<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, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission File Number 0 -17609
WEST SUBURBAN BANCORP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
ILLINOIS 36-3452469
- --------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
711 SOUTH MEYERS ROAD, LOMBARD, ILLINOIS 60148
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 629-4200
- ------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the Issuer's
class of common stock as of the latest practicable date.
15,000,000 shares of Common Stock, no par value, were authorized and 432,495
shares of Common Stock were issued and outstanding as of March 31, 1999.
<PAGE>
WEST SUBURBAN BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
Item 1. Financial Statements..............................................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................12
PART II
Item 1. Legal Proceedings................................................................16
Item 2. Changes in Securities and Use of Proceeds........................................16
Item 3. Defaults Upon Senior Securities..................................................16
Item 4. Submission of Matters to a Vote of Security Holders..............................16
Item 5. Other Information................................................................16
Item 6. Exhibits and Reports on Form 8-K.................................................16
Form 10-Q Signature Page..................................................................17
</TABLE>
THIS REPORT 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. WEST SUBURBAN BANCORP, INC.
(TOGETHER WITH WEST SUBURBAN BANK, THE "COMPANY") INTENDS SUCH
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS CONTAINED IN THE PRIVATE SECURITIES REFORM ACT OF
1995, AS AMENDED, AND IS INCLUDING THIS STATEMENT FOR PURPOSES OF INDICATING
SUCH INTENT. FORWARD-LOOKING STATEMENTS, WHICH ARE BASED ON CERTAIN
ASSUMPTIONS AND DESCRIBE FUTURE PLANS, STRATEGIES AND EXPECTATIONS OF THE
COMPANY, ARE GENERALLY IDENTIFIABLE BY USE OF THE WORDS "BELIEVE," "EXPECT,"
"INTEND," "ANTICIPATE," "ESTIMATE," "PROJECT" OR SIMILAR EXPRESSIONS. THE
COMPANY'S ABILITY TO PREDICT RESULTS OR THE ACTUAL EFFECT OF FUTURE PLANS OR
STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS WHICH COULD HAVE A MATERIAL
ADVERSE AFFECT ON THE OPERATIONS AND FUTURE PROSPECTS OF WEST SUBURBAN
BANCORP, INC. ("WEST SUBURBAN") AND WEST SUBURBAN BANK (THE "BANK") 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 BANK'S LOAN OR SECURITIES
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
----------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $34,187 $41,549
Interest-earning deposits in financial institutions 796 724
Federal funds sold 23,500 64,590
----------------- ------------------
Total cash and cash equivalents 58,483 106,863
Securities:
Available for sale (amortized cost of $214,421 in 1999; $204,947 in 1998) 214,569 205,624
Held to maturity (fair value of $190,221 in 1999; $172,590 in 1998) 189,873 171,679
----------------- ------------------
Total securities 404,442 377,303
----------------- ------------------
Loans, less allowance for loan losses of $10,430 in 1999; $9,998 in 1998 788,936 771,148
Premises and equipment, net 33,738 33,393
Other real estate 1,526 1,742
Accrued interest and other assets 20,378 18,504
----------------- ------------------
TOTAL ASSETS $1,307,503 $1,308,953
----------------- ------------------
----------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $125,998 $112,464
Interest-bearing 1,026,298 1,043,488
----------------- ------------------
Total deposits 1,152,296 1,155,952
Accrued interest and other liabilities 17,026 18,608
----------------- ------------------
TOTAL LIABILITIES 1,169,322 1,174,560
----------------- ------------------
Shareholders' equity:
Common Stock, no par value; 15,000,000 shares authorized; 432,495
shares issued and outstanding 3,457 3,457
Surplus 38,066 38,066
Retained earnings 96,569 92,461
Accumulated other comprehensive income:
Unrealized gains on securities available for sale, net of taxes of
$48 in 1999; $268 in 1998 89 409
----------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 138,181 134,393
----------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,307,503 $1,308,953
----------------- ------------------
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------------- ----------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $15,791 $16,490
Securities:
Taxable 5,384 5,468
Nontaxable 403 491
-------------- ----------------
Total securities 5,787 5,959
Deposits in financial institutions 9 4
Federal funds sold 503 675
-------------- ----------------
Total interest income 22,090 23,128
-------------- ----------------
INTEREST EXPENSE
Deposits 9,098 10,618
Other 38 41
-------------- ----------------
Total interest expense 9,136 10,659
-------------- ----------------
Net interest income 12,954 12,469
PROVISION FOR LOAN LOSSES 548 250
-------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,406 12,219
-------------- ----------------
NONINTEREST INCOME
Service fees 803 762
Trust fees 104 107
Net gain on sales of loans 190 190
Loan servicing 78 113
Net realized gain on sales of securities available for sale 66 49
Net gain on sales of other real estate 5 10
Litigation settlement 3,555
Other 1,085 1,184
-------------- ----------------
Total noninterest income 5,886 2,415
-------------- ----------------
NONINTEREST EXPENSE
Salaries and employee benefits 4,170 3,874
Occupancy 912 801
Furniture and equipment 825 878
FDIC insurance premiums 50 71
Professional fees 270 241
Data processing 180 290
Other real estate 31 48
Other 1,653 1,524
-------------- ----------------
Total noninterest expense 8,091 7,727
-------------- ----------------
INCOME BEFORE INCOME TAXES 10,201 6,907
INCOME TAXES 3,282 2,381
-------------- ----------------
NET INCOME 6,919 4,526
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding (losses) gains on securities available for sale arising
during the period (net of (benefit) taxes of ($237) in 1999 and $63 in 1998) (280) 154
Less: reclassification adjustment for gains included in net income (net
of taxes of $26 in 1999 and $20 in 1998) (40) (29)
-------------- ----------------
Total other comprehensive (loss) income (320) 125
-------------- ----------------
COMPREHENSIVE INCOME $6,599 $4,651
-------------- ----------------
-------------- ----------------
EARNINGS PER SHARE-BASIC $16.00 $10.47
-------------- ----------------
-------------- ----------------
CASH DIVIDENDS DECLARED PER SHARE $6.50 $5.00
-------------- ----------------
-------------- ----------------
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,919 $4,526
------------------ ------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 903 845
Provision for loan losses 548 250
(Benefit) provision for deferred income taxes (110) 9
Net premium amortization and discount accretion of securities 200 237
Net realized gain on sales of securities available for sale (66) (49)
Net gain on sales of loans held for sale (190) (190)
Proceeds from sales of loans held for sale 15,918 15,846
Origination of loans held for sale (5,580) (5,921)
(Gain) loss on sales of premises and equipment (3) 57
Net gain on sales of other real estate (5) (10)
(Increase) decrease in accrued interest and other assets (1,542) 309
Increase in accrued interest and other liabilities 2,732 77
------------------ ------------------
Total adjustments 12,805 11,460
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,724 15,986
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales 6,515 3,040
Proceeds from maturities 42,352 16,349
Purchases (58,578) (10,232)
Securities held to maturity:
Proceeds from maturities 51,313 84,111
Purchases (69,406) (11,005)
Purchase of minority interest in subsidiaries (26)
Net increase in loans (28,652) (4,661)
Purchases of premises and equipment (1,284) (1,313)
Proceeds from sales of premises and equipment 39
Proceeds from sales of other real estate 389 264
------------------ ------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (57,312) 76,527
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in total deposits (3,656) (19,568)
Cash dividends paid (7,136) (2,162)
------------------ ------------------
NET CASH USED IN FINANCING ACTIVITIES (10,792) (21,730)
------------------ ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (48,380) 70,783
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 106,863 60,334
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $58,483 $131,117
------------------ ------------------
------------------ ------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and other borrowings $9,609 $12,620
Income taxes 370
Transfers from loans to other real estate 168 1,453
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
<PAGE>
WEST SUBURBAN BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed 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 1999 presentation.
NOTE 2 - SECURITIES
Debt and marketable equity securities are classified into two categories,
"held to maturity" or "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 in accumulated other comprehensive income 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 to manage interest rate risk or otherwise.
During the first three months of 1999, the Company's unrealized gain on
securities available for sale, net of taxes decreased $.3 million to a gain
of $.1 million at March 31, 1999 from a $.4 million gain at December 31,
1998, net of taxes.
NOTE 3 - OUTSTANDING LINES OF CREDIT AVAILABLE - (Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, 1999 December 31, 1998
---------------------- ----------------------
<S> <C> <C>
Home equity lines $170,961 $163,359
Commercial credit lines 116,723 129,996
Letters of credit 10,658 14,423
Visa credit lines 40,379 39,062
---------------------- ----------------------
Total commitments $338,721 $346,840
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
The Company had $8.4 million and $14.7 million of commitments to originate
residential mortgage loans as of March 31, 1999 and December 31, 1998,
respectively.
NOTE 4 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires all
derivatives to be recorded on the balance sheet at fair value and establishes
"special accounting" for hedges. SFAS 133 is effective for 2000. The Company
has not yet determined if the adoption of SFAS 133 will have a material
effect on the Company's financial condition or results of operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONDENSED BALANCE SHEET ANALYSIS
ASSET DISTRIBUTION. Total consolidated assets at March 31, 1999 decreased
approximately $1.5 million (.1%) to $1,307.5 million at March 31, 1999 from
$1,309.0 million at December 31, 1998. Total cash and cash equivalents
decreased $48.4 million (45.3%) to $58.5 million at March 31, 1999 from
$106.9 million at December 31, 1998. Cash and due from banks decreased $7.3
million (17.7%) to $34.2 million at March 31, 1999 from $41.5 million at
December 31, 1998. Aggregate holdings in federal funds sold decreased $41.1
million (63.6%) to $23.5 million at March 31, 1999 from $64.6 million at
December 31, 1998. The decrease in federal funds sold was the result of
increases in securities and total loans. Aggregate holdings in securities
increased $27.1 million (7.2%) to $404.4 million at March 31, 1999 from
$377.3 million at December 31, 1998. The Company purchased securities, which
offer a greater return than federal funds sold, with funds previously
invested in federal funds sold. 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 increased $18.3 million (2.3%) to $799.4 million at March 31,
1999 from $781.1 million at December 31, 1998. Real estate loans increased
$13.3 million (4.3%) to $319.7 million at March 31, 1999 from $306.4 million
at December 31, 1998 and indirect auto loans increased $12.9 million (42.5%)
to $43.3 million at March 31, 1999 from $30.4 million at December 31, 1998.
These increases were partially offset by decreases in home equity loans as
customers continued to consolidate their borrowings under home equity loans
into their first mortgage loans at the time they refinance their first
mortgage loans. The Company attempts to remain competitive in its market by
offering competitive rates and loan products with one example being 10 year
mortgages with a tie in to a home equity line of credit to allow customers
greater flexibility. The Company will continue to maintain its credit
evaluation standards while reviewing prospective new business.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY. The Company maintains an
allowance for loan losses to absorb anticipated 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 by reviewing
historical loan loss/recovery data, expected future net credit losses,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and current and prospective business and
economic conditions. The allowance for loan losses increased $.4 million
(4.3%) to $10.4 million at March 31, 1999 from $10.0 million at December 31,
1998. This increase in allowance for loan losses was primarily due to an
increase in loans outstanding. The ratio of the allowance for loan losses to
total loans outstanding increased at March 31, 1999 to 1.30% compared to
1.28% at December 31, 1998. Nonperforming loans decreased $4.9 million
(26.2%) to $13.7 million at March 31, 1999 from $18.6 million at December 31,
1998. As of March 31, 1999 and December 31, 1998, total nonperforming loans
to total loans were 1.7% and 2.4%, respectively. The allowance for loan
losses was approximately 76% and 54% of nonperforming loans at March 31, 1999
and December 31, 1998, respectively.
As of March 31, 1999, the Company had $8.0 million in credit exposure to a
leasing company consisting of a warehouse line of credit with a principal
balance of $7.3 million and $.7 million of leases purchased from the leasing
company on a limited recourse basis. The warehouse line of credit is secured
by leases and various other assets. The leasing company was engaged in the
business of originating and servicing small equipment leases until May 1998
when it sold substantially all its assets. Subsequently, various
irregularities in the leasing company's operations were discovered. In August
1998, the leasing company made an assignment for the benefit of creditors.
The Company remains a secured creditor of the leasing company.
The Company has taken possession of certain leases and other assets that
secure the warehouse line of credit and is negotiating a purchase of certain
other leases from the assignee at a mutually acceptable price. Additionally,
the Company has arranged for the continued servicing of all leases. The
Company is evaluating the retention or sale of these leases as well as the
purchased leases. The Company has also conducted negotiations with the
guarantors of the leasing company's obligations and is exploring other
possible ways to maximize realizations. Subsequent to March 31, 1999, a
settlement was reached with an individual that
7
<PAGE>
provided a limited guarantee of certain of the obligations of the leasing
company to the Company. The settlement provided for an immediate payment to
the Company as well as the possibility of additional payments in the future.
In addition, the Company owns Class B Notes issued in connection with lease
securitizations arranged by the leasing company. During the third quarter of
1998, the Company recognized a loss of $3.2 million representing the
other-than-temporary impairment of the entire carrying value of the Class B
Notes, which were classified as available for sale securities. The leases
that comprise the underlying assets of the Class B Notes are serviced by the
institution that serves as the indenture trustee of the trust pursuant to
which Class B Notes were issued.
The following table presents an analysis of the Company's nonperforming loans
for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1999 December 31, 1998 Dollar Change
--------------------- --------------------- ---------------
<S> <C> <C> <C>
Nonaccrual loans $12,059 $14,979 ($2,920)
Accruing loans 90 days past due 1,673 3,621 (1,948)
--------------------- --------------------- ---------------
Total nonperforming loans $13,732 $18,600 ($4,868)
--------------------- --------------------- ---------------
--------------------- --------------------- ---------------
Nonperforming loans as a percent
of total loans 1.7% 2.4%
Other real estate $1,526 $1,742 ($216)
--------------------- --------------------- ---------------
--------------------- --------------------- ---------------
</TABLE>
The following table presents an analysis of the Company's provision for loan
losses for the periods stated (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Provision-quarter $548 $888 $1,187 $237 $251
Provision-year to date 548 2,563 1,675 488 251
Net chargeoffs-quarter 116 512 1,158 156 511
Net chargeoffs-year to date 116 2,337 1,825 667 511
Allowance at period end 10,430 9,998 9,621 9,592 9,511
Allowance to period end total loans 1.30% 1.28% 1.30% 1.30% 1.24%
</TABLE>
LIABILITY DISTRIBUTION. Total liabilities decreased $5.3 million (.4%) to
$1,169.3 million at March 31, 1999 from $1,174.6 million at December 31,
1998. This decrease was primarily due to the reduction in certificates of
deposit balances as customers position themselves to take advantage of
possible increases in interest rates by not committing to medium or long term
certificates of deposit. Management is attempting to retain current and
attract new deposits by promoting a new certificate of deposit product
referred to as a certificate of deposit for the millennium. The decrease in
certificates of deposit was partially offset by continued growth in money
market checking deposits as customers took advantage of this product which
provides a higher interest rate without requiring a long term deposit period.
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>
Percent
MARCH 31, 1999 December 31, 1998 Dollar change Change
--------------------- --------------------- ---------------- ----------
<S> <C> <C> <C> <C>
Demand and other noninterest-bearing $125,998 $112,464 $13,534 12.0%
NOW accounts 20,153 34,712 (14,559) (41.9)
Money market checking 108,936 99,304 9,632 9.7
Money market savings 501,726 501,128 598 .1
Time, $100,000 and over 81,506 81,041 465 .6
Time, other 313,977 327,303 (13,326) (4.1)
--------------------- --------------------- ----------------
Total $1,152,296 $1,155,952 ($3,656) (.3)%
--------------------- --------------------- ----------------
--------------------- --------------------- ----------------
</TABLE>
The Company attempts to remain well positioned in its market by offering
competitive rates on its savings and certificate of deposit products.
8
<PAGE>
CAPITAL RESOURCES
Total shareholders' equity increased $3.8 million during the three months
ended March 31, 1999. This increase was a result of net income of $6.9
million, less dividends declared of $2.8 million and a decline in the market
value of securities available for sale of $.3 million.
The Company's capital ratios as well as those of the Bank as of March 31,
1999 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, 1999:
<TABLE>
<CAPTION>
Tier 1 Total
Risk-Based Risk-Based Leverage
Capital Capital Capital
---------- ---------- ---------
<S> <C> <C> <C>
West Suburban Bancorp, Inc. 12.47% 13.42% 10.54%
West Suburban Bank 11.15% 12.11% 9.30%
</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, 1999 and December 31, 1998, the Bank qualified as a
"well-capitalized" institution.
LIQUIDITY
Effective liquidity management ensures there is sufficient cash flow to
satisfy demand for credit, deposit withdrawals and attractive investment
opportunities. A large stable core deposit base, and strong capital position
are the solid foundation for the Company's liquidity position. Liquidity is
enhanced by a securities portfolio structured to provide liquidity as needed.
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. As part of its plan
to address Year 2000 issues, the Company is likely to maintain higher levels
of liquidity during late 1999 and early 2000 than in the past and presently
does not anticipate needing to borrow funds during that time period to meet
liquidity needs.
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 securities available for sale.
As of March 31, 1999 and December 31, 1998, these liquid assets represented
20.9% and 23.9% of total assets, respectively. A more detailed discussion
concerning these assets is presented in the Asset Distribution section of
this report.
9
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NET INCOME. The Company's net income for the three months ended March 31,
1999 and 1998 was approximately $6.9 million and $4.5 million, respectively.
This represents an increase of $2.4 million (52.9%) for the 1999 period when
compared to the same period in 1998. This was primarily due to the increase
in noninterest income in 1999 when compared to the same period in 1998.
During the first quarter of 1999, the Company recorded non-recurring other
income of $3.6 million representing the settlement of a lawsuit brought by
the Company in connection with an investment that was made in the late
1980's. Net interest income increased $.5 million during the first quarter of
1999 compared to the first quarter of 1998. Partially offsetting these
increases were increases in the provision for loan losses which increased $.3
million and noninterest expense which increased by $.4 million. Additionally,
income tax expense increased $.9 million.
INTEREST INCOME. Total interest income, on a tax equivalent basis, decreased
$1.1 million for the three months ended March 31, 1999 compared to the same
period in 1998. This decrease was primarily due to decreased yields on the
Company's loan and securities portfolios despite increased average balances.
Yields on total average loans decreased primarily due to decreases in
interest rates that have been necessary to attract adequate loan volume.
Yields on the Company's securities portfolio declined as higher average
balances outstanding were invested in lower yielding securities resulting
from a declining interest rate environment.
INTEREST EXPENSE. Total interest expense decreased $1.5 million for the three
months ended March 31, 1999 compared to the same period during 1998. Interest
on deposits which accounted for substantially all of this decrease, declined
due to decreases in average rates notwithstanding an increase of $16.9
million in average balances of interest-bearing deposits during the quarter
ended March 31, 1999.
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, 1999, as compared to the same
period in 1998 (dollars in thousands):
<TABLE>
<CAPTION>
CHANGE DUE TO:
INTEREST INCOME VOLUME RATE TOTAL
--------------- -------------- ------------------
<S> <C> <C> <C>
Interest-bearing deposits in financial institutions $4 $1 $5
Federal funds sold (109) (63) (172)
Securities 260 (419) (159)
Loans 238 (983) (745)
--------------- -------------- ------------------
Total interest income 393 (1,464) (1,071)
--------------- -------------- ------------------
INTEREST EXPENSE
Interest-bearing deposits (453) (1,071) (1,524)
--------------- -------------- ------------------
Total interest expense (453) (1,071) (1,524)
--------------- -------------- ------------------
Net interest income $846 ($393) $453
--------------- -------------- ------------------
--------------- -------------- ------------------
</TABLE>
The following table presents an analysis of the Company's average
interest-earning assets, interest-bearing liabilities, and
non-interest-bearing deposits, volumes for the periods stated on a cumulative
basis as of the date indicated (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
------------ --------------------------------------------------------------
MARCH 31 Dec. 31 Sept. 30 June 30 March 31
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Securities $393,398 $387,635 $393,778 $382,510 $375,737
Loans 771,624 748,181 747,424 751,066 760,041
Interest-earning assets 1,209,778 1,194,502 1,195,606 1,198,477 1,189,645
Noninterest-bearing deposits 112,101 107,984 106,664 106,169 103,688
Interest-bearing deposits 1,034,106 1,024,523 1,024,082 1,024,263 1,017,207
Deposits 1,146,207 1,132,507 1,130,746 1,130,432 1,120,895
Interest-bearing liabilities 1,039,452 1,027,343 1,026,921 1,027,171 1,020,096
</TABLE>
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses increased
$.3 million (119.2%) for the three months ended March 31, 1999 compared to
the same period in 1998. This increase was intended to address the increase
in loan volume as well as the current level of nonperforming loans. Management
10
<PAGE>
monitors its nonperforming loans closely and will initiate further increases
to the provision for loan losses as warranted. See the section entitled
"Allowance for Loan Losses and Asset Quality".
NONINTEREST INCOME. Total noninterest income increased $3.5 million (143.7%)
for the three months ended March 31, 1999 compared to the same period in
1998. This was primarily due to the Company recording non-recurring other
income of $3.6 million representing the settlement of a lawsuit brought by
the Company in connection with an investment that was made in the late 1980's.
NONINTEREST EXPENSE. Total noninterest expense increased $.4 million (4.7%)
for the three months ended March 31, 1999 compared to the same period in
1998. This increase was primarily the result of salary and employee benefits
increasing $.3 million due to the addition of the indirect automobile loan
department and the opening of the new Eola Road branch. Occupancy expense
increased $.1 million. Increases were partially offset by a decrease in data
processing expense of $.1 million. Additionally, other noninterest expense
increased $.1 million during this period.
INCOME TAXES. Income tax expense increased $.9 million (37.8%) for the three
months ended March 31, 1999 compared to the same period in 1998. The increase
was principally due to higher taxable income.
OTHER CONSIDERATIONS
GENERAL. Earnings of bank holding companies and their subsidiaries are
affected by general economic conditions and also by the fiscal and monetary
policies of federal regulatory agencies, including the Board of Governors of
the Federal Reserve System. Such policies have affected the operating results
of all commercial banks in the past and are expected to do so in the future.
The Company cannot accurately predict the nature or the extent of any effects
which fiscal or monetary policies may have on its subsidiary's business and
earnings.
RECENT REGULATORY DEVELOPMENTS/YEAR 2000. The federal banking regulators
recently issued guidelines establishing minimum safety and soundness
standards for achieving Year 2000 compliance. The guidelines, which took
effect October 15, 1998 and apply to all FDIC-insured depository
institutions, establish standards for developing and managing Year 2000
project plans, testing remediation efforts and planning for contingencies.
The guidelines are based upon guidance previously issued by the agencies
under the auspices of the Federal Financial Institutions Examination Council
(the "FFIEC"), but are not intended to replace or supplant the FFIEC guidance
which will continue to apply to all federally insured depository institutions.
The guidelines were issued under Section 39 of the Federal Deposit Insurance
Act, as amended (the "FDIA"), which requires the federal banking regulators
to establish standards for the safe and sound operation of federally insured
depository institutions. Under Section 39 of the FDIA, if an institution
fails to meet any of the standards established in the guidelines, the
institution's primary federal regulator may require the institution to submit
a plan for achieving compliance. If an institution fails to submit an
acceptable compliance plan, or fails in any material respect to implement a
compliance plan that has been accepted by its primary federal regulator, the
regulator is required to issue an order directing the institution to cure the
deficiency. Such an order is enforceable in court in the same manner as a
cease and desist order. Until the deficiency cited in the regulator's order
is cured, the regulator may restrict the institution's rate of growth,
require the institution to increase its capital, restrict the rates the
institution pays on deposits or require the institution to take any action
the regulator deems appropriate under the circumstances. In addition to the
enforcement procedures established in Section 39 of the FDIA, noncompliance
with the standards established by the guidelines may also be grounds for
other enforcement action by the federal banking regulators, including cease
and desist orders and civil money penalty assessments.
During 1996, West Suburban initiated the process of preparing its computer
systems and applications for the Year 2000. This process involved 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 has set
11
<PAGE>
May 31, 1999 as its target date for completion of its testing of all critical
computer hardware components and software applications.
The Company has received acknowledgment from its external service providers
for its critical computer hardware components and software applications that
these systems are Year 2000 compliant. Along with these acknowledgments, the
Company has utilized an external agency for an independent review of the
Company's Year 2000 status.
The Company has incurred approximately $2.2 million in costs for replacing
hardware components and software applications. These costs were not directly
related to Year 2000 but were more directly related to enhancing technology
and the discontinuation of service of existing hardware components and
software applications. The Company estimates that its remaining Year 2000
costs will not exceed $.1 million. Costs related to Year 2000 are either
capitalized or expensed as incurred in accordance with the Company's Fixed
Asset Policy.
The Company identifies, measures and monitors the risks involved in its
banking activities and related operations. The Company has recognized many
risks and uncertainties and given the unique circumstance of the Year 2000
issue, the Company is unable to determine the ultimate effect that the risks
will have on the Company. The Company believes that its significant testing,
planning, communication and coordination will mitigate potential material
disruption. While the effort is wide ranging and intended to fully address
all Year 2000 issues, nevertheless, the Company believes that it is important
to be prepared should something occur which destroys data bases or systems
due to Year 2000 programming errors. The Year 2000 Coordinator and the
Disaster Recovery Coordinator have carefully analyzed related disaster
recovery and contingency planning requirements to ensure support exists,
should a Year 2000 problem arise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. 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 margins are minimized regardless of the
level of interest rates. However, the net interest margin does vary due to
management's response to increasing competition from other financial
institutions.
12
<PAGE>
Listed below are the balances in the major categories of the rate sensitive
assets and liabilities that are subject to repricing as of March 31, 1999
(dollars in thousands) (Rates are not on a taxable equivalent basis):
<TABLE>
<CAPTION>
Over three
Three months to Over one
months twelve year to Over
or less months five years five years Total
-------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in financial
institutions:
Fixed Rate $696 $100 $796
Average interest rate 4.94% 4.80% 4.92%
Federal funds sold:
Fixed Rate 23,500 23,500
Average interest rate 4.64% 4.64%
Securities:
Fixed Rate 24,368 43,746 $280,870 $50,655 399,639
Average interest rate 4.80% 6.39% 6.16% 5.82% 6.04%
Variable Rate 4,803 4,803
Average interest rate 4.94% 4.94%
Loans:
Fixed Rate 17,693 6,900 148,496 73,743 246,832
Average interest rate 10.43% 7.90% 8.06% 7.01% 7.85%
Variable Rate 263,844 152,124 122,712 1,796 540,476
Average interest rate 8.07% 7.75% 7.41% 6.59% 7.83%
-------------- -------------- -------------- ------------- ---------------
Total $330,101 $207,673 $552,078 $126,194 $1,216,046
-------------- -------------- -------------- ------------- ---------------
-------------- -------------- -------------- ------------- ---------------
Rate sensitive liabilities:
Money market savings:
Fixed Rate $501,726 $501,726
Average interest rate 2.63% 2.63%
Money market checking:
Fixed Rate 108,936 108,936
Average interest rate 4.24% 4.24%
NOW accounts:
Fixed Rate 20,153 20,153
Average interest rate 1.15% 1.15%
Time deposits:
Less than $100,000:
Fixed Rate 59,430 $162,340 $87,639 $1,999 311,408
Average interest rate 4.84% 5.41% 5.65% 5.21% 5.37%
Variable Rate 105 2,464 2,569
Average interest rate 6.57% 5.54% 5.58%
$100,000 and over:
Fixed Rate 37,916 22,326 21,058 81,300
Average interest rate 4.68% 5.80% 5.90% 5.32%
Variable Rate 206 206
Average interest rate 6.00% 6.00%
-------------- -------------- -------------- ------------- ---------------
Total $728,161 $184,771 $111,367 $1,999 $1,026,298
-------------- -------------- -------------- ------------- ---------------
-------------- -------------- -------------- ------------- ---------------
Interest sensitivity gap ($398,060) $22,902 $440,711 $124,195
Cumulative interest sensitivity gap (398,060) (375,158) 65,553 189,748 $189,748
Cumulative net interest-earning assets to
cumulative net interest-bearing liabilities 45.3% 58.9% 106.4% 118.5%
Cumulative interest sensitivity gap to
total assets (30.4%) (28.7%) 5.0% 14.5%
</TABLE>
13
<PAGE>
Listed below are the balances in the major categories of the rate sensitive
assets and liabilities that were subject to repricing as of December 31, 1998
(dollars in thousands) (Rates are not on a taxable equivalent basis):
<TABLE>
<CAPTION>
Over three
Three months to Over one
months twelve year to Over
or less months five years five years Total
-------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in financial
institutions:
Fixed Rate $624 $100 $724
Average interest rate 4.68% 4.80% 4.70%
Federal funds sold:
Fixed Rate 64,590 64,590
Average interest rate 4.48% 4.48%
Securities:
Fixed Rate 28,599 42,551 $259,734 $41,547 372,431
Average interest rate 5.23% 6.86% 6.15% 5.67% 6.11%
Variable Rate 4,872 4,872
Average interest rate 4.59% 4.59%
Loans:
Fixed Rate 17,400 6,524 135,300 66,784 226,008
Average interest rate 10.83% 7.84% 7.99% 7.29% 7.86%
Variable Rate 251,543 186,434 102,182 540,159
Average interest rate 8.07% 7.91% 7.48% 7.90%
-------------- -------------- -------------- ------------- ---------------
Total $362,756 $240,481 $497,216 $108,331 $1,208,784
-------------- -------------- -------------- ------------- ---------------
-------------- -------------- -------------- ------------- ---------------
Rate sensitive liabilities:
Money market savings:
Fixed Rate $501,128 $501,128
Average interest rate 2.64% 2.64%
Money market checking:
Fixed Rate 99,304 99,304
Average interest rate 4.24% 4.24%
NOW accounts:
Fixed Rate 34,712 34,712
Average interest rate 1.13% 1.13%
Time deposits:
Less than $100,000:
Fixed Rate 71,058 $122,895 $109,387 $21,565 324,905
Average interest rate 5.18% 5.14% 6.13% 5.21% 5.55%
Variable Rate 2,398 2,398
Average interest rate 5.66% 5.66%
$100,000 and over:
Fixed Rate 36,538 14,761 25,211 4,331 80,841
Average interest rate 4.99% 5.35% 6.26% 6.26% 5.52%
Variable Rate 200 200
Average interest rate 6.00% 6.00%
-------------- -------------- -------------- ------------- ---------------
Total $742,740 $137,656 $137,196 $25,896 $1,043,488
-------------- -------------- -------------- ------------- ---------------
-------------- -------------- -------------- ------------- ---------------
Interest sensitivity gap ($379,984) $102,825 $360,020 $82,435
Cumulative interest sensitivity gap (379,984) (277,159) 82,861 165,296 $165,296
Cumulative net interest-earning assets to
cumulative net interest-bearing liabilities 48.8% 68.5% 108.1% 115.8%
Cumulative interest sensitivity gap to
total assets (29.0%) (21.2%) 6.3% 12.6%
</TABLE>
14
<PAGE>
The above tables may 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.
In addition to the gap analysis above, the Company also measures rate
sensitivity through a net interest income analysis. The net interest income
analysis measures the change in net interest income in the event of
hypothetical changes in interest rates. This analysis assesses the risk of
changes in net interest income in the event of a sudden and sustained 1.0% to
2.0% increase or decrease in market interest rates. Listed below are the
Company's projected changes in net interest income over a twelve month
horizon for the various rate shock levels as of March 31, 1999 and December
31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Net Interest Income
---------------------------------------------------------------------------
MARCH 31, 1999 Amount Dollar Change Percent Change
- -------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
+200 bp $42,618 ($8,433) (16.5)%
+100 bp 47,019 (4,032) (7.9)
Base 51,051
- -100 bp 54,921 3,870 7.6
- -200 bp 56,936 5,885 11.5
</TABLE>
<TABLE>
<CAPTION>
Net Interest Income
---------------------------------------------------------------------------
December 31, 1998 Amount Dollar Change Percent Change
- ----------------- -------------------- --------------------- --------------------
<S> <C> <C> <C>
+200 bp $41,437 ($6,730) (14.0)%
+100 bp 44,952 (3,215) (6.7)
Base 48,167
- -100 bp 51,206 3,039 6.3
- -200 bp 52,318 4,151 8.6
</TABLE>
15
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or the
Bank are a party other than ordinary routine litigation incidental to their
respective businesses.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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, 1999.
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 13, 1999
/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
<TABLE>
<CAPTION>
Sequential
Page No.
----------
<S> <C>
27. Financial Data Schedule 19
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 34,187
<SECURITIES> 404,442
<RECEIVABLES> 799,603
<ALLOWANCES> 10,430
<INVENTORY> 0
<CURRENT-ASSETS> 571,961
<PP&E> 33,738
<DEPRECIATION> 903
<TOTAL-ASSETS> 1,307,503
<CURRENT-LIABILITIES> 1,038,930
<BONDS> 0
0
0
<COMMON> 3,457
<OTHER-SE> 134,724
<TOTAL-LIABILITY-AND-EQUITY> 1,307,503
<SALES> 0
<TOTAL-REVENUES> 27,976
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,091
<LOSS-PROVISION> 548
<INTEREST-EXPENSE> 9,136
<INCOME-PRETAX> 10,201
<INCOME-TAX> 3,282
<INCOME-CONTINUING> 6,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,919
<EPS-PRIMARY> 16.00
<EPS-DILUTED> 16.00
</TABLE>
