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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For transition period from __________ to __________
Commission File Number 0 - 17609
WEST SUBURBAN BANCORP, INC.
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(Exact name of Registrant as specified in its charter)
ILLINOIS 36-3452469
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
711 SOUTH MEYERS ROAD, LOMBARD, ILLINOIS 60148
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 629-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this form 10-K |X|
-
The index to exhibits is located on page 28 of 86 total sequentially
numbered pages.
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The aggregate market value of voting common stock of Registrant held by
non-affiliates as of December 31, 1998 was $136,479,816 (1). At December 31,
1998, the total number of shares of Common Stock outstanding was 432,495.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1998 are incorporated by reference into Parts I, II and IV hereof,
to the extent indicated herein. Portions of the Proxy Statement for the Annual
Meeting of Shareholders to be held May 12, 1999 are incorporated by reference in
Part III hereof, to the extent indicated herein.
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(1) Based on the last reported price of an actual transaction in
Registrant's common stock on February 2, 1999, and reports of
beneficial ownership filed by directors and executive officers of
Registrant and by beneficial owners of more than 5% of the outstanding
shares of common stock of Registrant; however, such determination of
shares owned by affiliates does not constitute an admission of
affiliate status or beneficial interest in shares of common stock of
Registrant.
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WEST SUBURBAN BANCORP, INC.
1998 Form 10-K Annual Report
Table of Contents
PART I
Sequential
Page Number
Item 1. Business............................................................. 4
Item 2. Properties...........................................................19
Item 3. Legal Proceedings....................................................21
Item 4. Submission of Matters to a Vote of Security Holders..................21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................22
Item 6. Selected Financial Data..............................................22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........23
Item 8. Financial Statements and Supplementary Data..........................23
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Matters .................................................23
PART III
Item 10. Directors and Executive Officers of the Registrant...................24
Item 11. Executive Compensation...............................................24
Item 12. Security Ownership of Certain Beneficial Owners and Management.......24
Item 13. Certain Relationships and Related Transactions.......................24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......25
Form 10-K Signature Page......................................................27
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This report may contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company (as defined below)
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Reform Act of 1995, and is including this statement for purposes of indicating
such intent. Forward-looking statements which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of West Suburban and the Bank (as defined below)
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 investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the Securities and
Exchange Commission.
PART I
ITEM 1. BUSINESS
REGISTRANT AND ITS SUBSIDIARY
West Suburban Bancorp, Inc., an Illinois corporation ("West Suburban"), is a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA") and the parent company of West Suburban Bank, Lombard,
Illinois. West Suburban Bank may be referred to as the "Bank" and, collectively,
with West Suburban, may be referred to as the "Company."
West Suburban was incorporated in 1986 and became the parent bank holding
company of the Bank in 1988. On July 13, 1990, West Suburban acquired a
federally-chartered thrift, thereby becoming a thrift holding company until that
entity was merged into the Bank in 1997.
The Bank is headquartered in the western suburbs of Chicago among some of the
faster growing areas in Illinois. Due to the nature of the market areas served
by the Bank, the Bank provides a wide range of financial services to individuals
and small to medium size businesses. The western suburbs of Chicago have a
diversified economy, with many corporate headquarters and numerous small to
medium size industrial and non-industrial businesses.
The Bank engages in a general full service retail banking business and offers a
broad variety of consumer and commercial products and services. The Bank also
offers insurance services through West Suburban Insurance Services, Inc., travel
agency services through Travel With West Suburban, land trust services, safe
deposit boxes and extended banking hours, including Sunday hours and 24-hour
banking through either a proprietary network of 36 automated teller machines
("ATMs") or Tele-Bank 24, a bank-by-phone system. Other consumer related
services are available, including investment products and a competitively priced
VISA card through West Suburban Bank Card Services. The Bank also offers its
customers a debit card called the West Suburban Bank Check Card.
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The following table sets forth financial and other information concerning the
Bank as of and for the year ended December 31, 1998:
WEST SUBURBAN BANK
(Dollars in thousands)
<TABLE>
<CAPTION>
Share- Return on Average
Year Formed/Year Number of Total holder's Net ----------------------------
Affiliated With the Parent Locations Assets Equity Income Assets Equity
- ---------------------------- --------------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
West Suburban Bank 32 $1,307,811 $117,607 $16,217 1.3% 14.0%
(1962/1988)
</TABLE>
COMPETITION
The Company encounters competition in all areas of its business pursuits. It
competes for loans, deposits, fiduciary and other services with financial and
other institutions located both within and outside of its market area. In order
to compete effectively, to develop its market base, to maintain flexibility and
to move in pace with changing economic and social conditions, the Company
continuously refines and develops its products and services. The principal
methods of competition in the financial services industry are price, service and
convenience.
EMPLOYEES
The Company employed 643 persons (506 full time equivalent employees) on
December 31, 1998. The Company believes that its relationship with its employees
is good.
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SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance of
the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Board of Governors of the Federal Reserve
System (the "Federal Reserve"), the Federal Deposit Insurance Corporation (the
"FDIC"), the Illinois Commissioner of Banks and Real Estate (the
"Commissioner"), the Internal Revenue Service, state taxing authorities and the
Securities and Exchange Commission (the "SEC"). The effect of applicable
statutes, regulations and regulatory policies can be significant, and cannot be
predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and its subsidiaries
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of financial institutions.
The following is a summary of the material elements of the regulatory framework
that applies to the Company and its subsidiaries. It does not describe all of
the statutes, regulations and regulatory policies that apply to the Company and
its subsidiaries, nor does it restate all of the requirements of the statutes,
regulations and regulatory policies that are described. As such, the following
is qualified in its entirety by reference to the applicable statutes,
regulations and regulatory policies. Any change in applicable law, regulations
or regulatory policies may have a material effect on the business of the Company
and its subsidiaries.
Recent Regulatory Developments
PENDING LEGISLATION. Legislation has been introduced in the Congress that would
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. The expanded powers generally would be available to a bank holding
company only if the bank holding company and its bank subsidiaries remain
well-capitalized and well-managed. At this time, the Company is unable to
predict whether the proposed legislation will be enacted and, therefore, is
unable to predict the impact such legislation may have on the Company and its
subsidiaries.
The Company
GENERAL. West Suburban, as the sole shareholder of the Bank, is a bank
holding company. As a bank holding company, West Suburban is registered with,
and is subject to regulation by, the Federal Reserve under the BHCA. In
accordance with Federal Reserve policy, West Suburban is expected to act as a
source of financial strength to the Bank and to commit resources to support
the Bank in circumstances where West Suburban might not otherwise do so.
Under the BHCA, West Suburban is subject to periodic examination by the
Federal Reserve. West Suburban is also required to file with the Federal
Reserve periodic reports of West Suburban's operations and such additional
information regarding West Suburban and its subsidiaries as the Federal
Reserve may require. West Suburban is also subject to regulation by the
Commissioner under the Illinois Bank Holding Company Act, as amended.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must obtain
Federal Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after the acquisition, it would own or control more than 5%
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of the shares of the other bank or bank holding company (unless it already owns
or controls the majority of such shares); (ii) acquiring all or substantially
all of the assets of another bank; or (iii) merging or consolidating with
another bank holding company. Subject to certain conditions (including certain
deposit concentration limits established by the BHCA), the Federal Reserve may
allow a bank holding company to acquire banks located in any state within the
United States without regard to whether the acquisition is prohibited by the law
of the state in which the target bank is located. In approving interstate
acquisitions, however, the Federal Reserve is required to give effect to
applicable state law limitations on the aggregate amount of deposits that may be
held by the acquiring bank holding company and its insured depository
institution affiliates in the state in which the target bank is located
(provided that those limits do not discriminate against out-of-state depository
institutions or their holding companies) and state laws which require that the
target bank have been in existence for a minimum period of time (not to exceed
five years) before being acquired by an out-of-state bank holding company.
The BHCA also generally prohibits the Company from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank and from engaging in any business other than that of banking,
managing and controlling banks or furnishing services to banks and their
subsidiaries. This general prohibition is subject to a number of exceptions. The
principal exception allows bank holding companies to engage in, and to own
shares of companies engaged in, certain businesses found by the Federal Reserve
to be "so closely related to banking ... as to be a proper incident thereto."
Under current regulations of the Federal Reserve, the Company and its non-bank
subsidiaries are permitted to engage in a variety of banking-related businesses,
including the operation of a thrift, sales and consumer finance, equipment
leasing, the operation of a computer service bureau (including software
development), and mortgage banking and brokerage. The BHCA generally does not
place territorial restrictions on the domestic activities of non-bank
subsidiaries of bank holding companies.
Federal law also prohibits any person or company from acquiring "control" of a
bank or a bank holding company without prior notice to the appropriate federal
bank regulator. "Control" is defined in certain cases as the acquisition of 10%
of the outstanding shares of a bank or bank holding company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain minimum
levels of capital in accordance with Federal Reserve capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses.
The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with a minimum requirement of 4% for all
others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships).
Total capital consists primarily of Tier 1 capital plus certain other debt and
equity instruments which do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. For example,
the Federal Reserve's capital guidelines contemplate that additional capital may
be required to take adequate account of, among other things, interest rate risk,
or the risks posed by concentrations of credit, nontraditional activities or
securities trading activities. Further, any banking organization experiencing or
anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions (I.E., Tier 1 capital less all intangible
assets), well above the minimum levels.
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As of December 31, 1998, the Company had regulatory capital in excess of the
Federal Reserve's minimum requirements, with a risk-based capital ratio of 13.5%
and a leverage ratio of 10.4%.
DIVIDENDS. The Illinois Business Corporation Act, as amended, prohibits West
Suburban from paying a dividend if, after giving effect to the dividend: (i) the
Company would be insolvent; or (ii) the net assets of the Company would be less
than zero; or (iii) the net assets of the Company would be less than the maximum
amount then payable to shareholders of the Company who would have preferential
distribution rights if the Company were liquidated. Additionally, the Federal
Reserve has issued a policy statement with regard to the payment of cash
dividends by bank holding companies. The policy statement provides that a bank
holding company should not pay cash dividends which exceed its net income or
which can only be funded in ways that weaken the bank holding company's
financial health, such as by borrowing. The Federal Reserve also possesses
enforcement powers over bank holding companies and their non-bank subsidiaries
to prevent or remedy actions that represent unsafe or unsound practices or
violations of applicable statutes and regulations. Among these powers is the
ability to proscribe the payment of dividends by banks and bank holding
companies.
FEDERAL SECURITIES REGULATION. West Suburban's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the
Company is subject to the information, proxy solicitation, insider trading
and other restrictions and requirements of the SEC under the Exchange Act.
The Bank
GENERAL. The Bank is an Illinois-chartered bank, the deposit accounts of which
are insured by the FDIC's Bank Insurance Fund ("BIF"). As a BIF-insured,
Illinois-chartered bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the Commissioner, as the chartering
authority for Illinois banks, and the FDIC, as administrator of the BIF.
DEPOSIT INSURANCE. As a FDIC-insured institution, the Bank is required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
During the year ended December 31, 1998, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 1999, BIF assessment rates will continue to range from 0% of deposits
to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution (i)
has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe
or unsound condition to continue operations or (iii) has violated any applicable
law, regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of the Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by members of the FDIC's Savings Association Insurance Fund ("SAIF") has
been used to cover interest payments due on the outstanding obligations of the
Financing Corporation ("FICO"). FICO was created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's
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predecessor insurance fund. As a result of federal legislation enacted in 1996,
beginning as of January 1, 1997, both SAIF members and BIF members became
subject to assessments to cover the interest payments on outstanding FICO
obligations. These FICO assessments are in addition to amounts assessed by the
FDIC for deposit insurance. Until January 1, 2000, the FICO assessments made
against BIF members may not exceed 20% of the amount of the FICO assessments
made against SAIF members. Between January 1, 2000 and the final maturity of the
outstanding FICO obligations in 2019, BIF members and SAIF members will share
the cost of the interest on the FICO bonds on a PRO RATA basis. During the year
ended December 31, 1998, the FICO assessment rate for SAIF members ranged
between approximately 0.061% of deposits and approximately 0.063% of deposits,
while the FICO assessment rate for BIF members ranged between approximately
0.012% of deposits and approximately 0.013% of deposits. During the year ended
December 31, 1998, the Bank paid FICO assessments totaling $.22 million.
SUPERVISORY ASSESSMENTS. All Illinois banks are required to pay supervisory
assessments to the Commissioner to fund the operations of the Commissioner. The
amount of the assessment is calculated based on the bank's total assets,
including consolidated subsidiaries, as reported to the Commissioner. During the
year ended December 31, 1998, the Bank paid supervisory assessments to the
Commissioner totaling $.11 million.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum capital
standards for state-chartered insured banks, such as the Bank: a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total assets of
3% for the most highly-rated banks with a minimum requirement of at least 4% for
all others, and a risk-based capital requirement consisting of a minimum ratio
of total capital to total risk-weighted assets of 8%, at least one-half of which
must be Tier 1 capital. For purposes of these capital standards, Tier 1 capital
and total capital consist of substantially the same components as Tier 1 capital
and total capital under the Federal Reserve's capital guidelines for bank
holding companies (SEE "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC provide that additional capital may be required to take adequate account
of, among other things, interest rate risk or the risks posed by concentrations
of credit, nontraditional activities or securities trading activities.
During the year ended December 31, 1998, the Bank was not required by the FDIC
to increase its capital to an amount in excess of the minimum regulatory
requirement. As of December 31, 1998, the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio of 9.2% and a risk-based capital
ratio of 12.2%.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: requiring the institution to submit a capital restoration plan;
limiting the institution's asset growth and restricting its activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions between the
institution and its 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. As of December 31, 1998, the Bank was "well capitalized," as
defined by FDIC regulations.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks may not pay,
without prior regulatory approval, dividends in excess of their net profits.
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The payment of dividends by any financial institution or its holding company
is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, the Bank exceeded its minimum capital requirements under applicable
guidelines as of December 31, 1998. As of December 31, 1998, approximately
$22.9 million was available to be paid as dividends to West Suburban by the
Bank. Notwithstanding the availability of funds for dividends, however, the
FDIC may prohibit the payment of any dividends by the Bank if the FDIC
determines such payment would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed by
federal law on extensions of credit to the Company and its subsidiaries, on
investments in the stock or other securities of the Company and its
subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In
addition, federal law and regulations may affect the terms upon which any
person becoming a director or officer of West Suburban or one of its
subsidiaries or a principal stockholder of West Suburban may obtain credit
from banks with which the Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In addition, in October 1998, the federal banking regulators issued
safety and soundness standards for achieving Year 2000 compliance, including
standards for developing and managing Year 2000 project plans, testing
remediation efforts and planning for contingencies.
In general, the safety and soundness guidelines prescribe the goals to be
achieved in each area, and each institution is responsible for establishing its
own procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. 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.
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. Noncompliance with the standards established by the safety and
soundness guidelines may also constitute grounds for other enforcement action by
the federal banking regulators, including cease and desist orders and civil
money penalty assessments.
BRANCHING AUTHORITY. Illinois banks, such as the Bank, have the authority under
Illinois law to establish branches anywhere in the State of Illinois, subject to
receipt of all required regulatory approvals.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act"), both state and national banks are allowed to establish
interstate branch networks through acquisitions of other banks, subject to
certain conditions, including certain limitations on the aggregate amount of
deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of new interstate branches
or the acquisition of individual branches of a bank in another state (rather
than the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The legislation
allowed individual states to "opt-out" of certain provisions of the Riegle-Neal
Act by enacting appropriate legislation prior to June 1, 1997. Illinois has
enacted legislation permitting interstate mergers, subject to certain
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conditions, including a prohibition against interstate mergers involving an
Illinois bank that has been in existence and continuous operation for fewer than
five years.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. These restrictions have not had, and are not
currently expected to have, a material impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. Federal Reserve regulations, as presently in effect,
require depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $46.5 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $46.5 million, the reserve
requirement is $1.395 million plus 10% of the aggregate amount of total
transaction accounts in excess of $46.5 million. The first $4.9 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve.
The Bank is in compliance with the foregoing requirements.
INSURANCE SUBSIDIARY. The Bank is the sole shareholder of West Suburban
Insurance Services, Inc. ("WSIS"), an Illinois corporation licensed as a general
insurance agency by the Illinois Department of Insurance (the "Department").
WSIS is subject to supervision and regulation by the Department with regard to
compliance with the laws and regulations governing insurance agents and by the
Commissioner and the FDIC with regard to compliance with banking laws and
regulations applicable to subsidiaries of Illinois-chartered, FDIC-insured
banks.
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EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the executive officers of West Suburban, along with a
brief description of the business experience of each such person, during the
past five years, and certain other information is set forth below:
<TABLE>
<CAPTION>
Name (Age) and Position
and Offices with West Suburban Principal Occupations and Employment
(year first elected to office) for Past Five Years and Other Information
- ------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Kevin J. Acker (49) Senior Vice President, Marketing of the Bank since
Chairman of the Board (1993) and Vice 1997. Director and President of West Suburban
President (1986) Bank of Carol Stream/Stratford Square 1982 -
May 1997
Keith W. Acker (49) Director and President of the Bank since 1986.
Chief Operating Officer (1996) Chairman of the Board of West Suburban Bank
1986 - May 1997
Duane G. Debs (42) Senior Vice President and Comptroller of the Bank
President (1997) and Chief Financial Officer since 1997. President of West Suburban Bank of
(1993) Downers Grove/Lombard 1996 - May 1997.
Director of West Suburban Bank of
Downers Grove/Lombard 1993 - May 1997. Vice
President and Comptroller of the Bank since 1987
Michael P. Brosnahan (49) Senior Vice President, Loans of the Bank since
Vice President (1997) 1989. Director of West Suburban Bank of Aurora
1990 - May 1997
</TABLE>
12
<PAGE>
STATISTICAL DATA
The statistical data required by Securities and Exchange Act of 1934, as amended
(the "1934 Act") Industry Guide 3, "Statistical Disclosure By Bank Holding
Companies," has been incorporated by reference from the Company's 1998 Annual
Report to Shareholders (attached as Exhibit 13.1 hereto) or is set forth below.
This data should be read in conjunction with the Company's 1998 Consolidated
Financial Statements and related notes, and the discussion included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations as set forth in the Company's 1998 Annual Report to Shareholders.
Investment Securities
The following table sets forth by category the amortized cost of securities at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Available For Sale:
Corporate $144,301 $170,335 $64,634
U.S. Government agencies and corporations 46,327 26,550 63,591
U. S. Treasury 505 12,084 16,151
States and political subdivisions 1,188 1,178 1,168
Preferred stock and other equity securities 12,626 8,745 14,070
------------ ------------ -------------
Total investment securities available for sale 204,947 218,892 159,614
------------ ------------ -------------
Held To Maturity:
U.S. Government agencies and corporations 136,467 162,176 130,250
States and political subdivisions 35,212 37,116 39,941
------------ ------------ -------------
Total investment securities held to maturity 171,679 199,292 170,191
------------ ------------ -------------
Total investment securities $376,626 $418,184 $329,805
============ ============ =============
</TABLE>
The following table sets forth by contractual maturity the amortized cost and
weighted average yield (not tax-effected) of investment securities available for
sale at December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
U.S. Government
Agencies and States and Political
Corporate Corporations U.S. Treasury Subdivisions
-------------------- --------------------- --------------------- ---------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
---------- -------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year $ 46,846 6.95% $23,214 5.87%
After 1 year but within 5 97,455 7.08 23,034 5.46 $505 6.38% $988 4.30%
After 5 years but within 10 5 8.00
After 10 years 74 200 5.05
---------- --------- ---------- ---------- ---------- --------- --------- ----------
Total $144,301 7.04% $46,327 5.66% $505 6.38% $1,188 4.43%
========== ========= ========== ========== ========== ========= ========= ==========
</TABLE>
13
<PAGE>
The following table sets forth, by contractual maturity, the amortized cost and
weighted average yield of investment securities held to maturity at December 31,
1998. Yields on tax-exempt securities represent actual coupon yields (dollars in
thousands):
<TABLE>
<CAPTION>
U.S. Government
Agencies and States and Political
Corporations Subdivisions
-------------------------- ---------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Within one year $ 23,363 5.35% $ 3,809 3.80%
After 1 year but within 5 96,092 5.60 12,850 4.11
After 5 years but within 10 14,225 6.36 6,958 5.02
After 10 years 2,787 6.00 11,595 6.34
----------- ----------- ----------- -----------
Total $136,467 5.65% $35,212 4.99%
=========== =========== =========== ===========
</TABLE>
Loan Portfolio
The following table sets forth the major loan categories at December 31 (dollars
in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Commercial (1) $225,774 $233,343 $232,210 $200,986 $156,896
Installment (1) 16,468 21,015 37,511 37,986 33,542
Indirect Auto 30,412
Real estate:
Mortgage 289,934 292,675 299,664 302,062 305,010
Home equity 111,446 127,587 124,805 120,802 120,373
Construction 69,640 72,415 73,432 81,787 72,990
Held for sale 16,514 4,491 1,043 1,523 449
VISA-credit card 14,210 16,235 17,951 19,034 21,342
Other 6,748 4,549 7,229 5,407 7,048
------------- ------------- ----------- ------------ -------------
Total loans 781,146 772,310 793,845 769,587 717,650
Less:
Allowance for loan losses 9,998 9,772 9,603 8,900 8,445
------------- ------------- ----------- ------------ -------------
Loans, net $771,148 $762,538 $784,242 $760,687 $709,205
============= ============= =========== ============ =============
</TABLE>
(1) In early 1998, installment loans ($20.2 million) for commercial loan
customers were reclassified for the years 1998 and 1997 to commercial
loans. Balances prior to 1997 were not reclassified.
14
<PAGE>
The following table sets forth the maturity and interest rate sensitivity of
selected loan categories at December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Remaining Maturity
----------------------------------------------------------
One year One to Over
or less five years five years Total
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Real estate-construction $ 69,640 $ 69,640
Other loans 407,197 $237,481 $66,828 711,506
----------- ------------- ------------ ------------
Total $476,837 $237,481 $66,828 $781,146
=========== ============= ============ ============
Variable rate $102,182 $102,182
Fixed rate 135,299 $66,828 202,127
------------- ------------ ------------
Total $237,481 $66,828 $304,309
============= ============ ============
</TABLE>
Nonperforming Loans
The following table sets forth the aggregate amount of nonperforming loans and
selected ratios at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $14,979 $ 3,042 $2,283 $ 1,478 $ 279
Accruing loans past due over 90 days 3,621 4,829 3,813 11,405 4,448
----------- ----------- ----------- ------------ ------------
Total nonperforming loans 18,600 7,871 6,096 12,883 4,727
Other real estate 1,742 2,450 2,757 8,317 10,458
----------- ----------- ----------- ------------ ------------
Total nonperforming assets $20,342 $10,321 $8,853 $21,200 $15,185
=========== =========== =========== ============ ============
Ratio of nonperforming loans to
net loans 2.4% 1.0% .8% 1.7% .7%
=========== =========== =========== ============ ============
Ratio of nonperforming assets to
total assets 1.6% .8% .7% 1.8% 1.5%
=========== =========== =========== ============ ============
</TABLE>
The Company's policy is to discontinue accruing interest on a loan when it
becomes 90 days past due or when management believes, after considering economic
and business conditions and collection efforts, that the borrower's financial
condition is such that collection of principal or interest is doubtful. In some
circumstances a loan that is more than 90 days past due can remain on accrual
status if it can be established that payment will be received within another 90
days or if it is fully secured and in process of collection. When a loan has
been placed on nonaccrual status, interest that has been earned but not
collected is charged back to the appropriate interest income account. When
payments are received on nonaccrual loans they are first applied to principal,
then to expenses incurred for collection and finally to interest income. The
gross amount of interest that would have been recorded if all nonaccruing loans
had been accruing interest at their original terms was approximately $615 for
the year ended December 31, 1998 and no interest on nonaccruing loans was
recorded in operations for the year ended December 31, 1998.
As of December 31, 1998, the Company had $9.4 million in credit exposure to a
leasing company consisting of a warehouse line of credit with a principal
balance of $7.3 million and $2.1 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 of 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 has arranged for the continued servicing of the
leases. The Company is evaluating the
15
<PAGE>
continued retention or sale of these leases as well as the purchased leases. The
Company is also conducting negotiations with the guarantors of the leasing
company's obligations and exploring other possible ways to maximize
realizations.
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 investment 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 Company's impaired loans consisted of commercial and non-residential
mortgage loans totaling $32,161 at December 31, 1998 and $17,156 at December 31,
1997. Of these impaired loans, $485 required a valuation allowance of $36 at
December 31, 1998 compared to impaired loans of $2,496 with a valuation
allowance of $676 at December 31, 1997. The average outstanding balance of
impaired loans was approximately $35,856 and $15,718 for the years ended
December 31, 1998 and 1997, respectively. The interest income recognized on
impaired loans was approximately $2,391 and $1,324 for the years ended December
31, 1998 and 1997, respectively. The Company had no impaired real estate
construction loans during 1998 or 1997.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluations of
the collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay.
The Company reviews its commercial and real estate construction and
non-residential mortgage loans on a quarterly basis to determine the amount of
impairment, if any. Impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of the loan's collateral, if
repayment of the loan is collateral dependent. A valuation allowance is
maintained for the amount of impairment. Generally, loans 90 or more days past
due and all loans on a nonaccrual basis are considered impaired. Interest income
on impaired loans is recognized in a manner consistent with the Company's
interest policy. Based on such reviews, management at this time does not
anticipate any increase in nonperforming assets that will have a significant
affect on its operations because the estimated exposure to losses has already
been substantially reflected in its allowance for loan losses. This could,
however, change dramatically if a significant decline in the real estate market
area served by the Company occurs.
16
<PAGE>
The following table sets forth the activity in the allowance for loan losses for
the years ended and at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of
period $9,772 $9,603 $8,900 $8,445 $7,125
Loans charged-off:
Commercial 1,868 956 484 914 302
Installment 77 213 87 47 162
Real estate mortgages 237 58 4 311 463
Home equity 37 31 46 7
VISA - credit card 483 452 495 404 356
Other 30 22 27 7 2
------------ ----------- ------------ ------------- ------------
Total loans charged-off 2,732 1,732 1,097 1,729 1,292
Loan recoveries:
Commercial 124 48 112 100 66
Installment 58 65 31 56 98
Real estate mortgages 91 6 6 8 5
Home equity 1
VISA - credit card 114 153 142 169 227
Other 8 6 3 1
------------ ----------- ------------ ------------- ------------
Total loan recoveries 395 278 295 334 396
------------ ----------- ------------ ------------- ------------
Net loans charged-off 2,337 1,454 802 1,395 896
Provision for loan losses 2,563 1,623 1,505 1,850 2,216
------------ ----------- ------------ ------------- ------------
Allowance for loan losses at end of period $9,998 $9,772 $9,603 $8,900 $8,445
============ =========== ============ ============= ============
Allowance for loan losses to total loans 1.28% 1.27% 1.21% 1.16% 1.18%
============ =========== ============ ============= ============
Net chargeoffs to average total loans .31% .19% .10% .19% .13%
============ =========== ============ ============= ============
</TABLE>
The entire allowance for loan losses is available to absorb losses in any
particular category of loans, notwithstanding management's allocation of the
allowance. The following table sets forth the allocation of allowance for loan
losses and the percentage of loans in each category to total loans at December
31 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------ ----------------- ----------------- ------------------ ------------------
Amount % Amount % Amount % Amount % Amount %
-------- -------- -------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $5,418 37.8% $4,000 39.6% $4,299 38.5% $4,403 36.7% $3,714 32.0%
Installment and other 170 3.0 331 3.3 392 5.6 385 5.6 331 5.7
Indirect auto 152 3.9
Real estate 2,141 39.2 1,993 38.5 1,895 37.9 1,877 39.4 576 42.5
Home equity 557 14.3 638 16.5 312 15.7 302 15.7 301 16.8
VISA - credit card 333 1.8 440 2.1 493 2.3 523 2.6 664 3.0
Unallocated 1,227 2,370 2,212 1,410 2,859
-------- -------- -------- ------- ------- ------- -------- -------- -------- --------
Total $9,998 100.0% $9,772 100.0% $9,603 100.0% $8,900 100.0% $8,445 100.0%
======== ======== ======== ======= ======= ======= ======== ======== ======== ========
</TABLE>
17
<PAGE>
Deposits
The following table sets forth by category average daily deposits and rates for
the years ended December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand and other noninterest-bearing $ 107,984 $ 110,248 $ 103,448
NOW accounts 221,167 1.9% 180,863 1.4% 177,019 1.6%
Money market checking 29,049 4.5 235 4.7
Money market savings 330,251 3.3 342,518 3.5 347,650 3.5
Time deposits:
Less than $100,000 360,241 5.7 421,156 5.9 334,177 5.7
$100,000 and over 83,815 5.7 87,996 5.8 63,079 5.8
------------- -------- ------------- -------- ------------- --------
Total $1,132,507 3.7% $1,143,016 3.9% $1,025,373 3.7%
============= ======== ============= ======== ============= ========
</TABLE>
The following table sets forth by maturity time deposits $100 and over at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Within 3 months $36,538
After 3 months but within 12 months 14,761
After 1 year but within 5 years 25,411
After 5 years 4,331
-------------
Total $81,041
=============
</TABLE>
Return on Equity and Assets and Other Financial Ratios
The following table sets forth selected financial ratios at and for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Return on average total assets 1.26% 1.71% 1.38%
Return on average shareholders' equity 11.77 17.48 13.93
Cash dividends paid to net income 60.15 34.74 42.73
Average shareholders' equity to average total assets 10.73 9.78 9.90
</TABLE>
18
<PAGE>
ITEM 2. PROPERTIES
West Suburban and the Bank occupy a total of approximately 225,000 square feet
in 32 locations. West Suburban's principal offices are located in approximately
32,500 square feet of office space at 711 South Meyers Road, Lombard, Illinois.
As indicated below, the Bank also operates the facility located at 711 South
Meyers Road, Lombard, Illinois as a branch.
The following table sets forth certain information concerning the facilities of
the Bank:
<TABLE>
<CAPTION>
Location of Facilities Approximate Square Feet Status
- ----------------------- --------------------------- --------------------
<S> <C> <C>
711 South Meyers Road 32,500 Owned
Lombard, Illinois
701 South Meyers Road 5,200 Owned
Lombard, Illinois
717 South Meyers Road 7,100 Owned
Lombard, Illinois
100 South Main Street 650 Owned
Lombard, Illinois
Mr. Z's 100 Lease expires 2003
401 South Main Street
Lombard, Illinois
707 North Main Street 4,100 Owned
Lombard, Illinois
29 East St. Charles Road 3,200 Lease expires 2000
Villa Park, Illinois
17W754 22nd Street 6,100 Owned
Oakbrook Terrace, Illinois
Lexington Square 100 Lease expires 1999
400 West Butterfield Road
Elmhurst, Illinois
2020 Feldott Lane 4,430 Owned
Naperville, Illinois
879 Geneva Road 3,550 Lease expires 2003
Carol Stream, Illinois
6400 South Cass Avenue 3,090 Lease expires 2000
Westmont, Illinois
221 South West Street 800 Owned
Wheaton, Illinois
1104 West Boughton Road 4,500 Owned
Bolingbrook, Illinois
295 West Loop Road 4,500 Owned
Wheaton, Illinois
2800 South Finley Road 10,700 Owned
Downers Grove, Illinois
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Location of Facilities Approximate Square Feet Status
- ----------------------- --------------------------- --------------------
<C> <C> <C>
3S041 Route 59 3,675 Owned
Warrenville, Illinois
Beacon Hill 100 Leased on a month to
2400 South Finley Road month basis
Lombard, Illinois
Lexington Square 100 Lease expires 1999
555 Foxworth Boulevard
Lombard, Illinois
1122 South Main Street 6,400 Owned
Lombard, Illinois
8001 South Cass Avevue 17,800 Owned
Darien, Illinois
1005 75th Street 800 Owned
Darien, Illinois
672 East Boughton Road 7,100 Owned
Bolingbrook, Illinois
355 West Army Trail Road 10,700 Owned
Bloomingdale, Illinois
401 North Gary Avenue 6,400 Owned
Carol Stream, Illinois
1380 Army Trail Road 2,300 Lease expires 2000
Carol Stream, Illinois
1657 Bloomingdale Road 4,100 Owned
Glendale Heights, Illinois
1061 West Stearns Road 3,400 Owned
Bartlett, Illinois
315 South Randall Road 1,400 Owned
St. Charles, Illinois
101 North Lake Street 19,000 Owned
Aurora, Illinois
2000 West Galena 48,000 Owned
Boulevard
Aurora, Illinois
1830 Douglas Road 2,500 Owned
Montgomery, Illinois
</TABLE>
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which West Suburban or the
Bank is a party other than ordinary routine litigation incidental to their
respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
West Suburban's authorized and outstanding equity securities consist of
Common Stock, no par value. West Suburban previously had two classes of
common stock issued and outstanding. At the Annual Meeting of Shareholders of
West Suburban held on May 13, 1998, the shareholders approved an amendment to
West Suburban's Articles of Incorporation the effect of which was to
redesignate each share of Class A Common Stock and each share of Class B
Common Stock as Common Stock. Additionally the number of votes per share of
Common Stock was reduced from five votes per share to one vote per share on
all matters submitted to the shareholders of West Suburban.
West Suburban's per share book value as of the end of each quarter and dividend
information for each quarter is set forth in the following table:
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
YEAR QUARTER BOOK VALUE DIVIDENDS DECLARED
---- ------- ---------- ------------------
<S> <C> <C> <C>
1998 4th $310.74 $16.50
3rd 317.87 6.50
2nd 317.43 6.00
1st 311.72 5.00
1997 4th $306.02 $5.00
3rd 299.48 4.50
2nd 290.87 4.50
1st 282.10 4.50
</TABLE>
The dividend declared in the 4th quarter of 1998 included a one time $10.00 per
share special dividend payable on January 4, 1999 to shareholders of record as
of December 15, 1998.
West Suburban's common stock is not traded on any national or regional exchange.
While there is no established trading market for West Suburban's common stock,
West Suburban is aware that from time to time limited or infrequent quotations
are made with respect to West Suburban's common stock and that there occurs
limited trading in West Suburban's common stock resulting from private
transactions not involving brokers or dealers. Transactions in West Suburban's
common stock have been infrequent. As of March 15, 1999, West Suburban had
432,495 shares of Common Stock outstanding held by approximately 970
shareholders of record. Management is aware of approximately 29 transactions
during 1998 involving the sale of approximately 3,527 shares of Common Stock.
The average sale price in such transactions was approximately $442.69 per share.
ITEM 6. SELECTED FINANCIAL DATA
West Suburban hereby incorporates by reference the information called for by
Item 6 of this Form 10-K from the section entitled "Selected Financial Data" of
West Suburban's Annual Report to Shareholders for the fiscal year ended December
31, 1998 (attached as Exhibit 13.1 hereto).
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
West Suburban hereby incorporates by reference the information called for by
Item 7 of this Form 10-K from the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of West Suburban's
Annual Report to Shareholders for the fiscal year ended December 31, 1998
(attached as Exhibit 13.1 hereto).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
West Suburban hereby incorporates by reference the information called for by
Item 7A of this Form 10-K from the Interest Rate Sensitivity section included
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of West Suburban's Annual Report to Shareholders for the fiscal year
ended December 31, 1998 (attached as Exhibit 13.1 hereto).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
West Suburban hereby incorporates by reference the information called for by
Item 8 of this Form 10-K from the Consolidated Financial Statements and from the
section entitled "Selected Quarterly Financial Data" as set forth in West
Suburban's Annual Report to Shareholders for the fiscal year ended December 31,
1998 (attached as Exhibit 13.1 hereto).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
West Suburban hereby incorporates by reference the information called for by
Item 10 of this Form 10-K regarding directors of West Suburban from the section
entitled "Election of Directors" of West Suburban's 1999 Proxy Statement.
Section 16(a) of the 1934 Act requires that the Company's executive officers and
directors and persons who own more than 10% of the Company's Common Stock file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and with the exchange on which West Suburban's shares of common stock
are traded. Such persons are also required to furnish the Company with copies of
all Section 16(a) forms they file. Based solely on the Company's review of the
copies of such forms furnished to the Company and, if appropriate,
representations made to the Company by any such reporting person concerning
whether a Form 5 was required to be filed for the 1998 fiscal year, the Company
is not aware that any of its directors and executive officers or 10%
shareholders failed to comply with the filing requirements of Section 16(a)
during the period commencing January 1, 1998 through December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
West Suburban hereby incorporates by reference the information called for by
Item 11 of this Form 10-K from the section entitled "Executive Compensation" of
West Suburban's 1999 Proxy Statement; provided, however, Report of the Board of
Directors on Executive Compensation is specifically not incorporated into this
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
West Suburban hereby incorporates by reference the information called for by
Item 12 of this Form 10-K from the section entitled "Security Ownership of
Certain Beneficial Owners" of West Suburban's 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
West Suburban hereby incorporates by reference the information called for by
Item 13 of this Form 10-K from the section entitled "Transactions with
Directors, Officers and Associates" of West Suburban's 1999 Proxy Statement.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM (A)1 AND 2. FINANCIAL STATEMENTS
WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following audited Consolidated Financial Statements of West Suburban and its
subsidiaries and related notes and independent auditors' report are incorporated
by reference from West Suburban's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 (attached as Exhibit 13.1 hereto).
Annual Report
Page No.
-------------
Report of Independent Auditors 5
Consolidated Balance Sheets - December 31, 1998 and 1997 6
Consolidated Statements of Income and Comprehensive Income -
Years Ended December 31, 1998, 1997 and 1996 7
Consolidated Statements of Changes in Shareholders'
Equity - Years Ended December 31, 1998, 1997 and 1996 8
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997 and 1996 9
Notes to Consolidated Financial Statements 10
The following Condensed Financial Information-Parent Only is incorporated by
reference from Note 15 to West Suburban's audited Consolidated Financial
Statements as set forth in West Suburban's Annual Report to Shareholders for the
fiscal year ended December 31, 1998 (attached as Exhibit 13.1).
Annual Report
Page No.
-------------
Condensed Balance Sheets - December 31, 1998 and 1997 20
Condensed Statements of Income - Years Ended
December 31, 1998, 1997 and 1996 20
Condensed Statements of Cash Flows - Years Ended
December 31, 1998, 1997 and 1996 21
SCHEDULES
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable or the required information is shown in the
financial statements incorporated by reference or notes thereto.
25
<PAGE>
ITEM 14(A)3. EXHIBITS
The exhibits required by Item 601 of Regulation S-K are included with this Form
10-K and are listed on the "Index to Exhibits" immediately following the
signature page.
ITEM 14(B). REPORTS ON FORM 8-K
None
***
Upon written request to the President and Chief Financial Officer of West
Suburban Bancorp, Inc., 2800 South Finley Road, Downers Grove, Illinois, 60515,
copies of the exhibits listed above are available to shareholders of West
Suburban by specifically identifying each exhibit desired in the request. A fee
of $.20 per page of exhibit will be charged to shareholders requesting copies of
exhibits to cover copying and mailing costs.
26
<PAGE>
FORM 10-K SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WEST SUBURBAN BANCORP, INC.
(Registrant)
By /s/ DUANE G. DEBS
-------------------------------------
Duane G. Debs
President and Chief Financial Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 29th day of March, 1999.
SIGNATURE TITLE
--------- -----
/s/ KEVIN J. ACKER 3/29/99 Chairman of the Board and
- ---------------------- --------- Director
Kevin J. Acker Date
/s/ DUANE G. DEBS 3/29/99 President, Chief Financial
- ---------------------- --------- Officer, Chief Accounting Officer and
Duane G. Debs Date Director
/s/ DAVID BELL 3/29/99 Director
- ---------------------- ---------
David Bell Date
/s/ PEGGY P. LOCICERO 3/29/99 Director
- ---------------------- ---------
Peggy P. LoCicero Date
/s/ CHARLES P. HOWARD 3/29/99 Director
- ---------------------- ---------
Charles P. Howard Date
The foregoing includes all of the Board of Directors of West Suburban.
27
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- ----------
3.1 Articles of Incorporation - Incorporated by reference N/A
from Exhibit 3.1 of Form S-1 of West Suburban dated
November 10, 1988, under Registration No. 33-25225
3.2 Form of Certificate of Amendment to Articles of N/A
Incorporation - Incorporated by reference from Exhibit 3.2 of
Form S-1 of West Suburban dated November 10, 1988, under
Registration No. 33-25225
3.3 Certificate of Amendment to Articles of Incorporation N/A
dated May 10, 1990 - Incorporated by reference from Exhibit
3.3 of the Form 10-K of West Suburban dated March 28,
1991, Commission File No. 0-17609
3.4 Certificate of Amendment to Articles of Incorporation dated 30
June 8, 1998
3.5 By-Laws - Incorporated by reference from Exhibit 3.3 of N/A
Form S-1 of West Suburban dated November 10, 1988,
Registration No. 33-25225
4.1 Specimen of Common Stock certificate 33
4.2 Articles of Incorporation of West Suburban N/A
(see Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 above)
4.3 By-Laws of West Suburban (see Exhibit 3.5 above) N/A
10.1 Employment Agreement dated May 1, 1997 between N/A
West Suburban and Mr. Kevin J. Acker, - Incorporated by
reference from Exhibit 10.1 of Form 10-Q of West Suburban
dated August 14, 1997, Commission File No. 0-17609
10.2 Employment Agreement dated May 1, 1997 between N/A
West Suburban and Mr. Keith W. Acker, - Incorporated by
reference from Exhibit 10.2 of Form 10-Q of West Suburban
dated August 14, 1997, Commission File No. 0-17609
10.3 Employment Agreement dated May 1, 1997 between N/A
West Suburban and Mr. Duane G. Debs, - Incorporated by
reference from Exhibit 10.3 of Form 10-Q of West Suburban
dated August 14, 1997, Commission File No. 0-17609
10.4 Employment Agreement dated May 1, 1997 between N/A
West Suburban and Mr. Michael P. Brosnahan, - Incorporated
by reference from Exhibit 10.4 of Form 10-Q of West
Suburban dated August 14, 1997, Commission File No.
0-17609
28
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- ----------
10.5 Form of Amended Deferred Compensation Agreement N/A
between West Suburban and Messrs. Kevin J. Acker,
Keith Acker, Duane G. Debs and Michael P. Brosnahan -
Incorporated by reference from Exhibit 10.5 of Form
10-Q of West Suburban dated August 14, 1997,
Commission File No. 0-17609
10.6 Employment Agreement dated December 24, 1998 between 34
West Suburban and Mr. James Chippas
10.7 Form of Amendment to Employment Agreement dated 46
January 21, 1999 between West Suburban and Messrs.
Kevin J. Acker, Keith Acker, Duane G. Debs and
Michael P. Brosnahan
13.1 Annual Report to Shareholders of West Suburban 48
for fiscal year ended December 31, 1998
21.1 Subsidiaries of Registrant 85
27. Financial Data Schedule 86
29
<PAGE>
Exhibit 3.4
| |
Form BCA-10.30 |ARTICLES OF AMENDMENT | File # 5417-426-8
(Rev. Jan. 1995) | |
- -------------------------------------------------------------------------------
George H. Ryan | | SUBMIT IN DUPLICATE
Secretary of State | |------------------------
Department of Business Services| | This space for use by
| FILED | Secretary of State
- -------------------------------| |
| | Date 06-08-98
Remit payment in check or money| JUN 8, 1998 |
order, payable to "Secretary of| | Franchise Tax $
State". | GEORGE H. RYAN | Filing Fee $ 25.00
| SECRETARY OF STATE | Penalty $
*The filing fee for articles of| |
amendment - $25.00 | | Approved: MR
| |
- -------------------------------------------------------------------------------
1. CORPORATE NAME: West Suburban Bancorp, Inc.
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted
on May 13, 1998 in the manner indicated below. ("X" one box only)
/ / By a majority of the incorporators, provided no directors were named
in the articles of incorporation and no directors have been elected;
(Note 2)
/ / By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of
adoption of this amendment;
(Note 2)
/ / By a majority of the board of directors, in accordance with Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment;
(Note 3)
/X/ By the shareholders, in accordance with Section 10.20, a resolution
of the board of directors having been duly adopted and submitted to
the shareholders. At a meeting of shareholders, not less than the
minimum number of votes required by statute and by the articles of
incorporation were voted in favor of the amendment;
(Note 4)
/ / By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
the shareholders having not less than the minimum number of votes
required by statute and by the articles of incorporation. Shareholders
who have not consented in writing have been given notice in accordance
with Section 7.0;
(Notes 4&5)
/ / By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article 1: The name of the corporation is:
- -------------------------------------------------------------------------------
(NEW NAME)
EXPEDITED
All changes other than name, include on page 2 JUN 8 1998
(over) SECRETARY OF STATE
<PAGE>
Text of Amendment
b. (IF AMENDMENT AFFECTS THE CORPORATE PURPOSE, THE AMENDED PURPOSE IS
REQUIRED TO BE SET FORTH IN ITS ENTIRETY. IF THERE IS NOT SUFFICIENT
SPACE TO DO SO, ADD ONE OR MORE SHEETS OF THIS SIZE.)
RESOLVED, that Article Four of the Articles of Incorporation of the
Corporation be amended to read in its entirety as follows:
"Article Four Paragraph 1: The authorized shares shall be:
Class Par Value Per Share Number of Share Authorized
- ----- ------------------- --------------------------
Common Stock None 15 million
Article Four Paragraph 2: The preferences, qualifications, limitations,
restrictions, and the special or relative rights in respect of the shares of
each class are:
Each holder of Common Stock shall be allowed one (1) vote per share of Common
Stock on all matters acted upon by the shareholders."
FURTHER RESOLVED, that each share of Class A Common Stock and each share
of Class B Common Stock outstanding upon the filing of the Articles of
Amendment amending Article Four as described in the preceding resolution
shall be automatically deemed and designated as Common Stock having all the
rights set forth in the Articles of Incorporation. Upon the filing of this
amendment there shall be 432,495 shares of Common Stock issued and
outstanding.
Page 2
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued
shares of that class, provided for or effected by this amendment, is as
follows: (IF NOT APPLICABLE, INSERT "NO CHANGE")
See Article 3.b.
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (IF NOT APPLICABLE, INSERT "NO CHANGE")
No change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (IF NOT APPLICABLE,
INSERT "NO CHANGE")
No change
Before Amendment After Amendment
Paid-in Capital $ ______________ $ _____________
(Complete either Item 6 or 7 below. All signatures must in BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Dated June 5, 1998 West Suburban Bancorp, Inc.
---------------- -------------------------------
(Exact name of corporation at date of execution)
attested by /s/ George E. Ranstead by /s/ Duane G. Debs
------------------------------ ------------------------------
(Signature of Secretary or (Signature of President or
Assistant Secreatary) Vice President)
George E. Ranstead, Secretary Duane G. Debs, President
------------------------------ ------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors
as may be designated by the board, must sign below, and type or print
name and title.
The undersigned affirms, under the penalty of perjury, that the facts
stated herein are true.
Dated ________________, 19_____
_______________________________ _______________________________
_______________________________ _______________________________
_______________________________ _______________________________
_______________________________ _______________________________
Page 3
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
SPECIMEN STOCK CERTIFICATE OF WEST SUBURBAN BANCORP, INC.
Authorized shares 15,000,000 without par value
This Certifies that ____________________________________ is the owner of
____________________________________ full paid and non-assessable
COMMON SHARES OF WEST SUBURBAN BANCORP, INC.,
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. In Witness Whereof, the said Corporation has caused this Certificate
to be signed by its duly authorized officers and sealed with the Seal of the
Corporation,
this _________________ day of______________A.D._____
[SPECIMEN]
__________________________ _________________________
SECRETARY PRESIDENT
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, _______ hereby sell, assign and transfer unto ______________
________________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint _________________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated_______________ 19__
IN PRESENCE OF
__________________________ _________________________
-------------------------
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
-------------------------
1
<PAGE>
Exhibit 10.6
JAMES T. CHIPPAS
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), is made and entered into
as of the 24th day of December, 1998 (the "Effective Date"), by and between WEST
SUBURBAN BANCORP, INC., an Illinois corporation (the "Employer"), and JAMES T.
CHIPPAS, an Illinois resident (the "Executive").
RECITALS
A. The Executive is currently serving as a Vice President of Loans of
West Suburban Bank (the "Bank").
B. The Employer owns all of the issued and outstanding capital stock of
the Bank.
C. The Employer desires to continue to employ the Executive as an
officer of the Bank for a specified term and the Executive is willing to
continue such employment upon the terms and conditions hereinafter set forth.
D. The Employer and the Company recognize that circumstances may arise
in which a change of control of the Employer or the Bank through acquisition or
otherwise may occur thereby causing uncertainty of employment without regard to
the competence or past contributions of the Executive which uncertainty may
result in the loss of valuable services of the Executive, and the Employer, the
Bank and the Executive wish to provide reasonable security to the Executive
against changes in the employment relationship in the event of any such change
of control.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. POSITION AND DUTIES. The Employer hereby employs Executive as a Vice
President of Loans for the Bank, or in such other officer capacity as shall be
mutually agreed between the Employer and the Executive. During the period of the
Executive's employment hereunder, the Executive shall devote his best efforts
and full business time, energy, skills and attention to the business and affairs
of the Employer. The Executive's duties and authority shall consist of and
include all duties and authority customarily performed and held by persons
holding equivalent positions with business organizations similar in nature and
size to the Employer, as such duties and authority are reasonably defined,
modified and delegated from time to time by either or both of the Boards of
Directors of the Employer or the Company (the "Board"). The Executive shall have
the powers necessary to perform the duties assigned to him and shall be provided
such supporting services, staff and other assistance, office space and
1
<PAGE>
accouterments as shall be reasonably necessary and appropriate in the light of
such assigned duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation,
expense reimbursement and other benefits:
(a) BASE COMPENSATION. The Executive shall receive an aggregate
annual minimum base salary at the rate of one hundred and ten thousand dollars
($110,000) payable in installments in accordance with the regular payroll
schedule of the Employer. Such base salary shall be subject to review annually
commencing in 1999 and shall be maintained or increased during the term hereof
in accordance with the Employer's established management compensation policies
and plans.
(b) CLUB MEMBERSHIP. The Executive shall be reimbursed for the
membership cost, dues and other customary charges at the Cress Creek Country
Club. The reimbursement for the membership cost, and any tax on such amount,
will be limited to a maximum payment amount to the Executive of twenty thousand
dollars ($20,000).
(c) REIMBURSEMENT OF EXPENSES. The Executive shall be reimbursed,
upon submission of appropriate vouchers and supporting documentation, for all
pre-approved travel, entertainment and other out-of-pocket expenses reasonably
and necessarily incurred by the Executive in the performance of his duties
hereunder and shall be entitled to attend pre-approved seminars, conferences and
meetings relating to the business of the Employer consistent with the Employer's
established policies in that regard.
(d) OTHER BENEFITS. The Executive shall be entitled to all
benefits specifically established for him and, when and to the extent he is
eligible therefor, to participate in all plans and benefits generally accorded
to officers of the Employer, including, but not limited to, pension,
profit-sharing, employee stock ownership plan, supplemental retirement,
incentive compensation, bonus, disability income, split-dollar life insurance,
group life, medical and hospitalization insurance, and similar or comparable
plans, and also to perquisites extended to similarly situated officers,
PROVIDED, HOWEVER, that such plans, benefits and perquisites shall be no less
than those made available to all other employees of the Employer.
(e) WITHHOLDING. The Employer shall be entitled to withhold from
amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold. The Employer shall be entitled to rely upon the opinion of its legal
counsel with regard to any question concerning the amount or requirement of any
such withholding.
3. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
may hereafter produce and have access to material, records, data, trade secrets
and information not generally available to the public (collectively,
"Confidential Information") regarding the Employer and its subsidiaries and
2
<PAGE>
affiliates. Accordingly, during and subsequent to termination of this Agreement,
the Executive shall hold in confidence and not directly or indirectly disclose,
use, copy or make lists of any such Confidential Information, except to the
extent that such information is or thereafter becomes lawfully available from
public sources, or such disclosure is authorized in writing by the Employer,
required by a law or any competent administrative agency or judicial authority,
or otherwise as reasonably necessary or appropriate in connection with
performance by the Executive of his duties hereunder. All records, files,
documents and other materials or copies thereof relating to the Employer's
business which the Executive shall prepare or use, shall be and remain the sole
property of the Employer, shall not be removed from the Employer's premises
without its written consent, and shall be promptly returned to the Employer upon
termination of the Executive's employment hereunder. The Executive agrees to
abide by the Employer's reasonable policies, as in effect from time to time,
respecting avoidance of interests conflicting with those of the Employer. In the
event of any violation or threatened violation of these restrictions, the
Employer, in addition to and not in limitation of being relieved of all further
obligations under this Agreement and of any other rights, remedies or damages
available to the Employer under this Agreement or otherwise at law or in equity,
shall be entitled to preliminary and permanent injunctive relief to prevent or
restrain any such violation by the Executive and any and all persons directly or
indirectly acting for or with him, as the case may be.
4. TERM AND TERMINATION.
(a) BASIC TERM. The term of this Agreement shall begin on the
Effective Date and end on December 31, 2001, and shall be extended for one (1)
additional year on each December 31 ("Anniversary Date") unless terminated by
either party effective as of the last day of the then current term by written
notice to that effect delivered to the other party not less than sixty (60) days
prior to an Anniversary Date.
(b) AGREEMENT NON-EXTENSION OR EMPLOYMENT TERMINATION BY
EMPLOYER.
(i) In the event of the termination of the Executive's
employment under this Agreement by the Employer prior to the last day of
the then current term for any reason other than a termination in
accordance with the provisions of paragraph (d) of this Section 4, or
the non-extension of this Agreement by the Employer in accordance with
the provisions of paragraph (a) of this Section 4, the Employer shall
continue to pay the Executive the base salary then payable to the
Executive and shall continue to provide coverage for the Executive under
all plans and benefits otherwise provided to officers of the Employer,
unless unable to continue such coverage by law, for the remainder of the
term of this Agreement, provided, however, that in the circumstance
where this Agreement is not extended, the Executive must remain employed
with the Employer to receive such payments and benefits; further
provided, that the continued payment of these amounts by the Employer
shall not offset or diminish any compensation or benefits accrued as of
the date of termination or non-extension.
(ii) In the event this Agreement is not extended in
accordance with the provisions of paragraph (a) of this Section 4, the
Executive may elect to terminate his
3
<PAGE>
employment, and upon such election, the Employer shall pay the Executive
a lump sum amount equal to six (6) times the monthly base salary then
payable to the Executive, which payment shall be his sole benefit under
this Section 4. The election by the Executive must be delivered in
writing to the Employer within sixty (60) days of the later of his
receipt of notice of the non-extension of this Agreement or the next
following Anniversary Date. Payment to the Executive will be made within
thirty (30) days of such termination.
(iii) If the Employer is not in compliance with its
minimum capital requirements or if the payments required under
subparagraph (i) or (ii) above would cause the Employer's capital to be
reduced below its minimum capital requirements, such payments shall be
deferred until such time as the Employer is in capital compliance.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term of
this Agreement, except in connection with a termination pursuant to paragraph
(d) of this Section 4, the Executive is Constructively Discharged (as
hereinafter defined) then the Executive shall have the right, by written notice
to the Employer within sixty (60) days of such Constructive Discharge, to
terminate his services hereunder, effective as of thirty (30) days after such
notice, and the Executive shall have no rights or obligations under this
Agreement other than as provided in Sections 3 and 8 hereof. The Executive shall
in such event be entitled to a lump sum payment of compensation and benefits and
continuation of the health, life and disability insurance as if such termination
of his employment was pursuant to subparagraph (b)(i) of this Section 4.
For purposes of this Agreement, the Executive shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(i) The Executive is not re-elected or is removed from the
positions with the Employer or any affiliate set forth in Section 1
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and responsibility;
or
(ii) The Executive shall fail to be vested by the Employer
with the powers and authority of his appointed office; or
(iii) The Employer changes the primary employment location
of the Executive to a place that is more than thirty (30) miles from the
primary employment location as of the Effective Date of this Agreement;
or
(iv) The Employer otherwise commits a material breach of
its obligations under this Agreement.
(d) TERMINATION FOR CAUSE. This Agreement and the Executive's
employment hereunder may be terminated for cause as hereinafter defined. "Cause"
shall mean: (i) the Executive's death or his permanent disability, as defined
under the Employer sponsored
4
<PAGE>
disability income insurance program, or in the event there is no such program,
the Executive's inability, as a result of physical or mental incapacity,
substantially to perform his duties hereunder for a period of twelve (12)
consecutive months; (ii) a material violation by the Executive of any applicable
material law or regulation respecting the business of the Employer; (iii) the
Executive being found guilty of a felony or an act of dishonesty in connection
with the performance of his duties as an officer of the Employer, or which
disqualifies the Executive from serving as an officer or director of the
Employer; or (iv) the willful or negligent failure of the Executive to perform
his duties hereunder in any material respect. This Agreement may be terminated
immediately for any cause except under (iv) above. The Executive shall be
entitled to at least thirty (30) days' prior written notice of the Employer's
intention to terminate his employment under (iv) above, specifying the grounds
for such termination, a reasonable opportunity to cure any conduct or act, if
curable, alleged as grounds for such termination, and a reasonable opportunity
to present to the Board his position regarding any dispute relating to the
existence of such cause.
(e) TERMINATION UPON DEATH. In the event payments are due and
owing under this Agreement at the death of the Executive, payment shall be made
to such beneficiary as Executive may designate in writing, or failing such
designation, to the executor of his estate, in full settlement and satisfaction
of all claims and demands on behalf of the Executive. Such payments shall be in
full settlement and satisfaction of all payments provided for in this Agreement.
(f) PAYMENT UPON TERMINATION FOR DISABILITY. The Employer may
terminate this Agreement and the Executive's employment after the Executive is
determined to be permanently disabled under the Employer sponsored disability
income insurance program or by a physician engaged by the Employer. In the event
of a dispute regarding the Executive's disability, each party shall choose a
physician who together will choose a third physician to make a final
determination. The Executive shall be entitled to the compensation and benefits
provided for under this Agreement for any period during the term of this
Agreement and prior to the establishment of the Executive's disability during
which the Executive is unable to work due to a physical or mental infirmity. In
the event of the termination of this Agreement and the Executive's employment
due to the permanent disability of the Executive, the Employer shall continue to
pay the Executive each month the lesser of sixty percent (60%) of the monthly
base salary then payable to the Executive or five thousand dollars ($5,000),
reduced by any amounts received under the Employer sponsored disability income
insurance program, and shall continue to provide coverage for the Executive
under the health and life insurance programs maintained by the Employer until
the earlier of the date the Executive returns to full-time employment, either
with the Employer or another employer, or Executive's death. Notwithstanding
anything contained in this Agreement to the contrary, until the date specified
in a notice of termination relating to the Executive's disability, the Executive
shall be entitled to return to his positions with the Employer as set forth in
this Agreement in which event no disability of the Executive will be deemed to
have occurred.
5
<PAGE>
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined below)
and the termination of the Executive's employment or this Agreement
under either A or B below, the Executive shall be entitled to a lump sum
payment equal to three (3) times the sum of his annual base salary then
payable and the average of his most recent three (3) years' annual bonus
amounts, if any, subject to the limitations set forth below. The
Employer shall also continue to provide coverage for the Executive under
the health, life and disability insurance programs for three (3) years
following such termination. Payments under this paragraph shall be
subject to the limits of subparagraph (g)(ii) below. The following shall
constitute termination under this paragraph:
A. The Executive terminates his employment by a
written notice to that effect delivered to the Board
within twenty-four (24) months after the Change in
Control.
B. This Agreement is terminated by the Employer,
the Company or the successor of either in contemplation of
or after the Change in Control.
(ii) It is the intention of the Employer and the Executive
that no portion of any payment under this Agreement, or payments to or
for the benefit of the Executive under any other agreement or plan, be
deemed to be an "Excess Parachute Payment" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Executive in the nature of compensation, receipt
of which is contingent on a Change of Control, and to which Section 280G
of the Code applies (in the aggregate "Total Payments") shall not exceed
an amount equal to one dollar less than the maximum amount which the
Employer may pay without loss of deduction under Section 280G(a) of the
Code. Present value for purposes of this Agreement shall be calculated
in accordance with Section 280G(d)(4) of the Code. Within one hundred
and twenty (120) days following the earlier of (A) the giving of the
notice of termination or (B) the giving of notice by the Employer to the
Executive of its belief that there is a payment or benefit due the
Executive which will result in an excess parachute payment as defined in
Section 280G of the Code, the Executive and the Employer, at the
Employer's expense, shall obtain the opinion of such legal counsel and
certified public accountants as the Executive may choose
(notwithstanding the fact that such persons have acted or may also be
acting as the legal counsel or certified public accountants for the
Employer), which opinions need not be unqualified, which sets forth (A)
the amount of the Base Period Income of the Executive, (B) the present
value of Total Payments and (C) the amount and present value of any
excess parachute payments. In the event that such opinions determine
that there would be an excess parachute payment, the payment hereunder
or any other payment determined by such counsel to be includable in
Total Payments shall be modified, reduced or eliminated as specified by
the Executive in writing delivered to the Employer within ninety (90)
days of his receipt of such opinions
6
<PAGE>
or, if the Executive fails to so notify the Employer, then as the
Employer shall reasonably determine, so that under the bases of
calculation set forth in such opinions there will be no excess parachute
payment. The provisions of this subparagraph, including the
calculations, notices and opinions provided for herein shall be based
upon the conclusive presumption that (A) the compensation and benefits
provided for in Section 2 hereof and (B) any other compensation earned
by the Executive pursuant to the Employer's compensation programs which
would have been paid in any event, are reasonable compensation for
services rendered, even though the timing of such payment is triggered
by the Change of Control; provided, however, that in the event such
legal counsel so requests in connection with the opinion required by
this subparagraph, the Executive and the Employer shall obtain, at the
Employer's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to be
received by the Executive. In the event that the provisions of Sections
280G and 4999 of the Code are repealed without succession, this
subparagraph shall be of no further force or effect.
(iii) For purposes of this paragraph, the term "Change in
Control" shall mean the following:
A. The consummation of the acquisition by any
person (as such term is defined in Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of fifty
percent (50%) or more of the combined voting power of the
then outstanding voting securities of the Employer or the
Bank; or
B. The individuals who, as of the date hereof, are
members of the Board of the Employer or the Bank cease for
any reason to constitute a majority of the Board, unless
the election, or nomination for election by the
stockholders, of any new director was approved by a vote
of a majority of the Board, and such new director shall,
for purposes of this Agreement, be considered as a member
of the Board; or
C. Approval by stockholders of the Employer or the
Bank of: (1) a merger or consolidation if the stockholders
immediately before such merger or consolidation do not, as
a result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities of
the entity resulting from such merger or consolidation in
substantially the same proportion as their ownership of
the combined voting power of the voting securities of the
Employer or the Bank outstanding immediately before such
merger or consolidation; or (2) a complete liquidation or
dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of
the Employer or the Bank.
7
<PAGE>
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined voting power
of the then outstanding securities of the Employer or the Bank is acquired by:
(1) a trustee or other fiduciary holding securities under one or more employee
benefit plans maintained for employees of the Employer or the Bank; or (2) any
corporation which, immediately prior to such acquisition, is owned directly or
indirectly by the stockholders in the same proportion as their ownership of
stock of the Employer or the Bank immediately prior to such acquisition.
(h) REGULATORY SUSPENSION AND TERMINATION.
(i) If the Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of the
Employer's affairs by a notice served under Section 8(e)(3) (12
U.S.C. Section 1818(e)(3)) or 8(g) (12 U.S.C. Section 1818(g)) of the
Federal Deposit Insurance Act, as amended, the Employer's obligations
under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Employer shall (A) pay the Executive all of
the compensation withheld while the contract obligations were
suspended and (B) reinstate any of the obligations which were
suspended.
(ii) If the Executive is removed and/or permanently
prohibited from participating in the conduct of the Employer's
affairs by an order issued under Section 8(e) (12 U.S.C. Section
1818(e)) or 8(g) (12 U.S.C. Section 1818(g)) of the Federal Deposit
Insurance Act, as amended, all obligations of the Employer under this
contract shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(iii) If the Employer is in default as defined in
Section 3(x) (12 U.S.C. Section 1813(x)(1)) of the Federal Deposit
Insurance Act, as amended, all obligations of the Employer under this
contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting
parties.
(iv) All obligations of the Employer under this
contract shall be terminated, except to the extent determined that
continuation of the contract is necessary for the continued operation
of the institution by the Federal Deposit Insurance Corporation (the
"FDIC"), at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Employer under the authority
contained in Section 13(c) (12 U.S.C. Section 1823(c)) of the Federal
Deposit Insurance Act, as amended, or when the Employer is determined
by the FDIC to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall not be affected
by such action.
(v) Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their
compliance with Section 18(k) (12 U.S.C. Section 1828(k)) of the
Federal Deposit Insurance Act as amended, and any regulations
promulgated thereunder.
8
<PAGE>
5. NON-COMPETITION COVENANT. The Employer and the Executive have jointly
reviewed the operations of the Employer and the Bank and have agreed that an
essential ingredient of and part of the consideration for this Agreement and the
payment of the amounts described in Section 2, is the agreement of the Executive
that, except with the express prior written consent of the Employer, for a
period of one (1) year after the termination of the Executive's employment with
the Employer, or six (6) months in the event of a termination by the Executive
under subparagraph (b)(ii) of Section 4, (the "Restrictive Period"), he will not
directly or indirectly compete with the business of the Employer: (i) by
directly or indirectly soliciting any person, corporation, partnership or other
entity or organization which at the time of such termination is a customer of
the Employer or the Bank to become a customer of; or (ii) by soliciting or
inducing, or attempting to solicit or induce, any employee or agent of the
Employer or the Bank to terminate employment with the Employer or the Bank and
become employed by; any person, firm, partnership, corporation, trust or other
entity which owns or operates, a bank, savings and loan association, credit
union or similar financial institution (a "Financial Institution") (the
"Restrictive Covenant"). If the Executive violates the Restrictive Covenant and
the Employer brings legal action for injunctive or other relief, the Employer
shall not, as a result of the time involved in obtaining such relief, be
deprived of the benefit of the full period of the Restrictive Covenant.
Accordingly, the Restrictive Covenant shall be deemed to have the duration
specified in this Section 5 computed from the date the relief is granted but
reduced by the time between the period when the Restrictive Period began to run
and the date of the first violation of the Restrictive Covenant by the
Executive. In the event that a successor assumes and agrees to perform this
Agreement, this Restrictive Covenant shall continue to apply only to customers
and employees of the Employer and the Bank as they existed immediately before
such assumption and shall not apply to any of the successor's customers and
employees.
6. INTERCORPORATE TRANSFERS. If the Executive shall be transferred to an
affiliate of the Employer, such transfer shall not be deemed to terminate or
modify this Agreement and the employing corporation to which the Executive shall
have been transferred shall, for all purposes of this Agreement, be construed as
standing in the same place and stead as the Employer as of the date of such
transfer. For purposes hereof, an affiliate of the Employer shall mean any
corporation directly or indirectly controlling, controlled by, or under common
control with the Employer.
7. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign, anticipate,
hypothecate or otherwise encumber in advance any of said payments; nor shall any
of such payments be subject to seizure for the payment of any debt, judgment,
alimony, separate maintenance or be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise of the Executive.
8. INDEMNIFICATION.
(a) INSURANCE. The Employer shall provide the Executive
(including his heirs, personal representatives, executors and administrators)
for the term of this Agreement
9
<PAGE>
with coverage under a standard directors' and officers' liability insurance
policy at its expense.
(b) INDEMNIFICATION UNDER STATE LAW. In addition to the insurance
coverage provided for in paragraph (a) of this Section 8, the Employer shall
hold harmless and indemnify the Executive (and his heirs, executors and
administrators) to the fullest extent permitted under applicable law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been an officer of the Employer (whether or not he
continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(c) ADVANCEMENT OF EXPENSES. In the event the Executive becomes a
party, or is threatened to be made a party, to any action, suit or proceeding
for which the Employer has agreed to provide insurance coverage or
indemnification under this Section 8, the Employer shall, to the full extent
permitted under applicable law, advance all expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed action,
suit or proceeding, subject to receipt by the Employer of a written undertaking
from the Executive: (i) to reimburse the Employer for all Expenses actually paid
by the Employer to or on behalf of the Executive in the event it shall be
ultimately determined that the Executive is not entitled to indemnification by
the Employer for such Expenses; and (ii) to assign to the Employer all rights of
the Executive to indemnification, under any policy of directors' and officers'
liability insurance or otherwise, to the extent of the amount of Expenses
actually paid by the Employer to or on behalf of the Executive.
9. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any successor
or assign of the Employer shall be deemed the "Employer" hereunder. The Employer
shall require any successor to all or substantially all of the business and/or
assets of the Employer, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Employer
would be required to perform if no such succession had taken place.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes
the entire agreement between the parties respecting the subject matter hereof,
and supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral, including but not limited to, the
change of control agreement between the Executive and the Employer dated April
13, 1998. Except as otherwise explicitly provided
10
<PAGE>
herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Illinois without reference to the law regarding conflicts of
law.
(d) ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement or the Executive's employment by the Employer
shall be settled exclusively by arbitration, conducted by a single arbitrator
sitting in a location selected by the Executive within fifty (50) miles of the
main office of the Employer, in accordance with the rules of the American
Arbitration Association (the "AAA") then in effect. The arbitrator shall be
selected by the parties from a list of arbitrators provided by the AAA, provided
that no arbitrator shall be related to or affiliated with either of the parties.
No later than ten (10) days after the list of proposed arbitrators is received
by the parties, the parties, or their respective representatives, shall meet at
a mutually convenient location or telephonically. At that meeting, the party who
sought arbitration shall eliminate one (1) proposed arbitrator and then the
other party shall eliminate one (1) proposed arbitrator. The parties shall
continue to eliminate names from the list of proposed arbitrators in this manner
until a single proposed arbitrator remains. This remaining arbitrator shall
arbitrate the dispute. Each party shall submit, in writing, the specific
requested action or decision it wishes to take, or make, with respect to the
matter in dispute, and the arbitrator shall be obligated to choose one (1)
party's specific requested action or decision, without being permitted to
effectuate any compromise position. Judgment may be entered on the arbitrator's
award in any court having jurisdiction; provided, however, that the Executive
shall be entitled to seek specific performance of his right to be paid through
the date of termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
(e) LEGAL FEES. All reasonable legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to this
Agreement shall be paid or reimbursed by the Employer if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement.
(f) WAIVER. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party, shall be deemed a waiver of any
similar or dissimilar provisions or conditions at the same time or any prior or
subsequent time.
(g) NOTICES. Notices pursuant to this Agreement shall be in
writing and shall be deemed given when received; and, if mailed, shall be mailed
by United States registered or certified mail, return receipt requested, postage
prepaid; and if to the Employer, addressed to the principal headquarters of the
Employer, attention: Chairman; or, if to the Executive, to the
11
<PAGE>
address set forth below the Executive's signature on this Agreement, or to such
other address as the party to be notified shall have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WEST SUBURBAN BANCORP, INC. JAMES T. CHIPPAS
By: /s/ DUANE G. DEBS /s/ JAMES T. CHIPPAS
- -------------------------------------------- --------------------------------
Title: President and Chief Financial Officer 705 Dorchester Drive
Bolingbrook, Illinois 60440-111
12
<PAGE>
Exhibit 10.7
AMENDMENT TO
__________________
EMPLOYMENT AGREEMENT
Pursuant to Section 7(b) of the Employment Agreement entered into
between West Suburban Bancorp, Inc. and [__________________] dated May 1, 1997
(the "Agreement"), the parties hereby amend the Agreement as follows:
1. Section 4(g)(i) of the Agreement is amended to read as follows:
"(i) In the event of a Change in Control (as defined below) and the
termination of the Executive's employment or this Agreement under either A or B
below, the Executive shall be entitled to a lump sum payment equal to three (3)
times the sum of his annual base salary then payable and the average of his most
recent three (3) years' annual bonus amounts, if any, subject to the limitations
set forth below. The Employer shall also continue to provide coverage for the
Executive under the employer sponsored life and disability insurance programs
for three (3) years following such termination, and the medical benefit program
until the earlier of his Medicare eligibility date or the date the Executive
elects to become covered under another employer sponsored medical benefit plan
or program. Payments under this paragraph shall be subject to the limits of
subparagraph (g)(ii) below.
The following shall constitute termination under this paragraph:
A. The Executive terminates his employment by a written notice to
that effect delivered to the Board within twenty-four (24) months after
the Change in Control.
1
<PAGE>
B. This Agreement is terminated by the Employer or its successor
either in contemplation of or after the Change in Control."
2. The remaining provisions of the Agreement shall remain in full force and
effect.
This amendment to the Agreement is hereby agreed to and accepted by the
parties thereto effective as of the 21st day of January, 1999.
WEST SUBURBAN BANCORP, INC. [EXECUTIVE]
By:____________________________ _______________________________
Title:_________________________
2
<PAGE>
Exhibit 13.1
- --------------------------------------------------------------------------------
Profile
West Suburban Bancorp, Inc. ("West Suburban") is the parent bank holding company
of West Suburban Bank, Lombard, Illinois (the "Bank," and together with West
Suburban, the "Company"). The Company had total consolidated assets at December
31, 1998 of approximately $1.31 billion. West Suburban Bank is the largest
independent bank headquartered in DuPage County.
- --------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share data)
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net income $16,178 $21,784 $15,942 $13,525 $13,026
Per share data
Earnings - basic 37.41 50.37 36.86 31.27 30.12
Book value 310.74 306.02 273.62 254.73 226.53
Net loans 771,148 762,538 784,242 760,687 709,205
Total assets 1,308,953 1,293,691 1,235,604 1,154,349 1,041,495
Deposits 1,155,952 1,144,949 1,099,397 1,029,789 923,257
Shareholders' equity 134,393 132,353 118,338 110,168 97,971
</TABLE>
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- -----------------------------------------------------------
TABLE OF CONTENTS
Profile................................................ 1
Letter to Our Shareholders,
Customers and Friends................................ 2
Corporate Information.................................. 3
Business Review........................................ 3
Selected Quarterly Financial Data...................... 3
Review of Operations................................... 4
Independent Auditors' Report........................... 5
Consolidated Financial Statements...................... 6
Notes to Consolidated Financial Statements............. 10
Selected Financial Data................................ 22
Distribution of Assets and Net Interest
Income and Average Rates
and Yields on a Tax Equivalent Basis................ 23
Management's Discussion
and Analysis of Financial
Condition and Results of Operations................. 25
The Year 2000......................................... 31
Boards of Directors and Officers...................... 32
Addresses of Locations................................ 35
Map of Locations...................................... 36
Shareholder Information............................... 37
- -----------------------------------------------------------
THIS REPORT, INCLUDING THE LETTER TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS,
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY INTENDS SUCH FORWARD-LOOKING
STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING
STATEMENTS CONTAINED IN THE PRIVATE SECURITIES REFORM ACT OF 1995, AS AMENDED,
AND IS INCLUDING THIS STATEMENT FOR PURPOSES OF INDICATING SUCH INTENT. FORWARD
LOOKING STATEMENTS, WHICH ARE BASED ON CERTAIN ASSUMPTIONS AND DESCRIBE FUTURE
PLANS, STRATEGIES AND EXPECTATIONS OF THE COMPANY, ARE GENERALLY IDENTIFIABLE BY
USE OF THE WORDS "BELIEVE," "EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE,"
"PROJECT" OR SIMILAR EXPRESSIONS. THE COMPANY'S ABILITY TO PREDICT RESULTS OR
THE ACTUAL EFFECT OF FUTURE PLANS OR STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON THE OPERATIONS AND FUTURE
PROSPECTS OF WEST SUBURBAN AND 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 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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS:
We are less than a year away from the new millennium. All of us at West Suburban
look forward to meeting the challenges that the year 2000 and beyond bring to
us. Consolidation in the industry has reduced the number of competitors but not
the fierceness of the competition. The need for good quality banking services
delivered by a locally owned community bank continues to be a strong focus of
the West Suburban culture. Over the years we have seen relationships with
customers blossom into relationships with parents and their children and
grandchildren.
In order to keep up in the fast paced arena of financial services, West Suburban
has laid the framework for the next millennium. In late 1997, we upgraded or
replaced certain computer system hardware components and software applications.
In 1999, we are starting the process of implementing a wide area network which
will enable our branches to operate in a more integrated fashion. We have also
started to implement a call center that will allow us to serve our customers
better and more expeditiously. This will allow our branches to help provide our
walk-in customers with more efficient service as well as offer additional
products and services. In 1999, we will be implementing a new Marketing Customer
Information Files ("MCIF") system. This system will help us enhance our
knowledge of our customers' needs and interests and allow us to serve them
better.
As the markets in which we started West Suburban have matured and become fully
developed, we have looked outside of DuPage County for additional growth. In
February 1999, we opened our branch in Aurora at Eola Road and New York Avenue.
We are excited to see growth all around this location. In the fall of 1999, we
hope to open our Romeoville branch. This branch in Romeoville will serve a
diverse population which we believe has not had convenient access to banking
services. In addition to establishing new facilities, we also intend to improve
certain of our current facilities. West Suburban is expanding its presence in
Villa Park through the acquisition of a location which will allow us to provide
the convenience of drive-up tellers and ATM services for our customers. We have
also acquired a parcel of land on the east side of St. Charles and plan on
building on that site in the future.
Late in 1997, we acquired West Suburban Insurance Services, Inc. which provides
insurance related products to our customers such as life, auto, homeowners and
supplemental medical insurance to name a few. Not all customers have the same
needs so we believe by providing multiple products and services we can better
serve all of our customers' needs.
The 1999 first quarter dividend of $16.50 per share includes a one-time special
dividend of $10.00 per share. Cash dividends received in 1998 increased by $5.00
(28.6%) per share from $17.50 per share in 1997 to $22.50 per share in 1998. Our
book value increased to $310.74 (1.5%) at December 31, 1998 from $306.02 at
December 31, 1997. Net income decreased from our 1997 record level of $21.8
million to $16.2 million for the year ending December 31, 1998.
As always, we appreciate the support that has made us the largest independent
bank holding company in DuPage County. We welcome your comments, criticisms and
suggestions. We could not have achieved our success without the support of our
shareholders, customers, communities, friends and employees. Thank you everyone.
Sincerely,
/s/ KEVIN J. ACKER /s/ DUANE G. DEBS
- --------------------- -------------------
Kevin J. Acker Duane G. Debs
Chairman of the Board President and CFO
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE INFORMATION
West Suburban is a bank holding company headquartered in DuPage County,
Illinois. As of December 31, 1998, West Suburban had a single class of common
stock issued and outstanding. The shares of West Suburban's common stock are
not traded on any stock exchange or on the over-the-counter market. West
Suburban's per share book value as of the end of the indicated periods and
dividends declared for the last two years are set forth in the following
table:
YEAR QUARTER BOOK VALUE DIVIDENDS DECLARED
- --------------------------------------------------------------------------------
1998 4th $310.74 $16.50
3rd 317.87 6.50
2nd 317.43 6.00
1st 311.72 5.00
- --------------------------------------------------------------------------------
1997 4th $306.02 $5.00
3rd 299.48 4.50
2nd 290.87 4.50
1st 282.10 4.50
The dividend declared in the 4th quarter of 1998 included a one time $10.00 per
share special dividend payable on January 4, 1999 to shareholders of record as
of December 15, 1998.
BUSINESS REVIEW
The Company had total assets at December 31, 1998 of approximately $1.31
billion. As of December 31, 1998, the Bank operated 32 facilities throughout
DuPage, Kane, Kendall and Will Counties, with its business activities focusing
primarily on the retail and commercial banking markets. The Company had a total
of 506 full-time equivalent employees at December 31, 1998.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Interest income $23,128 $23,394 $23,080 $22,135
Net interest income 12,469 12,520 12,273 12,421
Provision for loan losses 250 237 1,187 889
Other operating income (loss) 2,415 2,508 (610) 3,103
Other operating expense 7,727 7,406 7,793 8,309
Net income 4,526 5,112 2,352 4,188
Earnings per share - basic 10.47 11.81 5.44 9.69
- --------------------------------------------------------------------------------
1997
Interest income $22,751 $24,278 $24,216 $23,963
Net interest income 12,460 12,849 12,767 12,432
Provision for loan losses 295 276 276 776
Other operating income 5,738 2,234 2,029 2,395
Other operating expense 7,795 7,423 6,787 7,685
Net income 6,565 4,833 5,123 5,263
Earnings per share - basic 15.18 11.17 11.85 12.17
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
REVIEW OF OPERATIONS
West Suburban faced many challenges in 1998. We were faced with the challenge of
assimilating five separate bank subsidiaries into one. Other challenges included
those presented by the upgrading of our data processing system to increase
internal operation efficiency, addressing Year 2000 compliance, establishing a
call center, improving PC Banking, rolling out our web site
(www.westsuburbanbank.com) and improving our ability to offer new products and
services in the future.
In 1998, West Suburban Bank continued to develop new products that serve the
varied needs of our customers. For example, we introduced a Money Market
Checking Account. This product was designed to offer our customers higher
interest rates on their deposits while continuing to allow them access to their
funds. The Money Market Checking Account also provides our customers a
competitive alternative to nonbank investments.
In the past year, we continued to explore new products, markets, delivery
channels and methods to acquire new customers and to strengthen our ties with
existing customers. Our new indirect lending products were introduced in 1998.
These new products have enabled West Suburban Bank to serve the consumer loan
needs of our customers and to increase our consumer loan portfolio. In general,
the loan department effectively met the challenges presented by the volatile
marketplace. These efforts, along with our existing products and services,
reflect our dedication to meeting the needs of our customers as well as the
needs of our market area.
At West Suburban, we feel it is our responsibility to not only be a successful
community bank but also to be an exemplary corporate citizen. This role was
expressed both at the institutional level and through the efforts of our
civic-minded employees who participated in a wide range of not-for-profit
organizations and made regular donations of private gifts to community
organizations.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
West Suburban Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of West Suburban
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of income and comprehensive income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of West Suburban
Bancorp, Inc. and subsidiary at December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
January 29, 1999
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
--------------
1998 1997
---------- -----------
<S> <C> <C>
Cash and due from banks $ 41,549 $ 38,251
Interest-earning deposits in financial institutions 724 343
Federal funds sold 64,590 21,740
---------- ----------
Total cash and cash equivalents 106,863 60,334
Investment securities:
Available for sale (amortized cost of $204,947 in 1998;
$218,892 in 1997) 205,624 218,587
Held to maturity (fair value of $172,590 in 1998;
$199,905 in 1997) 171,679 199,292
---------- ----------
Total investment securities 377,303 417,879
---------- ----------
Loans, less allowance for loan losses of $9,998 in 1998;
$9,772 in 1997 771,148 762,538
Premises and equipment, net 33,393 31,142
Other real estate 1,742 2,450
Accrued interest and other assets 18,504 19,348
---------- ----------
TOTAL ASSETS $1,308,953 $1,293,691
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 112,464 $ 124,220
Interest-bearing 1,043,488 1,020,729
---------- ----------
Total deposits 1,155,952 1,144,949
Accrued interest and other liabilities 18,608 16,389
---------- ----------
TOTAL LIABILITIES 1,174,560 1,161,338
---------- ----------
Shareholders' equity:
Common stock, Class A, no par value; 1,000,000 shares
authorized; 347,015 shares issued and outstanding 2,774
Common stock, Class B, no par value; 1,000,000 shares
authorized; 85,480 shares issued and outstanding 683
Common stock, no par value; 15,000,000 shares authorized;
432,495 shares issued and outstanding 3,457
Surplus 38,066 38,066
Retained earnings 92,461 91,014
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale, net of
taxes (benefit) of $268 in 1998; ($121) in 1997 409 (184)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 134,393 132,353
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,308,953 $1,293,691
========== ==========
--------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
-----------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 64,958 $ 69,414 $ 70,759
-------- -------- --------
Investment securities:
Taxable 22,034 21,979 13,859
Nontaxable 1,656 1,825 2,084
-------- -------- --------
Total investment securities 23,690 23,804 15,943
Deposits in financial institutions 27 12 16
Federal funds sold 3,062 1,978 1,840
-------- -------- --------
Total interest income 91,737 95,208 88,558
-------- -------- --------
INTEREST EXPENSE
Deposits 41,874 44,313 37,787
Other 180 387 572
-------- -------- --------
Total interest expense 42,054 44,700 38,359
-------- -------- --------
Net interest income 49,683 50,508 50,199
PROVISION FOR LOAN LOSSES 2,563 1,623 1,505
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 47,120 48,885 48,694
-------- -------- --------
OTHER OPERATING INCOME
Service fees 3,247 3,414 3,746
Trust fees 161 171 157
Net gain on sales of loans 807 280 151
Loan servicing 402 659 899
Net realized gain on sales of investment securities available for sale 553 136 449
Write-down of carrying value of investment securities available for sale (3,200)
Net gain on sales of other real estate 546 1,466 55
Litigation settlement 2,344
Other 4,900 3,926 4,439
-------- -------- --------
Total other operating income 7,416 12,396 9,896
-------- -------- --------
OTHER OPERATING EXPENSE
Salaries and employee benefits 15,947 15,849 14,954
Occupancy 3,303 2,901 2,743
Furniture and equipment 3,184 2,802 2,655
FDIC insurance premiums 224 172 1,113
Professional fees 738 829 1,062
Data processing 1,082 772 827
Other real estate 291 523 5,042
Other 6,466 5,842 5,754
-------- -------- --------
Total other operating expense 31,235 29,690 34,150
-------- -------- --------
INCOME BEFORE INCOME TAXES 23,301 31,591 24,440
INCOME TAXES 7,123 9,807 8,498
-------- -------- --------
NET INCOME 16,178 21,784 15,942
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses) on securities available for sale arising
during the period (net of taxes (benefit) of $170 in 1998, $237 in 1997
and ($743) in 1996) 925 522 (584)
Less: reclassification adjustment for gains included in net income (net of
taxes of $221 in 1998, $54 in 1997 and $180 in 1996) (332) (82) (269)
-------- -------- --------
Total other comprehensive income (loss) 593 440 (853)
-------- -------- --------
COMPREHENSIVE INCOME $ 16,771 $ 22,224 $ 15,089
======== ======== ========
EARNINGS PER SHARE - BASIC $ 37.41 $ 50.37 $ 36.86
======== ======== ========
-----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Class A Class B Available Total
Common Common Common Retained For Sale, Shareholders'
Stock Stock Stock Surplus Earnings Net of Taxes Equity
----------- --------- ----------- ---------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $2,774 $683 $38,066 $68,416 $229 $110,168
Net income 15,942 15,942
Cash dividend declared (6,919) (6,919)
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes (853) (853)
----------- --------- ----------- ---------- ----------- -------------- ---------------
BALANCE, DECEMBER 31, 1996 2,774 683 38,066 77,439 (624) 118,338
Net income 21,784 21,784
Cash dividends declared (8,001) (8,001)
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes 440 440
Purchase of minority interest in
subsidiaries (208) (208)
----------- --------- ----------- ---------- ----------- -------------- ---------------
BALANCE, DECEMBER 31, 1997 2,774 683 38,066 91,014 (184) 132,353
-------------------------------------------------------------------------------------------
Redesignation of common stock $3,457 (2,774) (683)
Net income 16,178 16,178
Cash dividends declared (14,705) (14,705)
Change in net unrealized gain (loss)
on securities available for sale,
net of taxes 593 593
Purchase of minority interest in
subsidiaries (26) (26)
----------- --------- ----------- ---------- ----------- -------------- ---------------
BALANCE, DECEMBER 31, 1998 $3,457 $38,066 $92,461 $409 $134,393
=========== ========= =========== ========== =========== ============== ===============
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
8
<PAGE>
WEST SUBURBAN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
-----------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,178 $ 21,784 $ 15,942
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,456 3,236 2,974
Provision for loan losses 2,563 1,623 1,505
(Benefit) provision for deferred income tax (243) 1,342 (2,185)
Net premium amortization and discount accretion of
investment securities 720 502 487
Net realized gain on sales of securities available for sale (553) (136) (449)
Write-down of carrying value of investment securities
available for sale 3,200
Net gain on sales of loans held for sale (807) (280) (151)
Proceeds from sales of loans held for sale 7,852 3,296 727
Origination of loans held for sale (16,514) (4,491) (1,043)
Provision for loss on other real estate 5,460
Loss (gain) on sales of premises and equipment 49 (8) 90
Net gain on sales of other real estate (546) (1,466) (55)
Decrease (increase) in accrued interest and other assets 696 72 (1,165)
(Decrease) increase in accrued interest and other liabilities (2,754) (561) 2,114
--------- --------- ---------
Total adjustments (2,881) 3,129 8,309
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,297 24,913 24,251
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 55,482 11,414 30,160
Proceeds from maturities 168,502 92,057 16,721
Purchases (213,613) (163,281) (72,537)
Investment securities held to maturity:
Proceeds from maturities 281,684 82,407 48,343
Purchases (253,862) (111,341) (102,353)
Purchase of minority interest in subsidiaries (26) (208)
Net (increase) decrease in loans (4,131) 20,605 (26,697)
Purchases of premises and equipment (5,774) (4,248) (4,017)
Proceeds from sales of premises and equipment 18 8 29
Proceeds from sales of other real estate 3,680 2,725 2,259
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 31,960 (69,862) (108,092)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in total deposits 11,003 45,552 69,608
(Decrease) increase in FHLB advances (1,350) 1,350
Cash dividends paid (9,731) (7,569) (6,812)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,272 36,633 64,146
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46,529 (8,316) (19,695)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 60,334 68,650 88,345
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 106,863 $ 60,334 $ 68,650
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings $ 44,762 $ 42,229 $ 37,694
Income taxes 6,563 9,407 10,244
Transfers from loans to other real estate 2,427 951 2,104
-----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
During the first quarter of 1997, West Suburban Bank (the "Bank") received
approvals from the Federal Deposit Insurance Corporation ("FDIC"), the Office of
the Illinois Commissioner of Banks and Real Estate and the Office of Thrift
Supervision to merge the four bank subsidiaries and the thrift subsidiary into
one state chartered bank under the name "West Suburban Bank." On May 17, 1997,
the subsidiaries were merged and since that date, West Suburban Bancorp, Inc.
("West Suburban") has conducted its banking activities through its single bank
subsidiary. The merger had no significant impact on the Company's financial
condition or results of operations. West Suburban together with the Bank may be
referred to as the "Company." The consolidated financial statements include the
accounts of West Suburban and the Bank. Significant intercompany accounts and
transactions have been eliminated.
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles and conform to general practices
within the banking industry. A summary of accounting policies follows.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
including the allowance for loan losses, and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
INVESTMENT SECURITIES
Debt and marketable equity securities are classified into two categories, "held
to maturity" and "available for sale." Held to maturity securities include those
debt securities where the Company has both the ability and positive intent to
hold them to maturity. Securities not meeting these criteria are classified as
available for sale. Held to maturity securities are carried at amortized
historical cost while available for sale securities are carried at fair value
with net unrealized gains and losses (net of tax) reported as a separate
component of shareholders' equity. Gains or losses on disposition are based on
the net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method. Any decline in the carrying values of
investment securities which is deemed to be other than temporary is charged
against current earnings. The Company does not engage in trading activities. The
Company has not utilized futures, forwards, swaps or option contracts in order
to manage its interest rate risk or otherwise.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is recognized based upon the principal amount
outstanding. Accrual of interest is generally discontinued on a loan when it
becomes 90 days past due or when management believes, after considering economic
and business conditions and collection efforts, that the borrowers' financial
condition is such that collection of principal or interest is doubtful. In some
circumstances, a loan that is more than 90 days past due can remain on accrual
status if it can be established that payment will be received within another 90
days or if it is fully secured and in the process of collection. When a loan has
been placed on nonaccrual status, interest that has been earned but not
collected is charged back to the appropriate interest income account. When
payments are received on nonaccrual loans they are first applied to principal,
then to expenses incurred for collection and finally to interest income.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluations of
the collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews its commercial and real estate construction and
non-residential mortgage loans on a quarterly basis to determine the amount of
impairment, if any. Impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of the loan's collateral, if
repayment of the loan is collateral dependent. A valuation allowance is
maintained for the amount of impairment. Generally, loans 90 or more days past
due and all loans on a nonaccrual basis are considered impaired. Interest income
on impaired loans is recognized in a manner consistent with the Company's
interest policy.
LOANS HELD FOR SALE
Loans are identified as either held for investment or held for sale upon their
origination. Loans held for sale are recorded at the lower of amortized cost or
market value, determined on an aggregate basis. Unrealized losses, if any, are
recognized on a current basis.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation, which
is generally computed on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the estimated useful lives of the improvements or the
terms of the related leases.
OTHER REAL ESTATE
Other real estate includes properties acquired in partial or total settlement of
problem loans. The properties are recorded at the lower of cost or fair value
less estimated selling costs at the date acquired. Losses arising at the time of
acquisition of such properties are charged to the allowance for loan losses. Any
subsequent decline in value is charged to current operations. The revenue
received from, and expenses incurred in maintaining, such properties are also
included in current operations. The amounts the Company could ultimately recover
from other real estate could differ materially from the amounts used in
determining the net carrying value of the assets because of future market
factors beyond the Company's control or changes in the Company's strategy for
recovering its investment. Management believes the net carrying value of other
real estate is a reasonable estimate of its fair value.
INTANGIBLES
The Company accounted for the acquisition of its former thrift subsidiary using
the purchase method of accounting. The related intangibles are being amortized
over 15 years using the straight-line method and are included in accrued
interest and other assets. Long-lived assets and certain identifiable
intangibles that are used in operations are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
might not be recoverable.
TRUST ASSETS AND FEES
Assets held in fiduciary or agency capacities are not included in the
consolidated balance sheets since such items are not assets of the Company.
Income from trust fees is recorded when received. This income does not differ
materially from trust fees computed on an accrual basis.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The Company files consolidated federal and state
income tax returns.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings per Share," in 1997, which revised the standards for computing and
presenting basic and diluted earnings per share. All prior periods have been
restated. Earnings per share is calculated on the basis of the daily weighted
average number of shares outstanding. The Company has no dilutive potential
common shares outstanding.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-earning deposits in financial institutions and federal
funds sold. Generally, federal funds are sold for one day periods.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
SFAS 125, "Accounting for the Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," as amended by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of SFAS 125," was effective for the Company
beginning January 1, 1997. SFAS 125 provides new accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
"financial-components" approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. In December 1996, the Financial Accounting Standards Board
("FASB") issued SFAS 127, "Deferral of the Effective Date of Certain Provisions
of SFAS 125," which deferred the effective date of certain provisions of SFAS
125 for one year. Neither the adoption of SFAS 125 nor SFAS 127 had 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.
Additionally, in June 1997, the FASB issued SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information," which required reporting
information regarding the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance. The Company
manages its business on the basis of one reportable segment, focusing primarily
on retail and commercial banking activities.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements to
conform with the current year's presentation.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and fair value of investment securities available for sale
are as follows at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Corporate $144,301 $866 ($239) $144,928
U.S. government agencies and corporations 46,327 66 (143) 46,250
U.S. Treasury 505 4 509
States and political subdivisions 1,188 24 1,212
-------- ------ ----- --------
Total debt securities 192,321 960 (382) 192,899
Preferred Stock and other equity securities 12,626 99 12,725
-------- ------ ----- --------
Total $204,947 $1,059 ($382) $205,624
======== ====== ===== ========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Corporate $170,335 $498 ($506) $170,327
U.S. government agencies and corporations 26,550 120 (537) 26,133
U.S. Treasury 12,084 (73) 12,011
States and political subdivisions 1,178 19 1,197
--------------- -------------- -------------- ---------------
Total debt securities 210,147 637 (1,116) 209,668
Preferred Stock and other equity securities 8,745 181 (7) 8,919
--------------- -------------- -------------- ---------------
Total $218,892 $818 ($1,123) $218,587
=============== ============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities held to maturity are
as follows at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations $136,467 $237 ($269) $136,435
States and political subdivisions 35,212 977 (34) 36,155
--------------- -------------- -------------- ---------------
Total $171,679 $1,214 ($303) $172,590
=============== ============== ============== ===============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations $162,176 $134 ($168) $162,142
States and political subdivisions 37,116 679 (32) 37,763
--------------- -------------- -------------- ---------------
Total $199,292 $813 ($200) $199,905
=============== ============== ============== ===============
</TABLE>
The amortized cost and fair value of debt securities available for sale and held
to maturity at December 31, 1998 by contractual maturity are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Available for Sale Held to Maturity
---------------------------------- ----------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Due in 1 year or less $70,060 $70,223 $27,172 $27,195
Due after 1 year through 5 years 121,982 122,397 108,942 109,181
Due after 5 years through 10 years 5 5 21,183 21,445
Due after 10 years 274 274 14,382 14,769
--------------- -------------- -------------- ---------------
Total $192,321 $192,899 $171,679 $172,590
=============== ============== ============== ===============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Gross gains and gross (losses) of $558 and ($5), $150 and ($14), and $476 and
($27) were realized on sales in 1998, 1997 and 1996, respectively.
Investment securities with a carrying value of approximately $13,155 and $24,688
at December 31, 1998 and 1997, respectively, were pledged to secure public
deposits, fiduciary activities and for other purposes required or permitted by
law.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Major classifications of loans were as follows at December 31:
<TABLE>
<CAPTION>
-------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Commercial $225,774 $233,343
Installment 16,468 21,015
Indirect auto 30,412
Real estate:
Mortgage 289,934 292,675
Home equity 111,446 127,587
Construction 69,640 72,415
Held for sale 16,514 4,491
VISA - credit card 14,210 16,235
Other 6,748 4,549
----------------- -----------------
Total 781,146 772,310
Allowance for loan losses (9,998) (9,772)
----------------- -----------------
Loans, net $771,148 $762,538
================= =================
-------------------
</TABLE>
The Company makes commercial, personal and residential loans primarily to
customers throughout the western suburbs of Chicago. The Company's loans to the
construction and land development industries represented 8.9% and 9.4% of total
loans at December 31, 1998 and 1997, respectively. The Company's real estate
construction loans are generally made within its market area. The Company
manages this exposure by continually reviewing local market conditions and
closely monitoring collateral values.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $14,979, $3,042 and $2,283 at December 31, 1998, 1997 and 1996, respectively.
If interest on those loans had been accrued, such income would have approximated
$615, $457 and $136 for 1998, 1997 and 1996, respectively.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
-------------------
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance, beginning of year $9,772 $9,603 $8,900
Provision for loan losses 2,563 1,623 1,505
Loans charged-off (2,732) (1,732) (1,097)
Recoveries 395 278 295
----------------- ----------------- -----------------
Balance, end of year $9,998 $9,772 $9,603
================= ================= =================
-------------------
</TABLE>
The Company's impaired loans consisted of commercial and non-residential
mortgage loans totaling $32,161 at December 31, 1998 and $17,156 at December 31,
1997. Of these impaired loans, $485 required a valuation allowance of $36 at
December 31, 1998 compared to impaired loans of $2,496 with valuation allowance
of $676 at December 31, 1997. The average outstanding balance of impaired loans
was approximately $35,856 and $15,718 for the years ended December 31, 1998 and
1997, respectively. The interest income recognized on impaired loans was
approximately $2,391 and $1,324 for the years ended December 31, 1998 and 1997,
respectively. The Company had no impaired real estate construction loans during
1998 or 1997.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain charges
collected from borrowers. At December 31, 1998 and 1997, the Company was
servicing loans for the benefit of others with aggregate unpaid principal
balances of $116,989 and $148,386, respectively.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows at December 31:
<TABLE>
<CAPTION>
----------
1998 1997
-------- --------
<S> <C> <C>
Land $ 8,018 $ 5,848
Premises 27,927 26,060
Leasehold improvements 570 679
Furniture and equipment 29,420 28,625
-------- --------
65,935 61,212
Less accumulated depreciation and amortization (32,542) (30,070)
-------- --------
Total $ 33,393 $ 31,142
======== ========
----------
</TABLE>
NOTE 5 - DEPOSITS
The major categories of deposits are summarized as follows at December 31:
<TABLE>
<CAPTION>
------------
1998 1997
---------- ----------
<S> <C> <C>
Demand and other noninterest-bearing $ 112,464 $ 124,220
NOW accounts 34,712 48,915
Money market checking 99,304 283
Money market savings 501,128 465,683
Time, $100,000 and over 81,041 84,083
Time, other 327,303 421,765
---------- ----------
Total $1,155,952 $1,144,949
========== ==========
------------
</TABLE>
Interest expense on interest-bearing deposits is summarized as follows for the
years ended December 31:
<TABLE>
<CAPTION>
---------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
NOW accounts $ 852 $ 1,286 $ 2,836
Money market checking 1,320 11
Money market savings 14,345 13,177 12,314
Time, $100,000 and over 4,817 5,100 3,675
Time, other 20,540 24,739 18,962
------- ------- -------
Total $41,874 $44,313 $37,787
======= ======= =======
---------
</TABLE>
NOTE 6 - INCOME TAXES
The income tax provision reflected in the Consolidated Statements of Income and
Comprehensive Income is as follows for the years ended December 31:
<TABLE>
<CAPTION>
---------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Current:
Federal $6,525 $7,271 $ 9,068
State 841 1,194 1,615
Deferred (243) 1,342 (2,185)
------ ------ -------
Total $7,123 $9,807 $ 8,498
====== ====== =======
---------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6 - INCOME TAXES (CONTINUED)
A reconciliation between taxes computed at the statutory income tax rates and
the consolidated effective tax rates follows:
<TABLE>
<CAPTION>
--------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory income tax rates 35.0% 35.0% 35.0%
(Decrease) increase in taxes resulting from:
Federal tax-exempt income (3.1) (2.8) (3.9)
State income taxes, net of federal tax benefit 2.3 3.0 3.2
Resolution of the Internal Revenue Service Examination (3.4)
Other (3.6) (0.8) 0.5
------ ------ ------
Consolidated effective tax rates 30.6% 31.0% 34.8%
====== ====== ======
--------
</TABLE>
The temporary differences which created deferred tax assets and liabilities at
December 31 are detailed below:
<TABLE>
<CAPTION>
--------
1998 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan loss $3,467 $3,377
Deferred compensation 1,318 1,374
Unrealized loss on securities available for sale 121
------ ------
Total deferred tax assets 4,785 4,872
------ ------
Deferred tax liabilities:
Depreciation 523 707
Unrealized gain on securities available for sale 268
Other 205 230
------ ------
Total deferred tax liabilities 996 937
------ ------
Net deferred tax assets $3,789 $3,935
====== ======
--------
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
As of December 31, 1998, the Company maintained an employee stock ownership
plan, the West Suburban Bank Employee Stock Ownership Plan (the "Plan"),
covering substantially all full-time employees who have satisfied specific age
and service requirements. The Plan is a tax-qualified stock bonus plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
The Plan is designed to provide incentives to participants by granting them an
interest in the Company's common stock in which the Plan invests. The Plan is an
individual account defined contribution plan, which means that an individual
account is established for each participant of the Plan and that the amount of
benefits payable upon retirement, termination, disability or death is based upon
service and the amount of the employer's contributions and any income, expenses,
gains or losses which may have been allocated to the participant's account.
Annual contributions were made in accordance with resolutions passed by the
board of directors of the Bank and in aggregate amounted to $1,387 in 1998,
$1,347 in 1997 and $1,221 in 1996. The Bank also maintains deferred compensation
plans in which former and current executive officers participate. The deferred
compensation expense for the years ended December 31, 1998, 1997 and 1996
amounted to $140, $204 and $406, respectively. The deferred compensation plans
are not qualified under the Code and, therefore, tax deductions are allowed only
when benefits are paid.
During 1996, the Company terminated the Aurora Federal Savings Bank, F.S.B.
Pension Plan (the "Aurora Pension Plan"). The Aurora Pension Plan was a
successor plan to the Financial Institutions Retirement Fund program (the "FIRF
Plan") which the former thrift subsidiary maintained prior to its acquisition by
the Company. As a result of the termination of the Aurora Pension Plan,
approximately $1.1 million of excess assets reverted to the Company. This amount
was recognized as income by the Company during 1996 and is reflected in other
operating income-other.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These financial instruments involve, to varying degrees,
elements of credit and interest rate risks in addition to the amount recognized
in the consolidated balance sheets. The contractual amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit risk in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. The Company
generally requires collateral or other security to support financial instruments
with credit risk. A summary of the contractual amount of the Company's exposure
to off-balance-sheet risk as of December 31 is as follows:
<TABLE>
<CAPTION>
----------
1998 1997
-------- --------
<S> <C> <C>
Financial instruments whose contractual amounts
represent credit risks:
Commitments to extend credit $332,417 $292,527
Letters of credit 14,423 19,912
-------- --------
Total $346,840 $312,439
======== ========
----------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other terminating clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being exercised, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies and
may include accounts receivable, inventory, property and equipment or commercial
or residential properties.
Letters of credit written are conditional commitments issued by the Company to
either extend credit to a customer or guarantee the performance of a customer to
a third party. Guarantees of performance are primarily issued to support public
and private borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. The Company holds collateral supporting those commitments for
which collateral is deemed necessary. The extent and nature of collateral held
for those commitments varies.
NOTE 9 - CONTINGENT LIABILITIES
The Company is a party to various legal actions arising from normal business
activities. Management believes that pending actions are either without merit or
that the ultimate liability, if any, resulting from them will not materially
affect the Company's consolidated financial position or results of operations.
NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
Estimated fair values of financial instruments have been calculated based on
certain assumptions and selected data from within the Company's various
financial instrument classifications. For short-term maturing assets (i.e., cash
and due from banks, federal funds sold and interest-earning deposits in
financial institutions) it has been assumed that their estimated fair values
approximate their carrying values. Similarly, for loans and deposits with
variable interest rates, it has been assumed that their estimated fair values
also approximate their carrying values.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE (CONTINUED)
The estimated fair values of the Company's financial instruments as of December
31 are set forth in the table below:
<TABLE>
<CAPTION>
---------------------------------------
1998 1997
------------------------------------- -------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $106,863 $106,863 $60,334 $60,334
Investment securities:
Available for sale 205,624 205,624 218,587 218,587
Held to maturity 171,679 172,590 199,292 199,905
Loans, less allowance for loan losses 771,148 792,146 762,538 772,410
----------------- --------------- --------------- -----------------
Total financial assets $1,255,314 $1,277,223 $1,240,751 $1,251,236
================= =============== =============== =================
Financial liabilities:
Deposits $1,155,952 $1,162,358 $1,144,949 $1,159,387
----------------- --------------- --------------- -----------------
Total financial liabilities $1,155,952 $1,162,358 $1,144,949 $1,159,387
================= =============== =============== =================
---------------------------------------
</TABLE>
The fair values for investment securities were derived from quoted market values
as of the close of business on December 31, 1998 and 1997 when available, or,
when quotes were not available, the fair value was estimated based on quoted
prices of comparable securities. The fair values for loans, less allowance for
loan losses were estimated by discounting the future cash flows from loan
repayments using current interest rates for loans having comparable maturities.
The fair values for deposits were estimated using the present value discounted
cash flow method at discount rates comparable to current market rates for
similar liabilities.
Off-balance-sheet items which totaled $346,840 at December 31, 1998 and $312,439
at December 31, 1997 are primarily comprised of unfunded loan commitments which
are generally priced at market at the time of funding. There is no material
difference between the contractual amount and the estimated fair value of
off-balance-sheet items.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors and officers of the Company, and some of the corporations and
firms with which these individuals are associated, are customers of the Bank in
the ordinary course of business, and/or are indebted to the Bank for loans of
$60,000 or more. It is anticipated that they will continue to be customers of
and indebted to the Bank in the future. All such loans, however, were made in
the ordinary course of business, which did not involve more than the normal risk
of collectibility or present other unfavorable features, and were made on
substantially the same terms, including interest rates and collateral provided,
as those prevailing at the same time for comparable loans made by the Bank in
transactions with unaffiliated persons, although directors were regularly
allowed the lowest interest rate given to others on personal loans.
Certain officers and directors of the Company, their affiliates and companies in
which they have 10% or more beneficial ownership, were indebted to the Company
in the aggregate amount of $17,944 and $22,570 at December 31, 1998 and 1997,
respectively. During 1998, $20,294 in additions and $24,920 in reductions
occurred.
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS
West Suburban is economically dependent on the cash dividends received from the
Bank. These dividends represent the primary cash flow used to fund dividend
payments to West Suburban's shareholders. Cash dividends received by West
Suburban amounted to $9,488, $20,747 and $8,136 for the years ended December 31,
1998, 1997 and 1996, respectively. The Company and the Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements results in the initiation
of certain mandatory and possibly additional discretionary - actions by
regulators that, if undertaken, could have direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, each entity must meet
specific capital guidelines that involve quantitative measures of each entity's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
NOTE 12 - INVESTMENT IN SUBSIDIARY AND REGULATORY RESTRICTIONS (CONTINUED)
Capital amounts and classifications are also subject to qualitative judgements
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital to risk-weighted assets,
and of Tier 1 capital to average assets. Management believes as of December 31,
1998, that the Company and the Bank met all capital adequacy requirements to
which they were subject.
Management's present policy is to limit the amount of dividends from the Bank
such that the Bank qualifies as a "well-capitalized" institution as defined by
the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended,
thereby minimizing the amount of FDIC insurance premiums paid by the Bank and
providing capital to fund growth. As of December 31, 1998, the Bank could pay,
in the aggregate, dividends totaling $22,879 to West Suburban while remaining a
"well-capitalized" institution. The Bank could pay additional dividends without
seeking regulatory approval.
As of December 31, 1998 and 1997, the most recent notifications from the FDIC
categorized the Company and Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well-capitalized"
West Suburban and the Bank must maintain minimum ratios for total capital to
risk weighted assets, Tier 1 capital to risk weighted assets and Tier 1 capital
to average assets as set forth in the table. There are no conditions or events
since that notification that management believes would result in a change of the
category. The capital amounts and ratios of the Company and the Bank are also
presented in the table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
------------------------ --------------------- -----------------------
AS OF DECEMBER 31, 1998 Amount Ratio Amount Ratio Amount Ratio
------------- --------- ----------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. $142,703 13.5% $84,721 8.0% N/A N/A
West Suburban Bank 127,241 12.2 83,490 8.0 $104,362 10.0%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 132,660 12.5 43,361 4.0 N/A N/A
West Suburban Bank 117,198 11.3 41,745 4.0 62,617 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 132,660 10.4 51,275 4.0 N/A N/A
West Suburban Bank 117,198 9.2 51,179 4.0 63,973 5.0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
------------------------ --------------------- -----------------------
AS OF DECEMBER 31, 1997 Amount Ratio Amount Ratio Amount Ratio
------------- --------- ----------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. $140,781 13.7% $82,252 8.0% N/A N/A
West Suburban Bank 120,242 11.6 83,276 8.0 $104,095 10.0%
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
West Suburban Bancorp, Inc. 131,009 12.7 41,126 4.0 N/A N/A
West Suburban Bank 110,470 10.6 41,638 4.0 62,457 6.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
West Suburban Bancorp, Inc. 131,009 10.2 51,386 4.0 N/A N/A
West Suburban Bank 110,470 8.3 53,400 4.0 66,750 5.0
</TABLE>
In accordance with the regulations of the Board of Governors of the Federal
Reserve System, the Bank must maintain noninterest-earning cash balances with
the Federal Reserve Bank of Chicago. The average amount of these balances for
years ended December 31, 1998 and 1997 was approximately $13,287 and $10,436,
respectively.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
NOTE 13 - COMMON STOCK
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998, the
shareholders approved an amendment to West Suburban's Articles of Incorporation,
the effect of which was to redesignate each share of Class A Common Stock and
each share of Class B Common Stock outstanding as Common Stock. Additionally,
the number of votes per share of Common Stock was reduced from five votes per
share to one vote per share on all matters submitted to the shareholders of West
Suburban. The amendment to West Suburban's Articles of Incorporation also
increased the number of shares of Common Stock that West Suburban is authorized
to issue from two million to fifteen million shares.
NOTE 14 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. This
standard requires all derivatives to be recorded on the balance sheet at fair
value and establishes "special accounting" for the following three different
types of hedges: hedges of changes in the fair value of assets, liabilities, or
firm commitments (referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investment in foreign operations. SFAS 133 is
effective for years beginning after June 15, 1999. The Company has not yet
determined if the adoption of SFAS 133 will have an effect on the Company's
financial condition or results of operations.
NOTE 15 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
----------
ASSETS 1998 1997
-------- --------
<S> <C> <C>
Cash on deposit in subsidiary $ 22,476 $ 22,618
Equity investment in subsidiary 117,607 110,286
Intangibles, net 1,324 1,527
Other assets 123 107
-------- --------
TOTAL ASSETS $141,530 $134,538
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 7,136 $ 2,162
Other liabilities 1 23
-------- --------
TOTAL LIABILITIES 7,137 2,185
Shareholders' equity 134,393 132,353
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,530 $134,538
======== ========
----------
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
---------
OPERATING INCOME 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividends from subsidiary $ 9,488 $20,747 $ 8,136
Interest income on investment securities 135
Other interest income 730 538 337
------- ------- -------
Total operating income 10,353 21,285 8,473
------- ------- -------
OPERATING EXPENSE
Amortization of intangibles 204 204 204
Other 593 481 240
------- ------- -------
Total operating expense 797 685 444
------- ------- -------
Income before income taxes 9,556 20,600 8,029
Income tax expense 107 25 41
------- ------- -------
Income before equity in undistributed net income of subsidiary 9,449 20,575 7,988
Equity in undistributed net income of subsidiary 6,729 1,209 7,954
------- ------- -------
NET INCOME $16,178 $21,784 $15,942
======= ======= =======
---------
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
NOTE 15 - CONDENSED FINANCIAL INFORMATION - PARENT ONLY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
----------
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income $ 16,178 $ 21,784 $ 15,942
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of subsidiary (6,729) (1,209) (7,954)
Net premium amortization and discount accretion of
investment securities (135)
Amortization of intangibles 204 204 204
(Increase) decrease in other assets (16) (104) 6
Decrease in other liabilities (22) (20)
-------- -------- --------
Total adjustments (6,698) (1,129) (7,744)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,480 20,655 8,198
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities 45,000
Purchases (44,865)
Purchase of minority interest in subsidiaries (26) (208)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 109 (208)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (9,731) (7,569) (6,812)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (9,731) (7,569) (6,812)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH (142) 12,878 1,386
CASH AT BEGINNING OF YEAR 22,618 9,740 8,354
-------- -------- --------
CASH AT END OF YEAR $ 22,476 $ 22,618 $ 9,740
======== ======== ========
----------
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(UNAUDITED)
The following table consists of financial data derived from the Consolidated
Financial Statements of the Company. This information should be read together
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Consolidated Financial Statements included
elsewhere in this report (dollars in thousands, except per share data).
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Interest income $ 91,737 $ 95,208 $ 88,558 $ 83,428 $ 69,112
Interest expense 42,054 44,700 38,359 37,414 27,431
---------- ---------- ---------- ---------- ----------
Net interest income 49,683 50,508 50,199 46,014 41,681
Provision for loan losses 2,563 1,623 1,505 1,850 2,216
---------- ---------- ---------- ---------- ----------
Net interest income after provisions 47,120 48,885 48,694 44,164 39,465
Other operating income (1) 7,416 12,396 9,896 7,824 9,685
Other operating expense 31,235 29,690 34,150 30,192 27,173
---------- ---------- ---------- ---------- ----------
Income before income taxes 23,301 31,591 24,440 21,796 21,977
Income taxes 7,123 9,807 8,498 8,271 8,951
---------- ---------- ---------- ---------- ----------
Net income $ 16,178 $ 21,784 $ 15,942 $ 13,525 $ 13,026
========== ========== ========== ========== ==========
PER SHARE DATA
Earnings - Basic $ 37.41 $ 50.37 $ 36.86 $ 31.27 $ 30.12
Cash dividends declared 34.00 18.50 16.00 15.00 13.75
Book value 310.74 306.02 273.62 254.73 226.53
SELECTED BALANCES
Investment securities $ 377,303 $ 417,879 $ 328,769 $ 250,556 $ 226,007
Net loans 771,148 762,538 784,242 760,687 709,205
Total assets 1,308,953 1,293,691 1,235,604 1,154,349 1,041,495
Deposits 1,155,952 1,144,949 1,099,397 1,029,789 923,257
Shareholders' equity 134,393 132,353 118,338 110,168 97,971
RATIOS
Return on average total assets 1.26% 1.71% 1.38% 1.27% 1.29%
Return on average shareholders' equity 11.77 17.48 13.93 13.03 13.29
Cash dividends paid to net income 60.15 34.74 42.73 47.16 44.10
Average equity to average total assets 10.73 9.78 9.90 9.71 9.67
Net interest margin (FTE)(2) 4.03 4.13 4.50 4.43 4.21
----------
</TABLE>
(1) Other operating income includes the following gains on sales of loans for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994
respectively: $807, $280, $151, $110 and $213. Other operating income in
1997 also includes a $2,344 settlement of a claim related to an
investment that the Company made during the late 1980's.
(2) Net interest margin is presented on a tax equivalent basis, assuming a
federal income tax rate of 35% and a state income tax rate of 7.3%.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME AND
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
(Dollars in thousands)
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
and the resultant costs, expressed both in dollars and rates. All average
balances are daily average balances. To the extent received, interest on
nonaccruing loans has been included in the table.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- --------------------------- -------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning deposits in
financial institutions $505 $27 5.3% $286 $12 4.2% $301 $16 5.3%
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Federal funds sold 58,181 3,062 5.3 35,879 1,978 5.5 34,719 1,840 5.3
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Investment securities:
Corporate 150,697 9,528 6.3 107,036 6,978 6.5 67,382 4,453 6.6
U.S. government agencies
and corporations (1) 184,372 12,122 6.6 204,541 14,152 6.9 123,145 8,089 6.6
U.S. Treasury 8,173 428 5.2 15,109 782 5.2 19,308 975 5.0
States and political
subdivisions (1) 37,503 2,806 7.5 40,475 3,060 7.6 39,626 3,137 7.9
Preferred stock and other
equity securities 6,890 472 6.9 10,419 562 5.4 13,632 781 5.7
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total investment
securities (1) 387,635 25,356 6.5 377,580 25,534 6.8 263,093 17,435 6.6
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Loans:
Commercial (1)(2)(3) 288,091 26,729 9.3 302,774 28,722 9.5 298,872 28,307 9.5
Installment (3) 21,605 1,954 9.0 38,677 3,518 9.1 37,883 3,487 9.2
Indirect auto 9,113 970 10.6
Mortgage 291,101 23,051 7.9 291,578 24,021 8.2 299,492 24,812 8.3
Home equity 119,552 10,008 8.4 125,497 10,538 8.4 121,543 11,161 9.2
Visa and other 18,719 2,447 13.1 23,129 2,976 12.9 23,582 3,390 14.4
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total loans (1) 748,181 65,159 8.7 781,655 69,775 8.9 781,372 71,157 9.1
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total interest-earning
assets (1) 1,194,502 $93,604 7.8% 1,195,400 $97,299 8.1% 1,079,485 $90,448 8.4%
Cash and due from banks 37,555 37,991 37,349
Premises and equipment, net 32,103 30,796 29,935
Other real estate 2,686 2,525 5,208
Allowance for loan losses (9,467) (9,898) (9,432)
Accrued interest and other
assets (4) 22,605 17,406 13,907
---------- ---------- ----------
TOTAL ASSETS $1,279,984 $1,274,220 $1,156,452
========== ========== ==========
------------------------------
</TABLE>
1) Interest income and yields are presented on a tax equivalent basis,
assuming a federal income tax rate of 35% and a state income tax rate of
7.3%.
2) Commercial includes construction and development loans.
3) In early 1998, installment loans ($20.2 million) for commercial customers
were reclassified to commercial loans. Average balances for 1997 and 1996
were not adjusted to reflect this change.
4) The average balances of nonaccrual loans are included in accrued interest
and other assets.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF ASSETS AND NET INTEREST INCOME AND
AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS
(UNAUDITED)
(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- --------------------------- -------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $44,617 $852 1.9% $91,868 $1,286 1.4% $177,019 $2,836 1.6%
Money market checking 29,049 1,320 4.5 235 11 4.7
Money market savings 506,801 14,345 2.8 431,513 13,177 3.1 347,650 12,314 3.5
Time deposits:
Less than $100,000 360,241 20,540 5.7 421,156 24,739 5.9 334,177 18,962 5.7
$100,000 and greater 83,815 4,817 5.7 87,996 5,100 5.8 63,079 3,675 5.8
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
Total interest-bearing
deposits 1,024,523 41,874 4.1 1,032,768 44,313 4.3 921,925 37,787 4.1
Federal funds purchased 2,397 133 5.5 7,710 419 5.4
Deferred compensation 2,820 180 6.4 2,545 200 7.9 1,684 79 4.7
FHLB advances 911 54 5.9 1,366 74 5.4
---------- --------- ------- ---------- --------- ------ ------------ --------- --------
TOTAL INTEREST-
BEARING LIABILITIES 1,027,343 42,054 4.1 1,038,621 44,700 4.3 932,685 38,359 4.1
--------- ------- --------- ------ --------- --------
Demand deposits 107,984 110,248 103,448
Other liabilities 7,253 719 5,864
Shareholders' equity 137,404 124,632 114,455
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,279,984 $1,274,220 $1,156,452
========== ========== ==========
Net interest income $51,550 $52,599 $52,089
========= ========= =========
Net interest margin 4.0% 4.1% 4.5%
======= ====== ========
Net yield on interest-
earning assets 4.3% 4.4% 4.8%
======= ====== ========
------------------------------
</TABLE>
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24
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's financial condition as of December 31, 1998 and 1997 and results of
operations for the years ended December 31, 1998, 1997 and 1996. The discussion
and analysis should be read in conjunction with the financial statements, notes
and tables included elsewhere in this annual report. The financial information
provided below may be rounded to the nearest decimal in order to simplify the
presentation of management's discussion and analysis. However, the ratios and
percentages provided below are calculated (adjusted for rounding) using the
detailed financial information contained in the financial statements, notes and
tables included elsewhere in this annual report.
BALANCE SHEET ANALYSIS
TOTAL CONSOLIDATED ASSETS. Total consolidated assets of the Company increased
$15.3 million (1.2%) to $1,309.0 million at December 31, 1998 from $1,293.7
million at December 31, 1997. Increases in federal funds sold were the largest
component of the increase in total consolidated assets.
CASH AND CASH EQUIVALENTS. The Company's cash and cash equivalents increased
$46.6 million (77.1%) to $106.9 million at December 31, 1998 from $60.3 million
at December 31, 1997. Although the Company is likely to maintain higher levels
of liquidity during late 1999 and early 2000 than in the past, the increase in
cash and cash equivalents at December 31, 1998 resulted primarily from the
Company's increased holdings in federal funds sold as the Company elected to
decrease its holdings of investment securities due to the level of interest
rates.
INVESTMENT SECURITIES. Aggregate holdings in investment securities decreased
$40.6 million (9.7%) to $377.3 million at December 31, 1998 from $417.9 million
at December 31, 1997. The decrease in investment securities was primarily the
result of redemptions of securities by issuers as they have exercised their call
or redemption rights. 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.
LOANS. Total loans outstanding increased $8.8 million (1.1%) to $781.1 million
at December 31, 1998 from $772.3 million at December 31, 1997. During 1998, the
Company recorded approximately $30.4 million of net indirect auto loans. Home
equity loans decreased $16.1 million to $111.5 million at December 31, 1998 from
$127.6 at December 31, 1997, as more customers took advantage of the lower
mortgage rates to consolidate their debt. 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.
Additionally, the Company hired a new commercial lender and continues to seek
additional commercial lenders.
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, 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 $.2 million to
$10.0 million at December 31, 1998 from $9.8 million at December 31, 1997. The
ratio of the allowance for loan losses to total loans outstanding increased at
December 31, 1998 to 1.28% compared to 1.27% at December 31, 1997. Nonperforming
loans increased $10.7 million (136.3%) to $18.6 million at December 31, 1998
from $7.9 million at December 31, 1997. This increase was primarily due to the
credit relationship with a leasing company being categorized as nonaccrual
during the third quarter of 1998. The allowance for loan losses as of December
31, 1998 was approximately 54% and 124% of the level of nonperforming loans at
December 31, 1998 and December 31, 1997, respectively. As of December 31, 1998,
the total nonperforming loans to total loans was 2.4% compared to 1.0% at
December 31, 1997.
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25
<PAGE>
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The following table is an analysis of the Company's nonperforming loans at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
-----------------
1998 1997 Dollar Change
--------------- --------------- ------------------
<S> <C> <C> <C>
Nonaccrual loans $14,979 $3,042 $11,937
Accruing loans 90 days past due 3,621 4,829 (1,208)
--------------- --------------- ------------------
Total nonperforming loans $18,600 $7,871 $10,729
=============== =============== ==================
Nonperforming loans as a percent of total loans 2.4% 1.0%
Other real estate $1,742 $2,450 ($708)
=============== =============== ==================
-----------------
</TABLE>
As of December 31, 1998, the Company had $9.4 million in credit exposure to a
leasing company consisting of a warehouse line of credit with a principal
balance of $7.3 million and $2.1 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 of 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 has arranged for the continued servicing of the
leases. The Company is evaluating the continued retention or sale of these
leases as well as the purchased leases. The Company is also conducting
negotiations with the guarantors of the leasing company's obligations and
exploring other possible ways to maximize realizations.
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 investment 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.
OTHER REAL ESTATE. During 1998, other real estate decreased $.7 million (28.9%)
to $1.7 million at December 31, 1998 from $2.4 million at December 31, 1997.
Sales of properties had an aggregate carrying value of $3.1 million while
additions of properties totaled $2.4 million. Management continues its efforts
to reduce its holdings in other real estate.
DEPOSITS. Total deposits increased $11.0 million (1.0%) to $1,156.0 million at
December 31, 1998 from $1,145.0 million at December 31, 1997. This increase was
primarily due to money market checking deposits. During the second quarter of
1998, the Company promoted a money market checking account as an alternative to
savings accounts or certificates of deposit. The Company has attracted $99.0
million in money market checking from new funds and run-off from existing higher
rate certificates of deposit instruments. The Company believes that, in a
declining interest rate environment, the cost of offering special rates to
attract deposits outweighs any perceived benefits.
Year-end balances in the Company's major categories of deposits for December 31
are summarized in the following table (dollars in thousands):
<TABLE>
<CAPTION>
------------
Dollar Percent
1998 1997 Change Change
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
Demand and other noninterest-bearing $ 112,464 $ 124,220 ($11,756) (9.5)%
NOW accounts 34,712 48,915 (14,203) (29.0)
Money market checking 99,304 283 99,021 N/A
Money market savings 501,128 465,683 35,445 7.6
Time, $100,000 and over 81,041 84,083 (3,042) (3.6)
Time, other 327,303 421,765 (94,462) (22.4)
---------- ---------- -------- -----
Total $1,155,952 $1,144,949 $ 11,003 1.0%
========== ========== ======== =====
------------
</TABLE>
The Company attempts to remain well positioned in its market by offering
competitive rates on its savings and certificate of deposit products. Although
the Company promotes its deposit products when appropriate, management does not
intend to compromise its net interest margin to attract deposits.
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26
<PAGE>
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CAPITAL RESOURCES
Shareholders' equity increased $2.0 million (1.5%) to $134.4 million at December
31, 1998 from $132.4 million at December 31, 1997. This increase was primarily
the result of the net retention (after the declaration of dividends) of $2.0
million of the Company's comprehensive income during 1998.
At the Annual Meeting of Shareholders of West Suburban held on May 13, 1998, the
shareholders approved an amendment to West Suburban's Articles of Incorporation
the effect of which was to redesignate each share of Class A Common Stock and
each share of Class B Common Stock outstanding as Common Stock. Additionally,
the number of votes per share of Common Stock was reduced from five votes per
share to one vote per share on all matters submitted to the shareholders of West
Suburban. The amendment to West Suburban's Articles of Incorporation also had
the effect of increasing the number of shares of Common Stock that West Suburban
is authorized to issue from two million to fifteen million shares.
Management has been advised that as of December 31, 1998 and 1997, the Bank
qualified as a "well-capitalized" institution as defined by the Federal Deposit
Insurance Corporation Improvement Act of 1991, as amended.
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 an
investment portfolio structured to provide liquidity as needed.
The Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality, interest sensitivity and maturity schedules
of earning assets and 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 loss. These assets include interest-earning deposits in financial
institutions and the FHLB, federal funds sold and investment securities
available for sale. As of December 31, 1998 and 1997, liquid assets represented
23.9% and 21.6% of total assets, respectively.
During 1998, the Company's cash and cash equivalents increased $46.5 million.
Cash and cash equivalents from investing activities increased $32.0 million,
from operating activities increased $13.3 million and from financing activities
increased $1.2 million.
INCOME STATEMENT ANALYSIS - 1998 COMPARED TO 1997
GENERAL. The Company's net income of $16.2 million represented a decrease of
$5.6 million (25.7%) from 1997 net income of $21.8 million. This was primarily
due to the decrease in other operating income of $5.0 million in 1998 when
compared to the same period in 1997. Total other operating expense increased
$1.5 million during this period. Net interest income decreased $.9 million while
the provision for loan losses increased $1.0 million. These decreases to income
and increases to expense were partially offset by a decrease in income tax
expense of $2.7 million.
NET INTEREST INCOME. Net interest income is the primary source of income for the
Company. Net interest income is the difference between interest income earned on
earning assets and interest expense paid on interest-bearing liabilities. As
such, net interest income is affected by changes in the volume and yields on
earning assets and the volume and rates paid on interest-bearing liabilities.
Interest-earning assets consist of loans, deposits in financial institutions,
deposits in the FHLB, federal funds sold and investment securities.
Interest-bearing liabilities primarily consist of deposits, federal funds
purchased and FHLB advances. The net interest margin is the difference between
tax equivalent net interest income and average earning assets. Total interest
income, on a tax equivalent basis, decreased $3.7 million (3.8%) to $93.6
million for the year ended December 31, 1998 from $97.3 million for the same
period ended December 31, 1997. This decrease resulted from a decrease of $2.6
million due to declining yields and $1.1 million due to declines in average
interest-earning balances primarily associated with the loan portfolio. The
Company's average interest-earning assets declined $.9 million to $1,194.5
million at December 31, 1998 from $1,195.4 million at December 31, 1997. Yields
on total average interest-earning assets decreased primarily due to higher
average levels of investment securities (which generally have lower yields when
compared to loans). Yields on the Company's loan portfolio declined primarily
due to a higher level of refinancing with the real estate portfolio.
Additionally, interest
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
on the loan portfolio declined as the positive impact of indirect auto loans was
offset by declining average balances for all other major components. Interest on
the Company's securities portfolio also declined as higher average balances
outstanding were invested in lower yielding securities resulting from a
declining interest rate environment.
Total interest expense decreased $2.6 million (5.9%) to $42.1 million for the
year ended December 31, 1998 from $44.7 million for the year ended December 31,
1997. This decrease was primarily due to declines in average balances. Average
interest-bearing liabilities decreased $11.3 million (1.1%) to $1,027.3 million
for the year ended December 31, 1998 compared to $1,038.6 million for the year
ended December 31, 1997. This was primarily due to reduced holdings of
certificates of deposit.
The following table reflects the impact of changes in volume and interest rates
on interest-earning assets and interest-bearing liabilities on a tax equivalent
basis for each of the two years ended December 31, 1998 and 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
-----------------------------------
December 31, 1998 December 31, 1997
compared to 1997 compared to 1996
Change due to: Change due to:
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning deposits in
financial institutions $ 12 $ 3 $ 15 $ (1) $ (3) $ (4)
Federal funds sold 1,174 (90) 1,084 64 74 138
Investment securities 680 (858) (178) 7,690 409 8,099
Loans (2,915) (1,701) (4,616) 25 (1,407) (1,382)
------- ------- ------- ------- ------- -------
Total interest income (1,049) (2,646) (3,695) 7,778 (927) 6,851
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing deposits (2,095) (344) (2,439) 6,525 1 6,526
Borrowed funds and deferred
compensation 18 (225) (207) (253) 68 (185)
------- ------- ------- ------- ------- -------
Total interest expense (2,077) (569) (2,646) 6,272 69 6,341
------- ------- ------- ------- ------- -------
Net interest income $ 1,028 $(2,077) $(1,049) $ 1,506 $ (996) $ 510
======= ======= ======= ======= ======= =======
-----------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses increased
$1.0 million (57.9%) to $2.6 million in 1998 compared to $1.6 million in 1997.
This was primarily due to the increase in charge-offs during 1998. A more
detailed discussion concerning the allowance for loan losses is presented in the
Allowance for Loan Losses and Asset Quality section of this report.
OTHER OPERATING INCOME. During 1998, other operating income decreased $5.0
million (40.2%) to $7.4 million in 1998 compared to $12.4 million in 1997. This
decrease was primarily due to the receipt of settlement proceeds in 1997, of
$2.3 million relating to a claim arising from an investment that the Company
made during the late 1980's. During the first quarter of 1997, the Company also
sold its interest in a property held as other real estate for $1.5 million. As
the property had been written off, this amount represented a gain recognized as
other operating income. Additionally, 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 Class B Notes, which were classified
as available for sale investment securities. This loss was partially offset by
$.4 million from gains on sales of investment securities. Gains on sales of
loans originated for sale increased $.5 million for the year ended December 31,
1998 compared to the same period in 1997. The Company does not presently retain
servicing on sold loans which has resulted in decreasing servicing fees that is
recognized by increased gains on sales of loans originated for sale. Other
income increased $1.0 million primarily due to increased fees from checking and
mortgage application volume.
OTHER OPERATING EXPENSE. Total other operating expense increased $1.5 million
(5.2%) to $31.2 million in 1998 compared to $29.7 million in 1997. Occupancy
expense and furniture and equipment expense each increased $.4 million. Other
real estate expense decreased $.2 million as management reduced its holdings in
other real estate owned. Data processing expense increased $.3 million. Other
expense increased $.6 million primarily due to increased loan expense, other
losses and outside temporary services.
INCOME TAXES. Income tax expense decreased $2.7 million (27.4%) to $7.1 million
in 1998 from $9.8 million in 1997, resulting principally from lower taxable
income.
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28
<PAGE>
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RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.26% for
1998 and 1.71% for 1997. This decrease was primarily due to lower net income for
1998.
INCOME STATEMENT ANALYSIS - 1997 COMPARED TO 1996
GENERAL. The Company's 1997 net income of $21.8 million represented an increase
of $5.9 million (36.6%) from 1996 net income of $15.9 million. This was
primarily due to the decrease in other real estate expense of $4.5 million in
1997 when compared to the same period in 1996. Other operating income increased
by $2.5 million during this period and net interest income improved by $.3
million. These increases to income were partially offset by an increase in
income tax expense of $1.3 million.
NET INTEREST INCOME. Total interest income, on a tax equivalent basis, increased
$6.9 million (7.6%) to $97.3 million for the year ended December 31, 1997 from
$90.4 million for the year ended December 31, 1996. This increase resulted from
an increase of $7.8 million due to growth in average interest-earning balances,
which was partially offset by $.9 million due to declining yields. The Company's
average interest-earning assets grew $115.9 million (10.7%) to $1,195.4 million
at December 31, 1997 from $1,079.5 million at December 31, 1996. Yields on the
Company's loan portfolio declined primarily from the Company reducing its rates
on its home equity lines from prime plus one to prime. This reduction in rates
was a result of competitive conditions surrounding this product. Yields on total
interest-earning assets decreased during 1997. This decrease was offset by
improvements in the federal funds sold and investment securities portfolio.
Specifically, the Company's average federal funds rate increased to 5.5% for
1997 from 5.3% for 1996. Additionally, interest on the securities portfolio
increased primarily due to higher yields on U.S. government agencies and
corporations along with higher average outstanding balances.
Total interest expense increased $6.3 million (16.5%) to $44.7 million for the
year ended December 31, 1997 from $38.4 million for the year ended December 31,
1996. This increase was due to growth in average balances. Average
interest-bearing liabilities increased $105.9 million (11.4%) to $1,038.6
million for the year ended December 31, 1997 from $932.7 million for the year
ended December 31, 1996 primarily due to deposit promotions.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $.1 million
(7.8%) to $1.6 million in 1997 compared to $1.5 million in 1996. A more detailed
discussion concerning the allowance for loan losses is presented in the
Allowance for Loan Losses and Asset Quality section of this report.
OTHER OPERATING INCOME. During 1997, other operating income increased $2.5
million (25.3%) to $12.4 million in 1997 compared to $9.9 million in 1996. The
Company recorded $2.3 million of income related to a settlement of a claim
arising from an investment that it made during the late 1980's. During the first
quarter of 1997, the Company also sold its interest in a property held as other
real estate for $1.5 million. As the property was previously written off, this
amount is reflected as a gain on sales of other real estate. These increases to
income were partially offset by decreases in gains on sales of investment
securities available for sale of $.3 million and service fees of $.3 million.
During 1996, the Company recorded $1.1 million of income from a refund of the
over funding of its former thrift subsidiary's terminated benefits plan.
OTHER OPERATING EXPENSE. Total operating expense decreased $4.5 million (13.1%)
to $29.7 million in 1997 from $34.2 million in 1996. Salary and employee
benefits increased $.9 million due primarily to increased salaries and severance
payouts to two former executives of the Company. Occupancy and furniture and
equipment expense increased $.2 million and $.1 million, respectively. FDIC
insurance premiums declined $1.0 million during 1997. During 1996, the Company
incurred a one-time special SAIF assessment of $.8 million payable to the FDIC
which was imposed under the Deposit Insurance Funds Act of 1996 (the "DIFA").
Professional fees decreased $.2 million during this period. Other real estate
expense decreased $4.5 million during the same period. During 1996, the Company
recognized a $3.8 million write down of a property classified as other real
estate.
INCOME TAXES. Income tax expense increased $1.3 million (15.4%) to $9.8 million
in 1997 from $8.5 million in 1996. This increase was principally due to higher
taxable income and includes a reevaluation of the Company's tax position. The
primary reason for the reduction in the overall consolidated effective tax rate
was a result of the reversal of an income tax reserve established in prior
years. This reserve was no longer necessary as a result of an Internal Revenue
Service settlement in 1996.
RETURN ON AVERAGE TOTAL ASSETS. Return on average total assets was 1.71% for
1997 and 1.38% for 1996 as net income and average total assets grew.
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29
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IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. This
standard requires all derivatives to be recorded on the balance sheet at fair
value and establishes "special accounting" for the following three different
types of hedges: hedges of changes in the fair value of assets, liabilities, or
firm commitments (referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investment in foreign operations. SFAS 133 is
effective for years beginning after June 15, 1999. The Company has not yet
determined if the adoption of SFAS 133 will have an effect on the Company's
financial condition or results of operations.
INTEREST RATE SENSITIVITY
The Company attempts to maintain a conservative posture with regard to interest
rate risk by actively managing its asset/liability gap position and constantly
monitoring the direction and magnitude of gaps and risk. The Company attempts to
moderate the effects of changes in interest rates by adjusting its asset and
liability mix to achieve desired relationships between rate sensitive assets and
rate sensitive liabilities. Rate sensitive assets and liabilities are those
instruments that reprice within a given time period. An asset or liability
reprices when its interest rate is subject to change or upon maturity.
Movements in general market interest rates are a key element in changes in the
net interest margin. The Company's policy is to manage its balance sheet so that
fluctuations in net interest margin are minimized regardless of the level of
interest rates, although the net interest margin does vary somewhat due to
management's response to increasing competition from other financial
institutions.
Listed below are the balances in the major categories of rate sensitive assets
and liabilities that are subject to repricing as of December 31, 1998 (dollars
in thousands):
<TABLE>
<CAPTION>
Over
Three Over One
Three Months to Year to
Months or Twelve Five Over Five
Less Months Years Years Total
-------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Interest-bearing deposits in financial
institutions $624 $100 $724
Federal funds sold 64,590 64,590
Investment securities 28,599 47,423 $259,734 $41,547 377,303
Loans 268,943 192,958 237,482 66,784 766,167
-------------- ------------- ------------- ------------- ----------------
Total $362,756 $240,481 $497,216 $108,331 $1,208,784
============== ============= ============= ============= ================
Rate sensitive liabilities:
NOW accounts $34,712 $34,712
Money market checking 99,304 99,304
Money market savings 501,128 501,128
Time deposits:
Less than $100,000 71,058 $122,895 $111,785 $21,565 327,303
$100,000 and over 36,538 14,761 25,411 4,331 81,041
-------------- ------------- ------------- ------------- ----------------
Total $742,740 $137,656 $137,196 $25,896 $1,043,488
============== ============= ============= ============= ================
Interest sensitivity gap ($379,984) $102,825 $360,020 $82,435 $165,296
Cumulative interest sensitivity gap (379,984) (277,159) 82,861 165,296
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>
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
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30
<PAGE>
- --------------------------------------------------------------------------------
at different times and at different rate levels. Assets and liabilities are
reported in the earliest time frame in which maturity or repricing may occur.
The consolidated interest rate sensitivity position of the Company within the
one year window at December 31, 1998 reflects cumulative net interest-earning
assets compared to cumulative net interest-bearing liabilities of 68.5% and
cumulative net interest-earning assets that reprice or mature within one year
compared to similarly sensitive liabilities of negative 21.2%. The percentage
indicated for the cumulative net interest-earning assets as a percentage of
cumulative net interest-bearing liabilities is within the Company's target range
of acceptable gap values for the twelve-month time frame.
Management estimates that the Company's net interest income would change less
than $3.3 million if interest rates were to instantaneously increase or decrease
100 basis points compared to interest rates remaining stable. The Company also
estimates that a 100 basis point increase in interest rates would result in a
decrease of $19.2 million in the market value of its balance sheet assets and a
100 basis point decrease in interest rates would result in an increase of $19.0
million in the market value of such assets. These changes in market value
represent less than 1.5% of the Company's total carrying value of the total
assets as of December 31, 1998.
EFFECTS OF INFLATION
Unlike industrial companies, virtually all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than do the effect of general
levels of inflation. Interest rates do not necessarily move in the same
direction or experience the same magnitude of change as goods and services,
since such prices are affected by inflation. In the current economic
environment, liquidity and interest rate adjustments are features of the
Company's assets and liabilities which are important to the maintenance of
acceptable performance levels. The Company attempts to maintain a balance
between monetary assets and monetary liabilities, over time, to offset these
potential effects.
RECENT DEVELOPMENTS
During January 1999, the Company settled a claim relating to an investment that
it made during the late 1980's. The settlement amount of $3.6 million was
received in February 1999 and recognized as other operating income in 1999.
THE YEAR 2000
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 March 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 expensed as incurred.
The Company identifies, measures, and monitors the risks involved in its banking
activities and related operations. There are many risks and uncertainties that
the Company recognizes and given the unique circumstance of the Year 2000 issue,
the Company is unable to determine the ultimate outcome. Due to the testing,
planning, communication and coordination the Company believes that these steps
will mitigate potential material disruption. While the effort is wide ranging
and intended to fully address all Year 2000 issues, nevertheless, 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, working
with the Disaster Recovery Coordinator, has carefully analyzed related disaster
recovery and contingency planning requirements to ensure support exists, should
a Year 2000 problem arise.
- --------------------------------------------------------------------------------
31
<PAGE>
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BOARDS OF DIRECTORS
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WEST SUBURBAN BANCORP, INC.
Kevin J. Acker Chairman of the Board
David Bell Certified Public Accountant
Duane G. Debs President, Chief Financial Officer
Charles P. Howard Inner City Impact, Business Operations Director
Peggy P. LoCicero Former Banker
WEST SUBURBAN BANK
Robert W. Schulz Chairman; Oliver Hoffmann Corporation, Vice
President and Treasurer
Keith W. Acker President
Craig R. Acker Former Banker
Earl K. Harbaugh Ditch Witch of Illinois, Chief Executive Officer and
President
Ronald Kuhn Harry W. Kuhn, Inc., Secretary and Treasurer
Richard Hill Lauber J&E Duff, Inc., President
Paul J. Lehman Macom Corporation, President
Walter Myers Terrace Supply, Vice President
John G. Williams Bracing Systems, Vice President
James Bell Director Emeritus
F. Willis Caruso Director Emeritus
George Hazdra Director Emeritus
Harry Kuhn Director Emeritus
Richard P. McCarthy Director Emeritus
Harold Moser Director Emeritus
-----------------------------------------------------------------------
OFFICERS
-----------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
Duane G. Debs President, Chief Financial Officer
Keith W. Acker Chief Operations Officer
Kevin J. Acker Vice President
Michael P. Brosnahan Vice President
David J. Mulkerin Chief Compliance Officer
George E. Ranstead Secretary to the Board and Treasurer
Michael J. Lynch Director of Internal Audit
WEST SUBURBAN BANK
SENIOR OFFICERS
Keith W. Acker President
Kevin J. Acker Senior Vice President, Marketing
Michael P. Brosnahan Senior Vice President, Loans and Community
Reinvestment Act Officer
Duane G. Debs Senior Vice President, Comptroller
Raymond P. Rynne Senior Vice President, Business Services
BUILDING MANAGEMENT
Edward J. Garvey Vice President, Building Management
BUSINESS SERVICES
Terry T. Facenda Business Services Officer
- --------------------------------------------------------------------------------
32
<PAGE>
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CALL CENTER/VISA
James Mastrino Vice President, Call Center/Visa
COMMERCIAL LOANS
Stanley C. Celner, Jr. Vice President, Commercial Loans
Grant Cowen Vice President, Commercial Loans
Timothy P. Dineen Vice President, Commercial Real Estate Loans
David S. Orr Vice President, Commercial Loans
Gregory M. Ruffolo Vice President, Commercial Loans
Gregory L. Young Vice President, Commercial Loans
COMPLIANCE
David J. Mulkerin Chief Compliance Officer
COMPTROLLER'S DEPARTMENT
George E. Ranstead Vice President, Assistant Comptroller
CONSUMER LOANS
James Chippas Vice President, Consumer Lending Department Manager
William Hunter Vice President, Consumer Loans
Cynthia A. Meredith Vice President, Consumer Loans
Charles Svoboda Vice President, Consumer Loans
Karyn Tompkins Consumer Loan Officer
David Wanek Consumer Loan Officer
DATA PROCESSING
Steven A. Jennrich Vice President, Data Processing
ELECTRONIC SERVICES
Janet Kemble Assistant Vice President, Electronic Services
FINANCIAL SERVICES
Michael Abbatacola Vice President, Financial Services
HUMAN RESOURCES
Thomas L. Eliasek Vice President, Human Resources
Mary Ellen Condon Director, Employee Relations
Marie V. Dunk Assistant Vice President, Personnel Director
Joanne T. Tosch Director, Employee Development
INTERNAL AUDIT
Michael J. Lynch Vice President, Director of Internal Audit
INVESTMENTS
John A. Machonga Vice President, Investments
LOAN OPERATIONS
Karin Choate Vice President, Mortgage Servicing
Tamara L. Hatcher Vice President, Residential Mortgage Operations
Lawrence J. Ortman Vice President, Credit Analysis and Loan Review
Kevin Bussey Assistant Vice President, Collections
Debra H. Kolze Assistant Vice President, Commercial Loan Operations
Manager
LOSS PREVENTION
Allison J. Triplett Vice President, Loss Prevention Officer
MARKETING
Denise M. Zatarski Director of Marketing
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
OPERATIONS
Danielle Budig Vice President, Operations
Jacqueline R. Weigand Vice President, Operations
Jill C. Davenport Assistant Vice President, Operations
PURCHASING
Helen Schmitt Assistant Vice President, Purchasing
RETAIL BANKING
Stephen C. Pleimling Vice President, Retail Banking
Beverly J. Viscariello Vice President, Branch Manager - Oakbrook Terrace
Marcia K. Worobec Vice President, Branch Manager - Westmore, Metra
Main
Amy Andrews Assistant Vice President, Branch Manager -
Montgomery
Kathleen Brockman Assistant Vice President, Branch Manager - Lake
Sharon Buck Assistant Vice President, Branch Manager - St.
Charles
Barbara Darden Assistant Vice President, Branch Manager -
Bolingbrook West
Joyce Dudek-Fedele Assistant Vice President, Branch Manager -
Danada, Wheaton
Sharon A. Fonte Assistant Vice President, Branch Manager -
Glendale Heights
Roseann Hamilton Assistant Vice President, Branch Manager -
Carol Stream
Uma Jani Assistant Vice President, Branch Manager -
Villa Park
Kirsten Jensen Assistant Vice President, Branch Manager - Bartlett,
Fair Oaks
Norine LaPrall Assistant Vice President, Branch Manager -
Warrenville
Terri Leitner Assistant Vice President, Branch Manager - 75th,
Westmont
Sue Nuestrom Assistant Vice President, Branch Manager -
Bolingbrook East
Gwen B. O'Loughlin Assistant Vice President, Branch Manager -
North Main
Robert L. Pauling Assistant Vice President, Branch Manager -
Stratford Square, President
Cynthia Picton Assistant Vice President, Branch Manager - Galena
Kay J. Piotrowski Assistant Vice President, Branch Manager -
Naperville
Jerome Sheeman Assistant Vice President, Branch Manager - Finley
Joseph Sperlik Assistant Vice President, Branch Manager -
South Main
Mary Beth Vandenberg Assistant Vice President, Branch Manager - Eola
Marinella Walters Assistant Vice President, Branch Manager - Cass
SECRETARY TO THE BOARD
Jay J.P. Greifenkamp Assistant Comptroller/Secretary
TRUST
John A. Machonga Vice President, Trust Officer
Christine Pawlak Trust Officer
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
WEST SUBURBAN BANCORP, INC.
711 SOUTH MEYERS ROAD
LOMBARD, ILLINOIS
- --------------------------------------------------------------------------------
AURORA
Eola Road: 335 Eola Road, Aurora, Illinois 60504 - (630) 898-7072 - Opened
February 1999
Lake Street Facility: 101 North Lake Street, Aurora, Illinois 60507 - (630)
844-5200
Galena Facility: 2000 West Galena Boulevard, Aurora, Illinois 60507 - (630)
896-7000
BARTLETT
Bartlett Facility: 1061 West Stearns Road, Bartlett, Illinois 60103 - (630)
830-5330
BLOOMINGDALE
Stratford Square Facility: 355 West Army Trail Road, Bloomingdale, Illinois
60108 - (630) 351-0600
BOLINGBROOK
Bolingbrook East Facility: 672 East Boughton Road, Bolingbrook, Illinois 60440 -
(630) 972-9550
Bolingbrook West Facility: 1104 West Boughton Road, Bolingbrook, Illinois 60440
- - (630) 378-9680
CAROL STREAM
Carol Stream Facility: 401 North Gary Avenue, Carol Stream, Illinois 60188 -
(630) 690-8700
Fair Oaks Facility: 1380 Army Trail Road, Carol Stream, Illinois 60188 - (630)
213-5920
President Street Facility: 879 Geneva Road, Carol Stream, Illinois 60188 - (630)
752-1175
DARIEN
Cass Avenue Facility: 8001 South Cass Avenue, Darien, Illinois 60561 - (630)
852-6900
75th Street Facility: 1005 75th Street, Darien, Illinois 60561 - (630) 852-9226
DOWNERS GROVE
Finley Road Facility: 2800 South Finley Road, Downers Grove, Illinois 60515 -
(630) 495-3600
GLENDALE HEIGHTS
Glendale Heights Facility: 1657 Bloomingdale Road, Glendale Heights, Illinois
60139 - (630) 690-8600
LOMBARD
Westmore Facility: 711 South Meyers Road, Lombard, Illinois 60148 - (630)
629-4200
North Main Facility: 707 North Main Street, Lombard, Illinois 60148 - (630)
691-8558
Metra Main Facility: 100 South Main Street, Lombard, Illinois 60148 - (630)
268-9010
South Main Street Facility: 1122 South Main Street, Lombard, Illinois 60148 -
(630) 495-3605
Mr. Z's: 401 South Main Street, Lombard, Illinois 60148
MONTGOMERY
Montgomery Facility: 1830 Douglas Road, Montgomery, Illinois 60538 - (630)
844-5600
NAPERVILLE
Naperville Facility: 2020 Feldott Lane, Naperville, Illinois 60540 - (630)
416-3800
OAKBROOK TERRACE
Oakbrook Terrace Facility: 17W754 22nd Street, Oakbrook Terrace, Illinois 60181
- - (630) 916-1195
ST. CHARLES
St. Charles Facility: 315 South Randall Road, St. Charles, Illinois 60174 -
(630) 377-6930
VILLA PARK
Villa Park Facility: 29 East St. Charles Road, Villa Park, Illinois 60181 -
(630) 832-8775
WARRENVILLE
Warrenville Facility: 3S041 Route 59, Warrenville, Illinois 60555 - (630)
393-6060
WESTMONT
Westmont Facility: 6400 South Cass Avenue, Westmont, Illinois 60559 - (630)
963-2735
WHEATON
Danada Square Facility: 295 West Loop Road, Wheaton, Illinois 60187 - (630)
871-9890
Wheaton Facility: 221 South West Street, Wheaton, Illinois 60187 - (630)
221-8220
WS 24 ATMs are available at all of the above banking
locations.
BEACON HILL, LOMBARD, ILLINOIS 60148
FINANCIAL CENTER, 717 SOUTH MEYERS ROAD, LOMBARD, ILLINOIS 60148 - (630)
629-4200
LEXINGTON SQUARE OF ELMHURST, ELMHURST, ILLINOIS 60126
LEXINGTON SQUARE OF LOMBARD, LOMBARD, ILLINOIS 60148
VISA HEADQUARTERS, 701 SOUTH MEYERS ROAD, LOMBARD, ILLINOIS 60148 - (630)
629-4200
- --------------------------------------------------------------------------------
WHERE STRENGTH IS MATCHED BY SERVICE
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
[MAP OF MARKET AREA]
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT ON FORM 10-K
A copy of West Suburban Bancorp, Inc.'s Annual Report on Form 10-K, filed with
the Securities and Exchange Commission, is available without charge by writing:
Mr. Duane G. Debs, President and Chief Financial Officer
West Suburban Bancorp, Inc., 2800 South Finley Road, Downers Grove, Illinois
60515, (630) 495-3600
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of West Suburban Bancorp, Inc. will be held
at West Suburban Bank, 711 South Meyers Road, Lombard, Illinois on Wednesday,
May 12, 1999 at 8:00 a.m. All shareholders are cordially invited to attend.
STOCK TRANSFER AGENT AND REGISTRAR
Inquiries regarding stock transfers, registration, lost certificates or changes
of name and address should be directed to the stock transfer agent and registrar
by writing:
George E. Ranstead, Secretary to the Board and Treasurer
West Suburban Bancorp, Inc., 2800 South Finley Road, Downers Grove, Illinois
60515, (630) 495-3600
COMMUNITY REINVESTMENT ACT
West Suburban Bancorp, Inc. adheres to a well-established policy of helping to
meet the credit needs of our local communities, consistent with safe and sound
lending practices, in accordance with the Community Reinvestment Act.
For additional information, contact:
Mr. Michael P. Brosnahan, Senior Vice President and Community Reinvestment Act
Officer
West Suburban Bank, 717 South Meyers Road, Lombard, Illinois 60148, (630)
629-4200
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
CORPORATE COUNSEL
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
MEMBER FDIC
- --------------------------------------------------------------------------------
37
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
West Suburban Bank Illinois
West Suburban Insurance Services, Inc. Illinois
WSUB Inc. Illinois
Melrose Holdings, Inc. Illinois
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 41,549
<SECURITIES> 377,303
<RECEIVABLES> 781,044
<ALLOWANCES> 9,998
<INVENTORY> 0
<CURRENT-ASSETS> 644,786
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<COMMON> 3,457
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