<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 June 30, 1998
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 class of
common stock as of the latest practicable date.
15,000,000 shares of Common Stock, no par value, were authorized and 432,495
shares were issued and outstanding as of June 30, 1998.
<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. . . . . . . . . . . . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . 15
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . 16
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 16
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 17
Form 10-Q Signature Page. . . . . . . . . . . . . . . . . . . . . . . . . . 18
THIS REPORT MAY INCLUDE 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. ("WEST
SUBURBAN") 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
WEST SUBURBAN, ARE GENERALLY IDENTIFIABLE BY USE OF THE WORDS "BELIEVE,"
"EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE," "PROJECT" OR SIMILAR EXPRESSIONS.
WEST SUBURBAN'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 AND WEST
SUBURBAN BANK (THE "BANK" AND TOGETHER WITH WEST SUBURBAN, THE "COMPANY")
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.
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $38,542 $38,251
Interest-earning deposits in financial
institutions 479 343
Federal funds sold 18,340 21,740
---------- ----------
Total cash and cash equivalents 57,361 60,334
Investment securities:
Available for sale (amortized cost
of $221,406 in 1998; $218,892 in 1997) 221,233 218,587
Held to maturity (fair value of
$216,921 in 1998; $199,905 in 1997) 216,336 199,292
Loans, less allowance for loan losses
of $9,592 in 1998; $9,772 in 1997 730,358 762,538
Premises and equipment, net 31,888 31,142
Other real estate 2,593 2,450
Accrued interest and other assets 19,334 19,348
---------- ----------
TOTAL ASSETS $1,279,103 $1,293,691
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $106,384 $124,220
Interest-bearing 1,021,063 1,020,729
---------- ----------
Total deposits 1,127,447 1,144,949
Accrued interest and other liabilities 14,368 16,389
---------- ----------
TOTAL LIABILITIES 1,141,815 1,161,338
---------- ----------
Shareholders' equity:
Common Stock, Class A, no par value;
1,000,000 shares authorized;
347,015 shares issued and outstanding 2,774
Common Stock, Class B, no par value;
1,000,000 shares authorized;
85,480 shares issued and outstanding 683
Common Stock, no par value;
15,000,000 shares authorized; 432,495
shares issued and outstanding 3,457
Surplus 38,066 38,066
Retained earnings 95,869 91,014
Accumulated other comprehensive
income:
Unrealized loss on securities
available for sale, net of taxes (104) (184)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 137,288 132,353
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,279,103 $1,293,691
---------- ----------
---------- ----------
</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 AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $32,853 $34,769
------- -------
Investment securities:
Taxable 10,929 10,042
Nontaxable 974 1,071
------- -------
Total investment securities 11,903 11,113
Deposits in financial institutions 10 7
Federal funds sold 1,757 1,140
------- -------
Total interest income 46,523 47,029
------- -------
INTEREST EXPENSE
Deposits 21,448 21,424
Other 85 296
------- -------
Total interest expense 21,533 21,720
------- -------
Net interest income 24,990 25,309
PROVISION FOR LOAN LOSSES 488 571
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 24,502 24,738
------- -------
OTHER OPERATING INCOME
Service fees 1,572 1,725
Net realized gain on sales of investment securities available for sale 322
Trust fees 129 137
Net gain on sale of loans originated for sale 321 105
Loan servicing 216 417
Net gain on sale of other real estate 30 1,470
Litigation settlement 2,344
Other 2,333 1,774
------- -------
Total other operating income 4,923 7,972
------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 7,765 8,251
Occupancy 1,586 1,464
Furniture and equipment 1,653 1,406
FDIC insurance premiums 124 84
Professional fees 319 444
Data processing 512 405
Other real estate 105 383
Other 3,068 2,781
------- -------
Total other operating expense 15,132 15,218
------- -------
INCOME BEFORE INCOME TAXES 14,293 17,492
INCOME TAXES 4,655 6,094
------- -------
NET INCOME 9,638 11,398
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains on securities available for sale arising
during the period (net of taxes of $53 in 1998 and $91 in 1997) 80 137
------- -------
Total other comprehensive income 80 137
------- -------
COMPREHENSIVE INCOME $9,718 $11,535
------- -------
------- -------
EARNINGS PER SHARE-BASIC $22.28 $26.35
------- -------
------- -------
CASH DIVIDENDS DECLARED PER SHARE $11.00 $9.00
------- -------
------- -------
</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 AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $16,363 $17,640
------- -------
Investment securities:
Taxable 5,461 5,340
Nontaxable 483 533
------- -------
Total investment securities 5,944 5,873
Deposits in financial institutions 5 4
Federal funds sold 1,082 761
------- -------
Total interest income 23,394 24,278
------- -------
INTEREST EXPENSE
Deposits 10,830 11,329
Other 44 100
------- -------
Total interest expense 10,874 11,429
------- -------
Net interest income 12,520 12,849
PROVISION FOR LOAN LOSSES 237 276
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,283 12,573
------- -------
OTHER OPERATING INCOME
Service fees 809 877
Net realized gain on sales of investment securities available for sale 273
Trust fees 23 32
Net gain on sale of loans originated for sale 131 45
Loan servicing 104 213
Net gain (loss) on sale of other real estate 19 (6)
Other 1,149 1,073
------- -------
Total other operating income 2,508 2,234
------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 3,891 3,715
Occupancy 785 747
Furniture and equipment 775 675
FDIC insurance premiums 53
Professional fees 78 190
Data processing 222 220
Other real estate 58 339
Other 1,544 1,537
------- -------
Total other operating expense 7,406 7,423
------- -------
INCOME BEFORE INCOME TAXES 7,385 7,384
INCOME TAXES 2,273 2,551
------- -------
NET INCOME 5,112 4,833
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding (losses) gains on securities available for sale arising
during the period (net of taxes of ($30) in 1998 and $716 in 1997) (45) 1,085
------- -------
Total other comprehensive income (45) 1,085
------- -------
COMPREHENSIVE INCOME $5,067 $5,918
------- -------
------- -------
EARNINGS PER SHARE-BASIC $11.81 $11.17
------- -------
------- -------
CASH DIVIDENDS DECLARED PER SHARE $6.00 $4.50
------- -------
------- -------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,638 $11,398
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,704 1,577
Provision for loan losses 488 571
(Benefit) provision for deferred income taxes (8) 1,614
Net premium amortization and discount accretion of investment
securities 456 308
Net realized gain on sales of investment securities available
for sale (322)
Net gain on sale of loans held for sale (321) (105)
Proceeds from sale of loans held for sale 5,075 835
Origination of loans held for sale (8,011) (1,633)
Loss (gain) on sale of premises and equipment 57 (5)
Gain on sale of other real estate (30) (1,470)
Increase in accrued interest and other assets (30) (1,178)
(Decrease) increase in accrued interest and other liabilities (2,020) 567
------- -------
Total adjustments (2,962) 1,081
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,676 12,479
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 20,469
Proceeds from maturities 31,925 12,682
Purchases (55,086) (86,141)
Investment securities held to maturity:
Proceeds from maturities 105,964 3,588
Purchases (122,964) (16,203)
Purchase of minority interest in subsidiaries (26) (224)
Net decrease in loans 33,256 3,414
Purchases of premises and equipment (2,508) (1,937)
Proceeds from sale of premises and equipment 5
Proceeds from sale of other real estate 1,580 1,939
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,610 (82,877)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in total deposits (17,502) 52,104
Decrease in FHLB advances (1,350)
Cash dividends paid (4,757) (3,676)
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (22,259) 47,078
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,973) (23,320)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,334 68,650
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $57,361 $45,330
------- -------
------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and other borrowings $25,044 $19,746
Income taxes $2,435 $3,673
Transfers from loans to other real estate $1,694 $282
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of West Suburban
Bancorp, Inc. ("West Suburban") and West Suburban Bank (the "Bank" and
collectively with West Suburban, the "Company"). Significant intercompany
accounts and transactions have been eliminated. The unaudited interim
consolidated financial statements 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 1998 presentation.
NOTE 2 - SECURITIES
Debt and marketable equity securities are classified into two categories, "held
to maturity" and "available for sale." Held to maturity securities include those
debt securities where the Company has both the ability and positive intent to
hold them to maturity. Securities not meeting these 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.
During the first six months of 1998, the Company's unrealized loss on securities
available for sale improved $.1 million to a loss of $.1 million at June 30,
1998 from a $.2 million loss at December 31, 1997, net of taxes.
NOTE 3 - OUTSTANDING LINES OF CREDIT AVAILABLE - (Dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Home equity lines $154,844 $152,292
Commercial credit lines 122,263 89,245
Letters of Credit 30,766 18,455
Visa credit lines 39,798 38,672
-------- --------
Total commitments $347,671 $298,664
-------- --------
-------- --------
</TABLE>
The Company had $10.4 million and $4.9 million of commitments to originate
residential mortgage loans as of June 30, 1998 and December 31, 1997,
respectively.
NOTE 4 - SHAREHOLDERS' EQUITY - COMMON STOCK
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998, the
shareholders approved an amendment to West Suburban's Articles of Incorporation
the effect of which was to redesignate each share of Class A Common Stock and
each share of Class B Common Stock outstanding as Common Stock. Additionally,
the number of votes per share of Common Stock was reduced from five votes per
share to one vote per share on all matters submitted to the shareholders of
West Suburban. The amendment to West Suburban's Articles of Incorporation also
had the effect of increasing the number of shares of Common Stock that West
Suburban is authorized to issue from two million to fifteen million shares.
7
<PAGE>
NOTE 5 - NEW ACCOUNTING STANDARDS
In December 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 127, "Deferral of the
Effective Date of Certain Provisions of SFAS 125," which deferred the effective
date of certain of the provisions of SFAS 125 for one year. The adoption of
these provisions did not have a material impact on its financial condition or
results of operations.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income," which
requires businesses to disclose comprehensive income and its components in their
general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, with reclassification of comparative
financial statements and is applicable to interim periods. The Company adopted
SFAS 130 effective for the quarter ended March 31, 1998, with appropriate
reclassifications made to the prior period financial statements to conform to
the new presentation.
In June 1997, FASB issued SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information," which will be effective for the Company beginning
January 1, 1998. SFAS 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company has not yet completed its analysis of
which operating segments, if any, the Company will be required to report
separately.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
ASSET DISTRIBUTION. Total consolidated assets at June 30, 1998, decreased
approximately $14.6 million (1.1%) to $1,279.1 million at June 30, 1998, from
$1,293.7 million at December 31, 1997. Total cash and cash equivalents
decreased $2.9 million (4.9%) to $57.4 million at June 30, 1998, from $60.3
million at December 31, 1997. Cash and due from banks increased $.2 million
to $38.5 million at June 30, 1998, from $38.3 million at December 31, 1997.
Aggregate holdings in federal funds sold decreased $3.4 million (15.6%) to
$18.3 million at June 30, 1998 from $21.7 million at December 31, 1997.
Aggregate holdings in investment securities increased $19.7 million (4.7%) to
$437.6 million at June 30, 1998 from $417.9 million at December 31, 1997. The
increase in investment securities was a result of decreases in total loans
outstanding and the use of such funds by the Company to purchase investment
securities. The Company's objectives in managing the securities portfolio are
driven by the dynamics of its entire balance sheet which includes managing
the portfolio to maximize yield over an entire interest rate cycle while
providing liquidity and minimizing market risk.
Total loans decreased $32.3 million (4.2%) to $740.0 million at June 30,
1998, from $772.3 million at December 31, 1997. The Company operates in a
highly competitive environment for consumer and commercial credit. Management
has begun to take steps that are intended to increase the Company's loan
portfolio. During 1998, the Company recorded approximately $3.4 million of
indirect automobile loans. Additionally, the Company hired a new commercial
lender and continues to seek to hire additional commercial lenders. The
Company will attempt to remain competitive in its market by offering
competitive rates and loan products while not compromising its credit
evaluation standards to attract new business.
Over the next 12 months, the Company intends to add four facilities to its
branch network. The new locations will be located in the Aurora/Naperville
area, the Romeoville area, the Bartlett/Hanover Park area and the St.
Charles/West Chicago area. These facilities will allow the Company to serve
new markets and enhance the Company's position as it continues to expand in
the western suburbs of Chicago.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY. The Company maintains an
allowance for loan losses to absorb possible losses in the loan portfolio.
The allowance for loan losses is established after a determination of the
potential credit risk of the loans held by the Company. 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 decreased $.2 million to $9.6 million at June 30, 1998 from $9.8
million at December 31, 1997. The ratio of the allowance for loan losses to
total loans outstanding increased at June 30, 1998 to 1.30% compared to 1.27%
at December 31, 1997. Nonperforming loans increased $2.5 million (32.7%) to
$10.4 million at June 30, 1998 from $7.9 million at December 31, 1997. This
increase was primarily due to three loans secured by commercial real estate
and one loan secured by business assets being classified as non-performing.
As of June 30, 1998 and December 31, 1997, total nonperforming loans to net
loans were 1.4% and 1.0%, respectively. The allowance for loan losses was
approximately 92% and 124% of the level of nonperforming loans at June 30,
1998 and December 31, 1997, respectively.
The following table presents an analysis of the Company's nonperforming loans
for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997 Dollar Change
------------- ----------------- -------------
<S> <C> <C> <C>
Nonaccrual loans $3,005 $3,042 ($37)
Accruing loans 90 days past due 7,439 4,829 2,610
------- ------ -------
Total nonperforming loans $10,444 $7,871 $2,573
------- ------ -------
------- ------ -------
Nonperforming loans as a percent
of net loans 1.4% 1.0%
Other real estate $2,593 $2,450 $143
------- ------ -------
------- ------ -------
</TABLE>
9
<PAGE>
The following table presents an analysis of the Company's provision for loan
losses for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
Provision-quarter $237 $251 $776 $276 $276
Provision-year to date 488 251 1,623 847 571
Net chargeoffs-quarter 156 511 984 270 169
Net chargeoffs-year to date 667 511 1,454 470 200
Allowance at period end 9,592 9,511 9,772 9,980 9,974
Allowance to period end total loans 1.30% 1.24% 1.27% 1.26% 1.26%
</TABLE>
LIABILITY DISTRIBUTION. Total liabilities decreased $19.5 million (1.7%) to
$1,141.8 million at June 30, 1998 from $1,161.3 million at December 31, 1997.
This decrease was primarily due to runoff in certificates of deposit. The
Company believes that the present declining interest rate environment makes
the cost of offering special rates to attract deposits outweigh any perceived
benefits. Additionally, the Company believes that the current interest rate
environment makes certificates of deposit less attractive to its customers
when compared to other investment alternatives including investments in
mutual funds and individual stocks. During the second quarter of 1998, the
Company introduced a money market checking account as an alternative to
savings accounts or certificates of deposit. The Company attracted $73.5
million in money market checking from new funds and run-off from existing
higher rate certificates of deposit. Management's goal is to promote its
deposit products when feasible while preserving the Company's net interest
margin.
Balances in the Company's major categories of deposits are summarized in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 Dollar change Percent
------------- ----------------- ------------- -------
<S> <C> <C> <C> <C>
Demand and other noninterest-bearing $106,384 $124,220 ($17,836) (14.4)%
NOW 38,974 48,915 (9,941) (20.3)
Money market checking 73,847 283 73,564 N/A
Money market savings 477,079 465,683 11,396 2.4
Time, $100,000 and over 79,200 84,083 (4,883) (5.8)
Time, other 351,963 421,765 (69,802) (16.6)
----------- ----------- ---------- -------
Total $1,127,447 $1,144,949 ($17,502) (1.5)%
----------- ----------- ---------- -------
----------- ----------- ---------- -------
</TABLE>
The Company attempts to remain well positioned in its market by offering
competitive rates on its savings and certificate of deposit products.
SHAREHOLDERS' EQUITY. Shareholders' equity increased $4.9 million (3.7%) to
$137.3 million at June 30, 1998 from $132.4 million at December 31, 1997.
This increase was primarily the result of net retention (after the
declaration of dividends) of $4.9 million of its comprehensive income during
the first six months of 1998.
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998,
the shareholders approved an amendment to West Suburban's Articles of
Incorporation the effect of which was to redesignate each share of Class A
Common Stock and each share of Class B Common Stock outstanding as Common
Stock. Additionally, the number of votes per share of Common Stock was
reduced from five votes per share to one vote per share on all matters
submitted to the shareholders of West Suburban. The amendment to West
Suburban's Articles of Incorporation also had the effect of increasing the
number of shares of Common Stock that West Suburban is authorized to issue
from two million to fifteen million shares.
10
<PAGE>
CAPITAL RESOURCES
The Company's capital ratios as well as those of the Bank as of June 30, 1998
are presented below. All capital 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 the Bank (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 the Bank. 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 the Bank to operate without capital
adequacy concerns.
The following table sets forth selected regulatory capital ratios of the
Company and the Bank at June 30, 1998:
Tier 1 Total
Risk-Based Risk-Based Leverage
Capital Capital Capital
------- ------- -------
West Suburban Bancorp, Inc. 12.91% 13.83% 10.68%
West Suburban Bank 11.20% 12.14% 9.04%
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 June 30, 1998 and December 31, 1997, the Bank qualified as a
"well-capitalized" institution.
LIQUIDITY
Liquidity is managed to ensure there is sufficient cash flow to satisfy
demand for credit, deposit withdrawals and attractive investment
opportunities. 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 June 30, 1998 and December 31, 1997, liquid assets
represented 21.8% and 21.6% 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
11
<PAGE>
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.
Listed below are the balances in the major categories of the rate sensitive
assets and liabilities that are subject to repricing as of June 30, 1998
(dollars in thousands):
<TABLE>
<CAPTION>
Over three Over one
Three months to year to Over
months twelve three three
or less months years years Total
-------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in financial
institutions $479 $479
Federal funds sold 18,340 18,340
Investment securities 31,279 $46,062 $240,384 $119,844 437,569
Loans 282,703 220,361 147,456 86,428 736,948
--------- --------- --------- --------- -----------
Total interest-earning assets $332,801 $266,423 $387,840 $206,272 $1,193,336
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Rate sensitive liabilities:
Money market savings $477,079 $477,079
Money market checking 73,847 73,847
NOW 38,974 38,974
Time deposits:
Less than $100,000 70,426 $128,198 $128,838 $24,501 351,963
$100,000 and over 31,154 17,434 27,817 2,795 79,200
--------- --------- --------- -------- -----------
Total interest-bearing liabilities $691,480 $145,632 $156,655 $27,296 $1,021,063
--------- --------- --------- -------- -----------
--------- --------- --------- -------- -----------
Interest sensitivity gap ($358,679) $120,791 $231,185 $178,976
Cumulative interest sensitivity gap (358,679) (237,888) (6,703) 172,273 $172,273
Cumulative interest-earning assets as a
percentage of cumulative
interest-bearing liabilities 48.1% 71.6% 99.3% 116.9%
Cumulative interest sensitivity gap as a
percentage of total assets (28.0) (18.6) (0.5) 13.5
</TABLE>
The above table does not necessarily indicate the future impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject
to competitive and other pressures. As a result, assets and liabilities
indicated as repricing within the same period may, in fact, reprice at
different times and at different rate levels. Assets and liabilities are
reported in the earliest time frame in which maturity or repricing may occur.
The consolidated interest rate sensitivity position of the Company within the
one year window at June 30, 1998 reflects cumulative net interest-earning
assets compared to cumulative net interest-bearing liabilities of 71.6% and
cumulative net interest-earning assets that reprice or mature within one year
compared to total assets of negative 18.6%.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME. The Company's net income for the six months ended June 30, 1998
and 1997 was approximately $9.6 million and $11.4 million, respectively. This
represents a decrease of $1.8 million (15.4%) for the 1998 period when
compared to the same period in 1997. This was primarily due to the decrease
in other operating income in 1998 when compared to the same period in 1997.
During the first quarter of 1997, the Company recorded $2.3 million of income
related to a settlement of a claim arising from an investment that it made
during the late 1980's. During this same period, the Company also sold its
interest in a property held as other real estate for $1.5 million. As this
property had been written off, this amount was reflected as a gain on sale of
other real estate. Net interest income decreased $.2 million. These decreases
to income were partially offset by decreases to income tax expense of $1.4
million and to salaries and employee benefits of $.5 million.
12
<PAGE>
INTEREST INCOME. Total interest income, on a tax equivalent basis, decreased
$.7 million for the six months ended June 30, 1998 compared to the same
period in 1997. This decrease was primarily attributable to decreases in the
Company's average loan balances of $41.8 million to $751.1 million at June
30, 1998 from $792.9 million at June 30, 1997. Yields on total
interest-earnings assets decreased primarily due to higher levels of
investment securities (which generally have lower yields when compared to
loans). Interest on the Company's securities portfolio increased due to
higher balances outstanding offset partially by lower yields on corporate
securities.
INTEREST EXPENSE. Total interest expense decreased $.2 million (.9%) for the
six months ended June 30, 1998 compared to the same period during 1997.
Interest on deposits remained level during this period. Average
interest-bearing liabilities decreased $1.6 million to $1,027.2 million at
June 30, 1998 from $1,028.8 million at June 30, 1997.
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 six month period ended June 30, 1998, as compared to the same period
in 1997 (dollars in thousands):
<TABLE>
<CAPTION>
CHANGE IN:
VOLUME RATE TOTAL
------------- --------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits in financial institutions $4 ($1) $3
Federal funds sold 615 2 617
Investment securities 1,017 (293) 724
Loans (1,838) (171) (2,009)
---------- -------- --------
Total interest income (202) (463) (665)
---------- -------- --------
INTEREST EXPENSE
Interest-bearing deposits (308) 332 24
Borrowed funds 19 (230) (211)
---------- -------- --------
Total interest expense (289) 102 (187)
---------- -------- --------
Net interest income $87 ($565) ($478)
---------- -------- --------
---------- -------- --------
</TABLE>
The following table presents an analysis of the Company's interest-earning
assets, interest-bearing liabilities, and non-interest-bearing deposits, volumes
for the periods stated on a cumulative basis as of the date indicated (dollars
in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------- ------------------------------------
JUNE 30 March 31 Dec. 31 Sept. 30 June 30
---------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans $751,066 $760,041 $781,655 $789,576 $792,921
Average interest-earning assets 1,198,477 1,189,645 1,195,400 1,193,192 1,185,024
Average noninterest-bearing deposits 106,169 103,688 110,248 104,502 108,209
Average interest-bearing deposits 1,024,263 1,017,207 1,032,768 1,027,120 1,019,866
Average deposits 1,130,432 1,120,895 1,143,016 1,131,622 1,128,075
Average interest-bearing liabilities 1,027,171 1,020,096 1,038,621 1,033,989 1,028,826
</TABLE>
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses decreased
$.1 million (14.5%) for the six months ended June 30, 1998 compared to the
same period in 1997. The provision for loan losses was established 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 decreased $3.0 million
(38.2%) for the six months ended June 30, 1998 compared to the same period in
1997. This decrease was primarily due to the Company settling a claim relating
to an investment that it made during the late 1980's. During the first
quarter of 1997, 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 had
been written off, accordingly, this amount represented a gain
13
<PAGE>
recognized as other operating income. Additionally, during the first six
months of 1998, there were increases in gains in sales of investment
securities available for sale of $.3 million and gains on sale of loans
originated for sale of $.2 million. These were partially offset by decreases
in service fees of $.2 million and loan servicing income of $.2 million.
OTHER OPERATING EXPENSE. Total other operating expense decreased $.1 million
(.6%) for the six months ended June 30, 1998 compared to the same period in
1997. Salary and employee benefits decreased $.5 million as the 1997 amount
of salaries and employee benefits included severance payouts made to two
former executives of the Company. Occupancy expense and furniture and
equipment expense increased by $.1 and $.2 million, respectively. Other real
estate expense decreased by $.3 million. This decrease was offset by an
increase in other expense of $.3 million due to increased loan expense and
other factors.
INCOME TAXES. Income tax expense decreased $1.4 million (23.6%) for the six
months ended June 30, 1998 to $4.7 million from $6.1 million compared to the
same period in 1997. The decrease was principally due to lower taxable income.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME. The Company's net income for the three months ended June 30, 1998
and 1997, was approximately $5.1 million and $4.8 million, respectively. This
represents an increase of $.3 million (5.8%) for the 1998 period when
compared to the same period in 1997. This was primarily due to increases in
gains on sales of investment securities available for sale.
INTEREST INCOME. Total interest income decreased $.9 million for the three
months ended June 30, 1998 compared to the same period in 1997 and resulted
primarily from decreased volume in the loan portfolio.
INTEREST EXPENSE. Total interest expense decreased $.6 million for the three
months ended June 30, 1998 compared to the same period during 1997. This was
due to lower costs associated with money market checking account balances
(which increased) as compared to higher rate certificates of deposit balances
(which decreased).
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses remained
level for the three months ended June 30, 1998, compared to the same period
in 1997. The provision for loan losses was established based on management's
belief that the allowance for loan losses (after giving effect to the
provision) was adequate.
OTHER OPERATING INCOME. Total other operating income increased $.3 million
(12.3%) for the three months ended June 30, 1998, compared to the same period
in 1997. This increase was primarily due to increases in gains on sales of
investment securities available for sale of $.3 million. Additionally, there
were gains on sale of loans originated for sale of $.1 million and an
increase to other income of $.1 million. This was offset by decreases in
servicing fees of $.1 million and loan service income of $.1 million.
OTHER OPERATING EXPENSE. Total other operating expense remained level for the
three months ended June 30, 1998, compared to the same period in 1997. Salary
and employee benefits increased $.2 million. Furniture and equipment expense
increased by $.1 million. These increases were offset by a decrease to other
real estate expense of $.3 million and professional fees of $.1 million.
INCOME TAXES. Income tax expense decreased $.3 million (10.9%) for the three
months ended June 30, 1998, to $2.3 million from $2.6 million compared to the
same period in 1997.
14
<PAGE>
OTHER CONSIDERATIONS
General
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.
The Year 2000
During 1996, the Company initiated the process of preparing its computer
systems and applications for the Year 2000. This process involves updating or
replacing certain of the Company's computer hardware components and software
applications and communicating with vendors and external service providers to
confirm that their applications are Year 2000 compliant. The Company has
tested and replaced, as necessary, its critical computer hardware components
and software applications and intends to continue its testing procedures in
order to ensure that its computer hardware components and software
applications are Year 2000 compliant and that the operations of the Company
will not be adversely effected. The Company believes that the cost that will
be incurred in connection with testing and replacing hardware and software
applications will not have a material effect on its results of operations.
Purchased computer hardware components and software applications are
capitalized in accordance with the Company's policy. All internal and
external costs are expensed when incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company hereby incorporates by reference the information called for by
Item 3 of this Form 10-Q from the Rate Sensitivity Gaps section included in
Item 2 above.
15
<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 AND USE OF PROCEEDS
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998,
the shareholders approved an amendment to West Suburban's Articles of
Incorporation the effect of which was to redesignate each share of Class A
Common Stock and each share of Class B Common Stock outstanding as Common
Stock. Additionally, the number of votes per share of Common Stock was
reduced from five votes per share to one vote per share on all matters
submitted to the shareholders of West Suburban. The amendment to West
Suburban's Articles of Incorporation also had the effect of increasing the
number of shares of Common Stock that West Suburban is authorized to issue
from two million to fifteen million shares. A more complete description of
the amendment and its effects on the rights of shareholders is set forth in
the proxy material that was distributed to the shareholders of West Suburban
prior to the Annual Meeting.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The Annual Meeting of Shareholders was held on May 13, 1998.
B. The following individuals were elected to serve as directors of the
Company for a term of one year at the Annual Meeting. The votes for
and against such individuals are set forth below:
FOR AGAINST
--- -------
1. Kevin J. Acker 1,683,083 15,546
2. Duane G. Debs 1,687,227 11,493
3. David S. Bell 1,585,503 34,524
4. Peggy P. LoCicero 1,594,734 24,192
5. Charles P. Howard 1,603,359 18,427
Broker-No Votes: 0
C. Amendment to the Company's Articles of Incorporation to combine the
existing classes of Common Stock and reduce the number of votes per
share.
FOR AGAINST ABSTAIN
--- ------- -------
1,636,969 25,413 42,059
D. Amendment to the Company's Articles of Incorporation to increase the
number of authorized shares from two (2) million to fifteen (15)
million shares.
FOR AGAINST ABSTAIN
--- ------- -------
1,580,212 79,114 45,114
16
<PAGE>
E. Ratification of Deloitte & Touche LLP as the Company's independent
auditors.
FOR AGAINST ABSTAIN
--- ------- -------
1,676,469 7,006 20,405
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 June 30, 1998.
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: August 7, 1998
/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> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 38,542
<SECURITIES> 437,569
<RECEIVABLES> 741,151
<ALLOWANCES> 9,592
<INVENTORY> 0
<CURRENT-ASSETS> 599,224
<PP&E> 31,888
<DEPRECIATION> 1,704
<TOTAL-ASSETS> 1,279,103
<CURRENT-LIABILITIES> 837,112
<BONDS> 0
0
0
<COMMON> 3,457
<OTHER-SE> 133,831
<TOTAL-LIABILITY-AND-EQUITY> 1,279,103
<SALES> 0
<TOTAL-REVENUES> 51,446
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,132
<LOSS-PROVISION> 488
<INTEREST-EXPENSE> 21,533
<INCOME-PRETAX> 14,293
<INCOME-TAX> 4,655
<INCOME-CONTINUING> 9,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,638
<EPS-PRIMARY> 22.28
<EPS-DILUTED> 22.28
</TABLE>
