Back to GetFilings.com
================================================================================
UNITED STATES SECURITIES
AND
EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission file number 0-14468
-----------------
FIRST OAK BROOK BANCSHARES, INC.
DELAWARE 36-3220778
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification No.)
organization)
1400 Sixteenth Street, Oak Brook, IL 60523 - Telephone Number (630) 571-1050
Securities registered pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $2.00 par value
Preferred Share Purchase Rights
-----------------
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 and 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 ((S)229.405 of this chapter) 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
Form 10-K or any amendment to this Form 10-K. X
---
As of March 14, 2002, 6,321,452 shares of Common Stock were outstanding and
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately: $123,913,505 based upon the last sales price of
the registrant's Common Stock at $29.10 per share as reported by the National
Association of Securities Dealers Automated Quotation System.
Documents incorporated by reference: Portions of the Company's Proxy
Statement for its 2002 Annual Meeting of Shareholders to be filed on or about
April 1, 2002 are incorporated by reference.
================================================================================
Form 10-K Table of Contents
Certain information required to be included in Form 10-K is included in the
Proxy Statement used in connection with the 2002 Annual Meeting of Shareholders
to be held on May 7, 2002.
Page
Number
------
PART I
Item 1 Business and Statistical Disclosure by Bank Holding Companies....................... 3
Item 2 Properties.......................................................................... 9
Item 3 Legal Proceedings................................................................... 10
Item 4 Submission of Matters to a Vote of Security Holders................................. 10
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters............... 11
Item 6 Selected Financial Data............................................................. 12
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation 14
Item 7A Quantitative and Qualitative Disclosures about Market Risks......................... 38
Item 8 Financial Statements and Supplementary Data......................................... 39
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 62
PART III
Item 10 Directors and Executive Officers of the Registrant.................................. 62
Item 11 Executive Compensation.............................................................. 62
Item 12 Security Ownership of Certain Beneficial Owners and Management...................... 62
Item 13 Certain Relationships and Related Transactions...................................... 62
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 63
Signatures................................................................................... 65
2
PART I
ITEM 1. Business and Statistical Disclosure by Bank Holding Companies
General
First Oak Brook Bancshares, Inc. (the Company) was organized under Delaware
law in 1983 as a bank holding company under the Bank Holding Company Act of
1956, as amended. The Company owns all of the outstanding capital stock of Oak
Brook Bank (the Bank), Oak Brook, Illinois, which is an Illinois
state-chartered bank. The Company is headquartered and its largest banking
office is located in Oak Brook, Illinois, twenty miles west of downtown
Chicago. The Company employs 291 full-time and 39 part-time employees which
represent 315 full-time equivalent employees at December 31, 2001.
The Company has authorized 16,000,000 shares of Common Stock with a par
value of $2.00. As of December 31, 2001, the Company had total assets of $1.4
billion, loans of $917 million, deposits of $1.1 billion, and shareholders'
equity of $99.6 million.
The business of the Company consists primarily of the ownership, supervision
and control of the Bank. The Company provides the Bank with advice, counsel and
specialized services in various fields of banking policy, strategic planning
and acquisitions of other banks and closely related businesses. The Company
also includes a wholly owned subsidiary, FOBB Statutory Trust I, created in
2000 for the purpose of raising $6 million in capital through participation in
a pooled trust preferred offering.
The Bank is engaged in the general commercial and retail banking business.
The services offered include demand, savings, and time deposits; corporate
treasury management services; and commercial and consumer lending products. In
addition, related products and services are offered including merchant credit
card processing, safe deposit box operations, foreign currency sales and other
banking services. The Bank has a full service investment management and trust
department.
The Bank offers its services through multiple delivery channels. The Bank
has fourteen brick and mortar offices; nine in DuPage County, four in Cook
County, and one in Will County, Illinois. Twelve of its offices are in the
western suburbs of Chicago, one is in an affluent northern suburb of Chicago
and one is in the River North neighborhood of Chicago, just north of the Loop
and just west of Michigan Avenue. The Bank offers a call center at 800-536-3000
and an Internet Branch at www.obb.com. The Bank has deployed 19 owned ATM's, 15
at bank offices and 4 off premises, which its customers can use for free; and
it allows its customers access to networked ATM's (STAR & CIRRUS) for a fee.
The Bank originates the following types of loans: commercial, real estate
(land acquisition, development and construction, commercial mortgages,
residential mortgages and home equity lines), indirect vehicle and consumer
loans. The extension of credit inherently involves certain levels and types of
risk (general economic conditions, industry and concentration risk, interest
rate risk, liquidity risk and credit and default risk) which the Company
manages through the establishment of lending, credit and asset/liability
management policies and procedures.
Lending particularly involves credit risk. Credit risk is controlled and
monitored through active asset quality management and administration, the use
of lending standards and thorough review of potential borrowers. Active asset
quality administration, including early problem loan identification and timely
resolution of problems, further ensures appropriate management of credit risk
and minimization of loan losses.
Loans originated comply with governmental rules, regulations and laws. While
the Bank's loan policies vary for different loan products, the policies
generally cover such items as: percentages to be advanced and the type of lien
needed against collateral, insurance requirements, payment and maturity terms,
down payment
3
requirements, debt-to-income ratio, credit history and other matters of credit
concern. The Bank's loan policies grant limited loan approval authority to
designated loan officers. Where a credit request exceeds the loan officer's
approval authority, approval by a senior lending officer and/or bank loan
committee is required.
In June 2000, the Bank formed Oak Real Estate Development Corporation as a
wholly owned subsidiary of the Bank. This subsidiary was organized to acquire,
develop and to rehabilitate for sale or rent single and/or multi-family
residential real estate and commercial properties that are part of or ancillary
to residential real estate within the State of Illinois. Oak Real Estate
Development Corporation has a board of directors and officers consisting of
individuals who are currently directors and officers of the Company or the Bank.
Competition
At June 30, 2001, the Company had an approximate 3.3% market share of the
total deposits in 78 DuPage County financial institutions (individually
chartered savings institutions and commercial banks) and an approximate .1%
market share of total deposits in 218 Cook County financial institutions. The
Company's offices are part of the Chicago banking market, as defined by the
Federal Reserve Bank of Chicago, consisting of Cook, DuPage and Lake Counties,
which at June 30, 2001, had $174 billion in deposits. In March 2002 the Company
entered a new market in Will County, Illinois which is southwest of Chicago. As
of June 30, 2001, there were 45 financial institutions with deposits of $5.2
billion in Will County.
The Bank is located in a highly competitive market facing competition for
banking and related financial services from many financial intermediaries,
including banks, savings and loan associations, finance companies, credit
unions, mortgage companies, retailers, stockbrokers, insurance companies,
mutual funds and investment companies. Competition is generally expressed in
terms of interest rates charged on loans and paid on deposits, the price of
products and services, the variety of financial services offered, convenience
of service delivery in terms of extended banking hours, access to bank services
through branches, ATMs and the internet and the qualifications, experience and
skills of staff. The Bank ranks at June 30, 2001 as the 26/th largest out of
327 financial institutions serving the Chicago market. As such, the Bank
competes with many banks and other financial institutions with far greater
resources. /
Regulation and Supervision
General
Banking is a highly regulated industry. The following is a summary of
several applicable statutes and regulations. However, these summaries are not
complete, and you should refer to the statutes and regulations for more
information. Also, these statutes and regulations may change in the future, and
it cannot be predicted what effect such changes, if made, will have on the
Company. The supervision, regulation and examination of banks and bank holding
companies by bank regulatory agencies are intended primarily for the protection
of depositors rather than stockholders of banks and bank holding companies.
Bank Holding Company Regulation
The Company is registered as a "bank holding company" with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") pursuant to the
Bank Holding Company Act of 1956, as amended (the Bank Holding Company Act of
1956 and the regulations issued thereunder are collectively referred to as the
"BHC Act"), and we are subject to regulation, supervision and examination by
the Federal Reserve, Federal securities laws and Delaware law.
Minimum Capital Requirements. The Federal Reserve has adopted risk-based
capital requirements for assessing bank holding company capital adequacy. These
standards define capital and establish minimum capital ratios in relation to
assets, both on an aggregate basis, and as adjusted for credit risks and
off-balance sheet
4
exposures. Under the Federal Reserve's risk-based guidelines applicable to the
Company, capital is classified into two categories.
Tier 1, or "core," capital consists of the sum of: common stockholders'
equity; qualifying noncumulative perpetual preferred stock; qualifying
cumulative perpetual preferred stock (subject to some limitations); and
minority interest in the common equity accounts of consolidated
subsidiaries, less goodwill and specified intangible assets.
Tier 2, or "supplementary," capital consists of the sum of: the allowance
for loan and lease losses; perpetual preferred stock and related surplus;
hybrid capital instruments; unrealized holding gains on equity securities;
perpetual debt and mandatory convertible debt securities; term subordinated
debt, including related surplus; and intermediate-term preferred stock,
including related securities.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8%, of which at least 4% must be in the form of Tier 1
capital. The Federal Reserve has established a minimum ratio of Tier 1 capital
to total assets of 3% for strong bank holding companies (those rated a
composite "1" under the Federal Reserve's rating system). For all other bank
holding companies, the minimum ratio of Tier 1 capital to total assets is 4%.
In addition, the Federal Reserve continues to consider the Tier 1 leverage
ratio (after deducting all intangibles) in evaluating proposals for expansion
or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also state that banking organizations experiencing growth, whether
internally or by making acquisitions, are expected to maintain strong capital
positions substantially above the minimum levels.
As of December 31, 2001, the Company's and the Bank's capital exceeded the
Federal Reserve's and FDIC's "well capitalized" guidelines. See Item 8 under
Note 10 of the Consolidated Financial Statements.
Acquisitions. The BHC Act requires prior Federal Reserve approval for,
among other things, the acquisition by a bank holding company of direct or
indirect ownership or control of more than 5% of the voting shares or
substantially all the assets of any bank, or for a merger or consolidation of a
bank holding company with another bank holding company. With limited
exceptions, the BHC Act prohibits a bank holding company from acquiring direct
or indirect ownership or control of voting shares of any company which is not a
bank or bank holding company and from engaging directly or indirectly in any
activity other than banking or managing or controlling banks or performing
services for its authorized subsidiaries. A bank holding company may, however,
engage in or acquire an interest in a company that engages in activities which
the Federal Reserve has determined, by regulation or order, to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto, such as owning and operating a savings association, performing
functions or activities that may be performed by a trust company, or acting as
an investment or financial advisor. Under the BHC Act and Federal Reserve
regulations, we are prohibited from engaging in tie-in arrangements in
connection with an extension of credit, lease, sale of property, or furnishing
of services. That means that, except with respect to traditional banking
products, we may not condition a client's purchase of one of our services on
the purchase of another service. The passage of the Gramm-Leach-Bliley Act,
however, allows bank holding companies to become financial holding companies.
Financial holding companies do not face the same prohibitions to entering into
certain business transactions that bank holding companies currently face. See
the discussion of the Gramm-Leach-Bliley Act below.
Interstate Banking and Branching Legislation. Under the Interstate Banking
and Efficiency Act, adequately capitalized and adequately managed bank holding
companies are allowed to acquire banks across state lines subject to various
limitations. In addition, under the Interstate Banking Act, banks are
permitted, under some circumstances, to merge with one another across state
lines and thereby create a main bank with branches in separate states. After
establishing branches in a state through an interstate merger transaction, a
bank may
5
establish and acquire additional branches at any location in the state where
any bank involved in the interstate merger could have established or acquired
branches under applicable federal and state law.
Ownership Limitations. Under the Illinois Banking Act, any person who
acquires more than 10% of the Company's common stock may be required to obtain
the prior approval of the commissioner of the Illinois Office of Banks and Real
Estate (the "Commissioner"). Under the Change in Bank Control Act, a person may
be required to obtain the prior regulatory approval of the Federal Reserve
before acquiring the power to directly or indirectly control the management,
operations or policies of the Company or before acquiring control of 10% or
more of our outstanding common stock.
Dividends. The Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies. In the policy statement, the
Federal Reserve expressed its view that a bank holding company experiencing
earnings weaknesses should not pay cash dividends exceeding its net income or
which could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve
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 prohibit or limit the payment of dividends by banks
and bank holding companies.
Under a longstanding policy of the Federal Reserve, the Company is expected
to act as a source of financial strength to the Bank and to commit resources to
support it. The Federal Reserve takes the position that in implementing this
policy, it may require the Company to provide financial support when the
Company otherwise would not consider ourselves able to do so.
In addition to the restrictions on dividends imposed by the Federal Reserve,
Delaware law also places limitations on the Company's ability to pay dividends.
For example, we may not pay dividends to stockholders if, after giving effect
to the dividend, the Company would not be able to pay its debts as they become
due. Because a major source of the Company's cash flow is the dividends from
the Bank, the Company's ability to pay dividends will depend on the amount of
dividends paid by the Bank. We cannot be sure that the Bank will pay such
dividends.
Bank Regulation
The Bank is subject to supervision and examination by the commissioner of
the Illinois Office of Banks and Real Estate (the "Commissioner") and as a
non-member, FDIC-insured bank, to supervision and examination by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank is a member of the Federal
Home Loan Bank ("FHLB") of Chicago and may be subject to examination by the
FHLB of Chicago. The Federal Deposit Insurance Act ("FDIA") requires prior FDIC
approval for any merger and/or consolidation by or with another depository
institution, as well as for the establishment or relocation of any bank or
branch office. The FDIA also gives the power to the FDIC to issue cease and
desist orders. A cease and desist order could either prohibit a bank from
engaging in certain unsafe and unsound bank activity or could require a bank to
take certain affirmative action. The FDIC also supervises compliance with the
federal law and regulations which place restrictions on loans by FDIC-insured
banks to an executive officer, director or principal shareholder of the bank,
the bank holding company which owns the bank, and any subsidiary of such bank
holding company. The FDIC also examines the Bank for its compliance with
statutes which restrict and, in some cases, prohibit certain transactions
between a bank and its affiliates. Among other provisions, these laws place
restrictions upon: extensions of credit between the bank holding company and
any non-banking affiliates; the purchase of assets from affiliates; the
issuance of guarantees, acceptances or letters of credit on behalf of
affiliates; and, investments in stock or other securities issued by affiliates
or acceptance thereof as collateral for an extension of credit. Also, the Bank
is subject to restrictions with respect to engaging in the issuance,
underwriting, public sale or distribution of certain types of securities and to
restrictions upon: the nature and amount of loans which it may make to a single
borrower (and, in some instances, a group of affiliated borrowers), the nature
and amount of
6
securities in which it may invest, the amount of investment in the Bank
premises, and the manner in and extent to which it may borrow money.
Furthermore, all banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The Federal Reserve's monetary policies have had a
significant effect on the operating results of commercial banks in the past and
we expect this trend to continue in the future.
Dividends. The Illinois Banking Act provides that an Illinois bank may not
pay dividends of an amount greater than its current net profits after deducting
losses and bad debts while such bank continues to operate a banking business.
For the purpose of determining the amount of dividends that an Illinois bank
may pay, bad debts are defined as debts upon which interest is past due and
unpaid for a period of six months or more unless such debts are well-secured
and in the process of collection.
In addition to the foregoing, the ability of the Company and the Bank to pay
dividends may be affected by the various minimum capital requirements and the
capital and non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
Federal Reserve System. The Bank is subject to Federal Reserve regulations
requiring depository institutions to maintain noninterest-earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3% reserves on the
first $41.3 million of transaction accounts plus 10% on the remainder. The
first $5.7 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements. The Bank is in
compliance with these requirements.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the FDIC, together with the other federal bank regulatory agencies, to
prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation, and compensation. The FDIC and the other federal
bank regulatory agencies have adopted a set of guidelines prescribing safety
and soundness standards pursuant to FDICIA. The guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage
the risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder. In addition, the FDIC adopted regulations
that authorize, but do not require, the FDIC to order an institution that has
been given notice by the FDIC that it is not satisfying the safety and
soundness guidelines to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the FDIC must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized institution
is subject under the "prompt corrective action" provisions of FDICIA. If an
institution fails to comply with such an order, the FDIC may seek to enforce
its order in judicial proceedings and to impose civil money penalties. The FDIC
and the other federal bank regulatory agencies have also proposed guidelines
for asset quality and earning standards.
Prompt Corrective Action. FDICIA required the federal banking regulators,
including the Federal Reserve and the FDIC, to take prompt corrective action
with respect to depository institutions that fall below minimum capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory
7
actions, including restrictions on growth, investment activities, capital
distributions and affiliate transactions, and will be required to submit a
capital restoration plan which, to be accepted by the regulators, must be
guaranteed in part by any company having control of the institution (for
example, the company or a stockholder controlling the company). In other
respects, FDICIA provides for enhanced supervisory authority, including greater
authority for the appointment of a conservator or receiver for critically
under-capitalized institutions. The capital-based prompt corrective action
provisions of FDICIA and its implementing regulations apply to FDIC-insured
depository institutions. However, federal banking agencies have indicated that,
in regulating bank holding companies, the agencies may take appropriate action
at the holding company level based on their assessment of the effectiveness of
supervisory actions imposed upon subsidiary insured depository institutions
pursuant to the prompt corrective action provisions of FDICIA. Also, under
FDICIA, insured depository institutions with assets of $500 million or more at
the beginning of a fiscal year, must submit an annual report for that year,
including financial statements and a management report, to each of the FDIC,
any appropriate federal banking agency, and any appropriate bank supervisor.
The Bank had assets of $500 million or more at the beginning of fiscal year
2001, and must therefore provide an annual report as required by FDICIA.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured
institution, the Bank is required to pay deposit insurance premiums based on
the risk it poses to the Bank Insurance Fund ("BIF"). The FDIC has authority to
raise or lower assessment rates on insured deposits in order to achieve
statutorily required reserve ratios in the insurance funds and to impose
special additional assessments. Each depository institution is assigned to one
of three capital groups: "well capitalized," "adequately capitalized" or
"undercapitalized." Within each capital group, institutions are assigned to one
of three supervisory subgroups: "A" (institutions with few minor weaknesses),
"B" (institutions which demonstrate weaknesses which, if not corrected, could
result in significant deterioration of the institution and increased risk of
loss to BIF), and "C" (institutions that pose a substantial probability of loss
to BIF unless effective corrective action is taken). Accordingly, there are
nine combinations of capital groups and supervisory subgroups to which varying
assessment rates would be applicable. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned.
Effective, January 1, 2002 the FDIC Assessment Rate Schedule for BIF member
banks ranged from zero for "well capitalized" institutions to $.27 per $100 of
deposits for "undercapitalized" institutions. During 2001, the Bank was
classified as well capitalized and was assessed the BIF semi-annual rate of
zero. The FDIC has notified banks that an increase to the semi-annual
assessment of up to 5 basis points is possible in the second half of 2002.
Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. Such termination can
only occur, if contested, following judicial review through the federal courts.
Management is not aware of any practice, condition or violation that might lead
to termination of deposit insurance.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), a
financial institution has a continuing and affirmative obligation to help meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions, nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. However, institutions are rated on
their performance in meeting the needs of their communities. Performance is
judged in three areas: (a) a lending test, to evaluate the institution's record
of making loans in its assessment areas; (b) an investment test, to evaluate
the institution's record of investing in community development projects,
affordable housing, and programs benefiting low or moderate income individuals
and business; and (c) a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices. The CRA requires each
federal banking agency, in connection with its examination of a financial
institution, to assess and assign one of four ratings to the institution's
record of meeting the credit needs of its community and to take such record
into account in its evaluation of certain applications by the institution,
including applications for charters, branches and other deposit facilities,
relocations, mergers, consolidations, acquisitions of assets or assumptions of
liabilities, and savings and loan holding company acquisitions. The CRA also
requires that all institutions make public disclosure of their CRA ratings.
8
The Bank was assigned a "satisfactory" rating as a result of its last CRA
examination in May 1999. The Bank's next scheduled CRA examination is in March
2002.
Compliance with Consumer Protection Laws. The Bank is subject to many
federal consumer protection statutes and regulations including the CRA, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Real Estate Settlement Procedures Act and the
Home Disclosure Act. Among other things, these acts: require banks to meet the
credit needs of their communities; require banks to disclose credit terms in
meaningful and consistent ways; prohibit discrimination against an applicant in
any consumer or business credit transaction; prohibit discrimination in
housing-related lending activities; require banks to collect and report
applicant and borrower data regarding loans for home purchases or improvement
projects; require lenders to provide borrowers with information regarding the
nature and cost of real estate settlement; prohibit certain lending practices
and limit escrow account amounts with respect to real estate transactions; and
prescribe possible penalties for violations of the requirements of consumer
protection statutes and regulations.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
an enforcement action against an institution that fails to comply with
regulatory requirements, particularly capital requirements. Possible
enforcement actions range from the imposition of a capital plan and capital
directive to civil money penalties, cease and desist order, receivership,
conservatorship or the termination of deposit insurance.
The Company is also subject to the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA). The FIRREA broadened the regulatory
powers of federal bank regulatory agencies. The original, primary purpose of
FIRREA was to address the financial crisis in the thrift industry through the
imposition of strict reforms on that industry. FIRREA also granted bank holding
companies the right to acquire savings institutions.
One of the provisions of FIRREA contains a "cross-guarantee" provision which
can impose liability on the Company for losses incurred by the FDIC in
connection with assistance provided to or the failure of the Company's insured
depository institution.
Impact of the Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act (the "GLB
Act"), which among other things, establishes a comprehensive framework to
permit affiliations among commercial banks, insurance companies and securities
firms. Also, a bank holding company which meets certain criteria may certify
that it satisfies such criteria and become a financial holding company, and
thereby engage in a broader range of activity than permitted a bank holding
company.
The GLB Act also imposes requirements on financial institutions with respect
to customer privacy by generally prohibiting disclosure of customer information
to non-affiliated third parties unless the customer has been given the
opportunity to object and has not objected to such disclosure. Financial
institutions are further required to disclose their privacy policies to
customers annually. The privacy provisions became effective on July 1, 2001.
To the extent the GLB Act permits banks, securities firms and insurance
companies to affiliate, the financial services industry may experience further
consolidation. This consolidation could result in a growing number of larger
financial institutions that offer a wider variety of financial services than
the Company currently offers and that can aggressively compete in the markets
the Company currently serve.
ITEM 2. Properties
The Company's offices are located in Oak Brook, Illinois in the headquarters
of its subsidiary bank. The Company leases space from Oak Brook Bank. The Bank
and its branches conduct business in both owned and leased premises. The Bank
operates from eight owned and six leased properties. The Company believes its
9
facilities in the aggregate are suitable and adequate to operate its banking
business. For information concerning lease obligations, see Item 8 under Note 5
of the consolidated financial statements.
ITEM 3. Legal Proceedings
The Company and the Bank were not subject to any material pending or
threatened legal actions as of December 31, 2001. No such actions have arisen
subsequent to year-end.
ITEM 4. Submission Of Matters To A Vote Of Security Holders
There were no matters submitted to a vote of shareholders during the fourth
quarter of 2001.
10
PART II
ITEM 5. Market For Registrant's Common Equity And Related Stockholder Matters
The Company's Common Stock trades on the Nasdaq Stock Market(R) under the
symbol FOBB. As of February 19, 2002, there were 294 holders of record and
approximately 1,300 beneficial shareholders. See Item 8 under Notes 9, 11 and
13 to the consolidated financial statements for additional shareholder
information.
Stock Data
Per Share
- -----------------------------------------------------
Diluted Quarter
Net Dividends Book Low High End
Quarter Ended Earnings Paid Value Price/(1)/ Price/(1)/ Price
------------- -------- --------- ------ --------- --------- -------
December 31, 2001. $.60 $.12 $15.43 $20.98 $24.15 $24.15
September 30, 2001 .56 .11 15.33 20.55 25.50 20.55
June 30, 2001..... .50 .11 14.68 18.95 22.25 22.25
March 31, 2001.... .46 .11 14.30 17.44 21.38 19.44
December 31, 2000. .48 .11 13.63 14.69 18.00 17.63
September 30, 2000 .42 .11 12.93 13.50 15.56 15.56
June 30, 2000..... .41 .11 12.44 13.63 17.00 13.63
March 31, 2000.... .39 .10 12.14 14.94 18.38 15.63
- --------
/(1) / The prices shown represent the high and low closing sales prices for
the quarter.
11
ITEM 6. Selected Financial Data
The consolidated financial information which reflects a summary of the
operating results and financial condition of First Oak Brook Bancshares, Inc.
for the five years ended December 31, 2001 is presented in the following table.
This summary should be read in conjunction with consolidated financial
statements and accompanying notes included in Item 8 of this report. A more
detailed discussion and analysis of financial condition and operating results
is presented in Item 7 of this report.
Earnings Summary and Selected Consolidated Financial Data
At and for the years ended December 31,
----------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in thousands except per share data)
Statement of Income Data
Net interest income......................... $ 38,916 $ 33,205 $ 32,337 $ 28,410 $ 27,432
Provision for loan losses................... 1,550 900 840 630 1,550
Net interest income after provision for loan
losses.................................... 37,366 32,305 31,497 27,780 25,882
Other income................................ 14,442 10,482 8,966 7,991 15,541/(1)/
Other expenses.............................. 31,928 27,117 25,640 22,423 20,708
Income before income taxes.................. 19,880 15,670 14,823 13,348 20,715
Income tax expense.......................... 6,232 4,621 4,277 3,907 6,962
Net income.................................. $ 13,648 $ 11,049 $ 10,546 $ 9,441 $ 13,753/(1)/
Common Stock Data/(2)/
Basic earnings per share.................... $ 2.16 $ 1.72 $ 1.60 $ 1.42 $ 2.09
Diluted earnings per share.................. 2.12 1.70 1.57 1.39 2.03
Cash dividends paid per share/(3)/.......... .45 .43 .40 .345 .270
Book value per share........................ 15.43 13.63 12.04 11.46 10.38
Closing price of Common Stock per share/(3)/
High..................................... 25.50 18.38 21.00 25.50 25.19
Low...................................... 17.44 13.50 16.50 17.75 11.38
Year-End................................. 24.15 17.63 18.50 18.50 24.00
Dividends paid per share to closing price... 1.9% 2.4% 2.2% 1.9% 1.1%
Closing price to diluted earnings per share. 11.4x 10.4x 11.8x 13.3x 11.8x
Market capitalization....................... $ 152,402 $ 111,875 $ 120,829 $ 121,783 $ 160,477
Period end shares outstanding............... 6,310,631 6,345,745 6,531,314 6,582,840 6,686,560
Volume of shares traded..................... 1,545,976 2,512,886 1,656,449 1,908,594 3,447,438
Year-End Balance Sheet Data
Total assets................................ $1,386,551 $1,249,272 $1,146,356 $1,009,275 $ 816,144
Loans, net of unearned discount............. 916,645 825,020 719,969 631,987 447,332
Allowance for loan losses................... 6,982 5,682 4,828 4,445 4,329
Investment securities....................... 327,389 319,985 348,607 297,674 302,098
Demand deposits............................. 211,939 221,552 196,243 187,209 153,806
Total deposits.............................. 1,077,966 978,226 894,072 777,802 627,763
Federal Home Loan Bank borrowings........... 86,000 81,000 63,000 57,500 42,500
Trust Preferred Capital Securities.......... 6,000 6,000 -- -- --
Shareholders' equity........................ 99,552 87,606 79,999 77,061 71,661
Financial Ratios
Return on average assets.................... 1.04% .90% .99% 1.02% 1.76%
Return on average equity.................... 14.47 13.58 13.30 12.74 21.72
Net interest margin......................... 3.26 2.99 3.35 3.43 3.97
Net interest spread......................... 2.38 1.95 2.35 2.34 2.86
Dividend payout ratio....................... 21.29 25.45 24.62 24.17 12.43
12
At and for the years ended December 31,
-------------------------------------------
2001 2000 1999 1998 1997
----- ----- ----- ----- -----
(Dollars in thousands except per share data
Consolidated Capital Ratios
Average equity to average total assets.... 7.22% 6.63% 7.41% 8.00% 8.11%
Tier 1 capital ratio...................... 10.03 9.75 10.05 10.20 13.70
Total capital ratio....................... 10.72 10.35 10.65 10.80 14.55
Capital leverage ratio.................... 7.42 7.47 7.12 7.61 8.57
Asset Quality Ratios
Nonperforming loans to total loans
outstanding............................. .19% .05% .05% .04% .09%
Nonperforming assets to total loans
outstanding and other real estate owned. .19 .05 .05 .04 .09
Nonperforming assets to total capital..... 1.74 .50 .47 .35 .53
Allowance for loan losses to total loans
outstanding............................. .76 .69 .67 .70 .97
Net charge-offs to average loans.......... .03 .01 .07 .10 .32
Allowance for loan losses to nonperforming
loans outstanding....................... 4.03x 12.94x 12.98x 16.34x 11.45x
- --------
/(1)/ Included in other income in 1997 was the $9,251,000 gain on the sale of
our credit card portfolio which, after tax resulted in a $5.1 million
increase in net income.
/(2)/ Common Stock data has been restated to give effect to the 100% stock
dividend effective September 3, 1998.
/(3)/ On May 4, 1999, the shareholders approved the reclassification of the
Common stock into Class A Common stock on a one for one basis. As a
result, the Class A common stock is now the only class of outstanding
Common Stock and has been renamed "Common Stock". Historical dividend and
price information shown is that of the former Class A common stock.
13
ITEM 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operation
RESULTS OF OPERATIONS
The following discussion and analysis provides information about the
financial condition and results of operations of First Oak Brook Bancshares,
Inc. (the Company) for the years ended December 31, 2001, 2000 and 1999. This
discussion and analysis should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in this report.
Assets at year-end were $1.39 billion, up 11% from assets of $1.25 billion
at December 31, 2000. Increased marketing efforts and competitive pricing
contributed to the continued strong asset growth.
Equity reached a record level of $99.6 million at December 31, 2001, an
increase of 14% over prior year equity of $87.6 million. The Company's and the
Bank's capital ratios continued to exceed the Federal Reserve's and FDIC's
"well capitalized" guidelines.
Earnings
The Company's consolidated net income, earnings per share and selected
ratios for 2001, 2000 and 1999 were as follows:
2001 2000 1999
----------- ----------- -----------
Net income................ $13,648,000 $11,049,000 $10,546,000
Basic earnings per share.. $ 2.16 $ 1.72 $ 1.60
Diluted earnings per share $ 2.12 $ 1.70 $ 1.57
Return on average assets.. 1.04% .90% .99%
Return on average equity.. 14.47% 13.58% 13.30%
2001 versus 2000
The 2001 results compared to 2000 include the following significant pre-tax
components:
. Net interest income rose $5,711,000 due to a 7% increase in earning
assets complemented by a 27 basis point rise in the net interest margin.
. Other income rose $3,960,000 driven by growth in the Company's treasury
management, investment management and trust, and merchant card
processing businesses. There was also a significant increase in fees on
mortgages sold and gains from the sales of investment securities.
Included in other income in 2001 is a gain of $172,000 on the sale of
the Broadview drive-thru facility.
. Other expenses rose $4,811,000 primarily due to additions to staff and
higher compensation costs, higher occupancy and equipment expense
related to the Chicago branch (opened in November 2000), and increased
merchant credit card interchange expense.
2000 versus 1999
The 2000 results compared to 1999 include the following significant pre-tax
components:
. Net interest income rose $868,000 due to a 15% increase in average
earning assets, primarily loans, offset by a 36 basis point decrease in
the net interest margin.
. Other income increased $1,516,000 primarily due to an increase in fee
income from treasury management and merchant credit card processing.
. Other expenses increased $1,477,000 primarily due to additions to staff
and higher compensation costs, higher occupancy and equipment expenses
related to new branches in LaGrange (opened September 1999) and Chicago
(opened November 2000), and increased merchant credit card interchange
expense.
14
Net Interest Income
Net interest income is the difference between interest earned on loans,
investments and other interest earning assets and interest paid on deposits and
other interest-bearing liabilities. Net interest income is the principal source
of the Company's revenues.
2001 versus 2000
Net interest income, on a tax-equivalent basis, increased $5,660,000 or 16%
from 2000. This increase is attributable to a 7% increase in average interest
earning assets and a 27 basis point increase in the net interest margin to
3.26% in 2001 from 2.99% in 2000. The increase in the net interest margin and
net interest income was primarily the result of the following:
. Due to the declining interest rate environment, the yield on average
earning assets decreased 30 basis points to 7.11% while the cost of
deposits and other borrowed funds decreased 73 basis points to 4.73% for
2001. The Federal Reserve reduced interest rates in 2001 eleven times
for a total of 475 basis points. Since the Company's deposits and other
interest bearing liabilities repriced more quickly than its loans and
investments, the margin benefited from the reduction in interest rates
over 2001.
. Total average earning assets increased $79.1 million or 7% as compared
to 2000. Average loans grew $91.6 million or 12%, in comparison to 2000.
The increase is primarily attributable to growth in construction loans
($38.5 million), commercial real estate mortgages ($31.4 million), home
equity loans ($12.5 million) and commercial loans ($18.7 million) offset
by a decrease in residential mortgages ($8.3 million). See "Loans" for
further details of yields by loan type.
. The Company's average securities portfolio decreased by $37.2 million
primarily due to maturities and calls of U.S. Treasury and Government
Agency Securities. The proceeds received on sales, maturities, calls and
paydowns during 2001 were partially reinvested in the securities
portfolio and also used to fund loan growth.
. Average interest-bearing deposits and other liabilities increased $69.6
million or 7% as compared to 2000. Average interest-bearing deposits
increased $64.1 million due to retail deposit promotions and the opening
of the Chicago office in 2000. Average FHLB borrowings increased $13.8
million and average short term debt decreased $12.4 million due to the
maturity of term repurchase agreements. In addition, the Company has $6
million outstanding in Trust Preferred Capital Securities issued in a
$300 million Pooled Trust Preferred Offering in September 2000.
2000 versus 1999
On a tax-equivalent basis, net interest income for 2000 totaled $34,546,000,
an increase of 3% over 1999. This increase is attributable to a 15% increase in
average earning assets offset by a 36 basis point decrease in the net interest
margin to 2.99% in 2000 from 3.35% in 1999. The increase in net interest income
and the compression of the net interest margin was primarily the result of the
following:
. During 2000, average loans increased $102 million primarily in the
indirect ($34 million), commercial real estate ($26 million), home
equity ($16 million), commercial ($14 million) and residential real
estate ($7 million) loan portfolios. The increase in volume was
complemented by a 35 basis point increase in rates, primarily due to the
growth in commercial, commercial real estate and home equity loans. See
"Loans" for further details of yields by loan type.
. The Company also increased its average portfolio of securities by $47
million primarily in U.S. Government Agency Securities (up $62 million).
As funds were received on maturities, calls and paydowns, the proceeds
were re-directed into the higher-yielding agency portfolio or used to
fund higher-yielding loan demand.
15
. Due to the rising interest rate environment, the average yield on loans,
investments and other earning assets increased 36 basis points as
compared to the average cost on deposit and other liabilities increasing
76 basis points. The Federal Reserve raised interest rates three times
during 2000 (and once late in 1999) and since the Company's liabilities
repriced more quickly than its assets, the margin was squeezed.
. Higher rate time deposits increased $89 million and money market
accounts increased $44 million, while lower rate savings and NOW
accounts decreased by $33 million. To fund the loan growth, the Company
ran successful retail deposit promotions during the year. In addition,
short-term debt increased primarily due to more Treasury, Tax and Loan
funds. These are U.S. Government short-term deposits of tax collections
received by the U.S. Treasury from taxpayers.
16
The following table presents the average interest rate on each major
category of interest-earning assets and interest-bearing liabilities for 2001,
2000, and 1999.
Average Balances and Effective Interest Rates
2001 2000 1999
-------------------------- -------------------------- --------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rates Balance Expense Rates Balance Expense Rates
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
Assets
Earning assets:
Federal funds sold and
securities purchased under
agreements to resell.......... $ 53,970 $ 1,874 3.47% $ 29,124 $ 1,821 6.26% $ 22,267 $ 1,118 5.02%
Interest-bearing deposits with
banks......................... 64 4 6.62 231 14 5.96 5,862 401 6.84
Taxable securities............. 257,538 16,466 6.39 292,123 19,067 6.53 246,524 15,136 6.14
Tax exempt securities/(1)/..... 51,863 3,971 7.66 54,474 3,998 7.34 52,668 3,850 7.31
Loans, net of unearned
discount/(1)(2)/.............. 869,914 65,333 7.51 778,274 60,624 7.79 675,932 50,261 7.44
---------- ------- ----- ---------- ------- ----- ---------- ------- ----
Total earning assets/interest
income.......................... $1,233,349 $87,648 7.11% $1,154,226 $85,524 7.41% $1,003,253 $70,766 7.05%
Cash and due from banks.......... 42,732 42,184 39,867
Other assets..................... 37,058 35,417 31,236
Allowance for loan losses........ (6,233) (5,282) (4,576)
---------- ---------- ----------
$1,306,906 $1,226,545 $1,069,780
========== ========== ==========
Liabilities and Shareholders'
Equity
Interest-bearing liabilities:
Savings and NOW accounts....... $ 126,477 $ 2,751 2.18% $ 139,014 $ 4,201 3.02% $ 172,452 $ 4,765 2.76%
Money market accounts.......... 125,163 4,157 3.32 92,581 4,400 4.75 48,112 1,648 3.43
Time deposits.................. 564,325 30,558 5.41 520,297 31,465 6.05 431,150 23,428 5.43
Short-term debt................ 96,675 4,128 4.27 109,053 6,424 5.89 71,828 3,412 4.75
FHLB borrowings................ 85,493 5,206 6.09 71,715 4,286 5.98 66,922 3,870 5.78
Trust Preferred Capital
Securities.................... 6,000 642 10.71 1,902 202 10.62 -- -- --
---------- ------- ----- ---------- ------- ----- ---------- ------- ----
Total interest-bearing
liabilities/interest expense.. $1,004,133 $47,442 4.73% $ 934,562 $50,978 5.46% $ 790,464 $37,123 4.70%
Demand deposits.................. 193,778 199,753 189,448
Other liabilities................ 14,691 10,894 10,556
---------- ---------- ----------
Total liabilities................ $1,212,602 $1,145,209 $ 990,468
Shareholders' equity............. 94,304 81,336 79,312
---------- ---------- ----------
$1,306,906 $1,226,545 $1,069,780
========== ========== ==========
Net interest income/net interest
spread/(3)/..................... $40,206 2.38% $34,546 1.95% $33,643 2.35%
Net interest margin/(4)/......... 3.26% 2.99% 3.35%
- --------
/(1) Tax equivalent basis. Interest income and average yield on tax exempt
loans and investment securities include the effects of tax equivalent
adjustments using a tax rate of 34% in 2001, 2000 and 1999. /
/(2) Includes nonaccrual loans. /
/(3) Total yield on average earning assets, less total rate paid on average
interest-bearing liabilities. /
/(4) Total interest income, tax equivalent basis, less total interest expense,
divided by average earning assets. /
17
The following table presents a summary analysis of changes in interest
income and interest expense for 2001 as compared to 2000 and 2000 as compared
to 1999. Interest income rose in 2001 primarily due to the increase in the
average volume of loans offset by a decrease in the average balance of taxable
securities and a 30 basis point decrease in the overall yield on average
earning assets. Interest expense decreased primarily due to decreases in the
rates paid on deposits and short term debt offset by increases in the average
volume of money market accounts, time deposits and FHLB borrowings. Interest
income rose in 2000 primarily due to the increase in the average volume and
average yield in the loan portfolio. Interest expense increased primarily due
to an increase in the average volume and rates paid for money market, time
deposits and short term borrowings.
Analysis of Net Interest Income Changes
2001 Over 2000 2000 Over 1999
--------------------------- ---------------------------
Volume/(1)/ Rate/(1)/ Total Volume/(1)/ Rate/(1)/ Total
---------- -------- ------- ---------- -------- -------
(Dollars in thousands)
Increase (decrease) in interest income:
Federal funds sold........................ $ 1,100 $(1,047) $ 53 $ 391 $ 312 $ 703
Interest-bearing deposits with banks...... (11) 1 (10) (342) (45) (387)
Taxable securities........................ (2,262) (339) (2,601) 3,221 710 3,931
Tax exempt securities/(2)/................ (196) 169 (27) 132 16 148
Loans, net of unearned discount/(2)/,/(3)/ 6,942 (2,233) 4,709 7,943 2,420 10,363
------- ------- ------- ------- ------- -------
Total interest income..................... $ 5,573 $(3,449) $ 2,124 $11,345 $ 3,413 $14,758
------- ------- ------- ------- ------- -------
Increase (decrease) in interest expense:
Savings & NOW accounts.................... $ (389) $(1,061) $(1,450) $(1,098) $ 534 $ (564)
Money market accounts..................... 1,297 (1,540) (243) 1,939 813 2,752
Time deposits............................. 2,539 (3,446) (907) 5,198 2,839 8,037
Short-term debt........................... (670) (1,626) (2,296) 2,058 954 3,012
FHLB borrowings........................... 837 83 920 284 132 416
Trust Preferred Capital Securities........ 439 1 440 202 -- 202
------- ------- ------- ------- ------- -------
Total interest expense.................... $ 4,053 $(7,589) $(3,536) $ 8,583 $ 5,272 $13,855
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest income $ 1,520 $ 4,140 $ 5,660 $ 2,762 $(1,859) $ 903
======= ======= ======= ======= ======= =======
- --------
/(1)/ The change in interest due to both rate and volume has been allocated
proportionately.
/(2)/ Tax equivalent basis. Tax exempt loans and investment securities include
the effects of tax equivalent adjustments using a tax rate of 34% in
2001, 2000 and 1999.
/(3)/ Includes nonaccual loans.
Allowance and Provision for Loan Losses
The allowance for loan losses is maintained at a level believed
adequate by management to absorb estimated probable loan losses.
Management's periodic evaluation of the adequacy of the allowance is
based on the Company's past loan loss experience, known and inherent
risks in the portfolio, composition of the loan portfolio, current
economic conditions, historical losses experienced by the industry, value of
the underlying collateral and other relevant factors. Loans which are
determined to be uncollectible are charged off against the allowance for loan
losses and recoveries of loans that were previously charged off are credited to
the allowance.
The Company's charge-off policy varies with respect to the category of and
specific circumstances surrounding each loan under consideration. The Company
records charge-offs on the basis of management's ongoing evaluation of
collectibility. In addition, any loans which are classified as "loss" in
regulatory examinations are completely charged off and loans classified as
"doubtful" are charged off at 50%.
18
The Company records specific valuation allowances on commercial, commercial
real estate mortgage and construction loans when a loan is considered to be
impaired. A loan is impaired when, based on an evaluation of
current information and events, it is probable that the Company will not be
able to collect all amounts due (principal and interest) pursuant to the
original contractual terms. The Company measures impairment based upon the
present value of expected future cash flows discounted at the loan's original
effective interest rate or the fair value of the collateral if the loan is
collateral dependent. Large groups of homogeneous loans, such as residential
mortgage, home equity, indirect vehicle and consumer loans, are collectively
evaluated for impairment and not subject to impaired loan disclosures. Interest
income on impaired loans is recognized using the cash basis method.
The following table summarizes the loan loss experience for each of the last
five years.
Summary of Loan Loss Experience
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(Dollars in thousands)
Average loans for the year, net of unearned discount
and allowance for loan losses...................... $863,681 $772,992 $671,356 $516,980 $412,327
-------- -------- -------- -------- --------
Allowance for loan losses, beginning of the year..... $ 5,682 $ 4,828 $ 4,445 $ 4,329 $ 4,109
Charge-offs during the year:
Real estate:/(1)/
Construction, land acquisition and
development loans........................... -- -- -- -- (200)
Home equity loans............................. -- -- (1) -- (20)
Commercial loans.................................. (7) (40) (357) -- --
Indirect vehicle loans............................ (304) (150) (130) (31) (39)
Credit card loans................................. -- (6) (32) (188) (1,237)
Overdraft loans and uncollected funds............. (3) (4) (4) (458) (4)
Consumer loans.................................... (9) (10) (4) (52) (5)
-------- -------- -------- -------- --------
Total charge-offs.......................... (323) (210) (528) (729) (1,505)
-------- -------- -------- -------- --------
Recoveries during the year:
Real estate:/(1)/
Home equity loans............................. -- -- 1 -- --
Commercial loans.................................. -- 75 4 11 1
Indirect vehicle loans............................ 41 32 5 20 8
Credit card loans................................. 31 56 61 181 166
Overdraft loans................................... 1 1 -- 1 --
Consumer loans.................................... -- -- -- 2 --
-------- -------- -------- -------- --------
Total recoveries........................... 73 164 71 215 175
-------- -------- -------- -------- --------
Net charge-offs during the year...................... (250) (46) (457) (514) (1,330)
Provision for loan losses............................ 1,550 900 840 630 1,550
-------- -------- -------- -------- --------
Allowance for loan losses, end of the year........... $ 6,982 $ 5,682 $ 4,828 $ 4,445 $ 4,329
======== ======== ======== ======== ========
Ratio of net charge-offs to average loans outstanding .03% .01% .07% .10% .32%
Allowance for loan losses as a percent of loans
outstanding, net of unearned discount at end of the
year............................................... .76% .69% .67% .70% .97%
Ratio of allowance for loan losses to nonperforming
loans.............................................. 4.03x 12.94x 12.98x 16.34x 11.45x
- --------
/(1) There have been no losses or recoveries in the commercial mortgage or
residential mortgage loan portfolios over the past five years. /
19
The provision for loan losses increased $650,000 in 2001 as compared to
2000, and $60,000 in 2000 as compared to 1999, due primarily to the current
downtrend in economic conditions, change in the composition of the loan
portfolio, an increase in nonperforming and management watch list loans and
growth in the construction, commercial and commercial real estate portfolios.
However, despite average growth in the loan portfolio of 12% and 15% in 2001
and 2000, respectively, the Company has continued to have low levels of
nonperforming loans and net charge-offs.
Currently and historically, the Company has maintained high asset quality.
Net charge-offs for 2001 totaled $250,000 or .03% of average loans and net
charge-offs for 2000 were $46,000 or .01% of average loans.
The Company's allowance for loan losses as a percent of loans outstanding
was .76% at December 31, 2001 as compared to .69% in 2000 and .67% in 1999. The
provision for loan losses is sufficient to provide for probable loan losses
based upon management's evaluation of the risks inherent in the loan portfolio.
Management believes the allowance for loan losses is at an adequate level.
Management of the Bank prepares a detailed analysis, at least quarterly,
reviewing the adequacy of its allowance and, when appropriate, recommending an
increase or decrease in its provision for loan losses. The analysis to
determine the allocated portion of the allowance is divided into two parts. The
first part involves primarily an estimated calculation of losses on specific
problem and management watch list loans, the remaining credit card portfolio
and delinquent consumer loans. The second part involves primarily a calculation
of the Bank's actual net charge-off history averaged with industry net
charge-off history by major loan categories. In addition, in determining the
unallocated portion of the reserve, the bank considers its portfolio
composition, loan growth, management capabilities, economic trends, credit
concentrations, industry risks, underlying collateral values and the opinions
of bank management and involves a higher degree of subjectivity in its
determination. Accordingly, because each of these criteria is subject to
change, the allocation of the allowance is made for analytical purposes and is
not necessarily indicative of the trend of future loan losses in any particular
loan category. The total allowance is available to absorb losses from any
segment of the portfolio.
In order to identify potential risks in the loan portfolio and determine the
necessary provision for loan losses, detailed information is obtained from the
following sources:
. Regular reports prepared by the bank's management which contain
information on the overall characteristics of the loan portfolio,
including delinquencies and nonaccruals, and specific analysis of loans
requiring special attention (i.e. "watch lists");
. Examinations of the loan portfolio of the subsidiary bank by Federal and
State regulatory agencies; and
. Reviews by third-party credit review consultants.
20
The following table considers both parts of the analysis discussed above to
determine the allocation of the allowance for loan losses by loan type for each
of the last five years.
Allocation of Allowance for Loan Losses
December 31,
--------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(Dollars in thousands)
Allocation of allowance for loan losses:
Real estate:
Construction, land acquisition and development loans..... $ 257 $ 210 $ 29 $ 25 $ 22
Commercial mortgage loans................................ 413 83 284 91 48
Residential mortgage loans............................... 56 57 77 75 45
Home equity loans........................................ 44 116 49 45 20
Commercial loans............................................. 1,697 769 428 523 123
Indirect vehicle loans....................................... 1,241 1,104 793 496 105
Consumer loans............................................... 49 53 35 30 24
Credit card loans............................................ 5 29 85 213 287
Unallocated.................................................. 3,220 3,261 3,048 2,947 3,655
------ ------ ------ ------ ------
Total allowance....................................... $6,982 $5,682 $4,828 $4,445 $4,329
====== ====== ====== ====== ======
Percentage of loans to gross loans:
Real estate:
Construction, land acquisition and development loans..... 11.2% 5.6% 3.1% 6.6% 8.2%
Commercial mortgage loans................................ 23.3 22.0 22.0 18.1 16.4
Residential mortgage loans............................... 11.5 15.5 16.7 18.6 21.6
Home equity loans........................................ 12.3 12.4 11.8 11.5 14.6
Commercial loans............................................. 16.0 16.5 14.9 17.2 12.2
Indirect vehicle loans....................................... 24.5 26.6 29.9 26.1 23.7
Consumer loans............................................... 1.2 1.4 1.6 1.9 3.2
Credit card loans............................................ -- -- -- -- .1
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Included in the allocated allowance for construction, land acquisition and
development loans is a specific allowance of $252,000 on an impaired loan on
nonaccrual status with a balance of $1,283,000 at December 31, 2001. The actual
loss the Company may incur could be more or less than the specific allocation.
The allocation for commercial loans increased from 2000 due to an increase in
management's watch list for commercial loans as a result of the economic
downturn.
21
Nonperforming Assets
The accrual of interest is discontinued on commercial, real estate and
consumer loans when the continuity of contractual principal or interest is
deemed doubtful by management or when 90 days or more past due and the loan is
not well secured or in the process of collection. Interest income is recorded
on these loans only as it is collected. Interest payments on nonaccrual loans
which contain unusual risk features or marginal collateral values may be
applied directly to loan principal for accounting purposes.
The following table summarizes the Company's nonperforming assets.
December 31,
------------------------------
2001 2000 1999 1998 1997
------ ---- ---- ---- ----
(Dollars in thousands)
Nonaccruing loans.................................................... $1,295 $121 $ 90 $ -- $ --
Loans which are past due.............................................
90 days or more...................................................... 437 318 282 272 378
------ ---- ---- ---- ----
Total nonperforming loans......................................... 1,732 439 372 272 378
Other real estate owned.............................................. -- -- -- -- --
------ ---- ---- ---- ----
Total nonperforming assets........................................ $1,732 $439 $372 $272 $378
------ ---- ---- ---- ----
Nonperforming loans to total loans outstanding....................... .19% .05% .05% .04% .09%
Nonperforming assets to total loans outstanding and other real estate
owned.............................................................. .19% .05% .05% .04% .09%
Nonperforming assets to total assets................................. .13% .04% .03% .03% .05%
Nonperforming assets to total capital................................ 1.74% .50% .47% .35% .53%
Summary of Other Income
The following table summarizes significant components of other income and
percentage changes from year to year:
% Change
--------------
2001 2000 1999 '01-'00 '00-'99
------- ------- ------ ------- -------
(Dollars in thousands)
Service charges on deposit accounts--treasury management $ 4,853 $ 3,501 $2,560 39% 37%
Service charges on deposit accounts..................... 1,179 1,170 1,040 1 13
Investment management and trust fees.................... 1,429 1,144 1,128 25 1
Merchant credit card processing fees.................... 3,777 2,552 1,858 48 37
Fees on mortgages sold, net of commissions.............. 643 177 422 263 (58)
Income from revenue sharing agreement................... 900 900 900 -- --
Other operating income.................................. 1,402 1,020 979 37 4
Investment securities gains, net........................ 259 18 79 1,338 (77)
------- ------- ------ ----- ---
Total................................................... $14,442 $10,482 $8,966 38% 17%
======= ======= ====== ===== ===
2001 versus 2000
Total other income increased $3,960,000 or 38% over 2000. Service charges on
deposit accounts-treasury management increased $1,352,000. The Bank's treasury
management customers have the option of maintaining non interest-bearing
deposit balances to cover their services or to pay in fees. While total
treasury management services increased 16% over 2000, the amounts presented
here represent cash fees paid by customers. These cash fees increased due to
new customer volume, increased prices and more customers paying a portion of
their fees in cash rather than maintaining a larger deposit balance necessary
to offset the declining earnings credit. Included in this category is one
significant customer which is under contract with the Bank until June of 2003.
In addition to treasury management fees, retail fee income also increased
slightly primarily due to higher fees for online banking, debit card and ATM
usage.
22
Investment management and trust fees increased $285,000, primarily due to an
increase in investment assets under management and other new trust business.
Total discretionary assets under investment management were $379 million at
December 31, 2001 compared to $271 million at December 31, 2000, attributable
primarily to new business generated and complemented by a slight increase in
market valuations since last year end.
Merchant credit card processing fees increased $1,225,000 primarily due to
new merchant accounts and increased volume. The number of merchant outlets
serviced increased to 377 at year-end 2001 from 298 at year-end 2000.
Offsetting merchant interchange expense (in the Other Expense section) rose
$1,051,000 in 2001.
Fees on mortgages sold, servicing released, increased $466,000 due to the
strong mortgage market in 2001. Loans originated for sale in 2001 were $75.6
million as compared to $15.8 million in 2000. As the interest rates were
decreasing late in 2000 and throughout 2001, the mortgage refinance market
improved significantly. This fee income for 2001 represents the gain on
mortgages sold of $965,000 net of $322,000 in commissions paid to the mortgage
originators on loans that were sold. Management anticipates that the high
levels of refinancing activity will taper off in 2002 unless mortgage rates
fall further.
Income from the revenue sharing agreement made in connection with the sale
of the credit card portfolio in 1997 remained constant at $900,000 for both
2001 and 2000. Under the agreement, the Company shares the revenue from the
sold portfolio until June of 2002, subject to a maximum twelve month payment of
$900,000. The Company is in the last half of the final twelve month period and
therefore, 2002 earnings from this source will be limited to a maximum of
$450,000.
Other operating income increased $382,000 primarily due to the following
items. In January 2001, the Company recorded a gain of $172,000 on the sale of
property in Broadview, Illinois that was previously used as a drive-thru
facility. In addition, during 2001, the Bank's subsidiary, Oak Real Estate
Development Corporation successfully completed its first project and recorded a
gain of $81,000 on the sale of the two condo units. In addition, mutual fund
sweep income increased to $352,000 in 2001 from $233,000 in 2000 due primarily
to increased volume.
The gain recognized on investment securities sold was $259,000 in 2001.
Included in the gross gains were gains of $175,000 from sales of $1 million of
trust preferred securities. The remaining $84,000 in gains were recognized from
the sales of $29 million of U.S. Treasury and Government Agency securities.
None of the individual securities sold in 2001 resulted in a loss.
2000 versus 1999
Service charges on deposit accounts increased $1,071,000 primarily due to an
increase in treasury management fees. These fees increased due to new customer
volume including one very significant customer added late in 1999, which
resulted in a full year of fees in 2000 as compared to two months of fees in
1999. In addition to treasury management fees, retail fee income also increased
primarily due to higher fees for online banking, debit card and ATM usage.
Investment management and trust department income increased $16,000,
primarily due to an increase in investment assets under management and other
new trust business offset by decreases in the equity market which affect the
fees earned on trust accounts. Total discretionary assets under investment
management were $271 million at December 31, 2000 compared to $245 million at
December 31, 1999.
Merchant credit card processing fees increased $694,000 primarily due to new
merchant accounts and increased volume. The number of merchant outlets serviced
increased to 298 at year-end 2000 from 262 at year-end 1999. Offsetting
merchant interchange expense (in the Other Expense section) rose $523,000 in
2000.
Fees on mortgages sold, servicing released, decreased $245,000 due to a weak
mortgage market in 2000. Loans originated for sale in 2000 were $15.8 million
as compared to $36.2 million in 1999. As the interest rates
23
were rising late in 1999 and throughout 2000, the mortgage refinance market
slowed down significantly. This fee income for 2001 represents the gain on
mortgages sold of $264,000 net of $87,000 in commissions paid to the mortgage
originators.
Income from the revenue sharing agreement made in connection with the sale
of the credit card portfolio in 1997 remained constant at $900,000 for both
2000 and 1999. Under the agreement, the Company shares the revenue from the
sold portfolio until June of 2002, subject to a maximum twelve month payment of
$900,000.
The net gain recognized on securities sold was $18,000 in 2000. Included in
gross gains of $388,000 was a gain of $254,000 from the revaluation of stock
received in the exchange of the Company's privately-held shares of Cash
Station, Inc. for publicly-traded shares of Concord EFS, Inc. The gross loss of
$370,000 includes a loss of $275,000 from the sale of $17 million in
low-yielding investment securities that were primarily invested in
higher-yielding government agency securities.
Summary of Other Expenses
The following table summarizes significant components of other expenses and
percentage changes from year to year:
% Change
--------------
2001 2000 1999 '01-'00 '00-'99
------- ------- ------- ------- -------
(Dollars in thousands)
Salaries and employee benefits.......... $18,810 $16,171 $15,817 16% 2%
Occupancy expense....................... 2,035 1,797 1,683 13 7
Equipment expense....................... 1,991 1,822 1,657 9 10
Data processing......................... 1,488 1,217 1,135 22 7
Professional fees....................... 766 585 576 31 2
Advertising and business development.... 1,390 1,356 1,231 3 10
Merchant credit card interchange expense 2,993 1,942 1,419 54 37
Postage, stationery and supplies........ 963 869 865 11 --
FDIC assessment......................... 183 184 92 -- 100
Other operating expenses................ 1,309 1,174 1,165 11 1
------- ------- ------- -- ---
Total................................... $31,928 $27,117 $25,640 18% 6%
======= ======= ======= == ===
2001 versus 2000
Other expenses rose $4,811,000 or 18% in 2001 over 2000. Other expenses as a
percentage of average assets was 2.4% for 2001 as compared to 2.2% for 2000.
Net overhead expenses as a percentage of average earning assets remained
constant at 1.4% and the efficiency ratio (other expenses to net interest
income and other income) improved to 59.8% from 62.1% in 2000.
Salaries and employee benefits increased $2,639,000 due to normal salary and
benefit increases, higher compensation due to competitive market conditions and
an increase in full time equivalents from 304 in 2000 to 315 in 2001. In
addition, management bonuses increased in 2001.
Occupancy and equipment expenses increased $407,000 due primarily to the
opening of the new branch in Chicago in November 2000 and the newly constructed
attached drive-up facility at the Broadview office in January 2001. The Company
recently opened a new branch in Bolingbrook, Illinois and completed an
extensive rehab of the Broadview facility. Both projects will begin
depreciating in 2002.
Data processing fees increased $271,000 due primarily to higher merchant
card processing fees, trust processing fees and general licensing fees for
desktop computer products.
24
Merchant credit card interchange expense increased $1,051,000 due to new
merchant accounts and increased volume. Merchant credit card processing fees
(in other income) rose $1,225,000 in 2001.
Professional fees increased $181,000 primarily due to additional fees
incurred for general legal and corporate matters and recruiting fees.
2000 versus 1999
Other expenses rose $1,477,000 in 2000 over 1999. Other expenses as a
percentage of average assets was 2.2% for 2000 as compared to 2.4% for 1999.
Net overhead expenses as a percentage of average earning assets improved to
1.4% from 1.7% and the efficiency ratio (other expenses to net interest income
and other income) remained constant at 62.1% for both years.
Salaries and employee benefits increased $354,000 due to normal salary and
benefit increases and higher compensation due to competitive market conditions.
The increase in salaries is partially offset by a decrease in management
bonuses.
Occupancy and equipment expenses increased $279,000 due primarily to the
opening of the new branches in LaGrange (September 1999) and Chicago (November
2000).
Advertising and business development fees increased $125,000 due primarily
to an advertising and public relations campaign to publicize the capabilities
of the investment management and trust department and retail advertising and
promotions related to the opening of the new Chicago branch.
Merchant credit card interchange expense increased $523,000 due to new
merchant accounts and increased volume. Merchant credit card processing
revenues (in other income) rose $694,000 in 2000.
FDIC assessments increased $92,000 due to a new assessment on all banks to
help service the Financial Corporation's (FICO) bond obligations. This
assessment on banks now equals that on savings institutions.
Income Tax Expense
Income taxes for 2001 totaled $6,232,000 as compared to $4,621,000 for 2000
and $4,277,000 in 1999. When measured as a percentage of income before income
taxes, the Company's effective tax rate was 31% for 2001 and 29% for 2000 and
1999. The Company's provision for income taxes includes both federal and state
income tax expense in 2001 and federal income tax only in 2000 and 1999. Prior
to 2001, the Company had utilized state net operating loss carry forwards to
minimize state tax expense.
The accounting policies underlying the recognition of income taxes in the
balance sheets and statements of income are included in Notes 1 and 8 to Item 8
of this Form 10-K. In accordance with such policies, the Company records income
tax expense (benefits) in accordance with Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes. (FAS 109.) Pursuant to these
rules, the Company recognizes deferred tax assets and liabilities based on
temporary differences in the recognition of income and expenses for financial
statement and income tax purposes. Net deferred tax assets totaling $601,000 at
December 31, 2001 are recorded in the accompanying Consolidated Balance Sheet.
Under FAS 109, deferred tax assets must be reduced by a valuation allowance
if it is more likely than not that some portion or all of the deferred tax
asset will not be realized. In assessing whether a valuation allowance is
required, the Company considers the ability to realize the asset through
carryback to taxable income in prior years, the future reversal of existing
taxable temporary differences, and future taxable income and tax planning
strategies. Based on this assessment, a valuation allowance is not required for
any of the deferred tax assets.
25
FINANCIAL CONDITION
Liquidity
Effective management of balance sheet liquidity is necessary to fund growth
in earning assets and to pay liability maturities, depositors' withdrawal
requirements, shareholders' dividends and to purchase Treasury stock under
stock repurchase programs.
The Company has numerous sources of liquidity including a portfolio of
shorter-term loans, readily marketable investment securities, the ability to
attract consumer time deposits, access to various borrowing arrangements and
capital resources.
Available borrowing arrangements are summarized as follows:
Subsidiary Bank:
. Informal Federal funds lines aggregating $123 million with seven
correspondent banks, subject to continued good financial standing. As of
December 31, 2001, all $123 million was available for use under these
lines.
. Reverse repurchase agreement lines with three brokerage firms are
available based on the pledge of specific collateral and continued good
financial standing of the Bank. As of December 31, 2001, approximately
$65 million was available to the Bank under these lines.
. Advances from the Federal Home Loan Bank of Chicago are available based
on the pledge of specific collateral and FHLB stock ownership. As of
December 31, 2001, no additional advances are available to the Bank
under the FHLB agreements without the pledge of additional collateral.
. A borrowing line of approximately $222 million at the discount window of
the Federal Reserve Bank, subject to the availability of collateral.
Parent Company:
. Revolving credit arrangement for $15 million. At December 31, 2001, the
line had a balance of $1,225,000 and matures on April 1, 2002. It is
anticipated to be renewed annually.
Interest Rate Sensitivity
Interest rate risk arises when the maturity or repricing of assets differs
significantly from the maturity or repricing of liabilities. The Company's
financial results could be affected by changes in market interest rates such as
the prime rate, LIBOR and treasury yields and rate competition for deposits.
The objective of interest rate risk management is to provide the maximum levels
of net interest income while maintaining acceptable levels of interest rate
risk and liquidity risk. A number of measures are used to monitor and manage
interest rate risk, including income simulation, rate shock analysis and
interest sensitivity (gap) analysis.
An income simulation model is the primary tool we use to assess the
direction and magnitude of changes in net interest income resulting from
changes in market interest rates. The model incorporates management assumptions
regarding the level of interest rate changes on indeterminate maturity deposit
products (savings, money market, NOW and demand deposits) for a given level of
market rate changes. Additionally, changes in prepayment behavior of loans and
mortgage related assets in each rate environment are captured using estimates
of prepayment speeds for the portfolios. Other assumptions in the model include
cash flows and maturities of other financial instruments, changes in market
conditions, loan volumes and pricing, and customer preferences. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude and frequency of
interest rate changes and changes in market conditions and management
strategies, among other factors.
26
The Company uses rate shock analysis to evaluate the effects of various
parallel shifts in market interest rates, upward or downward, on net interest
income relative to a base rate scenario where market interest rates remain flat
at December year end levels. The interest rate sensitivity presented includes
assumptions that (i) the composition of the Company's interest sensitive assets
and liabilities existing at year end will remain constant over the measurement
period and (ii) that changes in market interest rates are parallel and
instantaneous across the yield curve. This analysis is limited by the fact that
it does not include any balance sheet repositioning actions the Company may
take should severe movements in interest rates occur such as lengthening or
shortening the duration of the securities portfolio. These actions would likely
reduce the variability of net interest income in extreme interest rate shock
forecasts.
In the past the rate shock analyses have shown that the Company is liability
sensitive, that is interest sensitive liabilities exceed interest sensitive
assets and this generally results in the net interest margin increasing in a
falling rate environment and decreasing in a rising rate environment. However,
an immediate increase or decrease in market interest rates may not result in an
immediate, identical increase or decrease in rates paid on non-maturing,
non-indexed interest bearing liabilities such as savings, money market and NOW
accounts. Core deposit rates are internally controlled and generally exhibit
less sensitivity to changes in interest rates than the adjustable rate assets
and liabilities whose yields or cost of funds are based on external indices and
change in concert with market interest rates. Additionally, in the current very
low interest rate environment, if market rates decrease, the rates paid on
deposit liabilities could not reflect the full amount of the decrease since
rates are already so low. If rates increase, rates paid on deposits may not
reflect the full extent of the rate increase until rates approach a more
historical level.
The Company's policy objective is to limit the change in annual net interest
income to 10% from an immediate and sustained parallel change in interest rates
(rate shock) of 200 basis points. As a result of absolute interest rates being
so low (rates on fed funds, the three month Treasury, LIBOR and rates paid on
certain core deposits are all below 2%), the Company assumed rates will
probably not decline 200 basis points. The scale shown below has been changed
for December 31, 2001 to a more meaningful plus or minus 25 and 100 basis point
rate shock. As of December 31, 2001 and 2000 the Company had the following
estimated net interest income sensitivity profile.
2001 2000
- - ------------------------------ ---------------
-100 bp -25 bp +25 bp +100 bp -200 bp +200 bp
- - ------- ------ ------ ------- ------- -------
(Dollars in thousands)
Annual net interest income change from an
immediate change in rates.............. $(337) $210 $(193) $632 $2,269 $(2,115)
Percent change........................... (.7)% .5% (.4)% 1.4% 6.0% (5.6)%
The following gap analysis is prepared based on the maturity and repricing
characteristics of interest earning assets and interest bearing liabilities for
selected time periods. The mismatch between asset and liability repricings or
maturities within a time period is commonly referred to as the "gap" for that
period. The gap report does not fully capture the true dynamics of interest
rate changes including the timing and/or degree of interest rate changes. While
most of the asset categories' rates change when certain independent indices
(such as the prime rate) change, most liability categories are repriced at the
Company's discretion subject, however, to competitive interest rate pressures.
27
The table below presents a static gap analysis as of December 31, 2001 which
shows the Company's rate sensitive liabilities may reprice more quickly than
its rate sensitive assets. In addition, the gap report does not reflect the
"call" associated with certain investment assets, which if called,
significantly reduces the negative cumulative gap for the time periods of one
year or less. See the Investment Securities section for more information on
"call" characteristics.
Interest Rate Sensitive Position
1-90 91-180 181-365
days days days Over 1 Year Total
--------- --------- ---------- ----------- ----------
(Dollars in thousands)
Rate sensitive assets:
Federal funds sold and interest-
bearing deposits with banks.... $ 56,001 $ -- $ -- $ -- $ 56,001
Taxable securities............... 34,351 7,804 26,426 213,842 282,423
Tax exempt securities............ 2,395 460 1,594 40,517 44,966
Loans, net of unearned discount.. 409,665 48,585 94,697 363,698 916,645
--------- --------- ---------- ---------- ----------
Total........................ $ 502,412 $ 56,849 $ 122,717 $ 618,057 $1,300,035
--------- --------- ---------- ---------- ----------
Cumulative total............. $ 502,412 $ 559,261 $ 681,978 $1,300,035
--------- --------- ---------- ----------
Rate sensitive liabilities:
Savings and NOW accounts......... $ 136,156 $ -- $ -- $ -- $ 136,156
Money market accounts............ 166,339 -- -- -- 166,339
Time deposits.................... 205,271 122,612 176,237 59,412 563,532
Borrowings....................... 102,013 -- 5,000 87,000 194,013
--------- --------- ---------- ---------- ----------
Total........................ $ 609,779 $ 122,612 $ 181,237 $ 146,412 $1,060,040
--------- --------- ---------- ---------- ----------
Cumulative total............. $ 609,779 $ 732,391 $ 913,628 $1,060,040
--------- --------- ---------- ----------
Cumulative gap...................... $(107,367) $(173,130) $(231,650) $ 239,995
--------- --------- ---------- ----------
Cumulative gap to total assets ratio (7.7)% (12.5)% (16.7)% 17.3%
--------- --------- ---------- ----------
Contractual Obligations and Commercial Commitments
Contractual Obligations
The Company has certain obligations and commitments to make future payments
under contracts. The Company's long-term debt agreements represent: FHLB
advances with various terms and rates collateralized primarily by first
mortgage loans in addition to certain specifically assigned securities and
trust preferred capital securities. The lease agreements represent outstanding
obligations of lease payments on the six real properties leased by the Company.
The following tables represent the Company's contractual obligations:
One year One to Four to
or less three years five years Over 5 years
-------- ----------- ---------- ------------
(Dollars in thousands)
Long term debt............. $5,000 $31,500 $26,500 $29,000
Operating lease obligations 291 443 444 781
------ ------- ------- -------
$5,291 $31,943 $26,944 $29,781
====== ======= ======= =======
The Company does not have any capital leases or long-term purchase
obligations.
Commercial Commitments
In the normal course of business, there are various outstanding commitments
and contingent liabilities, including commitments to extend credit, standby
letters of credit and commercial letters of credit (collectively "commitments")
that are not reflected in the consolidated financial statements.
28
The Company's exposure to credit loss in the event of nonperformance by the
other party to the commitments is limited to their contractual amount. Many
commitments expire without being used. Therefore, the amounts stated below do
not necessarily represent future cash commitments. Commitments to extend credit
are agreements to lend funds to a customer as long as there is no violation of
any condition established in the contract. Specifically, the home equity lines
are reviewed annually and the Bank has the ability to deny any future
extensions of credit based upon the borrowers' continued credit worthiness.
Performance standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Financial
standby letters of credit are conditional guarantees of payment to a third
party on behalf of a customer of the Company. These commitments are subject to
the same credit policies followed for loans recorded in the financial
statements.
A summary of these commitments to extend credit at December 31, 2001 follows:
One year One to Four to
or less three years five years Over five years
-------- ----------- ---------- ---------------
(Dollars in thousands)
Commercial loans........................................ $ 87,261 $ 3,544 $12,470 $16,557
Real estate:
Construction, land acquisition and development loans. 56,565 17,310 275 --
Home equity loans.................................... 17,274 38,629 13,506 57,105
Check credit............................................ 878 -- -- --
Performance standby letters of credit................... 12,225 766 131 --
Financial standby letters of credit..................... 4,485 1,368 766 278
-------- ------- ------- -------
Total commitments....................................... $178,688 $61,617 $27,148 $73,940
======== ======= ======= =======
Investment Securities
The Company's investment portfolio increased $7.4 million or 2% during 2001
to $327.4 million at year-end from $320.0 million at year-end 2000. This
increase was primarily in the U.S. Government agency and corporate security
portfolios partially offset by the Company redirecting proceeds received from
security maturities, calls and paydowns to fund loan demand. In purchasing
securities, the Company has continued its strategy to minimize state income
taxes by primarily investing in state income tax exempt U.S. Government Agency
securities.
U.S. Treasury Securities: The Company decreased its holdings of U.S.
Treasuries by $10.2 million to $16.6 million at year-end from $26.8 million at
year-end 2000. The decrease was primarily due to maturities of Treasuries that
were reinvested in loans. The average maturity of the U.S. Treasury portfolio
decreased to 1.4 years in 2001 from 1.7 years in 2000 and none of the
securities had call features.
U.S. Government Agency and Mortgage Backed Securities: The U.S. Government
Agency securities (including agency mortgage backed securities and agency
collateralized mortgage obligations) portfolio increased $16.9 million to
$242.5 million at year-end 2001 from $225.6 million at year-end 2000. Included
in the total in 2001 is a $20 million short term agency security (due January
4, 2002) purchased at year end in lieu of lower yielding Federal funds.
Excluding that late year purchase, the slight decrease was primarily due to
maturities and calls offset by continued reinvestment into these securities. In
addition, during the year, the Company sold $19.0 million of agencies with a
remaining life of less than one year at a gain and reinvested those proceeds
into agencies with longer maturities and higher rates. The average maturity of
this segment of the portfolio was 4.4 years in 2001 compared to 3.8 years in
2000. Included in this portfolio are $120.1 million in securities with coupon
rates ranging from 4.56% to 7.85% with the potential of being called away in
2002.
Municipal Securities: The Company's municipal security holdings decreased
$7.0 million to $46.8 million at year-end from $53.8 million at year-end 2000.
The decrease is primarily due to scheduled maturities and calls
29
on securities due to the lower rate environment. Due to their federal
tax-exempt status, low credit risk, and pledgability for public deposits,
municipal securities remain attractive investments. All municipal securities
held are rated "A" or better by one or more of the national rating services or
are "non-rated" issues of local communities which, through the Bank's own
analysis, are deemed to be of satisfactory quality. The average contractual
maturity of this portfolio decreased to 4.6 years in 2001 from 5.5 years in
2000. Included in this portfolio are $5.9 million in securities with coupon
rates ranging from 4.5% to 6.9% with the potential of being called away in 2002.
Corporate and Other Securities: Holdings of corporate and other securities
increased $7.8 million to $21.5 million in 2001 from $13.7 million in 2000. The
increase consisted primarily of purchases of higher yielding mid-term corporate
debt securities and long-term Trust Preferred Securities. At December 31, 2001,
the portfolio consists primarily of $4.3 million in corporate debt securities,
$10.1 million in Trust Preferred Securities and $6.1 million of Federal Home
Loan Bank stock. The average contractual maturity of this portfolio decreased
to 19.3 years in 2001 from 25.4 years in 2000. Included in this portfolio are
$3.0 million in securities with coupon rates ranging from 4.63% to 8.88% with
the potential of being called away in 2002.
2000
The Company's investment portfolio decreased $28.6 million or 8% during 2000
to $320.0 million at year-end from $348.6 million at year-end 1999. This
decrease in 2000 was primarily in U.S. Treasury Securities offset by increases
in corporate and other securities.
The following table sets forth the carrying values of investment securities
held on the dates indicated.
Investments by Type (at carrying value)
December 31,
--------------------------
2001 2000 1999
-------- -------- --------
(Dollars in thousands)
U.S. Treasury............................. $ 16,561 $ 26,840 $ 57,285
U.S. Government agencies.................. 234,026 212,916 206,325
Agency mortgage-backed securities......... 8,212 11,861 15,931
Agency collateralized mortgage obligations 304 807 2,536
State and municipal obligations........... 46,789 53,850 55,139
Corporate and other securities............ 21,497 13,711 11,391
-------- -------- --------
Total investment portfolio................ $327,389 $319,985 $348,607
======== ======== ========
At December 31, 2001 there are no investment securities of any one issuer in
excess of 10% of shareholders' equity other than securities of the U.S.
Government and its agencies.
30
The contractual maturity distribution and weighted average yield of
investment securities at December 31, 2001 are presented in the following
table. Actual maturities of securities may differ from that reflected in the
table due to securities with call features which are assumed to be held to
contractual maturity for maturity distribution purposes.
Analysis of Investment Portfolio
U.S. Treasury U.S. Government State and Municipal Corporate and
Securities Agencies/(1)/ Securities Other Securities
------------ -------------- ------------------ -----------------
Amount Yield Amount Yield Amount Yield/(2)/ Amount Yield
------- ----- -------- ----- ------- --------- ------- -----
(Dollars in thousands)
Maturities:
Within 1 year............ $10,564 6.04% $ 49,963 4.55% $ 4,714 7.16% $ -- -- %
1-5 years................ 5,997 5.72 91,015 6.17 20,973 7.32 4,350 6.67
5-10 years............... -- -- 86,564 6.75 19,799 6.75 500 7.05
After 10 years........... -- -- 15,000 6.75 1,303 7.32 16,647/(3)/ 6.65
------- ---- -------- ---- ------- ---- ------- ----
$16,561 5.92% $242,542 6.08% $46,789 7.06% $21,497 6.66%
======= ==== ======== ==== ======= ==== ======= ====
Average months to maturity 16 53 56 232
- --------
/(1)/ Included in U.S. Government agencies are agency mortgage-backed
securities (MBS) and agency collateralized mortgage obligations (CMOs).
Given the amortizing nature of MBS and CMOs, the maturities presented in
the table are based on their estimated average lives at December 31,
2001. The estimated average lives may differ from actual principal cash
flows since cash flows include prepayments and scheduled principal
amortization.
/(2)/ Yields on state and municipal securities include the effects of tax
equivalent adjustments using a tax rate of 34%.
/(3)/ Included in this amount are equity securities and the Federal Home Loan
Bank of Chicago stock, which have no maturity date and are not included
in the average months to maturity.
Loans
2001
At December 31, 2001, loans outstanding, net of unearned discount, increased
$91.6 million or 11% compared to 2000. Construction, commercial real estate,
commercial and home equity loans led the 2001 loan growth offset by a decrease
in residential mortgage loans.
Commercial loans increased $10.4 million or 8% to $146.7 million in 2001.
This increase was due to marketing efforts, national syndication loans and
competitive market pricing. The syndication loans had a balance of $51.8 at
December 31, 2001 as compared to $43.5 at December 31, 2000.
Construction, land acquisition and development loans increased $56.5 million
or 123% to $102.6 million at December 31, 2001. This increase is due to
marketing in the Chicago Metropolitan area. This category consists of loans for
the following purposes: Approximately 60% are for construction of 1-4 family
detached homes, condominiums and townhomes in the Chicago area; approximately
26% of the loans are for retail developments; 6% represent multi-family
residential projects; 3% are hotel and office properties and 5% are industrial
buildings.
Commercial mortgage loans increased $32.3 million or 18% to $213.7 million
in 2001. The commercial mortgage portfolio is comprised of approximately 45%
multi-family residential properties; 27% retail properties; 11% owner occupied
commercial and industrial buildings; and 17% non-owner occupied commercial and
industrial buildings. The growth in this portfolio is primarily due to
successful marketing.
Home equity loans increased $10.0 million or 10% to $112.9 million at
December 31, 2001. This increase is due to new originations as a result of
successful mass marketing efforts in a low interest rate environment, offset by
increased payoffs due to first mortgage loan refinancing.
31
Residential mortgages decreased $22.6 million or 18% to $105.2 million in
2001. The decrease is primarily due to increased payoffs on the existing
portfolio due to the decreasing interest rate environment. The decrease was
also the result of the company originating $87.9 in mortgage loans in 2001 of
which only $12.3 was kept in the Bank's portfolio. The remaining $75.6 million
in originations were sold, servicing released, to investors.
Indirect loans increased $5.0 million primarily due to the growth in the
Harley Davidson loan portfolio offset by a decrease in the auto portfolio. The
Harley Davidson motorcycle loans were generated in 12 states as part of a
national marketing initiative. At December 31, 2001, Harley Davidson loans
totaled $19 million as compared to $5.4 million in 2000. The decrease in the
auto portfolio was due to increased payoffs offset by a slight increase in
originations over 2000. The Bank offered very competitive pricing in the luxury
import market.
The Company does not have any programs to buy subprime indirect loan paper
or any other subprime credit.
There were no loan concentrations exceeding 10% of total loans at December
31, 2001.
2000
At year-end 2000, loans outstanding, net of unearned discount, increased
$105.1 million or 15% compared to 1999. Construction, commercial, commercial
real estate and home equity loans led 2000 loan growth. In addition, the
residential mortgage and indirect loan portfolios posted increases.
Commercial loans increased $28.8 million or 27% to $136.3 million in 2000.
This increase was primarily due to local marketing efforts and participations
in nationally syndicated loans.
Construction, land acquisition and development loans increased $23.5 million
or 104% to $46.1 million and commercial mortgage loans increased $23.4 million
or 15% to $181.4 million in 2000. These increases are primarily due to local
marketing and competitive loan pricing.
Home equity loans increased $17.5 million or 21% to $102.8 million due
primarily to mass marketing efforts and increased usage on existing lines.
Residential mortgage loans increased $7.6 million or 6% due to lower payoffs
on our existing portfolio due to rising interest rates. In 2000, the Company
originated approximately $40 million in new residential real estate loans of
which $24 million were retained in the portfolio and $16 million were sold to
investors.
Indirect loans increased $4.0 million or 2% to $219.3 million in 2000. This
modest increase was intentional. The interest rate environment was such that
the capital needed to support these lower yielding loans could be better
utilized in higher-yielding commercial loans. Included in the indirect loans
are $5.4 million in Harley Davidson motorcycle loans that had been originated
as part of a national marketing initiative.
The Company did not have any programs to buy subprime indirect loan paper or
any other subprime credit.
There were no loan concentrations exceeding 10% of total loans at December
31, 2000, which were not otherwise disclosed.
32
Loans by Type
December 31,
--------------------------------------------
2001 2000 1999 1998 1997
- - -------- -------- -------- -------- --------
(Dollars in thousands)
Commercial loans.................................. $146,691 $136,314 $107,557 $108,685 $ 54,658
Real estate loans--
Construction, land acquisition and development
loans........................................ 102,594 46,082 22,566 41,640 36,525
Commercial mortgage loans...................... 213,689 181,380 158,008 114,373 73,376
Residential mortgage loans..................... 105,168 127,794 120,191 117,438 96,766
Home equity loans.............................. 112,877 102,841 85,343 73,149 65,273
Indirect vehicle loans/(1)/....................... 224,311 219,348 215,364 165,341 105,807
Consumer loans/(2)/............................... 11,348 11,370 11,189 11,780 14,932
Credit card loans................................. 5 29 85 213 631
-------- -------- -------- -------- --------
$916,683 $825,158 $720,303 $632,619 $447,968
Less:
Unearned discount.............................. 38 138 334 632 636
Allowance for loan losses...................... 6,982 5,682 4,828 4,445 4,329
-------- -------- -------- -------- --------
Loans, net..................................... $909,663 $819,338 $715,141 $627,542 $443,003
-------- -------- -------- -------- --------
- --------
/(1)/ Indirect loans represent consumer loans made through a network of new car
and motorcycle dealers.
/(2)/ Included in this amount are student loans, direct automobile loans and
check credit loans.
As evidenced by the previous table, loans secured by real estate comprise
the greatest percentage of total loans. Most of the Company's residential real
estate loans are secured by first mortgages and home equity loans are secured
primarily by junior liens on one-to-four family residences in the Chicago
Metropolitan area. Substantially all of the Company's combined portfolio of
residential and home equity loans have loan to value ratios of less than eighty
percent of the appraised value. Commercial mortgages and construction, land
acquisition and development loans are generally secured by properties in the
Chicago Metropolitan area. In 2000 the Bank began to participate in some larger
nationally syndicated loans. Syndication loans totaled $51.8 million at
December 31, 2001. Approximately half of these loans are to companies
headquartered in the Chicago Metropolitan area and the remaining half are to
companies headquartered outside of the Chicago area; however, there is no
concentration of these loans in any specific region of the United States.
Average loans for 2001 were $869.9 million, an increase of $91.6 million or
12% as compared to 2000. As shown in the following table, the increase is
primarily in commercial, commercial mortgage, construction and home equity
loans. Average loans for 2000 increased to $778.3 million, an increase of
$102.4 million or 15% over the 1999 average.
Average Loans and Yield by Type
2001 2000 1999
------------- ------------- -------------
Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
Commercial loans...................... $138,848 7.45% $120,152 8.50% $106,594 7.69%
Real estate:
Construction, land acquisition and
development loans................ 77,064 7.56 38,530 9.85 32,349 8.94
Commercial mortgage loans.......... 196,524 8.00 165,157 8.07 139,079 7.87
Residential mortgage loans......... 118,447 7.14 126,717 7.11 119,825 6.99
Home equity loans.................. 106,607 6.87 94,078 8.14 77,986 7.41
Indirect vehicle loans................ 221,074 7.56 222,175 7.03 188,517 6.96
Consumer loans........................ 11,350 8.33 11,465 8.85 11,582 8.27
-------- ---- -------- ---- -------- ----
Total................................. $869,914 7.51% $778,274 7.79% $675,932 7.44%
======== ==== ======== ==== ======== ====
33
The following table indicates the remaining contractual maturity
distribution of selected loans at December 31, 2001:
Maturity Distribution of Selected Loans
One year One to Over
or less/(1)/ five years five years Total
----------- ---------- ---------- ---------
(Dollars in thousands)
Commercial loans......................................... $ 59,729 $ 63,358 $ 23,604 $ 146,691
Real estate:
Construction, land acquisition, and development loans. 53,444 32,332 16,818 102,594
Commercial mortgage loans............................. 12,880 118,584 82,225 213,689
Residential mortgage loans............................ 3,122 5,859 96,187 105,168
Home equity loans..................................... 14,423 43,401 55,053 112,877
-------- --------- -------- ---------
$143,598 $263,534 $273,887 $681,019
======== ========= ======== =========
- --------
/(1)/ Includes demand loans.
The following table indicates, for the loans in the Maturity Distribution
table, the amounts due after one year which have fixed and variable interest
rates at December 31, 2001:
Fixed Variable
Rate Rate Total
-------- -------- --------
(Dollars in thousands)
Commercial loans........................................ $ 36,710 $ 50,252 $ 86,962
Real estate:
Construction, land acquisition and development loans. 5,379 43,771 49,150
Commercial mortgage loans............................ 141,357 59,452 200,809
Residential mortgage loans........................... 54,502 47,544 102,046
Home equity loans.................................... 19,994 78,460 98,454
-------- -------- --------
$257,942 $279,479 $537,421
======== ======== ========
Variable rate loans are those on which the interest rate can be adjusted for
changes in the Company's index rate (similar to prime rate), various maturity
U.S. Treasury rates, The Wall Street Journal's published prime rate, LIBOR or
the brokers' call money rate. Certain of the loans classified as variable rate
have a fixed rate for a certain period and then adjust after the fixed period
expires. Fixed rate loans are those on which the interest rate cannot be
changed during the term of the loan.
Deposits
At year-end 2001, total deposits were $1.1 billion, an increase of $99.7
million or 10% compared to 2000. This increase was primarily due to a $49.2
million increase in time deposits and a $54.6 million increase in money market
accounts which was the result of successful retail deposit promotions and to a
much lesser extent the opening of the Chicago office in November 2000. These
increases were offset by a decrease in noninterest-bearing demand deposits,
primarily business accounts, by $9.6 million at year-end 2001. The decline in
business checking is due to some lost business and customers reducing their
balances and opting to pay for a portion of treasury management services in
cash fees. At December 31, 2001, there were no brokered deposits.
Average deposits for 2001 increased $58.1 million or 6% as compared to 2000.
The increase in average deposits was primarily due to a $44.0 million increase
in average time deposits and a $32.6 million increase in average money market
deposits offset by a $12.5 million decrease in average savings and NOW accounts
and a $6.0 million decrease in average noninterest-bearing demand deposits.
34
Average deposits for 2000 increased $110.5 million or 13% as compared to
1999. The increase in average deposits was primarily due to an $89.1 million
increase in average time deposits, and a $44.5 million increase in average
money market deposits offset by a $33.4 million decrease in average savings and
NOW accounts. In addition, average noninterest-bearing demand deposits,
primarily business accounts, increased $10.3 million in 2000.
Average Deposits and Rate by Type
2001 2000 1999
--------------- ------------- -------------
Amount Rate Amount Rate Amount Rate
---------- ---- -------- ---- -------- ----
(Dollars in thousands)
Noninterest-bearing demand deposits $ 193,778 -- % $199,753 -- % $189,448 -- %
Savings deposits and NOW accounts.. 126,477 2.18 139,014 3.02 172,452 2.76
Money market accounts.............. 125,163 3.32 92,581 4.75 48,112 3.43
Time deposits...................... 564,325 5.41 520,297 6.05 431,150 5.43
---------- ---- -------- ---- -------- ----
Total.............................. $1,009,743 3.71% $951,645 4.21% $841,162 3.55%
========== ==== ======== ==== ======== ====
As of December 31, 2001, the scheduled maturities of time deposits are as
follows:
Maturity Distribution of Time Deposits
(Dollars in
thousands)
2002............... $504,120
2003............... 45,157
2004............... 5,458
2005............... 7,641
2006............... 1,087
2007 and thereafter 69
--------
Total.............. $563,532
========
Borrowings
Short-term borrowings, which include Federal funds purchased, securities
sold under agreements to repurchase, Treasury, tax and loan demand notes and
draws on the Company's line of credit, were $102.0 million at December 31,
2001, increasing $18.3 million from $83.7 million at the end of 2000. The 2001
increase was primarily due to increases in Treasury tax and loan demand notes
and an increase in securities sold under agreements to repurchase. In 2000,
short-term borrowings decreased to $83.7 million from $98.0 million in 1999,
primarily due to a decrease in Treasury tax and loan demand notes and, to a
lesser extent, a decrease in Federal funds purchased and securities sold under
agreements to repurchase.
As a member of the Federal Home Loan Bank, the Bank may obtain advances
secured by certain of its residential mortgage loans and other assets. The
Company continued to utilize the Federal Home Loan Bank advances due to the
comparatively favorable terms available. Borrowings increased to $86.0 million
at December 31, 2001 from $81.0 million at December 31, 2000, up 6%. In 2000
total FHLB borrowings increased 29% from $63.0 million at December 31, 1999.
Borrowings mature from 2002 to 2008 and bear fixed interest rates ranging from
5.23% to 7.14%. At December 31, 2001, $25 million in FHLB borrowings are
callable at the discretion of the FHLB of Chicago. See Item 8 under Note 7 to
the consolidated financial statements for additional information.
At December 31, 2001 and 2000, the Company had $6 million in Trust Preferred
Capital Securities outstanding bearing an interest rate of 10.6% and maturing
in 2030. The securities are non-callable for 10 years and, after that period,
have a declining 10 year premium call. These securities represent the Company's
participation in a $300 million Pooled Trust Preferred Program that was
distributed in an institutional private placement. The proceeds, which qualify
as Tier I Capital for regulatory purposes, were used to pay down $2.1 million
in short term debt, repurchase Company stock and for general corporate purposes.
35
Capital Resources
One of the Company's primary objectives is to maintain strong capital to
warrant the confidence of our customers, shareholders and bank regulatory
agencies. A strong capital base is needed to take advantage of profitable
growth opportunities that arise and to provide assurance to depositors and
creditors. Banking is inherently a risk-taking activity requiring a sufficient
level of capital to effectively and efficiently manage inherent business risks.
The Company's capital objectives are to:
. maintain sufficient capital to support the risk characteristics of the
Company and the Bank; and
. maintain capital ratios which meet and exceed the "well-capitalized"
regulatory capital ratio guidelines for the Bank, thereby minimizing
regulatory intervention and lowering FDIC assessments.
At December 31, 2001, the Company's shareholders' equity totaled to $99.6
million. The Company's and the Bank's capital ratios not only exceeded minimum
regulatory guidelines, but also the FDIC criteria for "well-capitalized" banks.
As a result of new procedures established to annually monitor future extensions
of credit on the home equity lines, the Bank was able to control the growth in
the risk weighted assets of the Bank, thereby resulting in an increase in the
Company's capital ratios. See Item 8 under Note 10 to the financial statements
for regulatory capital disclosures.
In 2001, cash dividends declared totaled $2,905,000, a 3% increase from
2000. In 2000, cash dividends declared totaled $2,812,000, an 8% increase from
1999. The dividend payout ratio for 2001 was 21.29% as compared to 25.45% in
2000.
During 2001, the Company repurchased a total of 50,974 shares of Common
Stock at an average cost of $20.38 per share. These purchases were part of a
stock repurchase program authorized on August 31, 2000 which allows the Company
to purchase up to 200,000 shares (or approximately 3% of outstanding shares) of
Common Stock through January 2002 in the open market or through negotiated
transactions from time to time depending on market conditions. The stock
repurchased is held as treasury stock to be used for general corporate
purposes. Through December 31, 2001, the Company has repurchased 95,940 shares
under this plan at an average price of $17.89 per share and there are
approximately 104,000 shares remaining available to be repurchased under this
program. In January 2002, this program was extended through August 2003.
In 2000, repurchases totaled 253,500 shares at an average cost of $15.28 per
share. These repurchases were made under three separate Board approved Stock
Repurchase programs.
Branch Expansion
One of the Company's primary growth strategies is branch expansion in the
Chicago Metropolitan area. This form of growth requires a significant
investment in nonearning assets during the construction phase. Upon completion,
for a time, expenses exceed the income of the branch. While new branches retard
short-term earnings, we believe our market warrants judicious office additions.
The Company completed its 14/th office in Bolingbrook, Illinois in March
2002. The Company began depreciating capitalized costs associated with this
branch when the branch was put into service. /
Critical Accounting Policies
The Company has established various accounting policies which govern the
application of accounting principles generally accepted in the United States in
the preparation of the Company's financial statements. The significant
accounting policies of the Company are described in the footnotes to the
consolidated financial statements. Certain accounting policies involve
significant judgments and assumptions by management which have a material
impact on the carrying value of certain assets and liabilities; management
considers such
36
accounting policies to be critical accounting policies. The judgments and
assumptions used by management are based on historical experience, projected
results and other factors, which are believed to be reasonable under the
circumstances. Because of the nature of the judgments and assumptions made by
management, actual results could differ from these judgments and estimates
which could have a material impact on the carrying values of assets and
liabilities and the results of operations of the Company.
The Company believes the policies that govern the allowance for loan losses
and the deferred tax assets and liabilities are critical accounting policies
that require the most significant judgments and estimates used in preparation
of its consolidated financial statements. Refer to the sections entitled
Allowance and Provision for Loan Losses, and Income Tax Expense for a detailed
description of the Company's estimation process and methodology related to
these policies. In addition, refer to Item 8 Note 1 Significant Accounting
Policies for additional description of the critical accounting policies as well
as the other significant accounting policies of the Company.
Condensed Quarterly Earnings Summary
2001 2000
------------------------------- -------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Interest income........... $21,188 $21,603 $21,777 $21,790 $22,071 $21,719 $21,090 $19,303
Interest expense.......... 10,380 11,583 12,414 13,065 13,594 13,581 12,741 11,062
------- ------- ------- ------- ------- ------- ------- -------
Net interest income....... $10,808 $10,020 $ 9,363 $ 8,725 $ 8,477 $ 8,138 $ 8,349 $ 8,241
Provision for loan losses. 500 500 325 225 225 225 225 225
Other income.............. 3,848 3,775 3,442 3,377 2,842 2,653 2,593 2,394
Other expense............. 8,436 8,068 7,837 7,587 6,634 6,721 6,934 6,828
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes $ 5,720 $ 5,227 $ 4,643 $ 4,290 $ 4,460 $ 3,845 $ 3,783 $ 3,582
Income taxes.............. 1,859 1,637 1,429 1,307 1,354 1,126 1,103 1,038
------- ------- ------- ------- ------- ------- ------- -------
Net Income................ $ 3,861 $ 3,590 $ 3,214 $ 2,983 $ 3,106 $ 2,719 $ 2,680 $ 2,544
======= ======= ======= ======= ======= ======= ======= =======
The above quarterly financial information contains all normal and recurring
reclassifications for a fair and consistent presentation.
Impact of Pending Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (FAS 141) and No.
142, Goodwill and Other Intangible Assets (FAS 142). FAS 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets required in a business combination. FAS
142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. FAS 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested at least annually for impairment. FAS 142 is effective January 1,
2002 for calendar year companies; however, any acquired goodwill or intangible
assets recorded in transactions closed subsequent to June 30, 2001 will be
subject immediately to the nonamortization and amortization provisions of FAS
142. As the Company currently has no recorded goodwill, the adoption of FAS 141
and FAS 142 will not impact the financial position or results of operation of
the Company.
37
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of 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
Litigation Reform Act of 1995, and this statement is included for purposes of
involving these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe the Company's future plans,
strategies and expectations, can generally be identified 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 and actual results may
differ materially from the results projected in forward-looking statements due
to various factors. These risks and uncertainties include, but are not limited
to, fluctuations in market rates of interest and loan and deposit pricing; a
deterioration of general economic conditions in the Company's market areas;
legislative or regulatory changes; adverse developments in our loan or
investment portfolios; the assessment of its provision and reserve for loan
losses; significant increases in competition or changes in depositor
preferences or loan demand, difficulties in identifying attractive branch sites
or other expansion opportunities, or unanticipated delays in construction
buildout; difficulties in attracting and retaining qualified personnel; and
possible dilutive effect of potential acquisitions or expansion. These risks
and uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. We undertake no
obligation to update publicly any of these statements in light of future events
except as may be required in subsequent periodic reports filed with the
Securities and Exchange Commission.
ITEM 7A. Quantitative And Qualitative Disclosures About Market Risks
See "Interest Rate Sensitivity" in Item 7 of this document.
38
ITEM 8. Financial Statements And Supplementary Data
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
2001 2000
---------- ----------
(Dollars in thousands)
Assets
Cash and due from banks.............................................................. $ 54,097 $ 55,291
Federal funds sold, securities purchased under agreements to
resell and interest-bearing deposits with banks..................................... 56,001 15,759
Investment securities:...............................................................
Securities held-to-maturity, at amortized cost (fair value of $10,509 and $99,617
in 2001 and 2000, respectively)................................................. 10,228 98,131
Securities available-for-sale, at fair value...................................... 317,161 221,854
---------- ----------
Total investment securities................................................... 327,389 319,985
Loans, net of unearned discount...................................................... 916,645 825,020
Less-allowance for loan losses....................................................... (6,982) (5,682)
---------- ----------
Net loans......................................................................... 909,663 819,338
Premises and equipment, net.......................................................... 23,466 23,117
Other assets......................................................................... 15,935 15,782
---------- ----------
Total Assets......................................................................... $1,386,551 $1,249,272
========== ==========
Liabilities and Shareholders' Equity
Noninterest-bearing demand deposits.................................................. $ 211,939 $ 221,552
Interest-bearing deposits:...........................................................
Savings deposits and NOW accounts................................................. 136,156 130,602
Money market accounts............................................................. 166,339 111,761
Time deposits.....................................................................
Under $100,000................................................................ 293,302 279,139
$100,000 and over............................................................. 270,230 235,172
---------- ----------
Total interest-bearing deposits...................................................... 866,027 756,674
---------- ----------
Total deposits....................................................................... 1,077,966 978,226
Federal funds purchased, securities sold under agreements to repurchase and other
short term debt.................................................................... 82,013 71,967
Treasury, tax and loan demand notes.................................................. 20,000 11,740
Federal Home Loan Bank (FHLB) borrowings............................................. 86,000 81,000
Trust Preferred Capital Securities................................................... 6,000 6,000
Other liabilities.................................................................... 15,020 12,733
---------- ----------
Total Liabilities.................................................................... 1,286,999 1,161,666
Shareholders' Equity:
Preferred stock, no par value, authorized--100,000 shares, issued--none..............
Common Stock, $2 par value, authorized--16,000,000 shares in 2001 and 2000,
issued--7,283,256 shares in 2001 and 2000, outstanding--6,310,631 shares in
2001 and 6,345,745 shares in 2000.................................................. 14,567 14,567
Surplus.............................................................................. 11,878 11,849
Accumulated other comprehensive income, net of tax................................... 3,437 1,410
Retained earnings.................................................................... 81,336 70,593
Less cost of shares in treasury, 972,625 common shares in 2001 and 937,511 common
shares in 2000..................................................................... (11,666) (10,813)
---------- ----------
Total Shareholders' Equity........................................................... 99,552 87,606
---------- ----------
Total Liabilities and Shareholders' Equity........................................... $1,386,551 $1,249,272
========== ==========
See accompanying notes to consolidated financial statements.
39
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
--------------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands except per
share amounts)
Interest income:
Interest and fees on loans............................................... $65,202 $60,450 $50,078
Interest on securities:..................................................
U.S. Treasury and Government agencies................................ 14,988 18,031 14,208
Obligations of states and political subdivisions..................... 2,958 2,979 2,825
Other securities..................................................... 1,332 888 830
Interest on Federal funds sold and securities purchased under agreements
to resell.............................................................. 1,874 1,821 1,118
Interest on deposits with banks.......................................... 4 14 401
------- ------- -------
Total interest income....................................................... 86,358 84,183 69,460
Interest expense:
Interest on savings deposits and NOW accounts............................ 2,751 4,201 4,765
Interest on money market accounts........................................ 4,157 4,400 1,648
Interest on time deposits................................................ 30,558 31,465 23,428
Interest on Federal funds purchased, securities sold under agreements to
repurchase, and other short term debt.................................. 3,491 5,405 3,042
Interest on Treasury, tax and loan demand notes.......................... 637 1,019 370
Interest on FHLB borrowings.............................................. 5,206 4,286 3,870
Interest on Trust Preferred Capital Securities........................... 642 202 --
------- ------- -------
Total interest expense...................................................... 47,442 50,978 37,123
------- ------- -------
Net interest income......................................................... 38,916 33,205 32,337
Provision for loan losses................................................... 1,550 900 840
------- ------- -------
Net interest income after provision for loan losses......................... 37,366 32,305 31,497
------- ------- -------
Other income:
Service charges on deposit accounts...................................... 6,032 4,671 3,600
Investment management and trust fees..................................... 1,429 1,144 1,128
Merchant credit card processing fees..................................... 3,777 2,552 1,858
Fees on mortgages sold, net of commissions............................... 643 177 422
Income from revenue sharing agreement.................................... 900 900 900
Other operating income................................................... 1,402 1,020 979
Investment securities gains, net......................................... 259 18 79
------- ------- -------
Total other income.......................................................... 14,442 10,482 8,966
------- ------- -------
Other expenses:
Salaries and employee benefits........................................... 18,810 16,171 15,817
Occupancy expense........................................................ 2,035 1,797 1,683
Equipment expense........................................................ 1,991 1,822 1,657
Data processing.......................................................... 1,488 1,217 1,135
Postage, stationery and supplies......................................... 963 869 865
Advertising and business development..................................... 1,390 1,356 1,231
Merchant credit card interchange expense................................. 2,993 1,942 1,419
Other operating expenses................................................. 2,258 1,943 1,833
------- ------- -------
Total other expenses........................................................ 31,928 27,117 25,640
------- ------- -------
Income before income taxes.................................................. 19,880 15,670 14,823
Income tax expense.......................................................... 6,232 4,621 4,277
------- ------- -------
Net income.................................................................. $13,648 $11,049 $10,546
======= ======= =======
Basic earnings per share.................................................... $ 2.16 $ 1.72 $ 1.60
======= ======= =======
Diluted earnings per share.................................................. $ 2.12 $ 1.70 $ 1.57
======= ======= =======
See accompanying notes to consolidated financial statements.
40
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Class A
Common Stock Common Stock Accumulated
------------------- ----------------- Other Total
Par Par Comprehensive Retained Treasury Shareholders'
Shares Value Shares Value Surplus Income (loss) Earnings Stock Equity
---------- ------- --------- ------- ------- ------------- -------- -------- -------------
(Dollars in thousands except share amounts)
Balance at December 31, 1998. 4,019,902 $ 8,040 3,263,354 $ 6,527 $11,955 $ 2,263 $54,406 $ (6,130) $77,061
---------- ------- --------- ------- ------- ------- ------- -------- -------
Comprehensive income, net of
tax
Net income.................. 10,546 10,546
Unrealized holding loss
during the period of
$3,456, net of
reclassification
adjustment for realized
gain included in net
income of $52............. (3,508) (3,508)
-------
Total comprehensive income... 7,038
Reclassification of common
stock into Class A common
stock and renamed Common
Stock....................... (4,019,902) (8,040) 4,019,902 8,040
Dividends declared........... (2,596) (2,596)
Exercise of stock options
(including tax benefit)..... 30 448 478
Purchase of treasury stock
(105,500 common shares)..... (1,982) (1,982)
---------- ------- --------- ------- ------- ------- ------- -------- -------
Balance at December 31, 1999. -- $ -- 7,283,256 $14,567 $11,985 $(1,245) $62,356 $ (7,664) $79,999
---------- ------- --------- ------- ------- ------- ------- -------- -------
Comprehensive income, net of
tax
Net income.................. 11,049 11,049
Unrealized holding gain
during the period of
$2,667, net of
reclassification
adjustment for realized
gain included in net
income of $12............. 2,655 2,655
-------
Total comprehensive income... 13,704
Dividends declared........... (2,812) (2,812)
Exercise of stock options
(including tax benefit)..... (136) 723 587
Purchase of treasury stock
(253,500 common shares)..... (3,872) (3,872)
---------- ------- --------- ------- ------- ------- ------- -------- -------
Balance at December 31, 2000. -- $ -- 7,283,256 $14,567 $11,849 $ 1,410 $70,593 $(10,813) $87,606
---------- ------- --------- ------- ------- ------- ------- -------- -------
Comprehensive income, net of
tax
Net income.................. 13,648 13,648
Unrealized holding gain
during the period of
$2,198, net of
reclassification
adjustment for realized
gain included in net
income of $171............ 2,027 2,027
-------
Total comprehensive income... 15,675
Dividends declared........... (2,905) (2,905)
Exercise of stock options
(including tax benefit)..... 29 182 211
Purchase of treasury stock
(50,794 common shares)...... (1,035) (1,035)
---------- ------- --------- ------- ------- ------- ------- -------- -------
Balance at December 31, 2001. -- $ -- 7,283,256 $14,567 $11,878 $ 3,437 $81,336 $(11,666) $99,552
========== ======= ========= ======= ======= ======= ======= ======== =======
See accompanying notes to consolidated financial statements.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
(Dollars in thousands)
Cash flows from operating activities:
Net income........................................................... $ 13,648 $ 11,049 $ 10,546
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization...................................... 2,471 2,220 2,024
Discount accretion................................................. (931) (856) (875)
Premium amortization............................................... 806 1,113 1,274
Provision for loan losses.......................................... 1,550 900 840
Deferred taxes..................................................... (570) (111) (244)
Investment securities gains, net................................... (259) (18) (79)
Proceeds from sale of Broadview property........................... 300 -- --
Gain on sale of Broadview property................................. (172) -- --
Increase (decrease) from revenue sharing agreement................. (97) (3) 17
Origination of real estate loans for sale.......................... (75,615) (15,832) (36,197)
Proceeds from sale of real estate loans originated for sale........ 71,301 16,059 39,962
Gain on sale of mortgage loans originated for sale................. (965) (264) (629)
FHLB stock dividend................................................ (413) (310) --
Increase in other assets........................................... (62) (2,550) (4,133)
Increase in other liabilities...................................... 1,811 200 3,684
--------- --------- ---------
Net cash provided by operating activities............................. 12,803 11,597 16,190
Cash flows from investing activities:
Interest-bearing deposits with banks:
Proceeds from maturities........................................... -- -- 11,480
Securities held-to-maturity:
Purchases.......................................................... (1,800) (32,769) (22,737)
Proceeds from maturities, calls and paydowns....................... 13,598 29,179 65,788
Securities available-for-sale:
Purchases.......................................................... (128,389) (46,549) (303,996)
Proceeds from maturities, calls and paydowns....................... 83,125 53,234 76,939
Proceeds from sales................................................ 29,932 29,620 127,438
Increase in loans.................................................... (86,596) (105,060) (91,575)
Purchases of premises and equipment.................................. (2,942) (3,526) (2,801)
--------- --------- ---------
Net cash used in investing activities................................. (93,072) (75,871) (139,464)
Cash flows from financing activities:
Increase (decrease) in noninterest-bearing demand deposits........... (9,613) 25,309 9,034
Increase in interest-bearing deposit accounts........................ 109,353 58,845 107,236
Increase (decrease) in Federal funds purchased, securities sold under
agreements to repurchase and short term debt....................... 10,046 (6,041) (5,578)
Increase (decrease) in Treasury, tax and loan demand notes........... 8,260 (8,260) 16,318
Proceeds from FHLB borrowings........................................ 5,000 23,000 10,500
Repayment of FHLB borrowings......................................... -- (5,000) (5,000)
Proceeds from Trust Preferred Capital Securities..................... -- 6,000 --
Purchase of treasury stock........................................... (1,035) (3,872) (1,982)
Exercise of stock options............................................ 211 587 478
Cash dividends....................................................... (2,905) (2,812) (2,596)
--------- --------- ---------
Net cash provided by financing activities............................. 119,317 87,756 128,410
--------- --------- ---------
Net increase in cash and cash equivalents............................. 39,048 23,482 5,136
Cash and cash equivalents at beginning of year........................ 71,050 47,568 42,432
--------- --------- ---------
Cash and cash equivalents at end of year.............................. $ 110,098 $ 71,050 $ 47,568
========= ========= =========
Supplemental disclosures:
Interest paid........................................................ $ 48,965 $ 53,318 $ 41,200
Income taxes paid.................................................... 6,365 4,175 4,672
Transfer of securities to available-for-sale from held-to-maturity... 76,131 -- --
See accompanying notes to consolidated financial statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of First Oak
Brook Bancshares, Inc. (the Company) and its wholly-owned subsidiaries, Oak
Brook Bank (the Bank) and FOBB Statutory Trust I. Also included are the
accounts of Oak Real Estate Development Corporation, a wholly owned subsidiary
of the Bank. All intercompany accounts and transactions have been eliminated in
consolidation. The accounting and reporting policies of the Company and its
subsidiaries conform to accounting principles generally accepted in the United
States of America and to general practice within the banking industry.
The Company, through the Bank, operates in a single segment engaging in
general retail and commercial banking business, primarily in the Chicago
Metropolitan area. The services offered include demand, savings and time
deposits, corporate cash management services, merchant card processing,
commercial lending products such as commercial loans, construction loans,
mortgages and letters of credit, and personal lending products such as
residential mortgages, home equity lines and vehicle loans. The Bank has a full
service investment management and trust department.
The Bank formed a wholly-owned real estate subsidiary in 2000, Oak Real
Estate Development Corporation, for the purpose of real estate development. The
subsidiary will acquire, develop, rehabilitate, sell and/or rent single and
multi-family residential real estate, residential apartment buildings and
commercial properties that are part of or ancillary to residential real estate
in Illinois.
The Company formed a wholly owned subsidiary in 2000, FOBB Statutory Trust
I, for the purpose of participating in a Pooled Trust Preferred Program. See
Note 7 to the financial statements for further discussion regarding this
program.
Use of Estimates: The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment Securities: Securities are classified as held-to-maturity,
available-for-sale or trading at the time of purchase. Securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost. All other securities are classified as
available-for-sale and stated at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of shareholders' equity.
The Company does not carry any securities for trading purposes.
The amortized cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums to the earlier of
maturity or call date, and accretion of discounts to maturity, or in the case
of mortgage-backed securities, over the estimated life of the security. The
cost of securities sold is based on the specific identification method.
Loans: Loans are carried at the principal amount outstanding, net of
unearned discount, including certain net deferred loan origination fees.
Residential real estate loans that are originated for sale are carried at lower
of aggregate cost or market and are typically sold within 60 days. Interest
income on loans is accrued based on principal amounts outstanding.
Loan Fees and Related Costs: Loan origination and commitment fees and
certain direct loan origination costs are deferred and amortized as an
adjustment of the related loan's yield over the contractual life or the
estimated life of the loan using the level-yield method.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level believed adequate by management to absorb estimated probable loan losses.
Management's periodic evaluation of the adequacy of the
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
allowance is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, composition of the loan portfolio, current
economic conditions, historical losses experienced by the industry, value of
the underlying collateral and other relevant factors. Loans which are
determined to be uncollectible are charged off against the allowance for loan
losses and recoveries of loans that were previously charged off are credited to
the allowance.
The Company's charge-off policy varies with respect to the category of and
specific circumstances surrounding each loan under consideration. The Company
records commercial loan charge-offs on the basis of management's ongoing
evaluation of collectibility. Consumer loans are charged off at the earlier of
the time management can quantify a loss or when the loan becomes 180 days past
due with the exception of a pending insurance claim or the pending resolution
of a Chapter 13 bankruptcy payment plan. In addition, any loans which are
classified as "loss" in regulatory examinations are completely charged off and
loans classified as "doubtful" are charged off at 50%.
The Company records specific valuation allowances on commercial, commercial
mortgage and construction loans when a loan is considered to be impaired. A
loan is impaired when, based on an evaluation of current information and
events, it is probable that the Company will not be able to collect all amounts
due (principal and interest) pursuant to the original contractual terms. The
Company measures impairment based upon the present value of expected future
cash flows discounted at the loan's original effective interest rate or the
fair value of the collateral if the loan is collateral dependent. Large groups
of homogeneous loans, such as residential mortgage, home equity, indirect
vehicle and consumer loans, are collectively evaluated for impairment. Interest
income on impaired loans is recognized using the cash basis method.
Commercial, commercial mortgage and construction loans are placed on
nonaccrual status when the collectibility of the contractual principal or
interest is deemed doubtful by management or when the loan becomes 90 days or
more past due and is not well secured or in the process of collection.
Premises and Equipment: Premises, leasehold improvements and equipment are
stated at cost less accumulated depreciation and amortization. For financial
reporting purposes, depreciation is charged to expense by the straight-line
method over the estimated useful life of the asset. Leasehold improvements are
amortized over a period not exceeding the term of the lease, including renewal
option periods.
Income Taxes: The Company and its subsidiaries file consolidated income tax
returns. The Bank provides for income taxes on a separate return basis and
remits to the Company amounts determined to be currently payable. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are applicable to periods in
which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to
the amount expected to be realized.
Earnings Per Share: Basic earnings per share (EPS) is computed by dividing
net income by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing net income by the weighted average
number of common shares adjusted for the dilutive effect of outstanding stock
options.
Stock Options: The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Under APB 25, if the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Comprehensive Income: Comprehensive income consists of net income and the
change in net unrealized gains (losses) on available-for-sale securities and is
presented in the Consolidated Statements of Changes in Shareholders' Equity.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents: For purposes of the Consolidated Statements of
Cash Flows, cash and cash equivalents include cash and due from banks, Federal
funds sold, securities purchased under agreements to resell and interest
bearing deposits with banks with original maturities of 90 days or less.
Reclassifications: Certain amounts in the 2000 and 1999 consolidated
financial statements have been reclassified to conform to their 2001
presentation.
New Accounting Standards: The Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, and Statement of Financial Accounting Standards No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement No. 133 (referred to hereafter as "FAS 133"), on January 1,
2001. This standard requires that all derivatives be recognized on the balance
sheet at fair value, with changes in fair value recorded through earnings or
other comprehensive income depending on whether certain hedge criteria are met.
As the Company had no derivative instruments, there was no impact upon adoption.
The Company adopted Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities--a replacement of FASB Statement No. 125 (FAS 140) on April 1,
2001. This standard revises the standards for accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures, but carries over most of FAS 125's provisions without
reconsideration. This Statement is effective for recognition and
reclassification of collateral and for disclosures relative to securitization
transactions and collateral for fiscal years ending after December 15, 2000. As
the Company had no securitizations, there was no impact upon adoption.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (FAS 141) and No.
142, Goodwill and Other Intangible Assets (FAS 142). FAS 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets required in a business combination. FAS
142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. FAS 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested at least annually for impairment. FAS 142 is effective January 1,
2002 for calendar year companies, however, any acquired goodwill or intangible
assets recorded in transactions closed subsequent to June 30, 2001 will be
subject immediately to the nonamortization and amortization provisions of FAS
142. As the Company currently has no recorded goodwill, the adoption of FAS 141
and FAS 142 has no impact on the financial position or results of operation of
the Company.
Note 2. Cash and Due From Banks
Cash and due from banks include reserve balances that the Bank is required
to maintain in either vault cash or with the Federal Reserve Bank of Chicago.
These required reserves are based principally on deposits outstanding. The
average reserves required for 2001 and 2000 were $1,047,000 and $1,539,000,
respectively.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Investment Securities
The aggregate amortized cost and fair value of securities, and gross
unrealized gains and losses at December 31 follow:
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(Dollars in thousands)
2001
Securities available-for-sale:
U.S. Treasury.................................... $ 15,947 $ 614 $ -- $ 16,561
U.S. Government agencies......................... 230,177 3,879 (30) 234,026
Agency mortgage-backed securities................ 7,388 90 (41) 7,437
Agency collateralized mortgage obligations....... 300 4 -- 304
Obligations of states and political subdivisions. 36,982 1,013 (159) 37,836
Corporate and other securities................... 21,158 395 (556) 20,997
-------- ------ ----- --------
Total securities available-for-sale.............. $311,952 $5,995 $(786) $317,161
======== ====== ===== ========
Securities held-to-maturity:
U.S. Treasury.................................... $ -- $ -- $ -- $ --
U.S. Government agencies......................... -- -- -- --
Agency mortgage-backed securities................ 775 18 -- 793
Agency collateralized mortgage obligations....... -- -- -- --
Obligations of states and political subdivisions. 8,953 262 (18) 9,197
Corporate and other securities................... 500 19 -- 519
-------- ------ ----- --------
Total securities held-to-maturity................ $ 10,228 $ 299 $ (18) $ 10,509
======== ====== ===== ========
2000
Securities available-for-sale:
U.S. Treasury.................................... $ 16,466 $ 257 $ -- $ 16,723
U.S. Government agencies......................... 161,605 1,541 (83) 163,063
Agency mortgage-backed securities................ 7,495 5 (61) 7,439
Agency collateralized mortgage obligations....... 808 -- (1) 807
Obligations of states and political subdivisions. 20,117 515 (21) 20,611
Corporate and other securities................... 13,227 217 (233) 13,211
-------- ------ ----- --------
Total securities available-for-sale.............. $219,718 $2,535 $(399) $221,854
======== ====== ===== ========
Securities held-to-maturity:
U.S. Treasury.................................... $ 10,117 $ -- $ (47) $ 10,070
U.S. Government agencies......................... 49,853 899 (3) 50,749
Agency mortgage-backed securities................ 4,422 18 (5) 4,435
Agency collateralized mortgage obligations....... -- -- -- --
Obligations of states and political subdivisions. 33,239 727 (129) 33,837
Corporate and other securities................... 500 26 -- 526
-------- ------ ----- --------
Total securities held-to-maturity................ $ 98,131 $1,670 $(184) $ 99,617
======== ====== ===== ========
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Upon adoption of FAS 133 on January 1, 2001, the Company reclassified
held-to-maturity securities with a carrying value of $76,131,000 to
available-for-sale securities with a fair value of $77,366,000.
The amortized cost and fair value of investment securities at December 31,
2001, by contractual maturity, are shown below. Agency mortgage-backed
securities and collateralized mortgage obligations are presented in the table
based on their estimated average lives, which will differ from contractual
maturities due to principal prepayments. Actual maturities of the securities
may differ from that reflected in the table due to securities with call
features. Such securities are assumed to be held to contractual maturity for
maturity distribution purposes. Other securities include equity securities and
$6.1 million in Federal Home Loan Bank of Chicago stock, which have no stated
maturity date.
December 31, 2001
----------------------
Amortized Fair
Cost Value
--------- --------
(Dollars in thousands)
Securities available-for-sale:
Due in one year or less................ $ 62,627 $ 63,544
Due after one year through five years.. 116,266 118,904
Due after five years through ten years. 100,650 102,296
Over ten years......................... 26,093 25,885
Other securities....................... 6,316 6,532
-------- --------
$311,952 $317,161
======== ========
Securities held-to-maturity:
Due in one year or less................ $ 1,697 $ 1,732
Due after one year through five years.. 3,431 3,552
Due after five years through ten years. 4,567 4,693
Over ten years......................... 533 532
-------- --------
$ 10,228 $ 10,509
======== ========
At December 31, 2001, investment securities with a book value of
$262,264,000 were pledged as collateral to secure certain deposits, securities
sold under agreements to repurchase and FHLB borrowings.
Proceeds from sales of available-for-sale investments in debt and equity
securities during 2001, 2000 and 1999 were $29,932,000, $29,620,000 and
$127,438,000, respectively. Gross gains of $259,000 and no losses were realized
in 2001. Gross gains of $388,000 and gross losses of $370,000 were realized in
2000. Included in the gains in 2000 is a gain of $254,000 from the revaluation
of stock received in the exchange of the Company's privately held shares of its
former ATM network for publicly traded shares of the acquiring company. Gross
gains of $101,000 and gross losses of $22,000 were realized in 1999.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. Loans
Loans outstanding at December 31 follow:
2001 2000
-------- --------
(Dollars in thousands)
Commercial loans.................................. $146,691 $136,314
Real estate loans--
Construction, land acquisition and development. 102,594 46,082
Commercial mortgage............................ 213,689 181,380
Residential mortgage........................... 105,168 127,794
Home equity.................................... 112,877 102,841
Indirect vehicle loans............................ 224,311 219,348
Consumer loans.................................... 11,353 11,399
-------- --------
Total loans.................................... 916,683 825,158
Less unearned discount......................... (38) (138)
-------- --------
Loans, net of unearned discount................ $916,645 $825,020
======== ========
The Company originates real estate, commercial and consumer loans primarily
within the Chicago Metropolitan area. In 2000, the Bank began to participate in
some larger nationally syndicated loans for Companies outside of the Chicago
area. However, there is no concentration of these loans in any other region of
the United States. Generally, real estate and consumer loans are secured by
various items of property such as first and second mortgages, automobiles,
motorcycles and cash collateral.
The commercial loan portfolio is substantially secured by business assets.
At December 31, the commercial loan portfolio included nationally syndicated
loans with a balance of $51.8 million and $43.5 million in 2001 and 2000,
respectively.
The Company's construction, land acquisition and development loans are made
primarily in the Chicago area and consist primarily of land and developments of
1-4 family dwellings in the greater Chicago area and retail properties.
The Company's commercial real estate portfolio is primarily collateralized
by multi-family properties, owner occupied industrial properties and investment
properties in the Chicago area.
The Company's indirect loan portfolio is primarily generated from Chicago
Metropolitan area auto and motorcycle dealers. Included in this total are
Harley Davidson motorcycle loans originated in 12 states as part of a national
marketing initiative with a balance of $19 million and $5.4 million at December
31, 2001 and 2000, respectively. The Company utilizes credit underwriting
standards that management believes result in a high quality new and used
indirect loan portfolio. Management continually monitors the dealer
relationships to ensure the Company is not dependent on any one dealer as a
source of such loans. The Company does not have any sub-prime loan programs.
Loans secured by residential real estate are expected to be paid by the
borrowers' cash flows or proceeds from the sale or refinancing of the
underlying real estate. Such loans are primarily secured by real estate within
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Chicago Metropolitan area. Performance of these loans may be affected by
conditions influencing the local economy and real estate market. Substantially
all of the Company's combined portfolio of residential mortgages and home
equity loans have loan to value ratios of less than eighty percent of the
appraised value.
At December 31, 2001 and 2000 loans held for sale of $5,749,000 and
$470,000, respectively. These loans are typically sold servicing released
within 60 days of origination.
An analysis of the allowance for loan losses follows:
2001 2000 1999
------ ------ ------
(Dollars in thousands)
Balance at beginning of year $5,682 $4,828 $4,445
Provision for loan losses... 1,550 900 840
Recoveries.................. 73 164 71
Charge-offs................. (323) (210) (528)
------ ------ ------
Balance at end of year...... $6,982 $5,682 $4,828
====== ====== ======
The Company had $1,295,000 and $121,000 of nonaccrual loans at December 31,
2001 and 2000, respectively. Included in the nonaccrual balance at December 31,
2001 was one loan for $1,283,000 that was classified as impaired with a
specific valuation allowance of $252,000. None of the nonaccrual loans were
considered impaired at December 31, 2000. The average balance of impaired loans
was $555,000, $16,000 and $134,000 for 2001, 2000 and 1999, respectively. The
Company did not recognize any interest income associated with impaired loans
while the loans were considered impaired during 2001, 2000 or 1999. If interest
had been accrued at its original rate, such income would have approximated
$106,000 in 2001, $2,000 in 2000 and $15,000 in 1999.
Note 5. Premises and Equipment
A summary of premises and equipment at December 31 follows:
2001 2000
-------- --------
(Dollars in thousands)
Land..................................................... $ 4,491 $ 4,283
Buildings and improvements............................... 22,383 20,875
Leasehold improvements................................... 1,028 1,005
Data processing equipment, office equipment and furniture 15,772 15,355
-------- --------
43,674 41,518
Less accumulated depreciation and amortization........... (20,208) (18,401)
-------- --------
Premises and equipment, net.............................. $ 23,466 $ 23,117
======== ========
The Company has entered into a number of noncancellable operating lease
agreements for certain of its subsidiary bank's office premises. The minimum
annual net rental commitments under these leases, which extend until 2011, are
as follows:
(Dollars in
thousands)
2002............... $ 291
2003............... 232
2004............... 211
2005............... 218
2006............... 226
2007 and thereafter 781
------
$1,959
======
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rental expense for 2001, 2000, and 1999 was approximately $395,000,
$223,000 and $197,000 respectively, which included payment of certain occupancy
expenses as defined in the lease agreements.
The Company's aggregate future minimum net rentals to be received under
noncancellable leases from third party tenants which expire in 2006 are as
follows:
(Dollars in
thousands)
2002 $241
2003 180
2004 181
2005 186
2006 175
----
$963
====
The Company also receives reimbursement from its tenants for certain
occupancy expenses including taxes, insurance and operational expenses, as
defined in the lease agreements.
Note 6. Deposits
As of December 31, 2001, the scheduled maturities of time deposits are as
follows:
Maturity Distribution of Time Deposits
(Dollars in
thousands)
2002............... $504,120
2003............... 45,157
2004............... 5,458
2005............... 7,641
2006............... 1,087
2007 and thereafter 69
--------
Total........... $563,532
========
Note 7. Borrowings
The Company's borrowings at December 31, 2001 and 2000 consisted of short
term borrowings, Federal Home Loan Bank (FHLB) borrowings and Trust Preferred
Capital Securities.
Short term borrowings consist of Federal funds purchased, securities sold
under agreements to repurchase (repos), Treasury, tax and loan demand notes and
draws on the Company's revolving line of credit.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information related to short-term borrowings at December 31 is summarized as
follows:
2001 2000 1999
-------- -------- -------
(Dollars in thousands)
Securities sold under agreements to repurchase $ 80,788 $ 71,967 $78,008
Federal funds purchased....................... -- -- --
Treasury, tax and loan demand notes........... 20,000 11,740 20,000
Draws on line of credit....................... 1,225 -- --
-------- -------- -------
Total......................................... $102,013 $ 83,707 $98,008
======== ======== =======
Average during the year....................... 96,675 109,053 71,828
Maximum month-end balance..................... 192,702 182,026 98,150
Average rate at year-end...................... 2.68% 5.75% 4.93%
Average rate during the year.................. 4.27% 5.89% 4.75%
The Federal funds purchased generally represent one day borrowings obtained
from correspondent banks during the year. The repos represent borrowings which
generally have maturities within one year and are secured by U.S. Treasury and
agency securities. The Treasury, tax and loan demand notes are generally repaid
within 90 days from the transaction date and are secured by municipal
securities and commercial loans.
The Company has a revolving line of credit arrangement with a third party
unaffiliated bank for $15 million which matures on April 1, 2002 and is
expected to be renewed annually. Each draw has various terms. The outstanding
balance on this line was $1,225,000 at December 31, 2001.
Federal Home Loan Bank fixed rate borrowings at December 31:
2001 2000
------------ ------------
Maturity Amount Rate Amount Rate
-------- ------- ---- ------- ----
(Dollars in thousands)
September 25, 2002.... $ 5,000 6.41% $ 5,000 6.41%
February 5, 2003...... 1,000 5.59 1,000 5.59
February 19, 2003..... 10,000 5.84 10,000 5.84
November 20, 2003..... 1,500 5.43 1,500 5.43
November 24, 2003..... 8,000 6.50 8,000 6.50
January 7, 2004....... 6,000 5.49 6,000 5.49
February 9, 2004...... 5,000 6.76 -- --
February 7, 2005...... 1,500 5.74 1,500 5.74
February 19, 2005..... 10,000 5.97 10,000 5.97
March 21, 2005/ (1)/.. 5,000 6.53 5,000 6.53
March 21, 2005/ (2)/.. 5,000 6.20 5,000 6.20
March 21, 2005........ 5,000 7.14 5,000 7.14
February 5, 2007...... 2,000 5.83 2,000 5.83
January 12, 2008/ (3)/ 15,000 5.23 15,000 5.23
February 19, 2008..... 6,000 6.04 6,000 6.04
------- ---- ------- ----
Total/Average rate.... $86,000 6.01% $81,000 5.96%
======= =======
- --------
(1) Callable beginning March 20, 2002 and quarterly thereafter.
(2) Callable March 20, 2002 and quarterly thereafter.
(3) Callable January 12, 2003.
Callable borrowings have the potential to be called in whole or in part at
the discretion of the FHLB.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank has adopted a collateral pledge agreement whereby the Bank has
agreed to keep on hand, at all times, free of all other pledges, liens, and
encumbrances, first mortgage residential loans listed as collateral for the
outstanding borrowings from the FHLB. In addition, the Bank specifically
assigned certain multi-family loans and agency securities to the FHLB which
increases the Company's borrowing capacity. All stock in the FHLB, totaling
$6,056,000 and $5,642,000 at December 31, 2001 and 2000, respectively, is
pledged as additional collateral for these borrowings.
The Company has $6 million of Trust Preferred Capital Securities outstanding
at December 31, 2001 and 2000 that were part of a $300 million Pooled Trust
Preferred offering distributed in an institutional private placement. The
securities bear an interest rate of 10.6% and mature on September 15, 2030 and
are non-callable for 10 years and, after that period, the securities have a
declining 10 year premium call. The Trust Preferred Capital Securities, subject
to certain limitations, are included in Tier 1 Capital for regulatory purposes.
Dividends on the Trust Preferred Capital Securities are recorded as interest
expense.
Note 8. Income Taxes
The components of income tax expense for the years ended December 31 follow:
2001 2000 1999
------ ------ ------
(Dollars in thousands)
Current provision....... $6,802 $4,732 $4,521
Deferred benefit........ (570) (111) (244)
------ ------ ------
Total income tax expense $6,232 $4,621 $4,277
====== ====== ======
The net deferred tax assets at December 31 consisted of the following:
2001 2000
------ ------
(Dollars in
thousands)
Gross deferred tax assets:
Book over tax loan loss reserve........................ $2,770 $2,254
Revenue sharing agreement.............................. 154 427
Retirement plan........................................ 466 385
Deferred compensation plans............................ 749 562
Other, net............................................. 17 31
------ ------
Total deferred tax assets.......................... 4,156 3,659
Gross deferred tax liabilities:
Unrealized gains on securities available-for-sale...... 1,771 726
Accretion of discount on securities.................... 188 234
Depreciation........................................... 699 766
Book over tax basis of land............................ 273 205
FHLB stock dividends................................... 334 180
Deferred loan costs.................................... 61 184
Other, net............................................. 229 288
------ ------
Total deferred tax liabilities..................... $3,555 $2,583
====== ======
Net deferred tax assets............................ $ 601 $1,076
====== ======
No valuation allowance related to deferred tax assets has been recorded at
December 31, 2001 and 2000 as management believes it is more likely than not
that the deferred tax assets will be fully realized.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effective tax rates for 2001, 2000, and 1999 were 31.3%, 29.5%, and
28.9%, respectively. Income tax expense was less than the amount computed by
applying the Federal statutory rate of 35% due to the following:
Years ended December 31,
-----------------------
2001 2000 1999
------ ------ ------
(Dollars in thousands)
Tax expense at statutory rate....................................... $6,958 $5,486 $5,188
Increase (decrease) in taxes resulting from:
Income from obligations of states and political subdivisions and
certain loans not subject to Federal income taxes.............. (948) (917) (956)
State income taxes............................................... 76 (39) 166
Other, net....................................................... 146 91 (121)
------ ------ ------
Total income tax expense............................................ $6,232 $4,621 $4,277
====== ====== ======
Note 9. Shareholders' Equity
At December 31, 2001, the Company has reserved for issuance 769,663 shares
of Common Stock for the Stock Option Plan and 9,926 shares for the Deferred
Directors Stock Plan.
Payment of dividends by the Bank is subject to both Federal and state
banking laws and regulations that limit the amount of dividends that can be
paid by the bank without prior regulatory approval. At December 31, 2001,
$32,210,000 of undistributed earnings was available for the payment of
dividends by the subsidiary bank without prior regulatory approval.
Note 10. Regulatory Capital
The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Regulations require the Company and the Bank to maintain minimum amounts of
total and Tier 1 capital, minimum ratios of total and Tier 1 capital to
risk-weighted assets, and a minimum ratio of Tier 1 capital to average assets
to ensure capital adequacy. Management believes, as of December 31, 2001 and
2000, that the Company and the Bank met all capital adequacy requirements to
which they are subject.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company and the Bank's actual capital amounts and ratios are presented
in the following table. As of December 31, 2001 and 2000, the most recent
regulatory notification categorized the Bank as well capitalized. At December
31, 2001, there are no conditions or events since that notification that
management believes have changed the institution's category.
Capital Required To Be
-----------------------------
Adequately
Actual Capitalized Well Capitalized
-------------- ------------ ---------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- -------- -----
(Dollars in thousands)
As of December 31, 2001:
Total Capital (to Risk Weighted Assets).
Consolidated......................... $109,096 10.72% $81,436 8% $101,796 10%
Oak Brook Bank....................... 112,481 11.07 81,319 8 101,649 10
Tier 1 Capital (to Risk Weighted Assets)
Consolidated......................... $102,114 10.03% $40,718 4% $ 61,077 6%
Oak Brook Bank....................... 105,499 10.38 40,660 4 60,990 6
Tier 1 Capital (to Average Assets)
Consolidated......................... $102,114 7.42% $55,085 4% $ 68,856 5%
Oak Brook Bank....................... 105,499 7.67 55,018 4 68,772 5
As of December 31, 2000: --
Total Capital (to Risk Weighted Assets)
Consolidated......................... $ 97,877 10.35% $75,682 8% $ 94,602 10%
Oak Brook Bank....................... 94,895 10.04 75,582 8 94,478 10
Tier 1 Capital (to Risk Weighted Assets)
Consolidated......................... $ 92,195 9.75% $37,841 4% $ 56,761 6%
Oak Brook Bank....................... 89,213 9.44 37,791 4 56,687 6
Tier 1 Capital (to Average Assets)
Consolidated......................... $ 92,195 7.47% $49,337 4% $ 61,671 5%
Oak Brook Bank....................... 89,213 7.24 49,275 4 61,593 5
Note 11. Earnings Per Share
The following table sets forth the computation for basic and diluted
earnings per share for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
----------- ----------- -----------
Net income......................................... $13,648,000 $11,049,000 $10,546,000
=========== =========== ===========
Denominator for basic earnings per share-weighted
average shares outstanding....................... 6,332,600 6,432,411 6,604,887
Effect of diluted securities:
Stock options issued to employees and directors. 108,696 72,714 128,360
----------- ----------- -----------
Denominator for diluted earnings per share
outstanding...................................... 6,441,296 6,505,125 6,733,247
=========== =========== ===========
Earnings per share:
Basic........................................... $2.16 $1.72 $1.60
Diluted......................................... $2.12 $1.70 $1.57
=========== =========== ===========
During 2001, 2000 and 1999 there were on average 8,000, 197,833 and 51,884
options outstanding, respectively, that were not included in diluted earnings
per share because their effect would be antidilutive.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Contingencies
The Company and the Bank are not subject to any material pending or
threatened legal actions as of December 31, 2001.
The Company is a party to a revenue sharing agreement in connection with the
sale in 1997 of the Company's credit card portfolio. Under this agreement, the
Company will share the revenue from the sold portfolio for each of the five
twelve month periods beginning July, 1997, subject to a maximum annual payment
of $900,000. Income recognized in accordance with the revenue sharing agreement
amounted to $900,000 in 2001, 2000 and 1999. This agreement terminates on June
30, 2002.
Note 13. Stock-Based Compensation
The Company has a nonqualified stock option plan for officers and directors.
Options may be granted at a price not less than the market value on the date of
grant, are subject to various vesting schedules and are exercisable, in part,
beginning at least one day following the date of grant and no later than ten
years from the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of
4.26%, 4.83% and 6.57%; dividend yields of 3.1%, 3.1% and 2.8%, volatility
factor of the expected market price of the Company's Common Stock of 31.3%,
30.0% and 27.8%; and a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
Years ended December 31,
-----------------------------------
2001 2000 1999
----------- ----------- -----------
Net income as reported......................................... $13,648,000 $11,049,000 $10,546,000
Pro forma net income........................................... $13,543,000 $10,855,000 $10,326,000
Earnings per share as reported:
Basic....................................................... $ 2.16 $ 1.72 $ 1.60
Diluted..................................................... $ 2.12 $ 1.70 $ 1.57
Pro forma earnings per share:
Basic....................................................... $ 2.14 $ 1.69 $ 1.56
Diluted..................................................... $ 2.10 $ 1.67 $ 1.53
Weighted-average fair value of options granted during the year: $ 4.60 $ 4.12 $ 4.98
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
2001 2000 1999
------------------ ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- --------- ------- --------- ------- ---------
Outstanding at the beginning of the year 451,850 $13.65 500,326 $12.40 448,624 $ 9.99
Granted................................. 63,300 18.20 46,100 16.10 124,500 18.27
Exercised............................... (15,680) 10.19 (73,175) 5.94 (57,798) 4.93
Forfeited............................... (13,920) 18.00 (21,401) 16.25 (15,000) 17.63
------- ------- -------
Outstanding at the end of the year...... 485,550 $14.23 451,850 $13.65 500,326 $12.40
======= ======= =======
Exercisable at the end of the year...... 334,910 $12.51 288,820 $11.49 288,829 $ 9.13
======= ======= =======
Exercise prices for options outstanding as of December 31, 2001 ranged from
$7.47 to $24.00 per share. The weighted-average remaining contractual life of
those options is 5.83 years.
Note 14. Employee Benefit Plans
The Company has a 401(k) savings plan that allows eligible employees to
defer a percentage of their salary, not to exceed 15%. The Company matches
dollar for dollar up to 4% of the employee's eligible salary. All participant
and employer contributions are 100% vested. For 2001, 2000 and 1999, the
Company's expense for this plan was $423,000, $371,000 and $335,000,
respectively.
The Company also has a profit sharing plan, under which the Company, at its
discretion, could contribute up to the maximum amount deductible for the year.
For 2001, 2000 and 1999, the Company's expense for this plan was $247,000,
$209,000 and $193,000, respectively.
The Company has an executive deferred compensation plan. The purpose of this
non-qualified plan is to allow certain executive officers the opportunity to
maximize their elective contributions to the 401(k) savings plan and provide
contributions notwithstanding certain restrictions or limitations in the
Internal Revenue Code. The Company has both an asset and an offsetting
liability recorded in the financial statements totaling $1,106,000 and $825,000
at December 31, 2001 and 2000, respectively. For 2001, 2000 and 1999 the
Company's expense for this plan was $165,000, $73,000 and $109,000,
respectively.
The Company also entered into supplemental pension agreements with certain
executive officers. Under these agreements, the Company is obligated to provide
at a prescribed retirement date, a supplemental pension based upon a percentage
of the executive officer's final base salary. The Company's liability recorded
for this plan totaled $1,173,000 and $971,000 at December 31, 2001 and 2000,
respectively. For 2001, 2000 and 1999, the Company's expense for this plan was
$202,000, $179,000 and $172,000, respectively.
Note 15. Related Party Transactions
The Bank has made, and expects in the future to continue to make, loans to
the directors, executive officers and associates of the Bank and the Company.
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties and do not involve more than normal risk of
collectibility. The aggregate amount of these loans was $10,928,000 and
$8,758,000 at December 31, 2001 and 2000, respectively. During 2001, new
related party loans totaled $7,006,000 and repayments totaled $4,836,000.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain principal shareholders of the Company are also principal
shareholders of Amalgamated Investments Company, parent of Amalgamated Bank of
Chicago. The Company's subsidiary bank periodically enters into loan
participations with Amalgamated Bank of Chicago. At December 31, 2001 the
Company had one loan participation purchased from Amalgamated Bank of Chicago
totaling $1,283,000. At December 31, 2000, there were no related party loan
participations.
Note 16. Financial Instruments With Off Balance Sheet Risk
In the normal course of business, there are various outstanding commitments
and contingent liabilities, including commitments to extend credit, standby
letters of credit and commercial letters of credit (collectively "commitments")
that are not reflected in the consolidated financial statements.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the commitments is limited to their contractual amount. Many
commitments expire without being used. Therefore, the amounts stated below do
not necessarily represent future cash commitments. Commitments to extend credit
are agreements to lend funds to a customer as long as there is no violation of
any condition established in the contract. Performance standby letters of
credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Financial standby letters of credit
are conditional guarantees of payment to a third party on behalf of a customer
of the Company. These commitments are subject to the same credit policies
followed for loans recorded in the financial statements.
A summary of these commitments to extend credit at December 31 follows:
2001 2000
-------- --------
(Dollars in thousands)
Commercial loans........................................ $119,832 $ 99,086
Real estate:
Construction, land acquisition and development loans. 74,150 59,156
Home equity loans.................................... 126,514 114,272
Check credit............................................ 878 848
Performance standby letters of credit................... 13,122 4,732
Financial standby letters of credit..................... 6,897 3,319
-------- --------
Total commitments....................................... $341,393 $281,413
======== ========
Note 17. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the disclosure of the fair value of
certain financial instruments. Fair value of a financial instrument is defined
as the amount at which the instrument could be exchanged in a current
transaction between willing parties other than in a forced liquidation sale.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported on the balance
sheet for cash, short-term instruments and interest-bearing deposits with
banks approximate fair value.
Investment securities: Fair values for investment securities are based
on quoted market prices.
Loans: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair value for all other loans is estimated using discounted
cash flow analyses, which uses interest rates currently being offered for
similar loans of similar credit quality. The fair value does not include
potential premiums available in a portfolio sale.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued interest receivable: The carrying amounts of accrued interest
receivable approximate fair value.
Deposit liabilities: The fair values for certain deposits (e.g.,
noninterest-bearing demand deposits, savings deposits, NOW and money market
accounts) are, by definition, equal to the amount payable on demand. The
fair value estimates do not include the intangible value of the existing
customer base. The carrying amounts for variable rate money market accounts
approximate their fair values. Fair values for time deposits are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on time deposits to a schedule of aggregated
expected monthly maturities.
Short-term debt: The carrying amounts of Federal funds purchased,
overnight repurchase agreements and Treasury, tax and loan demand notes
approximate their fair values. The fair values of term repurchase agreements
are estimated using a discounted cash flow calculation that utilizes
interest rates currently being offered for similar maturities.
Federal Home Loan Bank borrowings: The fair value of the Federal Home
Loan Bank borrowings is estimated using a discounted cash flow calculation
that utilizes interest rates currently being offered for similar maturities.
Trust Preferred Capital Securities: The fair value of the Trust
Preferred Capital Securities is estimated using a discounted cash flow
calculation that utilizes interest rates currently being offered for similar
maturities.
Accrued interest payable: The carrying amounts of accrued interest
payable approximate fair value.
Off-balance sheet instruments: Fair values for the Company's off-balance
sheet instruments (letters of credit and lending commitments) are generally
based on fees currently charged to enter into similar agreements.
Limitations: The assumptions and estimates used in the fair value
determination process are subjective in nature and involve uncertainties and
significant judgment and, therefore, fair values cannot be determined with
precision. Changes in assumptions could significantly affect these estimated
values.
The estimated fair values of the Company's significant financial instruments
as of December 31, 2001 and 2000, are as follows:
2001 2000
------------------- -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(Dollars in thousands)
Financial Assets
Cash and cash equivalents.......... $110,098 $110,098 $ 71,050 $ 71,050
Investment securities.............. 327,389 327,670 319,985 321,471
Loans.............................. 916,645 930,608 825,020 819,753
Accrued interest receivable........ 8,941 8,941 9,611 9,611
Financial Liabilities
Time deposits...................... 563,532 568,301 514,311 517,696
Other deposits..................... 514,434 514,434 463,915 463,915
Short-term debt.................... 102,013 102,169 83,707 84,100
Federal Home Loan Bank borrowings.. 86,000 87,183 81,000 82,455
Trust Preferred Capital Securities. 6,000 6,323 6,000 6,373
Accrued interest payable........... 5,022 5,022 5,692 5,692
Off-balance sheet commitments
Commercial......................... -- 200 -- 81
Home equity........................ -- 101 -- 97
Check credit....................... -- 20 -- 16
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18. Parent Company Only Financial Information
Following are the condensed balance sheets, statements of income and cash
flows for First Oak Brook Bancshares, Inc.:
Balance Sheets (Parent Company Only)
December 31,
----------------------
2001 2000
-------- -------
(Dollars in thousands)
Assets
Cash and cash equivalents on deposit with subsidiary. $ 111 $ 3,799
Investment in subsidiaries........................... 108,973 90,767
Securities available-for-sale........................ 476 320
Due from subsidiaries................................ 80 757
Equipment, net....................................... 91 102
Other assets......................................... 1,116 879
-------- -------
Total Assets..................................... $110,847 $96,624
======== =======
Liabilities and Shareholders' equity
Short term debt...................................... $ 1,225 $ --
Trust Preferred Capital Securities................... 6,000 6,000
Other liabilities.................................... 4,070 3,018
-------- -------
Total Liabilities................................ 11,295 9,018
Shareholders' Equity................................. 99,552 87,606
-------- -------
Total Liabilities and Shareholders' Equity....... $110,847 $96,624
======== =======
Statements of Income (Parent Company Only)
Years Ended December 31,
------------------------
2001 2000 1999
------- ------- -------
(Dollars in thousands)
Income:
Dividends from subsidiaries......................................... $ 309 $ 6,316 $ 333
Other income........................................................ 795 777 878
Gain on sales of securities......................................... -- 293 79
------- ------- -------
Total income.................................................... 1,104 7,386 1,290
------- ------- -------
Expenses:
Interest on short term debt......................................... 11 43 --
Interest on Trust Preferred Capital Securities...................... 642 202 --
Other expenses...................................................... 3,098 2,149 2,637
------- ------- -------
Total expenses.................................................. 3,751 2,394 2,637
------- ------- -------
Income (loss) before income taxes and equity in undistributed net
income of subsidiaries............................................... (2,647) 4,992 (1,347)
Income tax benefit..................................................... 1,015 450 578
------- ------- -------
Income (loss) before equity in undistributed net income of subsidiaries (1,632) 5,442 (769)
Equity in undistributed net income of subsidiaries.................. 15,280 5,607 11,315
------- ------- -------
Net income............................................................. $13,648 $11,049 $10,546
======= ======= =======
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statements of Cash Flows (Parent Company Only)
Years Ended December 31,
---------------------------
2001 2000 1999
-------- ------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income................................................. $ 13,648 $11,049 $ 10,546
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 16 12 20
Investment securities gains, net....................... -- (293) (79)
Increase in other assets............................... (237) (228) (393)
Increase (decrease) in other liabilities............... (997) (150) 875
Decrease (increase) in due from subsidiaries........... 677 (626) 457
Equity in undistributed net income of subsidiaries..... (15,280) (5,607) (11,315)
-------- ------- --------
Net cash provided by (used in) operating activities........... (179) 4,157 111
Cash flows from investing activities:
Purchases of available-for-sale securities................. -- (207) (1,010)
Sales of available-for-sale securities..................... -- 1,559 505
Additions to equipment..................................... (5) (112) --
-------- ------- --------
Net cash provided by (used in) investing activities........... (5) 1,240 (505)
Cash flows from financing activities:
Net increase in short term debt............................ 1,225 -- --
Proceeds from Trust Preferred Capital Securities........... -- 6,000 --
Exercise of stock options.................................. 211 587 478
Purchase of treasury stock................................. (1,035) (3,872) (1,982)
Cash dividends............................................. (2,905) (2,812) (2,596)
Capital contribution to subsidiary......................... (1,000) (2,000) --
-------- ------- --------
Net cash used in financing activities......................... (3,504) (2,097) (4,100)
-------- ------- --------
Net increase (decrease) in cash and cash equivalents.......... (3,688) 3,300 (4,494)
Cash and cash equivalents at beginning of year................ 3,799 499 4,993
-------- ------- --------
Cash and cash equivalents at end of year...................... $ 111 $ 3,799 $ 499
======== ======= ========
60
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Oak Brook Bancshares:
We have audited the accompanying consolidated balance sheets of First Oak
Brook Bancshares, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December
31, 2001. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Oak
Brook Bancshares, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Chicago, Illinois
January 21, 2002
61
ITEM 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors And Executive Officers Of The Registrant
See "Directors and Executive Officers" on pages 8 through 10, inclusive, of
the Company's Proxy Statement and Notice of 2002 Annual Meeting to be filed on
or before April 1, 2002, which is incorporated herein by reference.
ITEM 11. Executive Compensation
See "Summary Compensation Table" and footnotes, "Five Year Performance
Comparison" and "Aggregated Option Exercises in Last Fiscal Year and Year-End
Option Values Table" and "Option Grants Table" on pages 15 through 19,
inclusive, of the Company's Proxy Statement and Notice of 2002 Annual Meeting
to be filed on or before April 1, 2002, which is incorporated herein by
reference.
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management
See "Information Concerning Security Ownership of Certain Beneficial Owners
and Management" on pages 5 and 6 of the Company's Proxy Statement and Notice of
2002 Annual Meeting to be filed on or before April 1, 2002, which is
incorporated herein by reference.
ITEM 13. Certain Relationships And Related Transactions
See "Certain Transactions" on page 10 of the Company's Proxy Statement and
Notice of 2002 Annual Meeting to be filed on or before April 1, 2002, which is
incorporated herein by reference.
62
PART IV
ITEM 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are filed as part of this
document under Item 8:
Consolidated Balance Sheets--December 31, 2001 and 2000
Consolidated Statements of Income for each of the three years in the period
ended December 31, 2001
Consolidated Statements of Changes in Shareholders' Equity for each of the
three years in the period ended December 31, 2001
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 2001
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules have been included in the consolidated financial statements or
the notes thereto or are either not applicable or not significant.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the fourth quarter of 2001.
(c) EXHIBITS
Exhibit (3.1) Restated Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's
Amendment No. 1 to Registration Statement on Form 8-A filed May 6, 1999, incorporated
herein by reference).
Exhibit (3.2) Amended and Restated By-Laws of the Company (Exhibit 3.2 to the Company's Amendment
No. 1 to Registration Statement on Form 8-A filed May 6, 1999, incorporated herein by
reference).
Exhibit (4.1) Form of Common Stock Certificate (Exhibit 4.1 to the Company's Form 10-Q Quarterly
Report for the period ended June 30, 1999, incorporated herein by reference).
Exhibit (4.2) Rights Agreement, dated as of May 4, 1999 between the Company and Oak Brook Bank, as
Rights Agent (Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed
May 21, 1999, incorporated herein by reference).
Exhibit (4.3) Certificate of Designations Preferences and Rights of Series A Preferred Stock (Exhibit A to
Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed May 21, 1999,
incorporated herein by reference).
Exhibit (4.4) Form of Rights Certificate (Exhibit B to Exhibit 4.1 to the Company's Registration Statement
on Form 8-A filed May 21, 1999, incorporated herein by reference).
Exhibit (10.1) Loan Agreement between First Oak Brook Bancshares, Inc. and LaSalle National Bank dated
December 1, 1991 as amended. (Exhibit 10.1 to the Company's Form 10-Q Quarterly Report
for the period ended June 30, 2001, incorporated herein by reference).
Exhibit (10.3) First Oak Brook Bancshares, Inc. Executive Deferred Compensation Plan effective
November 1, 1997. (Exhibit 10.3 to the Company's Form 10-K Annual Report for the year
ended December 31, 1997, incorporated herein by reference).
63
Exhibit (10.5) First Oak Brook Bancshares, Inc. 2001 Stock Incentive Plan effective January 23, 2001.
(Appendix A to the Company's Proxy and Notice of Annual Meeting of Shareholders filed
April 2, 2001, incorporated herein by reference).
Exhibit (10.8) License Agreement, between Jack Henry & Associates, Inc. and First Oak Brook Bancshares,
Inc. dated March 10, 1993. (Exhibit 10.8 to the Company's Form 10-K Annual Report for the
year ended December 31, 1994, incorporated herein by reference).
Exhibit (10.9) Form of Transitional Employment Agreement for Eugene P. Heytow, Richard M. Rieser, Jr.
and Frank M. Paris. (Exhibit 10.9 to the Company's Form 10-K Annual Report for the year
ended December 31, 1998, incorporated herein by reference).
Exhibit (10.10) Form of Transitional Employment Agreement for Senior Officers. (Exhibit 10.10 to the
Company's Form 10-K Annual Report for the year ended December 31, 1998, incorporated
herein by reference).
Exhibit (10.11) Form of Agreement Regarding Post-Employment Restrictive Covenants for Eugene P. Heytow,
Richard M. Rieser, Jr. and Frank M. Paris. (Exhibit 10.11 to the Company's Form 10-K Annual
Report for the year ended December 31, 1994, incorporated herein by reference).
Exhibit (10.12) Form of Supplemental Pension Benefit Agreement for Eugene P. Heytow. (Exhibit 10.12 to the
Company's Form 10-K Annual Report for the year ended December 31, 1994, incorporated
herein by reference).
Exhibit (10.13) Form of Supplemental Pension Benefit Agreement for Richard M. Rieser, Jr. (Exhibit 10.13 to
the Company's Form 10-K Annual Report for the year ended December 31, 1994, incorporated
herein by reference).
Exhibit (10.14) Senior Executive Insurance Plan. (Exhibit 10.14 to the Company's Form 10-K Annual Report
for the year ended December 31, 1995, incorporated herein by reference).
Exhibit (10.15) First Oak Brook Bancshares, Inc. Annual Performance Bonus Plan effective January 1, 2001.
(Appendix B to the Company's Proxy and Notice of Annual Meeting of Shareholders filed
April 2, 2001, incorporated herein by reference).
Exhibit (10.16) First Oak Brook Bancshares, Inc. Directors Stock Plan (Form S-8 filed October 25, 1999,
incorporated herein by reference).
Exhibit (11) See Note 10 in Item 8 of the Company's Form 10-K Annual Report for the year ended
December 31, 2001.
Exhibit (13) Summary Annual Report to Shareholders.
Exhibit (21) Subsidiaries of the Registrant.
Exhibit (23) Consent of KPMG LLP.
Exhibits 10.3, 10.5 and 10.9 through 10.15 are management contracts or
compensatory plans or arrangements required to be filed as an Exhibit to this
Form 10-K pursuant to Item 14(c) hereof.
64
SIGNATURES
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.
FIRST OAK BROOK BANCSHARES, INC.
(Registrant)
/S/ EUGENE P. HEYTOW
By: _______________________________
(Eugene P. Heytow,
Chairman of the Board and
Chief Executive Officer)
Date: March 14, 2002
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 and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ EUGENE P. HEYTOW Chairman of the Board and March 14, 2002
- ----------------------------- Chief Executive Officer
Eugene P. Heytow
/S/ FRANK M. PARIS Vice Chairman of the Board March 14, 2002
- -----------------------------
Frank M. Paris
/S/ RICHARD M. RIESER, JR. President, Assistant March 14, 2002
- ----------------------------- Secretary, and Director
Richard M. Rieser, Jr.
/S/ MIRIAM LUTWAK FITZGERALD Director March 14, 2002
- -----------------------------
Miriam Lutwak Fitzgerald
/S/ GEOFFREY R. STONE Director March 14, 2002
- -----------------------------
Geoffrey R. Stone
/S/ MICHAEL L. STEIN Director March 14, 2002
- -----------------------------
Michael L. Stein
/S/ STUART I. GREENBAUM Director March 14, 2002
- -----------------------------
Stuart I. Greenbaum
/S/ ROBERT WROBEL Director March 14, 2002
- -----------------------------
Robert Wrobel
/S/ JOHN W. BALLANTINE Director March 14, 2002
- -----------------------------
John W. Ballantine
/S/ RICHARD F. LEVY Director March 14, 2002
- -----------------------------
Richard F. Levy
/S/ ROSEMARIE BOUMAN Vice President and Chief March 14, 2002
- ----------------------------- Financial Officer
Rosemarie Bouman
65