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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For transition period from __________ to __________
Commission File Number 0 - 17609
WEST SUBURBAN BANCORP, INC.
(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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this form
10-K [ ]
The index to exhibits is located on page 28 of 71 total sequentially numbered
pages.
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The aggregate market value of voting common stock of Registrant held by
non-affiliates as of December 31, 1997 was $147,048,300 (1). At December 31,
1997, the total number of shares of Class A Common Stock outstanding was 347,015
and the total number of shares of Class B Common Stock outstanding was 85,480.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1997 are incorporated by reference into Parts I, II and IV hereof,
to the extent indicated herein. Portions of the Proxy Statement for the Annual
Meeting of Shareholders to be held May 13, 1998 are incorporated by reference in
Part III hereof, to the extent indicated herein.
- --------------------
(1) Based on the last reported price of an actual transaction in
Registrant's common stock on February 9, 1998, and reports of beneficial
ownership filed by directors and executive officers of Registrant and by
beneficial owners of more than 5% of the outstanding shares of common
stock of Registrant; however, such determination of shares owned by
affiliates does not constitute an admission of affiliate status or
beneficial interest in shares of common stock of Registrant.
2
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WEST SUBURBAN BANCORP, INC.
1997 Form 10-K Annual Report
Table of Contents
PART I
<TABLE>
<CAPTION>
Sequential
Page Number
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . 23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . 23
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 23
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Matters. . . . . . . . . . . . . . . . . . . . . . . . . 23
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 24
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 24
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 24
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . 25
Form 10-K Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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This report may contain certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The Company (as defined
below) intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Reform Act of 1995, and is including this statement for purposes
of indicating such intent. Forward-looking statements which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have
a material adverse affect on the operations and future prospects of the
Company and its subsidiaries include, but are not limited to, changes in
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of
the U.S. Treasury and the Federal Reserve Board, the quality or composition
of their loan or investment portfolios, demand for loan products, deposit
flows, competition, demand for financial services in the Company's market
area and accounting principles, policies and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
REGISTRANT AND ITS SUBSIDIARY
West Suburban Bancorp, Inc., an Illinois corporation (together with the Bank
(as defined below) and the Bank's subsidiaries, the "Company"), is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHC Act") and the parent company of West Suburban Bank,
Lombard, Illinois. West Suburban Bank, may be referred to as the "Bank."
During the first quarter of 1997, the Bank 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 the four bank subsidiaries and the thrift subsidiary into one state
chartered bank under the name "West Suburban Bank." 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 Company was incorporated in 1986 and became the parent bank holding
company of the Bank and the Company's former bank subsidiaries in 1988.
On July 13, 1990, the Company acquired its former thrift subsidiary, a
federally-chartered thrift, thereby becoming a thrift holding company until
the former thrift was merged into the Bank in 1997.
The Bank is headquartered in the western suburbs of Chicago among some of the
faster growing areas in Illinois. Due to the nature of the market areas
served by the Bank, the Bank provides a wide range of financial services to
individuals and small and medium sized businesses. The western suburbs of
Chicago have a diversified economy, with many new corporate headquarters and
numerous small and medium sized industrial and non-industrial businesses
providing employment.
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The Bank engages in a general full service retail banking business and offers
a broad variety of consumer and commercial products and services. The Bank
also offers trust services, safe deposit boxes and extended banking hours,
including Sunday hours and 24-hour banking through either a proprietary
network of 36 automated teller machines ("ATMs") or Tele-Bank 24, a
bank-by-phone system. Other consumer related services are available including
financial services and a competitively priced VISA card through West Suburban
Bank Card Services. The Bank offers its customers a debit card called the
West Suburban Bank Check Card.
5
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The following table sets forth financial and other information concerning the
Bank as of December 31, 1997:
WEST SUBURBAN BANK
(Dollars in thousands)
<TABLE>
<CAPTION>
Share- Return on Average
Year Formed/Year Number of Total holder's Net -----------------------
Affiliated With the Parent Locations Assets Equity Income Assets Equity
- -------------------------- --------- ---------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
West Suburban Bank
(1962/1988) 32 $1,292,148 $110,286 $21,957 1.7% 19.6%
</TABLE>
COMPETITION
The Company encounters competition in all areas of its business pursuits. It
competes for loans, deposits, fiduciary and other services with financial and
other institutions located both within and outside of its market area. In
order to compete effectively, to develop its market base, to maintain
flexibility and to move in pace with changing economic and social conditions,
the Company continuously refines and develops its products and services. The
principal methods of competition in the financial services industry are
price, service and convenience.
EMPLOYEES
The Company employed 590 persons (460 full time equivalent employees) on
December 31, 1997. The Company believes that its relations with its employees
are good.
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SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions
and general economic conditions, but also by the requirements of applicable
state and federal statutes and regulations and the policies of various
governmental regulatory authorities including, but not limited to, the Board
of Governors of the Federal Reserve System (the "FRB"), the Federal Deposit
Insurance Corporation (the "FDIC"), the Illinois Commissioner of Banks and
Real Estate (the "Commissioner"), the Internal Revenue Service and state
taxing authorities and the Securities and Exchange Commission (the "SEC").
The effect of such statutes, regulations and policies can be significant, and
cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiary, regulate, among other
things, the scope of business, investments, reserves against deposits,
capital levels relative to operations, the nature and amount of collateral
for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to the Company
and its subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds and the depositors, rather than the
shareholders, of financial institutions.
The following references to material statutes and regulations affecting the
Company and its subsidiaries are brief summaries thereof and do not purport
to be complete, and are qualified in their entirety by reference to such
statutes and regulations. Any change in applicable law or regulations may
have a material effect on the business of the Company and its subsidiaries.
Recent Regulatory Developments
PENDING LEGISLATION. Legislation is pending in the Congress that would allow
bank holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance activities.
The expanded powers generally would be available to a bank holding company
only if the bank holding company and its bank subsidiaries remain
well-capitalized and well-managed. Additionally, the pending legislation
would eliminate the federal thrift charter and merge the FDIC's Bank
Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF"). At
this time, the Company is unable to predict whether the proposed legislation
will be enacted and, therefore, is unable to predict the impact such
legislation may have on the operations of the Company and the Bank.
The Company
GENERAL. The Company, as the sole stockholder of the Bank, is a bank holding
company. As a bank holding company, the Company is registered with, and is
subject to regulation by, the FRB under the BHCA. In accordance with FRB
policy, the Company is expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances where
the Company might not do so absent such policy. Under the BHCA, the Company
is subject to periodic examination by the FRB and is required to file with
the FRB periodic reports of its operations and such additional information as
the FRB may require. The Company is also subject to regulation by the
Commissioner under the Illinois Bank Holding Company Act, as amended.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain FRB approval before: (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank; or (iii)
merging or consolidating with another bank holding company.
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Subject to certain conditions (including certain deposit concentration limits
established by the BHCA), the FRB may allow a bank holding company to acquire
banks located in any state of the United States without regard to whether the
acquisition is prohibited by the law of the state in which the target bank is
located. In approving interstate acquisitions, however, the FRB is required
to give effect to applicable state law limitations on the aggregate amount of
deposits that may be held by the acquiring bank holding company and its
insured depository institution affiliates in the state in which the target
bank is located (provided that those limits do not discriminate against
out-of-state depository institutions or their holding companies) or which
require that the target bank have been in existence for a minimum period of
time (not to exceed five years) before being acquired by an out-of-state bank
holding company.
The BHCA also prohibits, with certain exceptions, the Company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares
of any company which is not a bank and from engaging in any business other
than that of banking, managing and controlling banks or furnishing services
to banks and their subsidiaries. The principal exception to this prohibition
allows bank holding companies to engage in, and to own shares of companies
engaged in, certain businesses found by the FRB to be "so closely related to
banking ... as to be a proper incident thereto." Under current regulations
of the FRB, the Company and its non-bank subsidiaries are permitted to engage
in, among other activities, such banking-related businesses as the operation
of a thrift, sales and consumer finance, equipment leasing, the operation of
a computer service bureau, including software development, and mortgage
banking and brokerage. The BHCA generally does not place territorial
restrictions on the domestic activities of non-bank subsidiaries of bank
holding companies.
Federal law also prohibits acquisition of "control" of a bank, such as the
Bank, or bank holding company, such as the Company, without prior notice to
certain federal bank regulators. "Control" is defined in certain cases as
the acquisition of 10% of the outstanding shares of a bank or bank holding
company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company,
among other things, may be denied approval to acquire or establish additional
banks or non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier I
capital. The leverage requirement consists of a minimum ratio of Tier I
capital to total assets of 3% for the most highly rated companies, with
minimum requirements of 4% to 5% for all others. For purposes of these
capital standards, Tier I capital consists primarily of permanent
stockholders' equity less intangible assets (other than certain mortgage
servicing rights and purchased credit card relationships) and total capital
means Tier I capital plus certain other debt and equity instruments which do
not qualify as Tier I capital and a portion of the Company's allowance for
loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking
organizations. For example, the FRB's capital guidelines contemplate that
additional capital may be required to take adequate account of, among other
things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions
(I.E., Tier I capital less all intangible assets), well above the minimum
levels.
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As of December 31, 1997, the Company had regulatory capital in excess of the
FRB's minimum requirements, with a risk-based capital ratio of 13.7% and a
leverage ratio of 10.2%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment
of cash dividends by bank holding companies. In the policy statement, the
FRB expressed its view that a bank holding company should not pay cash
dividends which exceed its net income or which can only be funded in ways
that weaken the bank holding company's financial health, such as by
borrowing. Additionally, the FRB possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy
actions that represent unsafe or unsound practices or violations of
applicable statutes and regulations. Among these powers is the ability to
proscribe the payment of dividends by banks and bank holding companies.
In addition to the restrictions on dividends that may be imposed by the FRB,
the Illinois Business Corporation Act, as amended, prohibits the Company from
paying a dividend if, after giving effect to the dividend, the Company would
be insolvent or the net assets of the Company would be less than zero or less
than the maximum amount then payable to shareholders of the Company who would
have preferential distribution rights if the Company were liquidated.
The Bank
GENERAL. The Bank is an Illinois-chartered bank, the deposit accounts of
which are insured by the BIF of the FDIC. As a BIF-insured,
Illinois-chartered bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the Commissioner, as the chartering
authority for Illinois banks, and the FDIC, as administrator of the BIF.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted
a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and results of
supervisory evaluations. Institutions classified as well-capitalized (as
defined by the FDIC) and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized (as defined by the
FDIC) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
During the year ended December 31, 1997, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 1998, BIF assessment rates will continue to range from
0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of
insurance if the institution has no tangible capital. Management of the
Company is not aware of any activity or condition that could result in
termination of the deposit insurance of the Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the FICO, the entity created to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. Pursuant to federal legislation enacted
September 30, 1996, commencing January 1, 1997, both SAIF members and BIF
members became subject to assessments to cover the interest payments on
outstanding FICO obligations. Such FICO assessments are in addition to
amounts assessed by the FDIC for deposit insurance. Until January 1, 2000,
the FICO assessments
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made against BIF members may not exceed 20% of the amount of the FICO
assessments made against SAIF members. Between January 1, 2000, and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a PRO RATA
basis. During the year ended December 31, 1997, the FICO assessment rate for
SAIF members was approximately 0.063% of deposits while the FICO assessment
rate for BIF members was approximately 0.013% of deposits. During the year
ended December 31, 1997, the Bank paid FICO assessments totaling $.17 million.
COMMISSIONER ASSESSMENTS. All Illinois banks are required to pay supervisory
fees to the Commissioner to fund the operations of the Commissioner. The
amount of such supervisory fees is based upon each institution's total
assets, including consolidated subsidiaries, as reported to the Commissioner.
During the year ended December 31, 1997, the Bank paid supervisory fees to
the Commissioner totaling $.13 million.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum capital
standards for state-chartered insured non-member banks, such as the Bank: a
leverage requirement consisting of a minimum ratio of Tier I capital to total
assets of 3% for the most highly-rated banks with minimum requirements of 4%
to 5% for all others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier I capital. For purposes of these capital
standards, Tier I capital and total capital consist of substantially the same
components as Tier I capital and total capital under the FRB's capital
guidelines for bank holding companies (SEE "--The Company--Capital
Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances
or risk profiles of individual institutions. For example, the regulations of
the FDIC provide that additional capital may be required to take adequate
account of, among other things, interest rate risk or the risks posed by
concentrations of credit, nontraditional activities or securities trading
activities.
During the year ended December 31, 1997, the Bank was not required by the
FDIC to increase its capital to an amount in excess of the minimum regulatory
requirements. As of December 31, 1997, the Bank exceeded its minimum
regulatory capital requirements with a leverage ratio of 8.3% and a
risk-based capital ratio of 11.6%.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to 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.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks may not
pay dividends in excess of their adjusted profits.
The payment of dividends by any financial institution or its holding company
is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, the Bank exceeded its minimum capital requirements under applicable
guidelines as of December 31, 1997. As of
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December 31, 1997, approximately $16.1 million was available to be paid as
dividends to the Company by the Bank. Notwithstanding the availability of
funds for dividends, however, the FDIC may prohibit the payment of any
dividends by the Bank if the FDIC determines such payment would constitute an
unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed by
the Federal Reserve Act on extensions of credit to the Company and its
subsidiaries, on investments in the stock or other securities of the Company and
its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or one of its subsidiaries or a principal
stockholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In general, the guidelines prescribe the goals to be achieved in each
area, and each institution is responsible for establishing its own procedures to
achieve those goals. If an institution fails to comply with any of the
standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the agencies
expect to require a compliance plan from an institution whose failure to meet
one or more of the guidelines is of such severity that it could threaten the
safety and soundness of the institution. Failure to submit an acceptable plan,
or failure to comply with a plan that has been accepted by the appropriate
federal regulator, would constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as the Bank, have the authority under
Illinois law to establish branches anywhere in the State of Illinois, subject to
receipt of all required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of DE NOVO interstate branches or the
acquisition of individual branches of a bank in another state (rather than
the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The
legislation allows individual states to "opt-out" of certain provisions of
the Riegle-Neal Act by enacting appropriate legislation prior to June 1,
1997. Illinois has enacted legislation permitting interstate mergers
beginning on June 1, 1997, subject to certain conditions, including a
prohibition against interstate mergers unless any Illinois bank involved has
been in existence and continuous operation for more than five years.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. Impermissible investments and activities must be
divested or discontinued within certain time
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frames set by the FDIC. These restrictions have not had, and are not
currently expected to have, a material impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves against
their transaction account balances (primarily NOW and regular checking
accounts), as follows: for transaction account balances aggregating $47.8
million or less, the reserve requirement is 3% of total transaction account
balances; and for transaction account balances aggregating in excess of $47.8
million, the reserve requirement is $1.4 million plus 10% of the aggregate
amount of total transaction account balances in excess of $47.8 million. The
first $4.7 million of otherwise reservable balances are exempted from the
reserve requirements. These reserve requirements are subject to annual
adjustment by the FRB. The Bank is in compliance with the foregoing
requirements.
INSURANCE SUBSIDIARY. The Bank is the sole shareholder of West Suburban
Insurance Services, Inc. ("WSIS"), an Illinois corporation licensed as a general
insurance agency by the Illinois Department of Insurance (the "Department").
WSIS is subject to supervision and regulation by the Department with regard to
compliance with the laws and regulations governing insurance agents and by the
Commissioner and the FDIC with regard to compliance with the banking laws and
regulations applicable to subsidiaries of Illinois-chartered, FDIC-insured
banks.
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EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the executive officers of the Company, along with a brief
description of the business experience of each such person, during the past five
years, and certain other information is set forth below:
<TABLE>
<CAPTION>
Name (Age) and Position
and Offices with the Company Principal Occupations and Employment
(year first elected to office) for Past Five Years and Other Information
- ------------------------------------- -----------------------------------------
<S> <C>
Kevin J. Acker (48) Senior Vice President, Marketing since
Chairman of the Board (1993) 1997. Director and President of
and Vice President (1986) West Suburban Bank of Carol
Stream/Stratford Square 1982 - May
1997
Keith W. Acker (48) Director and President of West Suburban
Chief Operating Officer (1996) Bank since 1986. Chairman of the
Board of West Suburban Bank 1986 -
May 1997
Duane G. Debs (41) Senior Vice President and Comptroller
President (1997) and Chief since 1997. President of West
Financial Officer (1993) Suburban Bank of Downers
Grove/Lombard 1996 - May 1997.
Director of West Suburban Bank of
Downers Grove/Lombard 1993 - May
1997. Vice President and Comptroller
of the Bank since 1987
Michael P. Brosnahan (48) Senior Vice President, Loans since 1989.
Vice President (1997) Director of West Suburban Bank of
Aurora 1990-May 1997
</TABLE>
13
<PAGE>
STATISTICAL DATA
The statistical data required by Securities and Exchange Act of 1934, as amended
(the "1934 Act") Industry Guide 3, "Statistical Disclosure By Bank Holding
Companies," has been incorporated by reference from the Company's 1997 Annual
Report to Shareholders (attached as Exhibit 13.1 hereto) or is set forth below.
This data should be read in conjunction with the Company's 1997 Consolidated
Financial Statements and related notes, and the discussion included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations as set forth in the Company's 1997 Annual Report to Shareholders. All
dollar amounts of the statistical data included below are expressed in
thousands.
Investment Securities
The following table sets forth by category the amortized cost of securities at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Available For Sale:
Corporate $170,335 $ 64,634 $ 69,731
U.S. government agencies and corporations 26,550 63,591 36,119
U.S. Treasury 12,084 16,151 16,291
States and political subdivisions 1,178 1,168 1,157
Equity securities 8,745 14,070 10,841
-------- -------- --------
Total investment securities available for
sale 218,892 159,614 134,139
-------- -------- --------
Held To Maturity:
U.S. government agencies and corporations 162,176 130,250 83,237
States and political subdivisions 37,116 39,941 32,800
-------- -------- --------
Total investment securities held to
maturity 199,292 170,191 116,037
-------- -------- --------
Total investment securities $418,184 $329,805 $250,176
-------- -------- --------
-------- -------- --------
</TABLE>
The following table sets forth by contractual maturity the amortized cost and
weighted average yield (not tax-effected) of investment securities available
for sale at December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
U.S. Government
Agencies and States and Political
Corporate Corporations U.S. Treasury Subdivisions
------------------- --------------------- --------------------- ---------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year $43,867 7.45% $10,017 6.44% $4,005 5.25%
After 1 year but within 5 122,345 6.87 11,441 6.98 8,079 5.94 $773 4.04%
After 5 years but within 10 4,123 8.19 5,007 4.19 205 5.50
After 10 years 85 200 5.05
-------- ----- ------- ----- ------- ----- ------ -----
Total $170,335 7.05% $26,550 6.25% $12,084 5.71% $1,178 4.46%
-------- ----- ------- ----- ------- ----- ------ -----
-------- ----- ------- ----- ------- ----- ------ -----
</TABLE>
14
<PAGE>
The following table sets forth, by contractual maturity, the amortized cost
and weighted average yield of investment securities held to maturity at
December 31, 1997. Yields on tax-exempt securities represent actual coupon
yields (dollars in thousands):
<TABLE>
<CAPTION>
U.S. Government
Agencies and States and Political
Corporations Subdivisions
----------------------- ------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Within one year $13,014 6.90% $3,190 4.04%
After 1 year but within 5 147,762 6.30 14,970 4.13
After 5 years but within 10 1,400 6.43 6,269 4.91
After 10 years 12,687 6.25
-------- ----- ------- -----
Total $162,176 6.35% $37,116 4.98%
-------- ----- ------- -----
-------- ----- ------- -----
</TABLE>
Loan Portfolio
The following table sets forth the major loan categories at December 31 (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial $213,167 $232,210 $200,986 $156,896 $177,054
Installment 41,191 37,511 37,986 33,542 33,714
Real estate:
Mortgage 292,675 299,664 302,062 305,010 288,683
Home equity 127,587 124,805 120,802 120,373 115,910
Construction 72,415 73,432 81,787 72,990 47,442
Held for sale 4,491 1,043 1,523 449 4,543
VISA-credit card 16,235 17,951 19,034 21,342 22,601
Other 4,549 7,229 5,407 7,048 11,479
-------- -------- -------- -------- --------
Total loans 772,310 793,845 769,587 717,650 701,426
Less:
Allowance for loan losses 9,772 9,603 8,900 8,445 7,125
-------- -------- -------- -------- --------
Loans, net $762,538 $784,242 $760,687 $709,205 $694,301
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
At December 31, 1997, the Company had $20.1 million outstanding in loans, leases
and debt securities (the "Instruments") represented by or secured by leases
originated by one customer of the Company. Collectibility of the Instruments
is primarily dependent on the collection of the payments required to be made
under the underlying leases. All Instruments were current as to principal and
interest at December 31, 1997.
15
<PAGE>
The following table sets forth the maturity and interest rate sensitivity of
selected loan categories at December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Remaining Maturity
---------------------------------------------
One year One to Over
or less five years five years Total
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Real estate-construction $72,415 $72,415
Other Loans 484,039 $182,184 $33,672 699,895
-------- -------- ------- --------
Total $556,454 $182,184 $33,672 $772,310
-------- -------- ------- --------
-------- -------- ------- --------
Variable rate $72,217 $72,217
Fixed rate 109,967 $33,672 143,639
-------- ------- --------
Total $182,184 $33,672 $215,856
-------- ------- --------
-------- ------- --------
</TABLE>
Nonperforming Loans
The following table sets forth the aggregate amount of nonperforming loans and
selected ratios at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $3,042 $2,283 $1,478 $279 $3,234
Restructured loans 3,234
Accruing loans past due over 90 days 4,829 3,813 11,405 4,448 3,958
------- ------- ------- ------- -------
Total nonperforming loans 7,871 6,096 12,883 4,727 10,426
Other real estate 2,450 2,757 8,317 10,458 9,954
------- ------- ------- ------- -------
Total nonperforming assets $10,321 $8,853 $21,200 $15,185 $20,380
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of nonperforming loans to
net loans 1.0% 0.8% 1.7% 0.7% 1.5%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of nonperforming assets to
total assets 0.8% 0.7% 1.8% 1.5% 2.0%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
The Company's policy is to discontinue accruing interest on a loan when it
becomes 90 days past due or when management believes, after considering economic
and business conditions and collection efforts, that the borrower's financial
condition is such that collection of principal or interest is doubtful. In some
circumstances a loan that is more than 90 days past due can remain on accrual
status if it can be established that payment will be received within another 90
days or if it is fully secured and in process of collection. When a loan has
been placed on nonaccrual status, interest that has been earned but not
collected is charged back to the appropriate interest income account. When
payments are received on nonaccrual loans they are first applied to principal,
then to expenses incurred for collection and finally to interest income. The
gross amount of interest that would have been recorded if all nonaccruing loans
had been accruing interest at their original terms was approximately $321 for
the year ended December 31, 1997 and no interest on nonaccruing loans was
recorded in operations for the year ended December 31, 1997.
The Company's impaired loans consisted of commercial and non-residential
mortgage loans totaling $17,156 at December 31, 1997 and $17,755 at December 31,
1996. Of these impaired loans, $2,496 required a valuation allowance of $676 at
December 31, 1997 compared to impaired loans of $1,422 with a valuation
allowance of $182 at December 31, 1996. The average outstanding balance of
impaired loans was approximately $15,718 and $17,389 for the years ended
December 31, 1997 and 1996, respectively. The interest income recognized on
impaired loans was approximately $1,783 and $1,706 for the years ended December
31, 1997 and 1996, respectively. The Company had no impaired real estate
construction loans during 1997 or 1996.
16
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluations of
the collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay.
The Company reviews its commercial and real estate construction and
non-residential mortgage loans on a quarterly basis to determine the amount of
impairment, if any. Impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of the loan's collateral, if
repayment of the loan is collateral dependent. A valuation allowance is
maintained for the amount of impairment. Generally, loans 90 or more days past
due and all loans on a nonaccrual basis are considered impaired. Interest income
on impaired loans is recognized in a manner consistent with the Company's
interest policy. Based on such reviews, management at this time does not
anticipate any increase in nonperforming assets that will have a significant
affect on its operations because the estimated exposure to losses has already
been substantially reflected in its allowance for loan losses. This could,
however, change dramatically if a significant decline in the real estate market
area served by the Company occurs.
The following table sets forth the activity in the allowance for loan losses for
the years ended and at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of period $9,603 $8,900 $8,445 $7,125 $8,024
Loans charged-off:
Commercial 956 484 914 302 5,862
Installment 213 87 47 162 245
Real estate mortgages 58 4 311 463 318
Home equity 31 46 7 21
VISA - credit card 452 495 404 356 531
Other 22 27 7 2 50
------ ------ ------ ------ ------
Total loans charged-off 1,732 1,097 1,729 1,292 7,027
Loan recoveries:
Commercial 48 112 100 66 274
Installment 65 31 56 98 186
Real estate mortgages 6 6 8 5 8
Home equity 1
VISA - credit card 153 142 169 227 318
Other 6 3 1 3
------ ------ ------ ------ ------
Total loan recoveries 278 295 334 396 789
------ ------ ------ ------ ------
Net loans charged-off 1,454 802 1,395 896 6,238
Provision for loan losses 1,623 1,505 1,850 2,216 5,339
------ ------ ------ ------ ------
Allowance for loan losses at end of period $9,772 $9,603 $8,900 $8,445 $7,125
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for loan losses to total loans 1.27% 1.21% 1.16% 1.18% 1.02%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net chargeoffs to average total loans .19% .10% .19% .13% .96%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
17
<PAGE>
The entire allowance for loan losses is available to absorb losses in any
particular category of loans, notwithstanding management's allocation of the
allowance. The following table sets forth the allocation of allowance for loan
losses and the percentage of loans in each category to total loans at December
31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount % Amount %
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $4,000 37.0% $4,299 38.5% $4,403 36.7% $3,714 32.0% $3,312 24.8%
Installment and other 331 5.9 392 5.6 385 5.6 331 5.7 369 6.5
Real estate 1,993 38.5 1,895 37.9 1,877 39.4 576 42.5 1,273 48.9
Home equity 638 16.5 312 15.7 302 15.7 301 16.8 290 16.6
VISA - credit card 440 2.1 493 2.3 523 2.6 664 3.0 626 3.2
Unallocated 2,370 2,212 1,410 2,859 1,255
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $9,772 100.0% $9,603 100.0% $8,900 100.0% $8,445 100.0% $7,125 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
Deposits
The following table sets forth by category average daily deposits and rates for
the years ended December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ -----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Demand and other noninterest-
bearing $110,248 $103,448 $100,269
NOW accounts and savings
deposits 523,616 2.8% 524,669 2.9% 498,191 3.4%
Time deposits:
Less than $100,000 421,156 5.9 334,177 5.7 308,039 5.6
$100,000 and over 87,996 5.8 63,079 5.8 49,427 5.8
---------- ---- --------- ---- --------- ----
Total $1,143,016 3.9% $1,025,373 3.7% $955,926 3.9%
---------- ---- --------- ---- --------- ----
---------- ---- --------- ---- --------- ----
</TABLE>
The following table sets forth by maturity time deposits $100 and over at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Within 3 months $31,684
After 3 months but within 12 months 20,975
After 1 year but within 5 years 27,678
After 5 years 3,746
-------
Total $84,083
-------
-------
</TABLE>
Return on Equity and Assets and Other Financial Ratios
The following table sets forth selected financial ratios at and for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on average total assets 1.71% 1.38% 1.27%
Return on average shareholders' equity 17.48 13.93 13.03
Cash dividends paid to net income 34.74 42.73 47.16
Average shareholders' equity to average total assets 9.78 9.90 9.71
</TABLE>
18
<PAGE>
ITEM 2. PROPERTIES
The Company and the Bank occupy a total of approximately 225,000 square feet
in 32 locations. The Company's principal offices are located in approximately
32,500 square feet of office space at 711 South Meyers Road, Lombard,
Illinois. As indicated below, the Bank also operates the facility located at
711 South Meyers Road, Lombard, Illinois as a branch.
The following table sets forth certain information concerning the facilities
of the Bank:
<TABLE>
<CAPTION>
Location of Facilities Approximate Square Feet Status
- ------------------------------ ------------------------- ------------------
<S> <C> <C>
711 S. Meyers Rd. 32,500 Owned
Lombard, IL
701 S. Meyers Rd. 5,200 Owned
Lombard, IL
717 S. Meyers Rd. 7,100 Owned
Lombard, IL
100 S. Main St. 650 Owned
Lombard, IL
Mr. Z's 100 Lease expires 2003
401 S. Main St.
Lombard, IL
707 N. Main St. 4,100 Owned
Lombard, IL
29 E. St. Charles Rd. 3,200 Lease expires 2000
Villa Park, IL
17 W. 754 22nd St. 6,100 Owned
Oakbrook, IL
Lexington Square 100 Lease expires 1998
400 W. Butterfield Rd.
Elmhurst, IL
2200 Feldot Ln. 4,430 Owned
Naperville, IL
879 Geneva Rd. 3,550 Lease expires 2003
Carol Stream, IL
6400 S. Cass Ave. 3,090 Lease expires 2000
Westmont, IL
221 S. West St. 800 Owned
Wheaton, IL
1104 W. Boughton Rd. 4,500 Owned
Bolingbrook, IL
295 W. Loop Rd. 4,500 Owned
Wheaton, IL
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Location of Facilities Approximate Square Feet Status
- ------------------------------ ------------------------- ------------------
<S> <C> <C>
2800 S. Finley Rd. 10,700 Owned
Downers Grove, IL
Route 59 and Meadow Ave. 3,675 Owned
Warrenville, IL
Beacon Hill 100 Month to Month
2400 S. Finley Rd.
Lombard, IL
Lexington Square 100 Lease expires 1998
555 Foxworth Blvd.
Lombard, IL
1122 S. Main St. 6,400 Owned
Lombard, IL
8001 S. Cass Ave. 17,800 Owned
Darien, IL
1005 75th St. 800 Owned
Darien, IL
672 E. Boughton Rd. 7,100 Owned
Bolingbrook, IL
355 W. Army Trail Rd. 10,700 Owned
Bloomingdale, IL
401 N. Gary Ave. 6,400 Owned
Carol Stream, IL
1380 Army Trail Rd. 2,300 Lease expires 2000
Carol Stream, IL
1657 Bloomingdale Rd. 4,100 Owned
Glendale Heights, IL
1061 W. Stearns Rd. 3,400 Owned
Bartlett, IL
315 S. Randall Rd. 1,400 Owned
St. Charles, IL
101 N. Lake St. 19,000 Owned
Aurora, IL
2000 W. Galena Blvd. 48,000 Owned
Aurora, IL
1830 Douglas St. 2,500 Owned
Montgomery, IL
</TABLE>
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or the Bank
is a party other than ordinary routine litigation incidental to their respective
businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's authorized and outstanding equity securities consist of Class A
Common Stock, no par value, and Class B Common Stock, no par value. Except as
required by law, rights and privileges of the holders of the Class A Common
Stock and Class B Common Stock are identical.
The Company's per share book value as of the end of each quarter and dividend
information for each quarter is set forth in the following table:
<TABLE>
<CAPTION>
CLASS A AND CLASS B
---------------------------------
YEAR QUARTER BOOK VALUE DIVIDENDS DECLARED
---- ------- ---------- ------------------
<S> <C> <C> <C>
1997 4th $306.02 $5.00
3rd 299.48 4.50
2nd 290.87 4.50
1st 282.10 4.50
1996 4th $273.62 $4.00
3rd 266.00 4.00
2nd 265.31 4.00
1st 258.36 4.00
</TABLE>
The Company's common stock is not traded on any national or regional
exchange. While there is no established trading market for the Company's
common stock, the Company is aware that from time to time limited or
infrequent quotations are made with respect to the Company's common stock and
that there occurs limited trading in the Company's common stock resulting
from private transactions not involving brokers or dealers. Transactions in
the Company's common stock have been infrequent. As of March 15, 1998, the
Company had 347,015 shares of Class A Common Stock outstanding held by
approximately 894 shareholders of record, and had 85,480 shares of Class B
Common Stock outstanding held by approximately 208 shareholders of record.
Management is aware of approximately 22 transactions during 1997 involving
the sale of approximately 1,418 shares of Class A Common Stock and
approximately 3 transactions during 1997 involving the sale of approximately
101 shares of Class B Common Stock. The average sale price in such
transactions was approximately $338.55.
ITEM 6. SELECTED FINANCIAL DATA
The Company hereby incorporates by reference the information called for by
Item 6 of this Form 10-K from the section entitled "Selected Financial Data"
of the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997 (attached as Exhibit 13.1 hereto).
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company hereby incorporates by reference the information called for by
Item 7 of this Form 10-K from the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the
Company's Annual Report to Shareholders for the fiscal year ended December
31, 1997 (attached as Exhibit 13.1 hereto).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company hereby incorporates by reference the information called for by
Item 7A of this Form 10-K from the Interest Rate Senstitivty section included
in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1997 (attached as Exhibit 13.1 hereto).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company hereby incorporates by reference the information called for by
Item 8 of this Form 10-K from the Consolidated Financial Statements and from
the section entitled "Selected Quarterly Financial Data" as set forth in the
Company's Annual Report to Shareholders for the fiscal year ended December
31, 1997 (attached as Exhibit 13.1 hereto).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference the information called for by
Item 10 of this Form 10-K regarding directors of the Company from the section
entitled "Election of Directors" of the Company's 1998 Proxy Statement.
Section 16(a) of the 1934 Act requires that the Company's executive officers
and directors and persons who own more than 10% of their Company's Common
Stock file reports of ownership and changes in ownership with the Securities
and Exchange Commission and with the exchange on which the Company's shares
of common stock are traded. Such persons are also required to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on the
Company's review of the copies of such forms furnished to the Company and, if
appropriate, representations made to the Company by any such reporting person
concerning whether a Form 5 was required to be filed for the 1997 fiscal
year, the Company is not aware that any of its directors and executive
officers or 10% shareholders failed to comply with the filing requirements of
Section 16(a) during the period commencing January 1, 1997 through December
31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information called for by
Item 11 of this Form 10-K from the section entitled "Executive Compensation"
of the Company's 1998 Proxy Statement; provided, however, Report of the Board
of Directors on Executive Compensation is specifically not incorporated into
this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information called for by
Item 12 of this Form 10-K from the section entitled "Security Ownership of
Certain Beneficial Owners" of the Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hereby incorporates by reference the information called for by
Item 13 of this Form 10-K from the section entitled "Transactions with
Directors, Officers and Associates" of the Company's 1998 Proxy Statement.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM (a)1 AND 2. FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following audited Consolidated Financial Statements of the Company and
its subsidiaries and related notes and independent auditors' report are
incorporated by reference from the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1997 (attached as Exhibit 13.1 hereto).
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE NO.
------------
<S> <C>
Report of Independent Auditors 6
Consolidated Balance Sheets - December 31, 1997 and 1996 7
Consolidated Statements of Income - Years Ended
December 31, 1997, 1996 and 1995 8
Consolidated Statements of Changes in Shareholders'
Equity - Years Ended December 31, 1997, 1996 and 1995 9
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995 10
Notes to Consolidated Financial Statements 12
</TABLE>
The following Condensed Financial Information-Parent Only is incorporated by
reference from Note 15 to the Company's audited Consolidated Financial
Statements as set forth in the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 (attached as Exhibit 13.1).
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE NO.
------------
<S> <C>
Condensed Balance Sheets - December 31, 1997 and 1996 22
Condensed Statements of Income - Years Ended
December 31, 1997, 1996 and 1995 23
Condensed Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995 23
</TABLE>
SCHEDULES
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable or the required information is shown
in the financial statements incorporated by reference or notes thereto.
25
<PAGE>
ITEM 14(a)3. EXHIBITS
The exhibits required by Item 601 of Regulation S-K are included with this
Form 10-K and are listed on the "Index to Exhibits" immediately following the
signature page.
ITEM 14(b). REPORTS ON FORM 8-K
None
***
Upon written request to the Chief Financial Officer of West Suburban Bancorp,
Inc., 711 South Meyers Road, Lombard, Illinois, 60148, copies of the exhibits
listed above are available to shareholders of the Company by specifically
identifying each exhibit desired in the request. A fee of $.20 per page of
exhibit will be charged to shareholders requesting copies of exhibits to
cover copying and mailing costs.
26
<PAGE>
FORM 10-K SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WEST SUBURBAN BANCORP, INC.
(Registrant)
By /S/ DUANE G. DEBS
----------------------------------------
Duane G. Debs
President and Chief Financial Officer
Date: March 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 28th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------- --------------------------------
<S> <C> <C>
/s/ KEVIN J. ACKER 3/28/98 Chairman of the
- --------------------- --------- Board and Director
Kevin J. Acker Date
/s/ DUANE G. DEBS 3/28/98 President, Chief Financial
- --------------------- --------- Officer, Chief Accounting Officer
Duane G. Debs Date and Director
/s/ DAVID BELL 3/28/98
- --------------------- --------- Director
David Bell Date
/s/ PEGGY P. LOCICERO 3/28/98
- --------------------- --------- Director
Peggy P. LoCicero Date
/s/ CHARLES P. HOWARD 3/28/98
- --------------------- --------- Director
Charles P. Howard Date
</TABLE>
The foregoing includes all of the Board of Directors of the Company.
27
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------------------------------------------------------- ----------
<C> <S> <C>
3.1 Articles of Incorporation - Incorporated by reference N/A
from Exhibit 3.1 of Form S-1 of the Company dated November 10,
1988, under Registration No. 33-25225
3.2 Form of Certificate of Amendment to Articles of N/A
Incorporation - Incorporated by reference from Exhibit 3.2 of
Form S-1 of the Company dated November 10, 1988, under
Registration No. 33-25225
3.3 Certificate of Amendment to Articles of Incorporation N/A
dated May 10, 1990 - Incorporated by reference from Exhibit 3.3
of the Form 10-K of the Company dated March 28, 1991, Commission
File No. 0-17609
3.4 By-Laws - Incorporated by reference from Exhibit 3.3 of N/A
Form S-1 of the Company dated November 10, 1988, Registration No.
33-25225
4.1 Specimen of Class A Common Stock certificate - N/A
Incorporated by reference from Exhibit 4.1 of the Form 10-K of
the Company dated March 28, 1991, Commission File No. 0-17609
4.2 Specimen of Class B Common Stock certificate - N/A
Incorporated by reference from Exhibit 4.1 of the Form S-1 of the
Company dated November 10, 1988, Registration No. 33-25225
4.3 Articles of Incorporation of the Company N/A
(see Exhibits 3.1, 3.2, 3.3 and 3.4 above)
4.4 By-Laws of the Company (see Exhibit 3.4 above) N/A
</TABLE>
28
<PAGE>
INDEX TO EXHIBITS
(continued)
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------------------------------------------------------- ----------
<C> <S> <C>
10.1 Employment Agreement dated May 1, 1997 N/A
between the Company and Mr. Kevin J. Acker -
Incorporated by reference from Exhibit 10.1 of
Form 10-Q of the Company dated August 14,
1997, Commission File No. 0-17609
10.2 Employment Agreement dated May 1, 1997 N/A
between the Company and Mr. Keith Acker -
Incorporated by reference from Exhibit 10.2 of
Form 10-Q of the Company dated August 14,
1997, Commission File No. 0-17609
10.3 Employment Agreement dated May 1, 1997 N/A
between the Company and Mr. Duane G. Debs -
Incorporated by reference from Exhibit 10.3 of
Form 10-Q of the Company dated August 14,
1997, Commission File No. 0-17609
10.4 Employment Agreement dated May 1, 1997 N/A
between the Company and Mr. Michael P.
Brosnahan - Incorporated by reference from Exhibit
10.4 of Form 10-Q of the Company dated August 14,
1997, Commission File No. 0-17609
10.5 Form of Amended Deferred Compensation Agreement N/A
between the Company and Messrs. Kevin J. Acker,
Keith W. Acker, Duane G. Debs and Michael P.
Brosnahan - Incorporated by reference from Exhibit
10.5 of Form 10-Q of the Company dated August 14,
1997, Commission File No. 0-17609
13.1 Annual Report to Shareholders of the 30
Company for fiscal year ended December 31, 1997
21.1 Subsidiaries of Registrant 69
27 Financial Data Schedule 70
</TABLE>
29
<PAGE>
- -----------------------------------------------------------------------------
PROFILE
West Suburban Bancorp, Inc. (the "Parent") is the parent bank holding company
of West Suburban Bank, Lombard, Illinois (the "Subsidiary," and together with
the Parent and its other subsidiaries, the "Company" or "West Suburban"). The
Company had total consolidated assets at December 31, 1997 of approximately
$1.29 billion. West Suburban is the twelfth largest bank holding company
headquartered in Illinois and the Subsidiary is the largest independent bank
headquartered in DuPage County.
- -----------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share data)
-----------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income $21,784 $15,942 $13,525 $13,026 $11,824
Per share data
Net income 50.37 36.86 31.27 30.12 27.72
Book value 306.02 273.62 254.73 226.53 221.56
Net loans 762,538 784,242 760,687 709,205 694,301
Total assets 1,293,691 1,235,604 1,154,349 1,041,495 999,878
Deposits 1,144,949 1,099,397 1,029,789 923,257 883,464
Shareholders' equity 132,353 118,338 110,168 97,971 95,822
</TABLE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Profile 1
Letter to Our Shareholders,
Customers and Friends 2
Corporate Information 3
Business Review 3
Selected Quarterly Financial Data 4
Review of Operations 5
Independent Auditors' Report 6
Consolidated Financial Statements 7
Notes to Consolidated Financial Statements 12
Selected Financial Data 24
Distribution of Assets and Net Interest
Income and Average Rates
and Yields on a Tax Equivalent Basis 25
Management's Discussion
and Analysis of Financial
Condition and Results of Operations 27
Boards of Directors 34
Officers 34
Addresses of Locations 36
Map of Locations 37
Shareholder Information 38
</TABLE>
- -----------------------------------------------------------------------------
THIS REPORT, INCLUDING THE LETTER TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS,
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY INTENDS SUCH FORWARD-LOOKING
STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING
STATEMENTS CONTAINED IN THE PRIVATE SECURITIES REFORM ACT OF 1995, 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 EFFECT
ON THE OPERATIONS AND FUTURE PROSPECTS OF THE PARENT AND THE 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 THEIR LOAN OR INVESTMENT
PORTFOLIOS, DEMAND FOR LOAN PRODUCTS, DEPOSIT FLOWS, COMPETITION, DEMAND FOR
FINANCIAL SERVICES IN THE COMPANY'S MARKET AREA AND ACCOUNTING PRINCIPLES,
POLICIES AND GUIDELINES. THESE RISKS AND UNCERTAINTIES SHOULD BE CONSIDERED
IN EVALUATING FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE SHOULD NOT BE
PLACED ON SUCH STATEMENTS. FURTHER INFORMATION CONCERNING THE COMPANY AND ITS
BUSINESS, INCLUDING ADDITIONAL FACTORS THAT COULD MATERIALLY AFFECT THE
COMPANY'S FINANCIAL RESULTS, IS INCLUDED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
- -----------------------------------------------------------------------------
1
<PAGE>
- -----------------------------------------------------------------------------
TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS:
As we look forward to the new millennium in just two years, we at West
Suburban would like to take time to reflect on our past 35 years. We started
in 1962 as a dream of our founders and, through their efforts, we have grown
to 32 locations in four counties (DuPage, Will, Kane and Kendall). On
December 31, 1997, West Suburban had $1.3 billion in assets. In 1997, we
reported record earnings of $21.8 million which represents a 37% increase
from the prior year. Our return on average assets increased to 1.71% in 1997,
up from 1.38% for 1996.
During 1997, our book value per share grew by $32.40 (11.8%) to $306.02 at
year end 1997 from $273.62 at year end 1996. Our dividends declared in 1997
increased by $2.50 (15.6%) per share to $18.50 per share in 1997 from $16.00
in 1996.
The year 1997 was a year of change for our organization. To help us provide
better service to our customers we merged West Suburban Bank, West Suburban
Bank of Downers Grove/Lombard, West Suburban Bank of Darien, West Suburban
Bank of Carol Stream/Stratford Square and West Suburban Bank of Aurora,
F.S.B. into West Suburban Bank on May 17, 1997. On November 1, 1997, we
converted to a new computer system which is year 2000 compliant. As a result
of our system conversion we expect to be able to offer electronic banking
later this year.
In 1998, we will expand the number of our locations with a new facility at
Eola Road and New York Avenue on the east side of Aurora. West Suburban will
add its first Romeoville facility in an area that we believe will be greatly
enhanced by a full service bank. We will also add a second facility in the
Bartlett/Hanover Park area. In addition, we will look to the east side of St.
Charles to enhance our position in the rapidly growing St. Charles area. We
will continue to seek expansion opportunities as we build our delivery system
and to grow with the communities in which we have facilities. In 1997, we also
remodeled a number of our facilities to create a better banking environment
for our customers.
In 1998, we will continue to offer the convenient hours of service that have
set us apart from our competition. We will emphasize the areas that have made
us successful like convenience, quality service, quality products,
telebanking, extended hours and leading edge technology.
As always, we appreciate your continued support and welcome your comments,
criticisms and suggestions. We could not have achieved our success without
the support of our shareholders, customers, communities, friends and
employees. Thank you everyone.
Sincerely,
/s/ Kevin J. Acker /s/ Duane G. Debs
Kevin J. Acker Duane G. Debs
Chairman of the Board President and CFO
- -----------------------------------------------------------------------------
2
<PAGE>
- -----------------------------------------------------------------------------
CORPORATE INFORMATION
The Company is a bank holding company headquartered in DuPage County,
Illinois. The Company has two classes of common stock issued and outstanding
and, in accordance with the terms of its articles of incorporation and
bylaws, the Company treats both classes equally for all purposes including
book value and dividend purposes. The shares of the Company's common stock
are not traded on any stock exchange or on the over-the-counter market. The
Company's per share book value as of the end of the indicated periods and
dividends declared for the last two years are set forth in the following
table:
<TABLE>
<CAPTION>
YEAR QUARTER BOOK VALUE DIVIDENDS DECLARED
- ----------------------------------------------------------------
<S> <C> <C> <C>
1997 4TH $306.02 $5.00
3RD 299.48 4.50
2ND 290.87 4.50
1ST 282.10 4.50
- ----------------------------------------------------------------
1996 4th $273.62 $4.00
3rd 266.00 4.00
2nd 265.31 4.00
1st 258.36 4.00
</TABLE>
BUSINESS REVIEW
The Company had total assets at December 31, 1997 of approximately $1.29
billion. As of December 31, 1997, the Subsidiary operated 32 facilities
throughout DuPage, Kane, Kendall and Will Counties, with its business
activities focusing primarily on the retail and commercial banking markets.
The Company had a total of 460 full-time equivalent employees at December 31,
1997.
- -----------------------------------------------------------------------------
3
<PAGE>
- -----------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(Dollars in thousands, except per share data)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
INTEREST INCOME $22,751 $24,278 $24,216 $23,963
NET INTEREST INCOME 12,460 12,849 12,767 12,432
PROVISION FOR LOAN LOSSES 295 276 276 776
OTHER OPERATING INCOME 5,738 2,234 2,029 2,395
OTHER OPERATING EXPENSE 7,795 7,423 6,787 7,685
NET INCOME 6,565 4,833 5,123 5,263
NET INCOME PER SHARE - BASIC 15.18 11.17 11.85 12.17
- -----------------------------------------------------------------------------
1996
Interest income $22,021 $21,378 $21,782 $23,377
Net interest income 12,774 12,480 12,193 12,752
Provision for loan losses 458 338 388 321
Other operating income 2,276 3,187 2,155 2,278
Other operating expense 7,674 6,982 11,616 7,878
Net income 4,583 5,274 1,640 4,445
Net income per share - basic 10.60 12.19 3.79 10.28
- -----------------------------------------------------------------------------
</TABLE>
4
<PAGE>
- -----------------------------------------------------------------------------
REVIEW OF OPERATIONS
This past year presented West Suburban Bank with the challenge of adapting to
significant changes within the organization. Our merger from five separate
institutions into one, accomplished in May, allowed us to more efficiently
utilize bank resources and create a more convenient banking environment for
our customers. Later in the year, we upgraded our data processing capability
with new software. In addition to improving our internal operations, the new
software will allow us to offer enhancements to existing products as well as
a number of entirely new services. These include additional features to our
Telebank-24 bank-by-phone system and a PC Banking service that will allow
customers to do their banking from their home computers. We are committed to
reinforcing our personal, community oriented service with state-of-the-art
convenience in electronic banking.
Amid these internal changes, we adapted to a marketplace characterized by
increased competition for loans and deposits. We continued to promote our
Master Equity Line, a product that combines the best features of a line of
credit with the advantages of a fully amortizing loan. Additionally, we
pursued home mortgage loans, an effort that we anticipate intensifying
particularly if interest rates remain low. On the deposit side, our seasonal
promotional certificates of deposit proved as popular as ever, including two
springtime promotional certificates of deposit that generated over $65
million in deposits. Furthermore, we continued to offer our 5-Year Look-In
Certificate of Deposit as well as our 4-Year Maximum Yield Certificate of
Deposit. These two products are designed to protect customers from interest
rate fluctuations, providing them with competitive alternatives to nonbank
investments.
In the past year, we continued to explore new products, markets, delivery
channels and methods to acquire new customers and strengthen our ties with
existing customers. These efforts, along with our existing products and
services, reflect our dedication to meeting the needs of our customers.
At West Suburban Bank, we feel our responsibility extends beyond our
immediate customer base and into the communities we serve. As a community
bank, we believe we have a special role to play an exemplary corporate
citizen. This was expressed in 1997 both at the institutional level and
through the efforts of our civic-minded employees, by participating in a wide
range of not-for-profit organizations and by making regular donations of
private gifts to community organizations.
We look to 1998 with optimism, and remain dedicated to meeting the needs of
our customers and the communities in which they live. We anticipate expanding
into new markets and strengthening our presence in existing markets, by
opening new facilities and improving certain of our current facilities. We
will remain committed to innovative financial thinking, offering a broad
range of accessible products, improving delivery channels, maintaining high
levels of customer service and dedication to the community. We are confident
that we have demonstrated this commitment in the past, and look forward to
meeting these challenges in the future while remaining profitable and
enhancing shareholder value.
- -----------------------------------------------------------------------------
5
<PAGE>
- -----------------------------------------------------------------------------
[Deloitte & Touche LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Suburban Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of West Suburban
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of West Suburban
Bancorp, Inc. and subsidiary at December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
January 30, 1998
- -----------------------------------------------------------------------------
6
<PAGE>
- -----------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
--------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $38,251 $38,520
Interest-earning deposits in financial institutions 343 240
Federal funds sold 21,740 29,890
---------- ----------
Total cash and cash equivalents 60,334 68,650
Investment securities:
Available for sale (amortized cost of $218,892 in 1997;
$159,614 in 1996) 218,587 158,578
Held to maturity (fair value of $199,905 in 1997;
$170,202 in 1996) 199,292 170,191
Loans, less allowance for loan losses of $9,772 in 1997;
$9,603 in 1996 762,538 784,242
Premises and equipment, net 31,142 30,130
Other real estate 2,450 2,757
Accrued interest and other assets 19,348 21,056
---------- ----------
TOTAL ASSETS $1,293,691 $1,235,604
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $123,969 $102,583
Interest-bearing 1,020,980 996,814
---------- ----------
Total deposits 1,144,949 1,099,397
FHLB advances 1,350
Accrued interest and other liabilities 16,389 16,519
---------- ----------
TOTAL LIABILITIES 1,161,338 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 91,014 77,439
Unrealized loss on securities available for sale, net of
tax benefit of ($121) in 1997; ($412) in 1996 (184) (624)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 132,353 118,338
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,293,691 $1,235,604
---------- ----------
---------- ----------
--------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------------------------------------
7
<PAGE>
- -----------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
-----------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $69,414 $70,759 $67,381
------- ------- -------
Investment securities:
Taxable 21,979 13,859 12,801
Nontaxable 1,825 2,084 1,290
------- ------- -------
Total investment securities 23,804 15,943 14,091
Deposits in financial institutions 12 16 7
Federal funds sold 1,978 1,840 1,949
------- ------- -------
Total interest income 95,208 88,558 83,428
------- ------- -------
INTEREST EXPENSE
Deposits 44,313 37,787 36,988
Other 387 572 426
------- ------- -------
Total interest expense 44,700 38,359 37,414
------- ------- -------
Net interest income 50,508 50,199 46,014
PROVISION FOR LOAN LOSSES 1,623 1,505 1,850
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 48,885 48,694 44,164
------- ------- -------
OTHER OPERATING INCOME
Service fees 3,414 3,746 3,529
Trust fees 171 157 243
Net gain on sales of loans 280 151 110
Loan servicing 659 899 941
Net realized gain on sales of investment securities
available for sale 136 449 41
Net gain on sale of other real estate 1,466 55 12
Litigation settlement 2,344
Other 3,926 4,439 2,948
------- ------- -------
Total other operating income 12,396 9,896 7,824
------- ------- -------
OTHER OPERATING EXPENSE
Salaries and employee benefits 15,849 14,954 13,228
Occupancy 2,901 2,743 2,604
Furniture and equipment 2,802 2,655 2,413
FDIC insurance premiums 172 1,113 1,213
Professional fees 829 1,062 1,106
Data processing 772 827 967
Other real estate 523 5,042 3,516
Other 5,842 5,754 5,145
------- ------- -------
Total other operating expense 29,690 34,150 30,192
------- ------- -------
INCOME BEFORE INCOME TAXES 31,591 24,440 21,796
INCOME TAXES 9,807 8,498 8,271
------- ------- -------
NET INCOME $21,784 $15,942 $13,525
------- ------- -------
------- ------- -------
EARNINGS PER SHARE - BASIC $50.37 $36.86 $31.27
------- ------- -------
------- ------- -------
-----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------------------------------------
8
<PAGE>
- -----------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Class A Class B on Securities Total
Common Common Retained Available For Sale, Shareholders'
Stock Stock Surplus Earnings Net of Taxes Equity
------- ------- ------- -------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $2,774 $683 $38,066 $61,378 ($4,930) $97,971
Net income 13,525 13,525
Cash dividends declared (6,487) (6,487)
Change in net unrealized gain (loss) on
securities available for sale, net of taxes 5,159 5,159
------ ---- ------- ------- ------ --------
BALANCE, DECEMBER 31, 1995 2,774 683 38,066 68,416 229 110,168
Net income 15,942 15,942
Cash dividends declared (6,919) (6,919)
Change in net unrealized gain (loss) on
securities available for sale, net of taxes (853) (853)
------ ---- ------- ------- ------ --------
BALANCE, DECEMBER 31, 1996 2,774 683 38,066 77,439 (624) 118,338
-----------------------------------------------------------------------
Net income 21,784 21,784
Cash dividends declared (8,001) (8,001)
Change in net unrealized gain (loss) on
securities available for sale, net of taxes 440 440
Purchase of minority interest in
subsidiaries (208) (208)
------ ---- ------- ------- ------ --------
BALANCE, DECEMBER 31, 1997 $2,774 $683 $38,066 $91,014 ($184) $132,353
------ ---- ------- ------- ------ --------
------ ---- ------- ------- ------ --------
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------------------------------------
9
<PAGE>
- -----------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $21,784 $15,942 $13,525
-------- --------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,236 2,974 2,720
Provision for loan losses 1,623 1,505 1,850
Provision for deferred income tax (benefit) 1,342 (2,185) (593)
Net premium amortization and discount
accretion of investment securities 502 487 463
Net realized gain on sales of
securities available for sale (136) (449) (41)
Net gain on sale of loans held for sale (280) (151) (110)
Proceeds from sale of loans held for sale 3,296 727 1,964
Origination of loans held for sale (4,491) (1,043) (3,038)
Provision for loss on other real estate 5,460 1,543
Loss (gain) on sale of premises and
equipment (8) 90 (31)
Net gain on sale of other real estate (1,466) (55) (12)
Decrease (increase) in accrued interest
and other assets 72 (1,165) 2,835
(Decrease) increase in accrued interest
and other liabilities (561) 2,114 3,606
-------- --------- --------
Total adjustments 3,129 8,309 11,156
-------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,913 24,251 24,681
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 11,414 30,160 9,087
Proceeds from maturities 92,057 16,721 3,162
Purchases (163,281) (72,537) (24,676)
Investment securities held to maturity:
Proceeds from maturities 82,407 48,343 55,632
Purchases (111,341) (102,353) (63,016)
Purchase of minority interest in
subsidiaries (208)
Net decrease (increase) in loans 20,605 (26,697) (53,869)
Purchases of premises and equipment (4,248) (4,017) (5,273)
Proceeds from sale of premises and
equipment 8 29 32
Proceeds from sale of other real estate 2,725 2,259 2,330
-------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES ($69,862) ($108,092) ($76,591)
-------- --------- --------
------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------------------------------------
10
<PAGE>
- -----------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
------------
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits $45,552 $69,608 $106,531
(Decrease) increase in FHLB advances (1,350) 1,350 (9,940)
Cash dividends paid (7,569) (6,812) (6,379)
-------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,633 64,146 90,212
-------- --------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,316) (19,695) 38,302
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 68,650 88,345 50,043
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $60,334 $68,650 $88,345
-------- --------- --------
-------- --------- --------
Supplemental cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings $42,229 $37,694 $35,707
Income taxes 9,407 10,244 7,673
Transfers from loans to other real estate 951 2,104 1,721
Transfer of investment securities from held to
maturity to available for sale 32,288
------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------------------------------------
11
<PAGE>
- -------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
During the first quarter of 1997, West Suburban Bank (the "Subsidiary")
received approvals from the Federal Deposit Insurance Corporation ("FDIC"),
the Office of the Illinois Commissioner of Banks and Real Estate and the
Office of Thrift Supervision to merge the four bank subsidiaries and the
thrift subsidiary into one state chartered bank under the name "West Suburban
Bank." On May 17, 1997, the subsidiaries were merged and since that date,
West Suburban Bancorp, Inc. (the "Parent") 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
Parent together with the Subsidiary may be referred to as the "Company." The
consolidated financial statements include the accounts of the Parent and the
Subsidiary. Significant intercompany accounts and transactions have been
eliminated.
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles and conform to general
practices within the banking industry. A summary of accounting policies
follows.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, primarily the allowance for loan losses, and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENT SECURITIES
Debt and marketable equity securities are classified into two categories,
"held to maturity" and "available for sale." Held to maturity securities
include those 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.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses. Interest on loans is recognized based upon the principal
amount outstanding. Accrual of interest is generally discontinued on a loan
when it becomes 90 days past due or when management believes, after
considering economic and business conditions and collection efforts, that the
borrowers' financial condition is such that collection of principal or
interest is doubtful. In some circumstances, a loan that is more than 90 days
past due can remain on accrual status if it can be established that payment
will be received within another 90 days or if it is fully secured and in the
process of collection. When a loan has been placed on nonaccrual status,
interest that has been earned but not collected is charged back to the
appropriate interest income account. When payments are received on nonaccrual
loans they are first applied to principal, then to expenses incurred for
collection and finally to interest income.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans and current economic conditions that may
affect the borrowers' ability to pay.
- -------------------------------------------------------------------------------
12
<PAGE>
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews its commercial and real estate construction and
non-residential mortgage loans on a quarterly basis to determine the amount
of impairment, if any. Impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price, or the fair value of the loan's
collateral, if repayment of the loan is collateral dependent. A valuation
allowance is maintained for the amount of impairment. Generally, loans 90 or
more days past due and all loans on a nonaccrual basis are considered
impaired. Interest income on impaired loans is recognized in a manner
consistent with the Company's interest policy.
LOANS HELD FOR SALE
Loans are identified as either held for investment or held for sale upon
their origination. Loans held for sale are recorded at the lower of amortized
cost or market value, determined on an aggregate basis. Unrealized losses, if
any, are recognized on a current basis.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 122, "Accounting for Mortgage Servicing
Rights," which requires certain accounting for mortgage servicing rights and
the valuation and recognition of impairment of mortgage servicing rights. The
adoption of SFAS 122 did not have a material effect on the Company's
financial condition or results of operations. In June 1996, the Financial
Accounting Standards Board ("FASB") issued SFAS 125, "Accounting for the
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which supercedes SFAS 122. The adoption of SFAS 125 did not
have a material effect on the Company's financial condition or results of
operations.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation,
which is generally computed on the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on the
straight-line method over the shorter of the estimated useful lives of the
improvements or the terms of the related leases.
OTHER REAL ESTATE
Other real estate includes properties acquired in partial or total settlement
of problem loans. The properties are recorded at the lower of cost or fair
value less estimated selling costs at the date acquired. Losses arising at
the time of acquisition of such properties are charged to the allowance for
loan losses. Any subsequent decline in value is charged to current
operations. The revenue received from, and expenses incurred in maintaining,
such properties are also included in current operations. The amounts the
Company could ultimately recover from other real estate could differ
materially from the amounts used in determining the net carrying value of the
assets because of future market factors beyond the Company's control or
changes in the Company's strategy for recovering its investment. Management
believes the net carrying value of other real estate is a reasonable estimate
of its fair value.
INTANGIBLES
The Company accounted for the acquisition of its former thrift subsidiary
using the purchase method of accounting. The related intangibles are being
amortized over 15 years using the straight-line method.
Effective January 1, 1996 the Company adopted SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires that long-lived assets and certain identifiable intangibles
that are used in operations be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of assets might
not be recoverable. The adoption of SFAS 121 did not have a material effect
on the Company's financial condition or results of operations.
TRUST ASSETS AND FEES
Assets held in fiduciary or agency capacities are not included in the
consolidated balance sheets since such items are not assets of the Company.
Income from trust fees is recorded when received. This income does not differ
materially from trust fees computed on an accrual basis.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes. The Company files consolidated federal and
state income tax returns.
- -------------------------------------------------------------------------------
13
<PAGE>
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company adopted SFAS 128, "Earnings per Share," in 1997, which revised
the standards for computing and presenting basic and diluted earnings per
share. All prior periods have been restated. Earnings per share are
calculated on the basis of the daily weighted average number of shares
outstanding. The Company has no dilutive potential common shares outstanding.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest-earning deposits in financial institutions and
federal funds sold. Generally, federal funds are sold for one day periods.
NEW ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS 125, which provides new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a "financial-components" approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS 125 was
effective for the Company beginning January 1, 1997. The adoption of SFAS 125
did not have a material impact on the Company's financial condition or
results of operations.
In December 1996, FASB issued SFAS 127, "Deferral of the Effective Date of
Certain Provisions of SFAS 125," which deferred the effective date of certain
of the provisions of SFAS 125 for one year. The Company believes the adoption
of these provisions will not have a material impact on its financial
condition or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements
to conform with the current year's presentation.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and fair value of investment securities available for sale
are as follows at December 31:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------
Gross Gross Fair
Amortized Cost Unrealized Gains Unrealized Losses Value
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Corporate $170,335 $498 ($506) $170,327
U.S. government agencies and corporations 26,550 120 (537) 26,133
U.S. Treasury 12,084 (73) 12,011
States and political subdivisions 1,178 19 1,197
------------------ ----------------- ------------------ -----------------
Total debt securities 210,147 637 (1,116) 209,668
Federal Home Loan Mortgage Corp.
Preferred Stock and other equity securities 8,745 181 (7) 8,919
------------------ ----------------- ------------------ -----------------
Total $218,892 $818 ($1,123) $218,587
================== ================= ================== =================
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------------
Gross Gross Fair
Amortized Cost Unrealized Gains Unrealized Losses Value
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Corporate $64,634 $283 ($322) $64,595
U.S. government agencies and corporations 63,591 134 (890) 62,835
U.S. Treasury 16,151 (206) 15,945
States and political subdivisions 1,168 8 (3) 1,173
------------------ ----------------- ------------------ -----------------
Total debt securities 145,544 425 (1,421) 144,548
Federal Home Loan Mortgage Corp.
Preferred Stock and other equity securities 14,070 16 (56) 14,030
------------------ ----------------- ------------------ -----------------
Total $159,614 $441 ($1,477) $158,578
================== ================= ================== =================
</TABLE>
- -------------------------------------------------------------------------------
14
<PAGE>
- -------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities held to maturity
are as follows at December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------
Amortized Cost Gross Gross Fair Value
Unrealized Unrealized
Gains Losses
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations $162,176 $134 ($168) $162,142
States and political subdivisions 37,116 679 (32) 37,763
---------------- --------------- ---------------- ---------------
Total $199,292 $813 ($200) $199,905
================ =============== ================ ===============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------------
Amortized Cost Gross Gross Fair Value
Unrealized Unrealized
Gains Losses
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations $130,250 $164 ($383) $130,031
States and political subdivisions 39,941 312 (82) 40,171
---------------- --------------- ---------------- ---------------
Total $170,191 $476 ($465) $170,202
================ =============== ================ ===============
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The amortized cost and fair value of debt securities
available for sale and held to maturity at December 31, 1997 by contractual
maturity are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Available for Sale Held to Maturity
--------------------------------------- --------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- ----------------- ----------------- ----------------
<C> <C> <C> <C>
Due in 1 year or less $57,889 $57,942 $16,204 $16,198
Due after 1 year through 5 years 142,638 142,618 162,732 162,897
Due after 5 years through 10 years 9,335 8,823 7,669 7,858
Due after 10 years 285 285 12,687 12,952
----------------- ----------------- ----------------- ----------------
Total $210,147 $209,668 $199,292 $199,905
================= ================= ================= ================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross gains and gross (losses) of $150 and ($14), $476 and ($27), $161 and
($120) were realized on sales in 1997, 1996 and 1995, respectively.
Investment securities with a carrying value of approximately $24,688 and
$29,848 at December 31, 1997 and 1996, respectively, were pledged to secure
public deposits, fiduciary activities and for other purposes required or
permitted by law.
- -------------------------------------------------------------------------------
15
<PAGE>
- -------------------------------------------------------------------------------
NOTE 3 - LOANS
Major classifications of loans were as follows at December 31:
<TABLE>
<CAPTION>
-----------------------------
1997 1996
---------------------- ----------------------
<S> <C> <C>
Commercial $213,167 $232,210
Installment 41,191 37,511
Real estate:
Mortgage 292,675 299,664
Home equity 127,587 124,805
Construction 72,415 73,432
Held for sale 4,491 1,043
VISA - credit card 16,235 17,951
Other 4,549 7,229
---------------------- ----------------------
Total 772,310 793,845
Allowance for loan losses (9,772) (9,603)
---------------------- ----------------------
Loans, net $762,538 $784,242
---------------------- ----------------------
---------------------- ----------------------
-----------------------------
</TABLE>
The Company makes commercial, personal and residential loans primarily to
customers throughout the western suburbs of Chicago. The Company's loans to
the construction and land development industries represented 9.4% and 9.3% of
total loans at December 31, 1997 and 1996, respectively. The Company's real
estate construction loans are generally made within its market area. The
Company manages this exposure by continually reviewing local market
conditions and closely monitoring collateral values.
Loans on which the accrual of interest has been discontinued or reduced
amounted to $3,042, $2,283 and $1,478 at December 31, 1997, 1996 and 1995,
respectively. If interest on those loans had been accrued, such income would
have approximated $321, $136 and $146 for 1997, 1996 and 1995, respectively.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
---------------------------
1997 1996 1995
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Balance, beginning of year $9,603 $8,900 $8,445
Provision for loan losses 1,623 1,505 1,850
Loans charged-off (1,732) (1,097) (1,729)
Recoveries 278 295 334
---------------------- ---------------------- ---------------------
Balance, end of year $9,772 $9,603 $8,900
====================== ====================== =====================
---------------------------
</TABLE>
The Company's impaired loans consisted of commercial and non-residential
mortgage loans totaling $17,156 at December 31, 1997 and $17,755 at December
31, 1996. Of these impaired loans, $2,496 required a valuation allowance of
$676 at December 31, 1997 compared to impaired loans of $1,422 with a
valuation allowance of $182 at December 31, 1996. The average outstanding
balance of impaired loans was approximately $15,718 and $17,389 for the years
ended December 31, 1997 and 1996, respectively. The interest income
recognized on impaired loans was approximately $1,783 and $1,706 for the
years ended December 31, 1997 and 1996, respectively. The Company had no
impaired real estate construction loans during 1997 or 1996.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing
payments to investors and foreclosure processing. Loan servicing income is
recorded on the accrual basis and includes servicing fees from investors and
certain charges collected from borrowers. At December 31, 1997 and 1996, the
Company was servicing loans for the benefit of others with aggregate unpaid
principal balances of $148,386 and $296,282, respectively.
At December 31, 1997, the Company had no outstanding banker's acceptances
compared to $304 at December 31, 1996.
- -------------------------------------------------------------------------------
16
<PAGE>
- -------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows at December 31:
<TABLE>
<CAPTION>
-------------------------
1997 1996
--------------------- ----------------------
<S> <C> <C>
Land $5,848 $5,848
Premises 26,060 24,944
Leasehold improvements 679 679
Furniture and equipment 28,625 25,612
--------------------- ----------------------
61,212 57,083
Less accumulated depreciation
and amortization (30,070) (26,953)
--------------------- ----------------------
Total $31,142 $30,130
===================== ======================
--------------------------
</TABLE>
NOTE 5 - DEPOSITS
The major categories of deposits are summarized as follows at December 31:
<TABLE>
<CAPTION>
--------------------------
1997 1996
---------------------- ---------------------
<S> <C> <C>
Demand and other
noninterest-bearing $123,969 $102,583
NOW accounts 49,162 182,861
Money market savings 465,970 342,872
Time, $100,000 and over 84,083 86,343
Time, other 421,765 384,738
---------------------- ---------------------
Total $1,144,949 $1,099,397
====================== =====================
--------------------------
</TABLE>
Interest expense on interest-bearing deposits is summarized as follows for
the years ended December 31:
<TABLE>
<CAPTION>
--------------------------
1997 1996 1995
-------------------- ------------------ ------------------
<S> <C> <C> <C>
NOW accounts $1,374 $2,836 $3,057
Money market savings 13,100 12,314 13,836
Time, $100,000 and over 5,100 3,675 2,848
Time, other 24,739 18,962 17,247
-------------------- ------------------ ------------------
Total $44,313 $37,787 $36,988
==================== ================== ==================
--------------------------
</TABLE>
- -------------------------------------------------------------------------------
17
<PAGE>
- -------------------------------------------------------------------------------
NOTE 6 - INCOME TAXES
The income tax provision reflected in the Consolidated Statements of Income is
as follows for the years ended December 31:
<TABLE>
<CAPTION>
--------------------------
1997 1996 1995
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Current:
Federal $7,271 $9,068 $7,593
State 1,194 1,615 1,271
Deferred 1,342 (2,185) (593)
--------------------- --------------------- --------------------
Total $9,807 $8,498 $8,271
===================== ===================== ====================
--------------------------
</TABLE>
A reconciliation between taxes computed at the statutory income tax rates and
the consolidated effective tax rates follows:
<TABLE>
<CAPTION>
--------------------------
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
Statutory income tax rates 35.0% 35.0% 35.0%
(Decrease) increase in taxes resulting from:
Federal tax-exempt income (2.8) (3.9) (2.3)
State income taxes, net of federal tax benefit 4.8 4.8 4.8
Resolution of Internal Revenue Service Examination (3.4)
Other (2.6) (1.1) 0.4
---------------- --------------- ----------------
Consolidated effective tax rates 31.0% 34.8% 37.9%
=============== =============== ================
--------------------------
</TABLE>
The temporary differences which created deferred tax assets and liabilities
at December 31 are detailed below:
<TABLE>
<CAPTION>
--------------------------
1997 1996
------------------ ---------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan loss $3,377 $3,208
Deferred compensation 1,374 991
Unrealized loss on securities available for sale 121 412
Other 1,892
------------------ ---------------------
Total deferred tax assets 4,872 6,503
------------------ ---------------------
Deferred tax liabilities:
Depreciation 707 935
Other 230
------------------ ---------------------
Total deferred tax liabilities 937 935
------------------ ---------------------
Net deferred tax assets $3,935 $5,568
================== =====================
----------------------------
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
As of December 31, 1997, the Company maintained an employee stock ownership
plan, The West Suburban Bank Employee Stock Ownership Plan (the "Plan"),
covering substantially all full-time employees who have satisfied specific
age and service requirements. The Plan is a tax-qualified stock bonus plan
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Plan is designed to provide incentives to participants by
granting them an interest in the Company's common stock in which the Plan
invests. The Plan is an individual account defined contribution plan, which
means that an individual account is established for each participant of the
Plan and that the amount of benefits payable upon retirement, termination,
disability or death is based upon service and the amount of the employer's
contributions and any income, expenses, gains or losses which may have been
allocated to the participant's account. Annual contributions were made in
accordance with resolutions passed by the board of directors of the
Subsidiary and in aggregate amounted to $1,347 in 1997, $1,221 in 1996 and
$1,117 in 1995. The Subsidiary also maintains deferred compensation plans in
which former and current executive officers participate. The deferred
compensation expense for the years ended December 31, 1997, 1996 and 1995
amounted to $204, $406 and $219, respectively. These plans are not qualified
under the Code and, therefore, tax deductions are allowed only when benefits
are paid.
- -------------------------------------------------------------------------------
18
<PAGE>
NOTE 7 - EMPLOYEE BENEFIT PLANS (CONTINUED)
During 1996, the Company terminated the Aurora Federal Savings Bank, F.S.B.
Pension Plan (the "Aurora Pension Plan"). The Aurora Pension Plan was a
successor plan to the Financial Institutions Retirement Fund program (the
"FIRF Plan") which the former thrift subsidiary maintained prior to its
acquisition by the Company. As a result of the termination of the Aurora
Pension Plan, approximately $1.1 million of excess assets reverted to the
Company. This amount was recognized as income by the Company during 1996 and
is reflected in other operating income-other.
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These financial instruments involve, to
varying degrees, elements of credit and interest rate risks in addition to
the amount recognized in the consolidated balance sheets. The contractual
amounts of those instruments reflect the extent of involvement the Company
has in particular classes of financial instruments.
The Company's exposure to credit risk in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments. The
Company generally requires collateral or other security to support financial
instruments with credit risk. A summary of the contractual amount of the
Company's exposure to off-balance-sheet risk as of December 31 is as follows:
<TABLE>
<CAPTION>
--------------------------
1997 1996
--------------------- ---------------------
<S> <C> <C>
Financial instruments whose contractual amounts represent credit risks:
Commitments to extend credit $292,527 $353,460
Letters of credit 19,912 32,566
--------------------------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being exercised, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies and may include accounts receivable, inventory,
property and equipment and commercial or residential properties.
Letters of credit written are conditional commitments issued by the Company
to either extend credit to a customer or guarantee the performance of a
customer to a third party. Guarantees of performance are primarily issued to
support public and private borrowing arrangements. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Company holds collateral
supporting those commitments for which collateral is deemed necessary. The
extent of collateral held for those commitments varies.
NOTE 9 - CONTINGENT LIABILITIES
The Company is a party to various legal actions arising from normal business
activities. Management believes that pending actions are either without merit
or that the ultimate liability, if any, resulting from them will not
materially affect the Company's consolidated financial position or results of
operations.
NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
Estimated fair values of financial instruments have been calculated based on
certain assumptions and selected data from within the Company's various
financial instrument classifications. For short-term maturing assets (i.e.,
cash and due from banks, federal funds sold and interest-earning deposits in
financial institutions) it has been assumed that their estimated fair values
approximate their carrying values. Similarly, for loans and deposits with
variable interest rates, it has been assumed that their estimated fair values
also approximate their carrying values.
- ------------------------------------------------------------------------------
19
<PAGE>
NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (CONTINUED)
The estimated fair values of the Company's financial instruments as of
December 31 are set forth in the table below:
<TABLE>
<CAPTION>
------------------------------------------
1997 1996
------------------------------------- ------------------------------------
Carrying Value Estimated Fair Carrying Value Estimated Fair
Value Value
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $60,334 $60,334 $68,650 $68,650
Investment securities:
Available for sale 218,587 218,587 158,578 158,578
Held to maturity 199,292 199,905 170,191 170,202
Loans, less allowance for loan losses 762,538 772,410 784,242 779,945
---------------- ----------------- ---------------- ----------------
Total financial assets $1,240,751 $1,251,236 $1,181,661 $1,177,375
================ ================= ================ ================
Financial liabilities:
Deposits $1,144,949 $1,159,387 $1,099,397 $1,100,862
Short-term borrowings 3,271 3,271
---------------- ----------------- ---------------- ----------------
Total financial liabilities $1,144,949 $1,159,387 $1,102,668 $1,104,133
================ ================= ================ ================
----------------------------------------
</TABLE>
The fair values for investment securities were derived from quoted market
values as of the close of business on December 31, 1997 and 1996 when
available, or, when quotes were not available, the fair value was estimated
based on quoted prices of comparable securities. The fair values for loans,
less allowance for loan losses were estimated by discounting the future cash
flows from loan repayments using current interest rates for loans having
comparable maturities. The fair values for deposits were estimated using the
present value discounted cash flow method at discount rates comparable to
current market rates for similar liabilities.
Off-balance-sheet items totaled $312,439 at December 31, 1997 and $386,026 at
December 31, 1996 and are primarily comprised of unfunded loan commitments
which are generally priced at market at the time of funding. There is no
material difference between the contractual amount and the estimated fair
value of off-balance-sheet items.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors and officers of the Company, and some of the corporations
and firms with which these individuals are associated, are customers of the
Subsidiary in the ordinary course of business, and/or are indebted to the
Subsidiary for loans of $60,000 or more. It is anticipated that they will
continue to be customers of and indebted to the Subsidiary in the future. All
such loans, however, were made in the ordinary course of business, did not
involve more than the normal risk of collectibility or present other
unfavorable features, and were made on substantially the same terms,
including interest rates and collateral provided, as those prevailing at the
same time for comparable loans made by the Subsidiary in transactions with
unaffiliated persons, although directors were regularly allowed the lowest
interest rate given to others on personal loans.
Certain officers and directors of the Company, their affiliates and companies
in which they have 10% or more beneficial ownership, were indebted to the
Company in the aggregate amount of $22,570 and $20,376 at December 31, 1997
and 1996, respectively. During 1997, $28,740 in additions and $26,546 in
reductions were made.
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS
The Parent is economically dependent on the cash dividends received from the
Subsidiary. These dividends represent the primary cash flow used to fund
dividend payments to the Parent's shareholders. Cash dividends received by
the Parent amounted to $20,747, $8,136 and $7,401 for the years ended
December 31, 1997, 1996 and 1995, respectively. The Company and the
Subsidiary are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, each entity must meet specific capital guidelines that
involve quantitative measures of each entity's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings and other
factors.
- ------------------------------------------------------------------------------
20
<PAGE>
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Subsidiary to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital to risk-weighted
assets, and of Tier I capital to average assets. Management believes as of
December 31, 1997, that the Company and the Subsidiary met all capital
adequacy requirements to which they were subject.
Management's present policy is to limit the amount of dividends from the
Subsidiary such that the Subsidiary qualifies as a "well-capitalized"
institution as defined by the Federal Deposit Insurance Corporation
Improvement Act of 1991, as amended, thereby minimizing the amount of FDIC
insurance premiums paid by the Subsidiary and providing capital to fund
growth. As of December 31, 1997, the Subsidiary could pay, in the aggregate,
dividends totaling $16,147 to the Parent while remaining a "well-capitalized"
institution. The Subsidiary could pay additional dividends without seeking
regulatory approval.
As of December 31, 1997 and 1996, the most recent notification from the FDIC
categorized the Company and Subsidiary as "well-capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well-capitalized" the Parent and the Subsidiary must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes would result in a change of the Company's or the
Subsidiary's category. The capital amounts and ratios of the Company and the
Subsidiary are also presented in the table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997 Actual For Capital Adequacy To Be Well
Purposes Capitalized
--------------------- -------------------- -------------------
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS): AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
West Suburban Bancorp, Inc. $140,781 13.7% $82,252 8.0% N/A N/A
West Suburban Bank 120,242 11.6 83,276 8.0 $104,095 10.0%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 131,009 12.7 41,126 4.0 N/A N/A
West Suburban Bank 110,470 10.6 41,638 4.0 62,457 6.0
TIER I CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 131,009 10.2 51,386 4.0 N/A N/A
West Suburban Bank 110,470 8.3 53,400 4.0 66,750 5.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996 Actual For Capital Adequacy To Be Well
Purposes Capitalized
--------------------- -------------------- -------------------
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS): AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
West Suburban Bancorp, Inc. $126,811 13.0% $78,199 8.0% N/A N/A
West Suburban Bank 41,682 10.8 30,834 8.0 $38,543 10.0%
West Suburban Bank of Downers Grove/Lombard 17,310 16.6 8,344 8.0 10,429 10.0
West Suburban Bank of Darien 23,045 14.0 13,178 8.0 16,473 10.0
West Suburban Bank of Carol Stream/Stratford Square 17,723 11.8 12,004 8.0 15,005 10.0
TIER I CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 117,208 12.0 39,099 4.0 N/A N/A
West Suburban Bank 38,036 9.9 15,417 4.0 23,126 6.0
West Suburban Bank of Downers Grove/Lombard 16,000 15.3 4,172 4.0 6,258 6.0
West Suburban Bank of Darien 21,023 12.8 6,589 4.0 9,884 6.0
West Suburban Bank of Carol Stream/Stratford Square 16,490 11.0 6,002 4.0 9,003 6.0
TIER I CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 117,208 9.8 47,843 4.0 N/A N/A
West Suburban Bank 37,825 8.0 18,921 4.0 23,651 5.0
West Suburban Bank of Downers Grove/Lombard 15,761 10.8 5,822 4.0 7,277 5.0
West Suburban Bank of Darien 20,959 9.1 9,204 4.0 11,506 5.0
West Suburban Bank of Carol Stream/Stratford Square 16,385 7.9 8,256 4.0 10,320 5.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, West Suburban Bank of Aurora, F.S.B. maintained a core
capital ratio of 11.3%, a tangible capital ratio of 13.2% and a total
risk-based capital ratio of 14.2%.
- ------------------------------------------------------------------------------
21
<PAGE>
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS (CONTINUED)
In accordance with the regulations of the Board of Governors of the Federal
Reserve System, the Subsidiary must maintain noninterest-earning cash
balances with the Federal Reserve Bank of Chicago. The average amount of
these balances for years ended December 31, 1997 and 1996 was approximately
$10,436 and $7,767, respectively.
NOTE 13 - COMMON STOCK
The Company's common stock is divided into two classes consisting of Class A
and Class B common stock. Except as required by law, the rights, powers and
limitations of the Class A common stock and Class B common stock are
identical.
NOTE 14 - NEW ACCOUNTING PRONOUNCEMENTS
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 has
not yet completed its analysis of the impact of adoption of this standard.
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 it will report on.
NOTE 15 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
---------------------
ASSETS 1997 1996
--------------------- --------------------
<S> <C> <C>
Cash on deposit in Subsidiary $22,618 $9,740
Equity investment in Subsidiary 110,286 108,594
Intangibles, net 1,527 1,731
Other assets 107 3
--------------------- --------------------
TOTAL ASSETS $134,538 $120,068
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $2,162 $1,730
Other liabilities 23
--------------------- --------------------
TOTAL LIABILITIES 2,185 1,730
Shareholders' equity 132,353 118,338
--------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $134,538 $120,068
===================== ====================
---------------------
</TABLE>
- ------------------------------------------------------------------------------
22
<PAGE>
NOTE 15 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
-----------------------
OPERATING INCOME 1997 1996 1995
------------------- ------------------ ----------------
<S> <C> <C> <C>
Dividends from Subsidiary $20,747 $8,136 $7,401
Interest income 538 337 279
------------------- ------------------ ----------------
Total operating income 21,285 8,473 7,680
------------------- ------------------ ----------------
OPERATING EXPENSE
Amortization of intangibles 204 204 204
Other 481 240 205
------------------- ------------------ ----------------
Total operating expense 685 444 409
------------------- ------------------ ----------------
Income before income taxes 20,600 8,029 7,271
Income tax expense 25 41 10
------------------- ------------------ ----------------
Income before equity in undistributed
net income of Subsidiary 20,575 7,988 7,261
Equity in undistributed net income of Subsidiary 1,209 7,954 6,264
------------------- ------------------ ----------------
NET INCOME $21,784 $15,942 $13,525
=================== ================== ================
-----------------------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
-----------------------
1997 1996 1995
------------------- ------------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $21,784 $15,942 $13,525
------------------- ------------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed net income of
Subsidiary (1,209) (7,954) (6,264)
Amortization of intangibles 204 204 204
(Increase) decrease in other assets (104) 6 29
Decrease in other liabilities (20)
------------------- ------------------- ---------------
Total adjustments (1,129) (7,744) (6,031)
------------------- ------------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,655 8,198 7,494
------------------- ------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of minority interest in subsidiaries (208)
------------------- ------------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (208)
------------------- ------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (7,569) (6,812) (6,379)
------------------- ------------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (7,569) (6,812) (6,379)
------------------- ------------------- ---------------
NET INCREASE IN CASH 12,878 1,386 1,115
CASH AT BEGINNING OF YEAR 9,740 8,354 7,239
------------------- ------------------- ---------------
CASH AT END OF YEAR $22,618 $9,740 $8,354
=================== =================== ===============
-----------------------
</TABLE>
- ------------------------------------------------------------------------------
23
<PAGE>
SELECTED FINANCIAL DATA
(UNAUDITED)
The following table consists of financial data derived from the Consolidated
Financial Statements of the Company. This information should be read together
with Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Company's Consolidated Financial Statements included
elsewhere in this report (dollars in thousands, except per share data).
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Interest income $95,208 $88,558 $83,428 $69,112 $67,396
Interest expense 44,700 38,359 37,414 27,431 26,728
-------------- --------------- --------------- --------------- -----------
Net interest income 50,508 50,199 46,014 41,681 40,668
Provision for loan losses 1,623 1,505 1,850 2,216 5,339
-------------- --------------- --------------- --------------- -----------
Net interest income after
provisions 48,885 48,694 44,164 39,465 35,329
Other operating income(1) 12,396 9,896 7,824 9,685 10,056
Other operating expense 29,690 34,150 30,192 27,173 26,886
-------------- --------------- --------------- --------------- -----------
Income before income taxes 31,591 24,440 21,796 21,977 18,499
Income taxes 9,807 8,498 8,271 8,951 7,035
Cumulative effect of accounting
change 360
-------------- --------------- --------------- --------------- -----------
Net income $21,784 $15,942 $13,525 $13,026 $11,824
============== =============== =============== =============== ===========
PER SHARE DATA
Income before cumulative effect of
accounting change:
Basic $50.37 $36.86 $31.27 $30.12 $28.41
Diluted 50.37 36.86 31.27 30.12 26.88
Net income:
Basic 50.37 36.86 31.27 30.12 29.30
Diluted 50.37 36.86 31.27 30.12 27.75
Cash dividends declared 18.50 16.00 15.00 13.75 12.75
Book value 306.02 273.62 254.73 226.53 221.56
SELECTED BALANCES
Investment securities $417,879 $328,769 $250,556 $226,007 $190,594
Net loans 762,538 784,242 760,687 709,205 694,301
Total assets 1,293,691 1,235,604 1,154,349 1,041,495 999,878
Deposits 1,144,949 1,099,397 1,029,789 923,257 883,464
Shareholders' equity 132,353 118,338 110,168 97,971 95,822
RATIOS
Return on average total assets 1.71% 1.38% 1.27% 1.29% 1.20%
Return on average
shareholders' equity 17.48 13.93 13.03 13.29 13.25
Cash dividends paid to net
income 34.74 42.73 47.16 44.10 42.65
Average equity to average total
assets 9.78 9.90 9.71 9.67 9.03
Net interest margin (FTE)(2) 4.13 4.50 4.43 4.21 4.19
----------------------
</TABLE>
(1) Other operating income includes the following gains on sales of loans for
the years ended December 31, 1997, 1996, 1995, 1994, and 1993
respectively: $280, $151, $110, $213, and $1,362. Other operating income
in 1997 also includes a $2,344 settlement of a claim related to an
investment that the Company made during the late 1980's.
(2) Net interest margin is presented on a tax equivalent basis, assuming a
federal income tax rate of 35% and a state income tax rate of 7.3%.
- ------------------------------------------------------------------------------
24
<PAGE>
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME AND
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
and the resultant costs, expressed both in dollars and rates. All average
balances are daily average balances. To the extent received, interest on
nonaccruing loans has been included in the table (dollars in thousands).
<TABLE>
<CAPTION>
--------------------------------------
Years Ended December 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ------------------------------- --------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
deposits in financial
institutions $286 $12 4.2% $301 $16 5.3% $127 $7 5.5%
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
Federal funds sold 35,879 1,978 5.5 34,719 1,840 5.3 34,422 1,949 5.7
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
Investment securities:
Corporate 107,036 6,978 6.5 67,382 4,453 6.6 63,302 4,581 7.2
U.S. Treasury 15,109 782 5.2 19,308 975 5.0 16,363 798 4.9
U.S. government
agencies and
corporations (1) 213,642 14,685 6.9 136,029 8,818 6.5 118,453 7,689 6.5
States and political
subdivisions (1) 40,475 3,060 7.6 39,626 3,137 7.9 23,678 1,985 8.4
FHLB stock 1,318 29 2.2 748 52 7.0 854 53 6.2
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
Total
investment
securities (1) 377,580 25,534 6.8 263,093 17,435 6.6 222,650 15,106 6.8
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
Loans:
Commercial and
industrial (1) 302,774 28,722 9.5 298,872 28,307 9.5 248,544 25,706 10.3
Real estate 291,578 24,021 8.2 299,492 24,812 8.3 305,822 23,777 7.8
Home equity 125,497 10,538 8.4 121,543 11,161 9.2 119,013 11,475 9.6
Installment 38,677 3,518 9.1 37,883 3,487 9.2 36,399 3,516 9.7
Visa and other 23,129 2,976 12.9 23,582 3,390 14.4 26,619 3,238 12.2
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
Total loans (1) 781,655 69,775 8.9 781,372 71,157 9.1 736,397 67,712 9.2
------------- ---------- ------ ------------ --------- ------ ----------- ---------- -------
Total
interest-earning
assets (1) 1,195,400 $97,299 8.1% 1,079,485 $90,448 8.4% 993,596 $84,774 8.5%
Cash and due from banks 37,991 37,349 35,666
Premises and equipment,
net 30,796 29,935 27,849
Other real estate 2,525 5,208 7,993
Allowance for loan losses (9,898) (9,432) (8,909)
Accrued interest and
other assets (2) 17,406 13,907 12,683
------------ ------------ ------------
TOTAL ASSETS $1,274,220 $1,156,452 $1,068,878
------------ ------------ ------------
------------ ------------ ------------
--------------------------------------
</TABLE>
(1) Interest income and yields are presented on a tax equivalent basis, assuming
a federal income tax rate of 35% and a state income tax rate of 7.3%.
(2) The average balances of nonaccrual loans are included in accrued interest
and other assets.
- -------------------------------------------------------------------------------
25
<PAGE>
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
------------------------------------
Years Ended December 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- ----------------------------------- ---------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------ -------- -------- ------------- ---------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts and
savings deposits $523,616 $14,474 2.8% $524,669 $15,152 2.9% $498,191 $16,893 3.4%
Time deposits:
Less than $100,000 421,156 24,739 5.9 334,177 18,960 5.7 308,039 17,248 5.6
$100,000 and greater 87,996 5,100 5.8 63,079 3,675 5.8 49,427 2,847 5.8
------------ -------- -------- ------------- ---------- -------- ------------ --------- --------
Total interest-
bearing
deposits 1,032,768 44,313 4.3 921,925 37,787 4.1 855,657 36,988 4.3
Federal funds purchased 2,397 133 5.5 7,710 419 5.4 3,216 189 5.9
Deferred compensation 2,545 200 7.9 1,684 79 4.7 1,318 81 6.1
FHLB advances 911 54 5.9 1,366 74 5.4 2,071 156 7.5
------------ -------- -------- ------------- ---------- -------- ------------ --------- --------
TOTAL INTEREST-
BEARING
LIABILITIES 1,038,621 44,700 4.3 932,685 38,359 4.1 862,262 37,414 4.3
-------- -------- ---------- -------- --------- --------
Demand deposits 110,248 103,448 100,269
Other liabilities 719 5,864 2,535
Shareholders' equity 124,632 114,455 103,812
------------ -------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,274,220 $1,156,452 $1,068,878
------------ -------------- -------------
------------ -------------- -------------
Net interest income $52,599 $52,089 $47,360
---------- ------------- ------------
---------- ------------- ------------
Net interest margin 4.1% 4.5% 4.4%
---------- ---------- ----------
---------- ---------- ----------
Net yield on interest-
earning assets 4.4% 4.8% 4.8%
---------- ---------- ----------
---------- ---------- ----------
------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's financial condition as of December 31, 1997 and 1996 and results of
operations for the years ended December 31, 1997, 1996 and 1995. The discussion
and analysis should be read in conjunction with the financial statements, notes
and tables included elsewhere in this annual report. The financial information
provided below may be rounded to the nearest decimal in order to simplify the
presentation of management's discussion and analysis. However, the ratios and
percentages provided below are calculated (adjusted for rounding) using the
detailed financial information contained in the financial statements, notes and
tables included elsewhere in this annual report.
BALANCE SHEET ANALYSIS
TOTAL CONSOLIDATED ASSETS. Total consolidated assets of the Company increased
$58.1 million (4.7%) to $1,293.7 million at December 31, 1997 from $1,235.6
million at December 31, 1996. Increases in investment securities were the
largest component of this increase.
CASH AND CASH EQUIVALENTS. The Company's cash and cash equivalents decreased
$8.3 million (12.1%) to $60.3 million at December 31, 1997 from $68.6 million at
December 31, 1996. This resulted primarily from the Company's decreased holdings
in federal funds sold as the Company shifted a portion of these funds into
investment securities.
INVESTMENT SECURITIES. Aggregate holdings in investment securities increased
$89.1 million (27.1%) to $417.9 million from $328.8 million at December 31,
1996. The Company's objectives in managing its securities portfolio are driven
by the dynamics of the entire balance sheet which includes monitoring the
maturity structure of its portfolio along with general economic conditions
including the interest rate environment. In managing its portfolio, the Company
seeks to provide liquidity, minimize exposure to interest rate risk and achieve
an acceptable rate of return. The increase in the portfolio is primarily
attributable to growth in deposits and decreased loan demand which resulted in
additional funds available for investing purposes. The Company intends to
continue to seek high quality securities for the investment portfolio and to
remain conservative in its management.
LOANS. Total loans outstanding decreased $21.5 million (2.7%) to $772.3 million
at December 31, 1997 from $793.8 million at December 31, 1996. Commercial loans
have declined as competition intensified during 1997. The Company strives to
remain competitive in its markets by offering competitive products and services
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 is adequate to absorb losses on existing loans
that may become uncollectible. In determining a proper level of the allowance,
management evaluates the adequacy of the allowance based on past loan loss
experience, known and inherent risks in the loan portfolio, adverse situations
that may affect the borrowers' ability to repay, estimated value of any
underlying collateral and current and prospective economic conditions. The
allowance for loan losses increased $.2 million (1.8%) to $9.8 million at
December 31, 1997 from $9.6 million at December 31, 1996. The ratio of the
allowance for loan losses to total loans outstanding increased to 1.27% at
December 31, 1997 from 1.21% at December 31, 1996. The allowance for loan losses
as of December 31, 1997 was approximately 124% of the level of nonperforming
loans which represents a decrease from the 158% coverage ratio of nonperforming
loans at December 31, 1996. This was primarily due to increased charge-offs
during 1997. As of December 31, 1997, the total nonperforming loans to total
loans was 1.0% compared to .8% at December 31, 1996. This increase was primarily
due to increased nonperforming personal real estate accounts.
The following table is an analysis of the Company's nonperforming loans at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
--------------------
1997 1996 Dollar Change
--------------- ----------------- ----------------
<S> <C> <C> <C>
Nonaccrual loans $3,042 $2,283 $759
Accruing loans 90 days past due 4,829 3,813 1,016
--------------- ----------------- ----------------
Total nonperforming loans $7,871 $6,096 $1,775
--------------- ----------------- ----------------
--------------- ----------------- ----------------
Nonperforming loans as a percent of total loans 1.0% 0.8%
Other real estate $2,450 $2,757 ($307)
--------------- ----------------- ----------------
--------------- ----------------- ----------------
--------------------
</TABLE>
- -------------------------------------------------------------------------------
27
<PAGE>
OTHER REAL ESTATE. During 1997, other real estate decreased $.3 million
(11.1%) to $2.5 million at December 31, 1997 from $2.8 million at December
31, 1996. Sales of properties had an aggregate carrying value of $1.2 million
while additions of properties totaled $.9 million. Management continues its
efforts to reduce its holdings in other real estate.
DEPOSITS. Total deposits increased $45.5 million (4.1%) to $1,144.9 million
at December 31, 1997 from $1,099.4 million at December 31, 1996. This
increase was principally due to increases in certificates of deposit
resulting from promotions like the Company's 35th Anniversary Certificate.
The proceeds from the increases in deposits were primarily used as a funding
vehicle to purchase investment securities.
Year-end balances in the Company's major categories of deposits for December
31 are summarized in the following table (dollars in thousands):
<TABLE>
<CAPTION>
-----------------
Dollar Percent
1997 1996 Change Change
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Demand and other noninterest-bearing $123,969 $102,583 $21,386 20.8%
NOW accounts 49,162 182,861 (133,699) (73.1)
Money market savings 465,970 342,872 123,098 35.9
Time, $100,000 and over 84,083 86,343 (2,260) (2.6)
Time, other 421,765 384,738 37,027 9.6
------------ ------------ ----------- ---------
Total $1,144,949 $1,099,397 $45,552 4.1%
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
-----------------
</TABLE>
Certain of the changes in NOW and money market savings balances from 1997
compared to 1996 are the result of changes in the manner in which the Company
manages its Federal Reserve Bank reserve requirements. The changes in
classifications have not resulted in significant changes in the Company's
cost of funds.
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 deposit products when appropriate,
management does not intend to compromise its net interest margin to attract
deposits.
CAPITAL RESOURCES
Shareholders' equity increased $14.1 million (11.8%) to approximately $132.4
million at December 31, 1997 from $118.3 million at December 31, 1996. This
increase was primarily the result of the net retention of 1997 earnings of
$13.8 million.
Management has been advised that as of December 31, 1997 and 1996, the
Subsidiary qualified as a "well-capitalized" institution as defined by the
Federal Deposit Insurance Corporation Improvement Act of 1991, as amended.
LIQUIDITY
Effective liquidity management allows a banking institution to accommodate
the changing net funds flow requirements of customers who may deposit or
withdraw funds, or modify their credit requirements. One of the principal
obligations of the banking system, and individual banks, is to provide for
the withdrawal of funds by depositors and the credit demands of customers.
The Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality, interest rate sensitivity and maturity
schedules of earning assets and liabilities. Appropriate responses to changes
in these conditions preserve customer confidence in the ability of the
Company to continually meet the deposit withdrawal and credit requirements of
its customers.
Generally, the Company uses cash and cash equivalents to meet its liquidity
needs. Additional liquidity is provided by maintaining assets which mature
within a short time-frame or which may be quickly converted to cash without
significant loss. These assets include interest-earning deposits in financial
institutions and the FHLB, federal funds sold and investment securities
available for sale. As of December 31, 1997 and 1996, liquid assets
represented 21.6% and 18.4% of total assets, respectively.
- -------------------------------------------------------------------------------
28
<PAGE>
During 1997, the Company's cash and cash equivalents decreased approximately
$8.3 million. This decrease was due primarily to an increase in investing
activities of approximately $69.9 million which was offset by decreases in
operating and financing activities of approximately $25.0 million and $36.6
million, respectively.
INCOME STATEMENT ANALYSIS -- 1997 COMPARED TO 1996
GENERAL. The Company's 1997 net income of $21.8 million represented an
increase of $5.9 million (36.6%) from 1996 net income of $15.9 million. This
was primarily due to the decrease in other real estate expense of $4.5
million in 1997 when compared to the same period in 1996. Other operating
income increased by $2.5 million during this period and net interest income
improved by $.3 million. These increases to income were partially offset by
an increase in income tax expense of $1.3 million.
NET INTEREST INCOME. Net interest income is the primary source of income for
the Company. Net interest income is the difference between interest income
earned on earning assets and interest expense paid on interest-bearing
liabilities. As such, net interest income is affected by changes in the
volume and yields on earning assets and the volume and rates paid on
interest-bearing liabilities. Interest-earning assets consist of loans,
deposits in financial institutions, deposits in the FHLB, federal funds sold
and investment securities. Interest-bearing liabilities primarily consist of
deposits, federal funds purchased and FHLB advances. The net interest margin
is the difference between tax equivalent net interest income and average
earning assets. Total interest income, on a tax equivalent basis, increased
$6.9 million (7.6%) to $97.3 million for the year ended December 31, 1997
from $90.4 million for the year ended December 31, 1996. This increase
resulted from an increase of $7.8 million due to growth in average
interest-earning balances, which was partially offset by ($.9) million due to
declining yields. The Company's average interest-earning assets grew $115.9
million (10.7%) to $1,195.4 million at December 31, 1997 from $1,079.5
million at December 31, 1996. Yields on the Company's loan portfolio declined
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. Yields on total interest-earning assets
decreased during 1997. This decrease was offset by improvements in the
federal funds sold and investment securities portfolios. Specifically, the
Company's average federal funds rate increased to 5.5% for 1997 from 5.3% for
1996. Additionally, interest on the securities portfolio increased primarily
due to higher yields on U.S. government agencies and corporations along with
higher average outstanding balances.
Total interest expense increased $6.3 million (16.5%) to $44.7 million for
the year ended December 31, 1997 from $38.4 million for the year ended
December 31, 1996. This increase was due to growth in average balances.
Average interest-bearing liabilities increased $105.9 million (11.4%) to
$1,038.6 million for the year ended December 31, 1997 from $932.7 million for
the year ended December 31, 1996 primarily due to deposit promotions.
The following table reflects the impact of changes in volume and interest
rates on interest-earning assets and interest-bearing liabilities on a tax
equivalent basis for each of the two years ended December 31, 1997 and 1996
(dollars in thousands):
<TABLE>
<CAPTION>
----------------------------------------------
December 31, 1997 December 31, 1996
compared to 1996 compared to 1995
Change due to: Change due to:
Volume Rate Total Volume Rate Total
----------- ---------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning deposits in
financial institutions ($1) ($3) ($4) $9 $9
Federal funds sold 64 74 138 16 ($125) (109)
Investment securities 7,690 409 8,099 2,752 (423) 2,329
Loans 25 (1,407) (1,382) 4,095 (650) 3,445
----------- ---------- ------------ ------------ ------------ -----------
Total interest income 7,778 (927) 6,851 6,872 (1,198) 5,674
----------- ---------- ------------ ------------ ------------ -----------
INTEREST EXPENSE
Interest-bearing deposits 6,525 1 6,526 3,043 (2,244) 799
Borrowed funds (253) 68 (185) 223 (77) 146
----------- ---------- ------------ ------------ ------------ -----------
Total interest expense 6,272 69 6,341 3,266 (2,321) 945
----------- ---------- ------------ ------------ ------------ -----------
Net interest income $1,506 ($996) $510 $3,606 $1,123 $4,729
----------- ---------- ------------ ------------ ------------ -----------
----------- ---------- ------------ ------------ ------------ -----------
----------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
29
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $.1
million (7.8%) to $1.6 million in 1997 compared to $1.5 million in 1996. A
more detailed discussion concerning the allowance for loan losses is
presented in the Allowance for Loan Losses and Asset Quality section of this
report.
OTHER OPERATING INCOME. During 1997, other operating income increased $2.5
million (25.3%) to $12.4 million in 1997 compared to $9.9 million in 1996.
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
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 is reflected as a gain on sale of other real estate.
These increases to income were partially offset by decreases in gains on sale
of investment securities available for sale of $.3 million and service fees
of $.3 million. During 1996, the Company recorded $1.1 million of income from
a refund of the over funding of its former thrift subsidiary's terminated
benefits plan.
OTHER OPERATING EXPENSE. Total operating expense decreased $4.5 million
(13.1%) to $29.7 million in 1997 from $34.2 million in 1996. Salary and
employee benefits increased $.9 million due primarily to increased salaries
and severance payouts to two former executives of the Company. Occupancy and
furniture and equipment expense increased $.2 million and $.1 million,
respectively. FDIC insurance premiums declined $1.0 million during 1997.
During 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 (the "DIFA"). Professional fees decreased $.2 million
during this period. Other real estate expense decreased $4.5 million during
the same period. During 1996, the Company recognized a $3.8 million write
down of a property classified as other real estate.
INCOME TAXES. Income tax expense increased $1.3 million (15.4%) to $9.8
million in 1997 from $8.5 million in 1996. This increase was principally due
to higher taxable income and includes a reevaluation of the Company's tax
position. The primary reason for the reduction in the overall consolidated
effective tax rate was a result of the reversal of an income tax reserve
established in prior years. This reserve was no longer necessary as a result
of an Internal Revenue Service settlement in 1996.
RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.71% for
1997 and 1.38% for 1996 as net income and average total assets grew.
INCOME STATEMENT ANALYSIS -- 1996 COMPARED TO 1995
GENERAL. The Company's 1996 net income of $15.9 million represented an
increase of $2.4 million (17.9%) from 1995 net income of $13.5 million. This
increase was primarily due to a $4.2 million improvement in net interest
income and other operating income also increased by $2.1 million
during this period. These increases were offset
by an increase in total other operating expense of $4.0 million.
NET INTEREST INCOME. Total interest income, on a tax equivalent basis,
increased $5.7 million (6.7%) to $90.5 million for the year ended December 31,
1996 from $84.8 million for year ended December 31, 1995. This increase resulted
from an increase of $6.9 million due to growth in average balances which was
offset by a ($1.2) million decrease due to declining interest rates. The
Company's average interest-earning assets grew $85.9 million (8.6%) to $1,079.5
million at December 31, 1996 from $993.6 million at December 31, 1995. Yields on
total interest-earning assets decreased primarily due to decreases in average
interest rates on the Company's commercial loan portfolio and federal funds sold
portfolio. Specifically, the Company's average prime rate decreased to 8.3% for
1996 from 8.8% for 1995. The average federal funds rate decreased to 5.3% for
1996 from 5.7% for 1995. Average rates on the securities portfolio remained
level as the Company sought to minimize credit risk to the portfolio while
achieving an acceptable rate of return.
Total interest expense increased $1.0 million (2.5%) to $38.4 million for
the year ended December 31, 1996 from $37.4 million for the year ended December
31, 1995. Of this increase, $3.3 million was due to growth in average balances
while ($2.3) million was due to declining interest rates. Average
interest-bearing liabilities increased $70.4 million (8.2%) to $932.7 million
for the year ended December 31, 1996 from $862.3 million for the year ended
December 31, 1995 primarily due to deposit promotions.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $.3
million (18.6%) to $1.5 million in 1996 compared to $1.8 million in 1995. The
lower provision was the result of management determining the level of the
allowance for loan losses.
- -------------------------------------------------------------------------------
30
<PAGE>
OTHER OPERATING INCOME. During 1996, other operating income increased $2.1
million (26.5%) to $9.9 million in 1996 compared to $7.8 million in 1995.
This increase was primarily due to the recording of $1.1 million of income
from a refund of the over funding of a terminated benefits plan of the
Company's former thrift subsidiary. The Company also experienced a gain on
investment securities available for sale of $.4 million during this period.
Additionally, the Company also recognized increased service fees along with
increased interchange income brought about from the Company's WSB Check Card
which was introduced during mid-1995.
OTHER OPERATING EXPENSE. Other operating expense increased $4.0 million
(13.1%) to $34.2 million in 1996 from $30.2 million in 1995. Salary and
employee benefits increased $1.7 million due to increased salary levels and
the operation of additional facilities. FDIC insurance declined $.1 million
to $1.1 million for the year ended December 31, 1996 from $1.2 million for
the year ended December 31, 1995. This occurred due to reduced insurance
premiums being paid by the Subsidiary (including the Company's former
subsidiaries prior to their merger into the Subsidiary). The reduced premiums
of the Subsidiary were offset by the payment (by the Company's former thrift
subsidiary) of a special assessment to the FDIC of $.8 million, which was
imposed under the DIFA. Other real estate expense increased $1.5 million
during the same period. This increase reflects a $3.8 million write-down of a
property and approximately $.9 million in expenses related to this property
during the year ended December 31, 1996. During 1995, the Company incurred a
$1.5 million write-down and approximately $1.8 million in expenses related to
this same property. Occupancy expense and furniture and equipment expense
increased $.1 million and $.2 million, respectively, for the year ended
December 31, 1996. These increases were primarily due to expenses incurred
with the opening and operation of new facilities. Data processing expense
decreased $.1 million during this period. Other operating expense increased
$.6 million during this period. This was principally due to increased loan
expense.
INCOME TAXES. Income tax expense increased $.2 million (2.7%) to $8.5 million
in 1996 from $8.3 million in 1995. This increase was principally due to
higher taxable income and was offset by provisions made during the first six
months of 1995 for potential adjustments to prior years' income tax returns.
RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.38% for
1996 and 1.27% for 1995 as net income and average total assets grew.
IMPACT OF NEW ACCOUNTING STANDARDS
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 has
not yet completed its analysis of the impact of adoption of this Standard.
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 it will report on.
INTEREST RATE SENSITIVITY
The Company attempts to maintain a conservative posture with regard to
interest rate risk by actively managing its asset/liability gap position and
constantly monitoring the direction and magnitude of gaps and risk. The
Company attempts to moderate the effects of changes in interest rates by
adjusting its asset and liability mix to achieve desired relationships
between rate sensitive assets and rate sensitive liabilities. Rate sensitive
assets and liabilities are those instruments that reprice within a given time
period. An asset or liability reprices when its interest rate is subject to
change or upon maturity.
Movements in general market interest rates are a key element in changes in
the net interest margin. The Company's policy is to manage its balance sheet
so that fluctuations in net interest margin are minimized regardless of the
level of interest rates, although the net interest margin does vary somewhat
due to management's response to increasing competition from other financial
institutions.
- -------------------------------------------------------------------------------
31
<PAGE>
Listed below are the balances in the major categories of rate sensitive assets
and liabilities that are subject to repricing as of December 31, 1997 (dollars
in thousands):
<TABLE>
<CAPTION>
Over
Three Over One
Three Months to Year to Over
Months Twelve Five Five
or Less Months Years Years Total
-------------- -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in financial
institutions $343 $343
Federal funds sold 21,740 21,740
Investment securities 20,093 $69,637 $307,322 $20,827 417,879
Loans 291,737 261,675 182,183 33,673 769,268
-------------- -------------- ------------ ----------- -------------
Total $333,913 $331,312 $489,505 $54,500 $1,209,230
-------------- -------------- ------------ ----------- -------------
-------------- -------------- ------------ ----------- -------------
Rate sensitive liabilities:
Money market savings $465,970 $465,970
NOW accounts 49,162 49,162
Time deposits
Less than $100,000 103,265 $159,019 $138,700 $20,781 421,765
$100,000 and over 31,684 20,975 27,678 3,746 84,083
-------------- -------------- ------------ ----------- -------------
Total $650,081 $179,994 $166,378 $24,527 $1,020,980
-------------- -------------- ------------ ----------- -------------
-------------- -------------- ------------ ----------- -------------
Interest sensitivity gap ($316,168) $151,318 $323,127 $29,973 $188,250
Cumulative interest sensitivity gap (316,168) (164,850) 158,277 188,250
Cumulative net interest-earning asset
as a percentage of net interest-
bearing liabilities 51.4% 80.1% 115.9% 118.4%
Cumulative interest sensitivity gap as a
percentage of total assets (24.4) (12.7) 12.2 14.6
</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 December
31, 1997 reflects cumulative net interest-earning assets compared to cumulative
net interest-bearing liabilities of 80.1% and cumulative net interest-earning
assets that reprice or mature within one year compared to similarly sensitive
liabilities of negative 12.7%. The percentage indicated for the cumulative net
interest-earning assets as a percentage of net interest-bearing liabilities is
within the Company's target range of acceptable gap values for the three-month
to twelve-month time frame.
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of
the Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of change as goods and services,
since such prices are affected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
- -------------------------------------------------------------------------------
32
<PAGE>
THE YEAR 2000
During 1996, West Suburban 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.
- -------------------------------------------------------------------------------
33
<PAGE>
BOARDS OF DIRECTORS
<TABLE>
<S> <C>
WEST SUBURBAN BANCORP, INC.
Kevin J. Acker Chairman of the Board
David Bell Certified Public Accountant
Duane G. Debs President, Chief Financial Officer
Charles P. Howard Business Operations Director, Inner City Impact
Peggy P. LoCicero Former Banker
WEST SUBURBAN BANK
Robert W. Schulz Chairman of the Board; Oliver Hoffmann Corporation
Keith W. Acker President
Craig R. Acker Former Banker
Earl K. Harbaugh President, Ditch Witch of Illinois
Ronald Kuhn Harry W. Kuhn, Inc., Secretary and Treasurer
Richard Hill Lauber J & E Duff, Inc.
Paul J. Lehman President, Macom Corporation
Walter Myers Vice President, Terrace Supply
John G. Williams Vice President, Bracing Systems
James Bell Director Emeritus
George Hazdra Director Emeritus
Harry Kuhn Director Emeritus
Harold Moser Director Emeritus
Ralph Weber Director Emeritus
F. Willis Caruso Director Emeritus
Richard P. McCarthy Director Emeritus
</TABLE>
OFFICERS
<TABLE>
<S> <C>
WEST SUBURBAN BANCORP, INC.
Duane G. Debs President, Chief Financial Officer
Keith W. Acker Chief Operations Officer
Michael P. Brosnahan Vice President
David J. Mulkerin Chief Compliance Officer
George E. Ranstead Secretary to the Board and Treasurer
Jay J.P. Greifenkamp Assistant Secretary to the Board
Michael J. Lynch Director of Internal Audit
WEST SUBURBAN BANK
Keith W. Acker President and Data Processing Manager
Kevin J. Acker Senior Vice President, Marketing
Michael P. Brosnahan Senior Vice President and Community Reinvestment Act Officer
Duane G. Debs Senior Vice President, Comptroller
Raymond P. Rynne Senior Vice President, Business Administration
Michael Abbatacola Vice President, Financial Services
Danielle Budig Vice President, Operations
Stanley C. Celner, Jr. Vice President, Loans
Karin Choate Vice President, Mortgage Servicing
Edward J. Garvey Vice President, Facility Management
Tammy Hatcher Vice President, Mortgage Operations Manager
Steven A. Jennrich Vice President, Data Processing
Rose Marie Little Vice President, Facility Manager-Cass Avenue
Michael J. Lynch Vice President, Director of Internal Audit
John A. Machonga Vice President, Investments and Trust Officer
James Mastrino Vice President, Facilities Director
Cynthia A. Meredith Vice President, Home Equity Loan Operations Manager
David S. Orr Vice President, Loans
George E. Ranstead Vice President, Assistant Comptroller/Assistant Secretary
Gregory M. Ruffolo Vice President, Loans
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
WEST SUBURBAN BANK OFFICERS (CONTINUED)
Allison J. Triplett Vice President, Loss Prevention Officer
Beverly J. Viscariello Vice President
Jacqueline R. Weigand Vice President, Operations and VISA
Marcia K. Worobec Vice President, Facility Manager - Westmore, Metra Main
Gregory L. Young Vice President, Loans
Amy Andrews Assistant Vice President, Montgomery
Kathleen Brockman Assistant Vice President, Lake
Sharon Buck Assistant Vice President, Facility Manager - St. Charles
Barbara Darden Assistant Vice President, Facility Manager - Bolingbrook West
Jill C. Davenport Assistant Vice President, Operations
Kevin Denny Assistant Vice President, Facility Manager - Oakbrook Terrace
Joyce Dudek-Fedele Assistant Vice President, Facility Manager - Danada, Wheaton
Marie V. Dunk Assistant Vice President, Personnel Director
Miriam Farah Assistant Vice President, Facility Manager - President Street
Sharon A. Fonte Assistant Vice President, Facility Manager - Glendale Heights
Roseann Hamilton Assistant Vice President, Facility Manager - Carol Stream
Uma Jani Assistant Vice President, Facility Manager - Villa Park
Janet Kemble Assistant Vice President, Electronic Services
Debra H. Kolze Assistant Vice President, Commercial Loan Operations Manager
Norine LaPrall Assistant Vice President, Facility Manager - Warrenville
Terri Leitner Assistant Vice President, Facility Manager - 75th, Westmont
Mark Mascarella Assistant Vice President, Facility Manager - Fair Oaks
Sue Nuestrom Assistant Vice President, Facility Manager - Bolingbrook East
Gwen B. O'Loughlin Assistant Vice President, Facility Manager - North Main
Robert L. Pauling Assistant Vice President, Facility Manager - Stratford Square
Cynthia Picton Assistant Vice President, Facility Manager - Galena
Kay J. Piotrowski Assistant Vice President, Facility Manager - Naperville
Helen Schmitt Assistant Vice President, Purchasing
Jerome Sheeman Assistant Vice President, Facility Manager - Finley
Joseph Sperlick Assistant Vice President, Facility Manager - South Main
Joanne T. Tosch Assistant Vice President, Director of Employee Development
Paula Zupmano Assistant Vice President, Facility Manager - Bartlett
Jay J.P. Greifenkamp Secretary to the Board
Michelle Hoisington Assistant Secretary to the Board
Joseph Maloney Director of Marketing
David J. Mulkerin Compliance Officer
Christine Pawlak Trust Officer
David Wanek Loan Officer
</TABLE>
35
<PAGE>
WEST SUBURBAN BANCORP, INC.
711 S. MEYERS ROAD
LOMBARD, ILLINOIS
- -------------------------------------------------------------------------------
AURORA
Lake Street Facility: 101 N. Lake St., Aurora, IL 60507 - (630) 844-5200
Galena Facility: 2000 W. Galena Blvd., Aurora, IL 60507 - (630) 896-7000
BARTLETT
Bartlett Facility: 1061 W. Stearns Rd., Bartlett, IL 60103 - (630) 830-5330
BLOOMINGDALE
Stratford Square Facility: 355 W. Army Trail Rd., Bloomingdale, IL 60108 -
(630) 351-0600
BOLINGBROOK
Bolingbrook East Facility: 672 E. Boughton Rd., Bolingbrook, IL 60440 - (630)
972-9550
Bolingbrook West Facility: 1104 W. Boughton Rd., Bolingbrook, IL 60440 -
(630) 378-9680
CAROL STREAM
Carol Stream Facility: 401 N. Gary Ave., Carol Stream, IL 60188 - (630)
690-8700
Fair Oaks Facility: 1380 Army Trail Rd., Carol Stream, IL 60188 - (630)
213-5920
President Street Facility: 879 Geneva Rd., Carol Stream, IL 60188 - (630)
752-1175
DARIEN
Cass Avenue Facility: 8001 S. Cass Ave., Darien, IL 60561 - (630) 852-6900
75th Street Facility: 1005 75th St., Darien, IL 60561 - (630) 852-9226
DOWNERS GROVE
Finley Road Facility: 2800 S. Finley Rd., Downers Grove, IL 60515 - (630)
495-3600
GLENDALE HEIGHTS
Glendale Heights Facility: 1657 Bloomingdale Rd., Glendale Heights, IL 60139
- - (630) 690-8600
LOMBARD
Westmore Facility: 711 S. Meyers Rd., Lombard, IL 60148 - (630) 629-4200
North Main Street Facility: 707 N. Main St., Lombard, IL 60148 - (630)
691-8558
Metra Main Facility: 100 S. Main St., Lombard, IL 60148 - (630) 268-9010
S. Main Street Facility: 1122 S. Main St., Lombard, IL 60148 - (630) 495-3605
Mr. Z's: 401 S. Main St., Lombard, IL 60148
MONTGOMERY
Montgomery Facility: 1830 Douglas Rd., Montgomery, IL 60538 - (630) 844-5600
NAPERVILLE
Naperville Facility: 2020 Feldott Ln., Naperville, IL 60540 - (630) 416-3800
OAKBROOK TERRACE
Oakbrook Terrace Facility: 17W754 22nd St., Oakbrook Terrace, IL 60181 -
(630) 916-1195
ST. CHARLES
St. Charles Facility: 315 S. Randall Rd., St. Charles, IL 60174 - (630)
377-6930
VILLA PARK
Villa Park Facility: 29 E. St. Charles Rd., Villa Park, IL 60181 - (630)
832-8775
WARRENVILLE
Warrenville Facility: 3S041 Rte. 59, Warrenville, IL 60555 - (630) 393-6060
WESTMONT
Westmont Facility: 6400 S. Cass Ave., Westmont, IL 60559 - (630) 963-2735
WHEATON
Danada Square Facility: 295 W. Loop Rd., Wheaton, IL 60187 - (630) 871-9890
Wheaton Facility: 221 S. West St., Wheaton, IL 60187 - (630) 221-8220
WS 24 ATMs are available at all of the above banking locations.
VISA HEADQUARTERS, 701 S. MEYERS RD., LOMBARD, IL 60148 - (630) 629-4200
FINANCIAL CENTER, 717 S. MEYERS RD., LOMBARD, IL 60148 - (630) 629-4200
LEXINGTON SQUARE OF ELMHURST, ELMHURST, IL 60126
LEXINGTON SQUARE OF LOMBARD, LOMBARD, IL 60148
BEACON HILL, LOMBARD, IL 60148
36
<PAGE>
[INSERT MAP]
37
<PAGE>
ANNUAL REPORT ON FORM 10-K
A copy of West Suburban Bancorp, Inc.'s Annual Report on Form 10-K, filed
with the Securities and Exchange Commission, is available without charge by
writing:
Mr. Duane G. Debs, President and Chief Financial Officer
West Suburban Bancorp, Inc., 2800 S. Finley Road, Downers Grove, Illinois
60515
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of West Suburban Bancorp, Inc. will be
held at West Suburban Bank, 711 South Meyers Road, Lombard, Illinois on
Wednesday, May 13, 1998 at 8:00 a.m. All shareholders are cordially invited
to attend.
STOCK TRANSFER AGENT AND REGISTRAR
Inquiries regarding stock transfer, registration, lost certificates or
changes of name and address should be directed to the stock transfer agent
and registrar by writing:
George E. Ranstead, Secretary to the Board and Treasurer
West Suburban Bank, 2800 South Finley Road, Downers Grove, Illinois 60515
COMMUNITY REINVESTMENT ACT
West Suburban Bancorp, Inc. adheres to a well-established policy of helping to
meet the credit needs of our local communities, consistent with safe and sound
lending practices, in accordance with the Community Reinvestment Act. For
additional information, contact:
Mr. Michael P. Brosnahan, Senior Vice President and Community Reinvestment
Act Officer
West Suburban Bank, 717 South Meyers Road, Lombard, Illinois 60148
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
CORPORATE COUNSEL - CHICAGO, ILLINOIS
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
MEMBER FDIC
38
<PAGE>
[INSERT WSB LOGO]
39
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
<S> <C>
West Suburban Bank Illinois
West Suburban Insurance Services, Inc. Illinois
WSUB Inc. Illinois
Melrose Holdings, Inc. Illinois
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 60,334
<SECURITIES> 417,879
<RECEIVABLES> 0
<ALLOWANCES> 9,772
<INVENTORY> 0
<CURRENT-ASSETS> 665,225
<PP&E> 31,142
<DEPRECIATION> 30,070
<TOTAL-ASSETS> 1,293,691
<CURRENT-LIABILITIES> 830,075
<BONDS> 0
0
0
<COMMON> 3,457
<OTHER-SE> 128,896
<TOTAL-LIABILITY-AND-EQUITY> 1,293,691
<SALES> 0
<TOTAL-REVENUES> 107,604
<CGS> 0
<TOTAL-COSTS> 44,313
<OTHER-EXPENSES> 29,690
<LOSS-PROVISION> 1,623
<INTEREST-EXPENSE> 387
<INCOME-PRETAX> 31,591
<INCOME-TAX> 9,807
<INCOME-CONTINUING> 21,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,784
<EPS-PRIMARY> 50.37
<EPS-DILUTED> 50.37
</TABLE>
