<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission File Number 0 -17609
WEST SUBURBAN BANCORP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
ILLINOIS 36-3452469
- --------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
711 SOUTH MEYERS ROAD, LOMBARD, ILLINOIS 60148
- ------------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 629-4200
--------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock as of the latest practicable date.
1,000,000 shares of Common Stock, Class A, no par value, were authorized and
347,015 shares were issued and outstanding as of March 31, 1998.
1,000,000 shares of Common Stock, Class B, no par value, were authorized and
85,480 shares were issued and outstanding as of March 31, 1998.
<PAGE>
WEST SUBURBAN BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
Page Number
Item 1. Financial Statements ............................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 15
PART II
Item 1. Legal Proceedings ............................................... 16
Item 2. Changes in Securities ........................................... 16
Item 3. Defaults Upon Senior Securities ................................. 16
Item 4. Submission of Matters to a Vote of Security Holders ............. 16
Item 5. Other Information ............................................... 16
Item 6. Exhibits and Reports on Form 8-K ................................ 16
Form 10-Q Signature Page ................................................. 17
THIS REPORT INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WEST SUBURBAN BANCORP, INC.
("WEST SUBURBAN") INTENDS SUCH FORWARD-LOOKING STATEMENTS TO BE COVERED BY
THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS CONTAINED IN THE
PRIVATE SECURITIES REFORM ACT OF 1995, AS AMENDED, AND IS INCLUDING THIS
STATEMENT FOR PURPOSES OF INDICATING SUCH INTENT. FORWARD-LOOKING STATEMENTS
WHICH ARE BASED ON CERTAIN ASSUMPTIONS AND DESCRIBE FUTURE PLANS, STRATEGIES
AND EXPECTATIONS OF THE COMPANY, ARE GENERALLY IDENTIFIABLE BY USE OF THE
WORDS "BELIEVE," "EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE," "PROJECT" OR
SIMILAR EXPRESSIONS. THE COMPANY'S ABILITY TO PREDICT RESULTS OR THE ACTUAL
EFFECT OF FUTURE PLANS OR STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS WHICH
COULD HAVE A MATERIAL ADVERSE AFFECT ON THE OPERATIONS AND FUTURE PROSPECTS
OF WEST SUBURBAN AND WEST SUBURBAN BANK (THE "BANK" AND TOGETHER WITH WEST
SUBURBAN, THE "COMPANY") INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN INTEREST
RATES, GENERAL ECONOMIC CONDITIONS, LEGISLATIVE/REGULATORY CHANGES, MONETARY
AND FISCAL POLICIES OF THE U.S. GOVERNMENT, INCLUDING POLICIES OF THE U.S.
TREASURY AND THE FEDERAL RESERVE BOARD, THE QUALITY OR COMPOSITION OF THE
LOAN OR INVESTMENT PORTFOLIOS, DEMAND FOR LOAN PRODUCTS, DEPOSIT FLOWS,
COMPETITION, DEMAND FOR FINANCIAL SERVICES IN THE COMPANY'S MARKET AREA AND
ACCOUNTING PRINCIPLES, POLICIES AND GUIDELINES. THESE RISKS AND UNCERTAINTIES
SHOULD BE CONSIDERED IN EVALUATING FORWARD-LOOKING STATEMENTS AND UNDUE
RELIANCE SHOULD NOT BE PLACED ON SUCH STATEMENTS. FURTHER INFORMATION
CONCERNING THE COMPANY AND ITS BUSINESS, INCLUDING ADDITIONAL FACTORS THAT
COULD MATERIALLY AFFECT THE COMPANY'S FINANCIAL RESULTS, IS INCLUDED IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $34,959 $38,251
Interest-earning deposits in financial institutions 408 343
Federal funds sold 95,750 21,740
--------------- ---------------
Total cash and cash equivalents 131,117 60,334
Investment securities:
Available for sale (amortized cost of $209,528 in
1998; $218,892 in 1997) 209,430 218,587
Held to maturity (fair value of $126,926 in
1998; $199,905 in 1997) 126,204 199,292
Loans, less allowance for loan losses of $9,511 in 1998;
$9,772 in 1997 755,761 762,538
Premises and equipment, net 31,553 31,142
Other real estate 3,650 2,450
Accrued interest and other assets 18,947 19,348
--------------- ---------------
TOTAL ASSETS $1,276,662 $1,293,691
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $100,051 $124,220
Interest-bearing 1,025,330 1,020,729
--------------- ---------------
Total deposits 1,125,381 1,144,949
Accrued interest and other liabilities 16,465 16,389
--------------- ---------------
TOTAL LIABILITIES 1,141,846 1,161,338
--------------- ---------------
Shareholders' equity:
Common Stock, Class A, no par value; 1,000,000 shares
authorized; 347,015 shares issued and outstanding 2,774 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 93,352 91,014
Accumulated other comprehensive income:
Unrealized loss on securities available for sale, net of taxes (59) (184)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 134,816 132,353
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,276,662 $1,293,691
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 3
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $16,490 $17,129
--------------- ---------------
Investment securities:
Taxable 5,468 4,702
Nontaxable 491 538
--------------- ---------------
Total investment securities 5,959 5,240
Deposits in financial institutions 4 3
Federal funds sold 675 379
--------------- ---------------
Total interest income 23,128 22,751
--------------- ---------------
INTEREST EXPENSE
Deposits 10,618 10,095
Other 41 196
--------------- ---------------
Total interest expense 10,659 10,291
--------------- ---------------
Net interest income 12,469 12,460
PROVISION FOR LOAN LOSSES 250 295
--------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,219 12,165
--------------- ---------------
OTHER OPERATING INCOME
Service fees 762 848
Net realized gain on sales of securities available for sale 49 1
Trust fees 107 105
Net gain on sale of loans originated for sale 190 60
Loan servicing 113 204
Net gain on sale of other real estate 10 1,476
Litigation settlement 2,344
Other 1,184 700
--------------- ---------------
Total other operating income 2,415 5,738
--------------- ---------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 3,874 4,536
Occupancy 801 717
Furniture and equipment 878 731
FDIC insurance premiums 71 84
Professional fees 241 254
Data processing 290 185
Other real estate 48 44
Other 1,524 1,244
--------------- ---------------
Total other operating expense 7,727 7,795
--------------- ---------------
INCOME BEFORE INCOME TAXES 6,907 10,108
INCOME TAXES 2,381 3,543
--------------- ---------------
NET INCOME 4,526 6,565
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities available for sale
arising during the period (net of taxes of $83 in 1998 and
($625) in 1997) 125 (948)
--------------- ---------------
Total other comprehensive income 125 (948)
--------------- ---------------
COMPREHENSIVE INCOME $4,651 $5,617
--------------- ---------------
--------------- ---------------
EARNINGS PER SHARE-BASIC $10.47 $15.18
--------------- ---------------
--------------- ---------------
Cash Dividends Declared Per Share $5.00 $4.50
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 4
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,526 $6,565
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 845 780
Provision for loan losses 250 295
Provision for deferred income taxes 9 2,022
Net premium amortization and discount accretion of investment
securities 237 128
Net realized gain on sales of investment securities available
for sale (49) (1)
Net gain on sale of loans held for sale (190) (60)
Proceeds from sale of loans held for sale 9,346 633
Origination of loans held for sale (5,921) (1,339)
Loss (gain) on sale of premises and equipment 57 (5)
Gain on sale of other real estate (10) (1,476)
Decrease (increase) in accrued interest and other assets 309 (1,625)
Increase in accrued interest and other liabilities 77 707
------------ ------------
Total adjustments 4,960 59
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,486 6,624
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 3,040
Proceeds from maturities 16,349 5,002
Purchases (10,232) (5,677)
Investment securities held to maturity:
Proceeds from maturities 84,111 2,221
Purchases (11,005) (1,999)
Purchase of minority interest in subsidiaries (26)
Net decrease (increase) in loans 1,839 (3,925)
Purchases of premises and equipment (1,313) (1,452)
Proceeds from sale of premises and equipment 5
Proceeds from sale of other real estate 264 1,476
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $83,027 ($4,349)
------------ ------------
</TABLE>
5
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (CONTINUED)
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in total deposits ($19,568) $26,867
Decrease in FHLB advances (1,350)
Cash dividends paid (2,162) (1,730)
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (21,730) 23,787
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 70,783 26,062
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,334 68,650
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $131,117 $94,712
------------ ------------
------------ ------------
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposits and other borrowings $12,620 $10,155
Transfers from loans to other real estate $1,453 $106
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. 6
<PAGE>
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of West Suburban
Bancorp, Inc. ("West Suburban") and West Suburban Bank (the "Bank" and
collectively with West Suburban, the "Company"). Significant intercompany
accounts and transactions have been eliminated. The unaudited interim
consolidated financial statements are prepared pursuant to the rules and
regulations for reporting on Form 10-Q. Accordingly, certain information and
footnote disclosures normally accompanying the annual financial statements
have been omitted. The interim financial statements and notes should be read
in conjunction with the consolidated financial statements and notes thereto
included in the latest Annual Report on Form 10-K filed by the Company. The
consolidated financial statements include all adjustments (none of which were
other than normal recurring adjustments) necessary for a fair statement of
the results for the interim periods. The results for the interim periods are
not necessarily indicative of the results to be expected for the entire
fiscal year. Certain amounts reported in prior periods have been reclassified
to conform to the 1998 presentation.
NOTE 2 - SECURITIES
Debt and marketable equity securities are classified into two categories, "held
to maturity" and "available for sale." Held to maturity securities include those
debt securities where the Company has both the ability and positive intent to
hold them to maturity. Securities not meeting these criteria are classified as
available for sale. Held to maturity securities are carried at amortized
historical cost while available for sale securities are carried at fair value
with net unrealized gains and losses (net of tax) reported as a separate
component of shareholders' equity. Gains or losses on disposition are based on
the net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method. The Company does not engage in trading
activities. The Company has not utilized futures, forwards, swaps or option
contracts in order to manage its interest rate risk or otherwise.
During the first three months of 1998, the Company's unrealized loss on
securities available for sale improved $.1 million to a loss of $.1 million at
March 31, 1998 from a $.2 million loss at December 31, 1997, net of taxes.
NOTE 3 - OUTSTANDING LINES OF CREDIT AVAILABLE - (Dollars in thousands)
<TABLE>
<CAPTION>
--------------------- ---------------------
MARCH 31, 1998 December 31, 1997
--------------------- ---------------------
<S> <C> <C>
Home equity lines $139,251 $145,367
Commercial credit lines 120,007 96,219
Letters of Credit 33,170 19,912
Visa credit lines 48,699 46,106
------------ ------------
Total commitments $341,127 $307,604
------------ ------------
------------ ------------
</TABLE>
The Company had $9.8 million and $4.9 million of commitments to originate
residential mortgage loans as of March 31, 1998 and December 31, 1997,
respectively.
NOTE 4 - NEW ACCOUNTING STANDARDS
In December 1996, the Financial Accounting Standards Board, ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 127, "Deferral of the
Effective Date of Certain Provisions of SFAS 125," which deferred the effective
date of certain of the provisions of SFAS 125 for one year. The adoption of
7
<PAGE>
these provisions did not have a material impact on the Company's financial
condition or results of operations.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income," which
requires businesses to disclose comprehensive income and its components in their
general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, with reclassification of comparative
financial statements and is applicable to interim periods. The Company adopted
SFAS 130 effective for the quarter ended March 31, 1998, with appropriate
reclassifications made to the prior period financial statements to conform to
the new presentation.
In June 1997, FASB issued SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information," which will be effective for the Company beginning
January 1, 1998. SFAS 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company has not yet completed its analysis of
which operating segments the Company will be required to report separately.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
ASSET DISTRIBUTION. Total consolidated assets at March 31, 1998 decreased
approximately $17.0 million (1.3%) to $1,276.7 million at March 31, 1998 from
$1,293.7 million at December 31, 1997. Total cash and cash equivalents increased
$70.8 million (117.3%) to $131.1 million at March 31, 1998 from $60.3 million at
December 31, 1997. Cash and due from banks decreased $3.3 million to $35.0
million at March 31, 1998 from $38.3 million at December 31, 1997. Aggregate
holdings in federal funds sold increased $74.0 million (340.4%) to $95.8 million
at March 31, 1998 from $21.8 million at December 31, 1997. During the first
quarter of 1998, the Company chose to invest in short-term federal funds as
opposed to investing in longer-term debt securities. Aggregate holdings in
investment securities decreased $82.2 million (19.7%) to $335.7 million at March
31, 1998 from $417.9 million at December 31, 1997. The Company's objectives in
managing the securities portfolio are driven by the dynamics of its entire
balance sheet which includes managing the portfolio to maximize yield over an
entire interest rate cycle while providing liquidity and minimizing market risk.
Total loans decreased $7.0 million (.9%) to $765.3 million at March 31, 1998
from $772.3 million at December 31, 1997. The Company operates in a highly
competitive environment for consumer and commercial credit. Management has begun
to take steps that are intended to increase the Company's loan portfolio. These
steps will include retaining additional commercial lenders and exploring the
expansion of its consumer lending to include indirect automobile loans. As in
the past, the Company will continue to investigate new products and
opportunities to enhance its loan portfolio. The Company will attempt to remain
competitive in its market by offering competitive rates and loan products while
not compromising its credit evaluation standards to attract new business.
Over the next 12 to 15 months, the Company intends to add four facilities to its
branch network. The new locations will be in the Aurora/Naperville area, the
Romeoville area, the Bartlett/Hanover Park area and the St. Charles/West Chicago
area. These facilities will allow the Company to serve new markets and enhance
the Company's position as it continues to expand in the western suburbs of
Chicago.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY. The Company maintains an allowance
for loan losses to absorb possible losses in the loan portfolio. The allowance
for loan losses is established after a determination of the potential credit
risk of the loans held by the Company. Management evaluates the adequacy of the
allowance based on past loan loss experience, known and inherent risks in the
loan portfolio, adverse situations that may affect the borrowers' ability to
repay, estimated value of any underlying collateral, and current and prospective
economic conditions. The allowance for loan losses decreased $.3 million to $9.5
million at March 31, 1998 from $9.8 million at December 31, 1997. The ratio of
the allowance for loan losses to total loans outstanding decreased at March 31,
1998 to 1.24% compared to 1.27% at December 31, 1997. Nonperforming loans
decreased $.8 million (9.7%) to $7.1 million at March 31, 1998 from $7.9 million
at December 31, 1997. This decrease was primarily due to the transfer of a $1.2
million real estate loan to other real estate owned. Management is presently
attempting to sell the property that serves as collateral for this loan. As of
March 31, 1998 and December 31, 1997, total nonperforming loans to net loans
were .9% and 1.0%, respectively. The allowance for loan losses was approximately
134% and 124% of the level of nonperforming loans at March 31, 1998 and December
31, 1997, respectively.
9
<PAGE>
The following table presents an analysis of the Company's nonperforming loans
for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997 Dollar Change
---------------------- -------------------- --------------
<S> <C> <C> <C>
Nonaccrual loans $1,940 $3,042 ($1,102)
Accruing loans 90 days past due 5,170 4,829 341
---------- --------- -----------
Total nonperforming loans $7,110 $7,871 ($761)
---------- --------- -----------
---------- --------- -----------
Nonperforming loans as a percent
of net loans 0.9% 1.0%
Other real estate $3,650 $2,450 $1,200
---------- --------- -----------
---------- --------- -----------
</TABLE>
The following table presents an analysis of the Company's provision for loan
losses for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- -------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
---------- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision-quarter $250 $776 $276 $276 $295
Provision-year to date 250 1,623 847 571 295
Net chargeoffs-quarter 511 984 270 169 31
Net chargeoffs-year to date 511 1,454 470 200 31
Allowance at period end 9,511 9,772 9,980 9,974 9,867
Allowance to period end total loans 1.24% 1.27% 1.26% 1.26% 1.24%
</TABLE>
LIABILITY DISTRIBUTION. Total liabilities decreased $19.5 million (1.7%) to
$1,141.8 million at March 31, 1998 from $1,161.3 million at December 31, 1997.
This decrease was primarily due to runoff in certificate of deposit balances.
The Company believes that the present declining interest rate environment makes
the cost of offering special rates to attract deposits outweigh any perceived
benefits. Additionally, the Company believes that the current interest rate
environment makes certificates of deposit less attractive when compared to other
investment alternatives including investments in mutual funds and individual
stocks. During the second quarter of 1998, the Company intends to offer a money
market checking account as an alternative to savings accounts or certificates of
deposit. Management's goal is to promote its deposit products when feasible
while preserving the Company's net interest margin.
Balances in the Company's major categories of deposits are summarized in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 Dollar change Percent
-------------------- -------------------- -------------- ---------
<S> <C> <C> <C> <C>
Demand and other noninterest-bearing $100,051 $124,220 ($24,169) (19.5)%
NOW accounts 53,115 48,915 4,200 8.6
Money market savings 502,627 465,966 36,661 7.9
Time, $100,000 and over 83,293 84,083 (790) (.9)
Time, other 386,295 421,765 (35,470) 8.4
------------ ------------ ----------- ---------
Total $1,125,381 $1,144,949 ($19,568) (1.7)%
------------ ------------ ----------- ---------
------------ ------------ ----------- ---------
</TABLE>
The Company attempts to remain well positioned in its market by offering
competitive rates on its savings and certificate of deposit products. Although
the Company promotes its savings products when appropriate, management does not
intend to compromise its net interest margin to attract deposits.
10
<PAGE>
SHAREHOLDERS' EQUITY. Shareholders' equity increased $2.4 million (1.9%) to
$134.8 million at March 31, 1998 from $132.4 million at December 31, 1997. This
increase was primarily the result of net retention (after the payment of
dividends) of $2.4 million of its first quarter 1998 income.
CAPITAL RESOURCES
The Company's capital ratios as well as those of the Bank as of March 31, 1998
are presented below. All capital ratios are in excess of the regulatory capital
requirements which call for a minimum total risk-based capital ratio of 8% for
the Company and the Bank (at least one-half of the minimum total risk-based
capital must consist of tier 1 capital), a minimum leverage ratio (3% for the
most highly rated banks that do not expect significant growth; all other
institutions are required to maintain a minimum leverage capital ratio of 4% to
5% depending on their particular circumstances and risk profiles) for the
Company and the Bank. Bank holding companies and their subsidiaries are
generally expected to operate at or above the minimum capital requirements and
the ratios shown below are in excess of regulatory minimums and should allow the
Company and the Bank to operate without capital adequacy concerns.
The following table sets forth selected regulatory capital ratios of the Company
and the Bank at March 31, 1998:
<TABLE>
<CAPTION>
Tier 1 Total
Risk-Based Risk-Based Leverage
Capital Capital Capital
---------- ------------ ------------
<S> <C> <C> <C>
West Suburban Bancorp, Inc. 12.78% 13.69% 10.54%
West Suburban Bank 10.85% 11.77% 8.90%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
provided the federal banking regulators with broad power to take prompt
corrective action to resolve the problems of undercapitalized institutions. The
extent of the regulators' powers depends on whether the institution in question
is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Depending
upon the capital category to which an institution is assigned, the regulators'
corrective powers include: requiring the submission of a capital restoration
plan; placing limits on asset growth and restrictions on activities; requiring
the institution to issue additional capital stock (including additional voting
stock) or to be acquired; restricting transactions with affiliates; restricting
the interest rate the institution may pay on deposits; ordering a new election
of directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution. Management has been
advised that as of March 31, 1998 and December 31, 1997, the Bank qualified as a
"well-capitalized" institution.
LIQUIDITY
Liquidity is managed to ensure there is sufficient cash flow to satisfy demand
for credit, deposit withdrawals and attractive investment opportunities. The
Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality, interest rate sensitivity and maturity
schedules of earning assets and supporting liabilities.
Generally, the Company uses cash and cash equivalents to meet its liquidity
needs. Additional liquidity is provided by maintaining assets which mature
within a short time-frame or which may be quickly converted to cash without
significant costs. These assets include interest-bearing deposits in financial
institutions, federal funds sold and investment securities available for sale.
As of March 31, 1998 and December 31, 1997, liquid
11
<PAGE>
assets represented 26.7% and 21.6% of total assets, respectively. A more
detailed discussion concerning these assets is presented in the Asset
Distribution Section of this report.
RATE SENSITIVITY GAPS
The Company attempts to maintain a conservative position with regard to interest
rate risk by actively managing its asset/liability gap positions and constantly
monitoring the direction and magnitude of gaps and risk. The Company attempts to
moderate the effects of changes in interest rates by adjusting its asset and
liability mix to achieve desired relationships between rate sensitive assets and
rate sensitive liabilities. Rate sensitive assets and liabilities are those
instruments that reprice within a given time period.
Movements in general market interest rates are a key element in changes in the
net interest margin. The Company's policy is to manage its balance sheet so that
fluctuations in net interest margins are minimized regardless of the level of
interest rates. However, the net interest margin does vary slightly due to
management's response to increasing competition from other financial
institutions.
Listed below are the balances in the major categories of the rate sensitive
assets and liabilities that are subject to repricing as of March 31, 1998
(dollars in thousands):
<TABLE>
<CAPTION>
Three Over three Over one
months months to year to Over
or less twelve months five years five years Total
------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in
financial institutions $408 $408
Federal funds sold 95,750 95,750
Investment securities 17,930 $39,196 $256,461 $22,047 335,634
Loans 304,672 232,772 185,880 40,008 763,332
------------- -------------- ------------- ------------ --------------
Total interest-earning assets $418,760 $271,968 $442,341 $62,055 $1,195,124
------------- -------------- ------------- ------------ --------------
------------- -------------- ------------- ------------ --------------
Rate sensitive liabilities:
Money market savings $502,627 $502,627
NOW accounts 53,115 53,115
Time deposits:
Less than $100,000 92,128 $138,643 $130,123 $25,401 386,295
$100,000 and over 36,732 15,957 26,745 3,859 83,293
------------- -------------- ------------- ------------ --------------
Total interest-bearing liabilities $684,602 $154,600 $156,868 $29,260 $1,025,330
------------- -------------- ------------- ------------ --------------
------------- -------------- ------------- ------------ --------------
Interest sensitivity gap ($265,842) $117,368 $285,473 $32,795
Cumulative interest sensitivity gap ($265,842) ($148,474) $136,999 $169,794 $169,794
Cumulative interest-earning assets as
a percentage of cumulative
interest-bearing liabilities 61.2% 82.3% 113.8% 116.6%
Cumulative interest sensitivity gap
as a percentage of total assets (20.8)% (11.6)% 10.7% 13.3%
</TABLE>
The above table does not necessarily indicate the future impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject
to competitive and other pressures. As a result, assets and liabilities
indicated as repricing within the same period may, in fact, reprice at
different times and at different rate levels. Assets and liabilities are
12
<PAGE>
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 March 31, 1998 reflects cumulative net interest-earning
assets compared to cumulative net interest-bearing liabilities of 82.3% and
cumulative net interest-earning assets that reprice or mature within one year
compared to total assets of negative 11.6%.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET INCOME. The Company's net income for the three months ended March 31, 1998
and 1997 was approximately $4.5 million and $6.6 million, respectively. This
represents a decrease of $2.1 million (31.1%) for the 1998 period when compared
to the same period in 1997. This was primarily due to the decrease in other
operating income in 1998 when compared to the same period in 1997. During the
first quarter of 1997, the Company recorded $2.3 million of income related to a
settlement of a claim arising from an investment that it made during the late
1980's. During this same period, the Company also sold its interest in a
property held as other real estate for $1.5 million. As this property had been
written off, this amount was reflected as a gain on sale of other real estate.
Net interest income and the provision for loan loss remained level. These
decreases to income were partially offset by decreases to income tax expense of
$1.2 million and to salaries and employee benefits of $.7 million.
INTEREST INCOME. Total interest income, on a tax equivalent basis, increased $.3
million for the three months ended March 31, 1998 compared to the same period in
1997. This increase was attributable to growth in the Company's average
interest-earnings assets of $36.9 million to $1,189.7 million at March 31, 1998
from $1,152.8 million at March 31, 1997. Yields on total interest-earnings
assets decreased primarily due to higher levels of investment securities (which
generally have lower yields compared to loans) and a decline in average loans
outstanding of $31.0 million. Interest on the Company's securities portfolio
decreased primarily due to lower yields on corporate securities.
INTEREST EXPENSE. Total interest expense increased $.4 million for the three
months ended March 31, 1998 compared to the same period during 1997. Interest on
deposits increased $.5 million during this period. This change was the result of
a $.3 million increase due to higher average balances and a $.2 million increase
related to higher interest rates. Average interest-bearing liabilities increased
$19.5 million to $1,020.1 million at March 31, 1998 from $1,000.6 million at
March 31, 1997 primarily due to certificate of deposit promotions originated
during 1997.
The following table reflects the extent to which changes in the volume of
interest-earning assets and interest-bearing liabilities and changes in interest
rates have affected net interest income on a tax equivalent basis for the three
month period ended March 31, 1998 as compared to the same period in 1997
(dollars in thousands):
<TABLE>
<CAPTION>
CHANGE IN:
INTEREST INCOME VOLUME RATE TOTAL
---------- ------ ---------
<S> <C> <C> <C>
Interest-bearing deposits in financial
institutions $2 ($1) $1
Federal funds sold 268 28 296
Investment securities 726 (43) 683
Loans (675) 4 (671)
---------- ------ ---------
Total interest income 321 (12) 309
---------- ------ ---------
INTEREST EXPENSE
Interest-bearing deposits 284 238 522
Borrowed funds 13 (168) (155)
---------- ------ ---------
Total interest expense 297 70 367
---------- ------ ---------
Net interest income $24 ($82) ($58)
---------- ------ ---------
---------- ------ ---------
</TABLE>
13
<PAGE>
The following table presents an analysis of the Company's interest-earning
assets and interest-bearing liabilities volumes for the periods stated on a
cumulative basis as of the date indicated (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
------------ -------------------------------------------------------
March 31 Dec. 31 Sept. 30 June 30 March 31
------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans $760,041 $781,655 $789,576 $792,921 $791,003
Average interest-earning assets 1,189,645 1,195,400 1,193,192 1,185,024 1,152,764
Average noninterest-bearing deposits 103,688 110,248 104,502 108,209 100,810
Average interest-bearing deposits 1,017,207 1,032,768 1,027,120 1,019,866 988,550
Average deposits 1,120,895 1,143,016 1,131,622 1,128,075 1,089,360
Average interest-bearing liabilities 1,020,096 1,038,621 1,033,989 1,028,823 1,000,613
</TABLE>
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses remained
level for the three months ended March 31, 1998 compared to the same period in
1997. The provision for loan losses was established based on management's belief
that the allowance for loan losses (after giving effect to the provision) was
adequate. A more detailed discussion concerning the allowance for loan losses is
presented in the Allowance for Loan Losses and Asset Quality Section of this
report.
OTHER OPERATING INCOME. Total other operating income decreased $3.3 million
(57.9%) for the three months ended March 31, 1998 compared to the same period
in 1997. This decrease was primarily due to the Company settling a claim
relating to an investment that it made during the late 1980's. During the
first quarter of 1997, the Company recorded $2.3 million of income related to
this matter. During the first quarter of 1997, the Company also sold its
interest in a property held as other real estate for $1.5 million. As the
property had been written off, accordingly, this amount represented a gain
recognized as other operating income. Additionally, during the first three
months of 1998, service fee and loan servicing income each declined by $.1
million. This was partially offset by increases in net gains on sale of loans
originated for sale.
OTHER OPERATING EXPENSE. Total other operating expense remained level for the
three months ended March 31, 1998 compared to the same period in 1997. Salary
and employee benefits decreased $.7 million as the 1997 amount of salaries and
employee benefits included severance payouts made to two former executives of
the Company. Occupancy expense and furniture and equipment expense increased by
$.1 and $.2 million, respectively. Data processing expense increased $.1
million. Other expense increased by $.3 million due to increased loan expense
and other factors.
INCOME TAXES. Income tax expense decreased $1.1 million (32.8%) for the three
months ended March 31, 1998 to $2.4 million from $3.5 million compared to the
same period in 1997. The decrease was principally due to lower taxable income.
OTHER CONSIDERATIONS
Earnings of bank holding companies and their subsidiaries are affected by
general economic conditions and also by the fiscal and monetary policies of
federal regulatory agencies, including the Board of Governors of the Federal
Reserve System. Such policies have affected the operating results of all
commercial banks in the past and are expected to do so in the future. The
Company cannot accurately predict the nature or the extent of any effects which
fiscal or monetary policies may have on its subsidiary's business and earnings.
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
14
<PAGE>
confirm that their applications are Year 2000 compliant. The Company has
tested and replaced, as necessary, its critical computer hardware components
and software applications and intends to continue its testing procedures in
order to ensure that its computer hardware components and software
applications are Year 2000 compliant and that the operations of the Company
will not be adversely effected. The Company believes that the cost that will
be incurred in connection with testing and replacing hardware and software
applications will not have a material effect on its results of operations.
Purchased computer hardware components and software applications are
capitalized in accordance with the Company's policy. All internal and
external costs are expensed when incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company hereby incorporates by reference the information called for by
Item 3 of this Form 10-Q from the Rate Sensitivity Gaps section included in
Item 2 above.
15
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiary are a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K - The Company did not file a report on
Form 8-K during the three months ended March 31, 1998.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST SUBURBAN BANCORP, INC.
(Registrant)
Date: May 14, 1998 /s/ Kevin J. Acker
-------------------------------------
KEVIN J. ACKER
CHAIRMAN OF THE BOARD
/s/ Duane G. Debs
-------------------------------------
DUANE G. DEBS
PRESIDENT AND CHIEF FINANCIAL OFFICER
17
<PAGE>
INDEX OF EXHIBITS
Sequential
Page No.
----------
27. Financial Data Schedule 19
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,959
<SECURITIES> 335,634
<RECEIVABLES> 766,551
<ALLOWANCES> 9,511
<INVENTORY> 0
<CURRENT-ASSETS> 690,728
<PP&E> 31,553
<DEPRECIATION> 845
<TOTAL-ASSETS> 1,276,662
<CURRENT-LIABILITIES> 839,202
<BONDS> 0
0
0
<COMMON> 3,457
<OTHER-SE> 131,359
<TOTAL-LIABILITY-AND-EQUITY> 1,276,662
<SALES> 0
<TOTAL-REVENUES> 25,543
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,727
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 10,659
<INCOME-PRETAX> 6,907
<INCOME-TAX> 2,381
<INCOME-CONTINUING> 4,526
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,526
<EPS-PRIMARY> 10.47
<EPS-DILUTED> 10.47
</TABLE>
