 15,
1997 and all prior periods will be restated. The adoption of SFAS 128 will
not have an impact on the Company's earnings per share as the Company has no
outstanding common stock equivalents.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
ASSET DISTRIBUTION. Total consolidated assets at September 30, 1997 increased
approximately $45.0 million (3.6%) to $1,280.6 million at September 30, 1997
from $1,235.6 million at December 31, 1996. Total cash and cash equivalents
decreased $1.6 million (2.4%) to $67.0 million at September 30, 1997 from
$68.6 million at December 31, 1996. Cash and due from banks decreased $6.1
million to $32.4 million at September 30, 1997 from $38.5 million at December
31, 1996. The Company invested these funds together with funds obtained from
growth in deposits to increase its investment securities and federal funds
sold. Aggregate holdings in federal funds sold increased $4.4 million (14.8%)
to $34.3 million at September 30, 1997 from $29.9 million at December 31,
1996. Aggregate holdings in investment securities increased $51.2 million
(15.6%) to $380.0 million at September 30, 1997 from $328.8 million at
December 31, 1996. The Company's objectives in managing its securities
portfolio are driven by the dynamics of its 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 maintain liquidity, minimize
exposure to interest rate risk and achieve an acceptable rate of return.
Total loans decreased $3.0 million (.4%) to $790.8 million at September 30,
1997 from $793.8 million at December 31, 1996. Loan demand has remained level
as competition has intensified during the first nine months of 1997. The
Company strives to remain competitive in its market by offering competitive
rates on its loan products while not compromising its credit evaluation
standards to attract new business.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY. The allowance for loan losses is
an amount that management believes will be adequate to absorb losses on
existing loans that may become uncollectible. 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 $.4 million to $10.0 million at September 30, 1997 from $9.6
million at December 31, 1996. The ratio of the allowance for loan losses to
total loans outstanding increased at September 30, 1997 to 1.26% compared to
1.21% at December 31, 1996. Nonperforming loans increased $2.9 million
(43.3%) to $9.6 million at September 30, 1997 from $6.7 million at December
31, 1996. This increase was primarily due to increases in commercial loan
delinquencies along with several past due residential real estate loans.
Management is monitoring these accounts closely. As of September 30, 1997 and
December 31, 1996, total nonperforming loans to net loans were 1.2% and .9%,
respectively. The allowance for loan losses was approximately 104% and 144%
of the level of nonperforming loans at September 30, 1997 and December 31,
1996, respectively.
The following table presents an analysis of the Company's nonperforming loans
for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DOLLAR CHANGE
------------------ ----------------- -------------
<S> <C> <C> <C>
Nonaccrual loans $4,101 $2,283 $1,818
Accruing loans 90 days past due 5,485 4,405 1,080
------ ------ ------
Total nonperforming loans $9,586 $6,688 $2,898
====== ====== ======
Nonperforming loans as a percent
of net loans 1.2% .9%
Other real estate $2,065 $2,757 ($692)
====== ====== ======
</TABLE>
10
<PAGE>
The following table presents an analysis of the Company's provision for loan
losses for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------- -----------------
3RD QTR. 2ND QTR. 1ST QTR. 4TH QTR. 3RD QTR.
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Provision-quarter $276 $276 $295 $321 $388
Provision-year to date 847 571 295 1,505 1,184
Net chargeoffs-quarter 270 169 31 407 189
Net chargeoffs-year to date 470 200 31 802 395
Allowance at period end 9,980 9,974 9,867 9,603 9,689
Allowance to period end total loans 1.26% 1.26% 1.24% 1.21% 1.22%
</TABLE>
LIABILITY DISTRIBUTION. Total liabilities increased $33.7 million (3.0%) to
$1,151.0 million at September 30, 1997 from $1,117.3 million at December 31,
1996. This increase was primarily due to increases in certificates of deposit
balances arising from the Company offering competitive rates of return and
the success of the Company's 35th year anniversary promotion.
Balances in the Company's major categories of deposits are summarized in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DOLLAR CHANGE PERCENT
------------------ ----------------- ------------- -------
<S> <C> <C> <C> <C>
Demand and other noninterest-bearing $105,183 $102,583 $2,600 2.5%
NOW accounts 26,999 182,861 (155,862) (85.2)%
Money market savings 480,546 342,872 137,674 40.2%
Time, $100,000 and over 91,112 86,343 4,769 5.5%
Time, other 429,021 384,738 44,283 11.5%
---------- ---------- ------- ----
Total $1,132,861 $1,099,397 $33,464 3.0%
========== ========== ======= ====
</TABLE>
The Company attempts to remain well positioned in its market by offering
competitive rates on its savings and certificate of deposit products.
Although the Company promotes its savings products when appropriate,
management does not intend to compromise its net interest margin to attract
deposits.
SHAREHOLDERS' EQUITY. Shareholders' equity increased $11.2 million (9.5%) to
$129.5 million at September 30, 1997 from $118.3 million at December 31,
1996. This increase was primarily the result of the net retention of 1997
earnings of $10.9 million.
CAPITAL RESOURCES
The Company's capital ratios as well as those of its subsidiary as of
September 30, 1997 are presented below. All such ratios are in excess of the
regulatory capital requirements which call for a minimum total risk-based
capital ratio of 8% for the Company and its subsidiary (at least one-half of
the minimum total risk-based capital must consist of tier 1 capital), a
minimum leverage ratio (3% for the most highly rated banks that do not expect
significant growth; all other institutions are required to maintain a minimum
leverage capital ratio of 4% to 5% depending on their particular
circumstances and risk profiles) for the Company and its subsidiary. Bank
holding companies and their subsidiaries are generally expected to operate at
or above the minimum capital requirements and the ratios shown below are in
excess of regulatory minimums and should allow the Company and its subsidiary
to operate without capital adequacy concerns.
11
<PAGE>
The following table sets forth selected regulatory capital ratios of the Company
and its subsidiary at September 30, 1997:
TIER 1 TOTAL
RISK-BASED RISK-BASED LEVERAGE
INSTITUTION CAPITAL CAPITAL CAPITAL
----------- ------- ---------- --------
West Suburban Bancorp, Inc. 12.68% 13.67% 9.95%
West Suburban Bank 10.68% 11.68% 6.60%
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
provided 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 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. Management has been advised that
as of September 30, 1997 and December 31, 1996, the Company's subsidiary
qualified as a "well-capitalized" institution.
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. The Company manages its liquidity
position through continuous monitoring of profitability trends, asset quality,
interest rate sensitivity and maturity schedules of earning assets and
supporting liabilities.
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 costs. These assets include interest-bearing deposits in
financial institutions, federal funds sold and investment securities
available for sale. As of September 30, 1997 and December 31, 1996, liquid
assets represented 21.6% and 18.4% of total assets, respectively. A more
detailed discussion concerning these assets is presented in the Asset
Distribution Section of this report.
RATE SENSITIVITY GAPS
The Company attempts to maintain a conservative position with regard to interest
rate risk by actively managing its asset/liability gap positions and constantly
monitoring the direction and magnitude of gaps and risk. The Company attempts to
moderate the effects of changes in interest rates by adjusting its asset and
liability mix to achieve desired relationships between rate sensitive assets and
rate sensitive liabilities. Rate sensitive assets and liabilities are those
instruments that reprice within a given time period.
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 margins are minimized regardless of the level of
interest rates. However, the net interest margin does vary slightly due to
management's response to increasing competition from other financial
institutions.
12
<PAGE>
Listed below are the balances in the major categories of the rate sensitive
assets and liabilities that are subject to repricing as of September 30, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
THREE OVER THREE OVER ONE
MONTHS MONTHS TO YEAR TO OVER
OR LESS TWELVE MONTHS THREE YEARS THREE YEARS TOTAL
------- ------------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in financial
institutions $ 322 $ 322
Federal funds sold 34,300 34,300
Investment securities 12,120 $ 67,624 $86,303 $213,951 379,998
Loans 287,282 224,308 483 274,656 786,729
-------- -------- ------- -------- ----------
Total interest-earning assets $334,024 $291,932 $86,786 $488,607 $1,201,349
======== ======== ======= ======== ==========
Rate sensitive liabilities:
Money market savings $480,546 $ 480,546
NOW accounts 26,999 26,999
Time deposits:
Less than $100,000 153,935 $222,067 $44,969 $ 8,050 429,021
$100,000 and over 53,821 30,891 6,400 91,112
-------- -------- ------- -------- ----------
Total interest-bearing liabilities $715,301 $252,958 $44,969 $ 14,450 $1,027,678
======== ======== ======= ======== ==========
Interest sensitivity gap ($381,277) $ 38,974 $41,817 $474,157
Cumulative interest sensitivity gap ($381,277) ($342,303) ($300,486) $173,671 $ 173,671
Cumulative interest-earning assets as a
percentage of cumulative
interest-bearing liabilities 46.7% 64.6% 70.3% 116.9%
Cumulative interest sensitivity gap as a
percentage of total assets (29.8)% (26.7)% (23.5)% 13.6%
</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 September 30, 1997 reflects cumulative net
interest-earning assets compared to cumulative net interest-bearing
liabilities of 64.6% and cumulative net interest-earning assets that reprice
or mature within one year compared to total assets of negative 26.7%.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET INCOME. The Company's net income for the nine months ended September 30,
1997 and 1996 was approximately $16.5 million and $11.5 million,
respectively. This represents an increase of $5.0 million (43.7%) for the
1997 period when compared to the same period in 1996. This was primarily due
to the decrease in other real estate expense in 1997 when compared to the
same period in 1996. During 1996, the Company recognized a $3.8 million write
down of a property classified as other real estate. During 1997, the Company
sold this property and settled litigation regarding another property. The
Company recorded approximately $3.8 million in income relating to these
transactions for the nine month period ended September 30, 1997. The Company
recorded other income of approximately $1.1 million from a refund of the over
funding of a West Suburban Bank of Aurora, F.S.B. ("WSB Aurora") terminated
benefits plan for
13
<PAGE>
the nine month period ended September 30, 1996. Additionally, the Company
incurred a one-time special SAIF assessment of $.8 million during the nine
months ended September 30, 1996. Net interest income increased $.6 million
and the provision for loan loss decreased $.3 million. Increases to income
were partially offset by an increase to income tax expense of $2.6 million.
INTEREST INCOME. Total interest income, on a tax equivalent basis, increased
$6.1 million for the nine months ended September 30,1997 compared to the same
period in 1996. $7.0 million of this is attributable to growth in average
interest earning balances which was partially offset by ($.9) million due to
declining yields. The Company's average interest-earnings assets grew
$132.7 million to $1,193.2 million at September 30, 1997 from
$1,060.5 million at September 30, 1996. Yields on total interest-earnings
assets decreased primarily due to decreases in average interest rates on the
Company's loan portfolio primarily from the Company reducing its rates on its
home equity lines from prime plus one to prime. This reduction in rates was a
result of competitive conditions surrounding this product. Interest on the
Company's securities portfolio increased primarily due to higher yields on
U.S. government agencies and corporations and corporate securities along with
higher average outstanding balances.
INTEREST EXPENSE. Total interest expense increased $5.4 million for the
nine months ended September 30, 1997 compared to the same period during 1996.
Interest on deposits increased $5.5 million during this period. This change
was the result of a $5.4 million increase due to higher average balances and
a $.1 million increase related to higher interest rates. Average
interest-bearing liabilities increased $119.5 million to $1,034.0 million at
September 30,1997 from $914.5 million at September 30,1996 primarily due to
certificate of deposit promotions.
The following table reflects the extent to which changes in the volume of
interest-earning assets and interest-bearing liabilities and changes in
interest rates have affected net interest income on a tax equivalent basis
for the nine month period ended September 30,1997 as compared to the same
period in 1996 (dollars in thousands):
INTEREST INCOME CHANGE IN:
VOLUME RATE TOTAL
---------- ---- -----
Interest-bearing deposits in
financial institutions ($5) ($20) ($25)
Federal funds sold 273 55 328
Investment securities 5,562 549 6,111
Loans 1,174 (1,498) (324)
----- ----- -----
Total interest income 7,004 (914) 6,090
----- ----- -----
INTEREST EXPENSE
Interest-bearing deposits 5,452 87 5,539
Borrowed funds (161) 56 (105)
----- ----- -----
Total interest expense 5,291 143 5,434
----- ----- -----
Net interest income $1,713 ($1,057) $656
===== ===== =====
The following table presents an analysis of the Company's interest-earning
assets and interest-bearing liabilities volumes for the periods stated on a
cumulative basis as of the date indicated (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- -------------------------
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average loans $789,576 $792,921 $791,003 $781,372 $776,621
Average interest-earning assets 1,193,192 1,185,024 1,152,764 1,156,452 1,060,434
Average noninterest-bearing deposits 104,502 108,209 100,810 103,448 102,655
Average interest-bearing deposits 1,027,120 1,019,866 988,550 921,925 903,344
Average deposits 1,131,622 1,128,075 1,089,360 1,025,373 1,005,999
Average interest-bearing liabilities 1,033,989 1,028,823 1,000,613 932,685 914,467
</TABLE>
14
<PAGE>
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses decreased
$.3 million (28.4%) for the nine months ended September 30, 1997 compared to
the same period in 1996. The provision for loan losses is based on
management's belief that the allowance for loan losses (after giving effect
to the provision) was adequate. 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. Total other operating income increased $2.4 million
(31.3%) for the nine months ended September 30, 1997 compared to the same
period in 1996. This increase was primarily due to the Company settling a
claim relating to an investment that it made during the late 1980's. The
Company recorded $2.3 million of income related to this matter. During the
first quarter of 1997, the Company also sold its interest in a property held
as other real estate for $1.5 million. As the property was previously written
off, this amount represented a gain recognized as other operating income.
These increases to income were partially offset by decreases in gains on sale
of investment securities available for sale of $.4 million. During the first
nine months of 1996, the Company recorded $1.1 million of income from a
refund of the over funding of a WSB Aurora terminated benefits plan.
OTHER OPERATING EXPENSE. Total other operating expense decreased $4.3 million
(16.2%) for the nine months ended September 30, 1997 compared to the same
period in 1996. Salary and employee benefits increased $1.1 million due
primarily to increased salaries and severance payouts to two former
executives of the Company. Expenses associated with other real estate
decreased $4.4 million for the nine months ended September 30, 1997 compared
to the same period in 1996. During 1996, the Company recognized a $3.8
million write down of a property classified as other real estate. FDIC
insurance premiums declined $.1 million and in 1996 the Company incurred a
one-time special SAIF assessment of $.8 million payable to the FDIC which was
imposed under the Deposit Insurance Funds Act of 1996. Professional fees
decreased $.2 million for the nine months ended September 30, 1997 compared
to the same period in 1996.
INCOME TAXES. Income tax expense increased $2.6 million (42.4%) for the nine
months ended September 30, 1997 to $8.7 million from $6.1 million compared to
the same period in 1996. The increase was principally due to higher taxable
income.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET INCOME. The Company's net income for the three months ended September 30,
1997 and 1996 was approximately $5.1 million and $1.6 million, respectively,
which represents an increase of $3.5 million (212.4%) for the 1997 period
when compared to the same period in 1996. This was primarily due to a SAIF
special assessment of $.8 million in the three month period ended September
30, 1996 and a $3.8 million write down of other real estate during this same
period. Net interest income increased $.6 million and the provision for loan
loss decreased $.1 million during the 1997 period compared to the 1996
period. These increases to income were partially offset by an increase in
income tax expense of $1.9 million.
INTEREST INCOME. Total interest income increased $2.4 million for the three
months ended September 30, 1997 compared to the same period in 1996 and
resulted primarily from increased balances in the securities portfolio.
INTEREST EXPENSE. Total interest expense increased $1.8 million for the three
months ended September 30, 1997 compared to the same period during 1996 and
primarily resulted from increased certificate of deposit balances.
15
<PAGE>
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses decreased
$.1 million (28.9%) for the three months ended September 30, 1997 compared to
the same period in 1996. The provision for loan losses is based on
management's belief that the allowance for loan losses (after giving effect
to the provision) is adequate. 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. Total other income decreased $.1 million (5.8%) for
the three months ended September 30, 1997 compared to the same period in
1996. This was due to lower service fees, gains on sale of other real estate
and loan servicing income which was partially offset by an increase in other
income.
OTHER OPERATING EXPENSE. Total other expense decreased $4.8 million (41.6%)
for the three months ended September 30, 1997 compared to the same period in
1996. Professional fees decreased $.2 million while the SAIF special
assessment decreased $.8 million. Expenses associated with other real estate
expense decreased $3.8 million.
INCOME TAXES. Income tax expense increased $1.9 million (270.7%) for the
three months ended September 30, 1997 to $2.6 million from $.7 million
compared to the same period in 1996. The increase was principally due to
higher taxable income.
OTHER CONSIDERATIONS
Earnings of bank holding companies and their subsidiaries are affected by
general economic conditions and also by the fiscal and monetary policies of
federal regulatory agencies, including the Board of Governors of the Federal
Reserve System. Such policies have affected the operating results of all
commercial banks in the past and are expected to do so in the future. The
Company cannot accurately predict the nature or the extent of any effects
which fiscal or monetary policies may have on its subsidiary's business and
earnings.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiary are a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K - The Company did not file a report on Form 8-K during
the three months ended September 30, 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST SUBURBAN BANCORP, INC.
(Registrant)
Date: November 12, 1997
/s/ Kevin J. Acker
-----------------------------------------------
KEVIN J. ACKER
CHAIRMAN OF THE BOARD
/s/ Duane G. Debs
------------------------------------------------
DUANE G. DEBS
PRESIDENT AND CHIEF FINANCIAL OFFICER
18
<PAGE>
INDEX OF EXHIBITS
SEQUENTIAL
PAGE NO.
----------
27. Financial Data Schedule 20
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 32,369
<INT-BEARING-DEPOSITS> 1,027,678
<FED-FUNDS-SOLD> 34,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 209,048
<INVESTMENTS-CARRYING> 170,950
<INVESTMENTS-MARKET> 171,589
<LOANS> 790,830
<ALLOWANCE> 9,980
<TOTAL-ASSETS> 1,280,556
<DEPOSITS> 1,132,861
<SHORT-TERM> 0
<LIABILITIES-OTHER> 18,174
<LONG-TERM> 0
0
0
<COMMON> 3,457
<OTHER-SE> 126,064
<TOTAL-LIABILITIES-AND-EQUITY> 1,280,556
<INTEREST-LOAN> 52,271
<INTEREST-INVEST> 17,508
<INTEREST-OTHER> 1,466
<INTEREST-TOTAL> 71,245
<INTEREST-DEPOSIT> 32,833
<INTEREST-EXPENSE> 33,169
<INTEREST-INCOME-NET> 38,076
<LOAN-LOSSES> 847
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 22,005
<INCOME-PRETAX> 25,225
<INCOME-PRE-EXTRAORDINARY> 25,225
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,521
<EPS-PRIMARY> 38.20
<EPS-DILUTED> 38.20
<YIELD-ACTUAL> 8.1
<LOANS-NON> 4,101
<LOANS-PAST> 5,485
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,603
<CHARGE-OFFS> 713
<RECOVERIES> 243
<ALLOWANCE-CLOSE> 9,980
<ALLOWANCE-DOMESTIC> 7,660
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,320
</TABLE>
