UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

For transition period from                  to                 

 

Commission File Number 0 -17609

 

	WEST SUBURBAN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Illinois			36-3452469
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
711 South Meyers Road, Lombard, Illinois			60148
(Address of principal executive offices)			(Zip Code)

 

Registrant’s telephone number including area code:       (630) 629-4200  

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ý No  o.

 

Indicate the number of shares outstanding of each of the Issuer’s class of common stock as of the latest practicable date.

 

15,000,000 shares of Common Stock, no par value, were authorized, and 432,495 shares of Common Stock were issued and outstanding, as of August 1, 2004.

 

 

WEST SUBURBAN BANCORP, INC.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

PART I
Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
Form 10-Q Signatures

 

Special Note Concerning Forward-Looking Statements

 

This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of such term in the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of West Suburban Bancorp, Inc. (“West Suburban”) and West Suburban Bank (the “Bank” and collectively with West Suburban and its other direct and indirect subsidiaries, the “Company”). Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

 

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, the following:

 

•                                          The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets.

 

•                                          The effects of, and changes in, laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters as well as any laws otherwise affecting the Company.

 

2

 

•                                          The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System.

 

•                                          The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.

 

•                                          The inability of the Company to obtain new customers and to retain existing customers.

 

•                                          The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet.

 

•                                          Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers including technological changes implemented for, or related to, the Company’s website or new products such as stored value cards, payroll cards and other similar products and services.

 

•                                          The ability of the Company to develop and maintain secure and reliable electronic systems including systems developed for the Company’s website and new products such as stored value cards, payroll cards and other similar products and services.

 

•                                          The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.

 

•                                          Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely.

 

•                                          The economic impact of terrorist attacks and military actions.

 

•                                          Business combinations and the integration of acquired businesses and assets which may be more difficult or expensive than expected.

 

•                                          The costs, effects and outcomes of existing or future litigation.

 

•                                          Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.

 

•                                          The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

 

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

 

3

 

PART I

 

ITEM 1.      FINANCIAL STATEMENTS

 

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(UNAUDITED)

 

		June 30, 2004			December 31, 2003
Assets
Cash and due from banks		$	38,755		$	42,500
Federal funds sold		526			26,844
Total cash and cash equivalents		39,281			69,344
Securities
Available for sale (amortized cost of $535,957 in 2004 and $458,746 in 2003)		521,079			458,146
Held to maturity (fair value of $21,276 in 2004 and $29,671 in 2003)		27,554			29,195
Federal Home Loan Bank Stock		5,196			5,039
Total securities		553,829			492,380
Loans, less allowance for loan losses of $13,262 in 2004 and $14,420 in 2003		1,065,752			1,073,767
Cash surrender value of company owned life insurance		24,401			13,416
Premises and equipment, net		41,412			42,896
Other real estate		5,434			1,266
Accrued interest and other assets		23,526			17,626
Total assets		$	1,753,635		$	1,710,695
Liabilities and shareholders’ equity
Deposits
Demand-noninterest-bearing		$	140,318		$	143,440
Interest-bearing		1,417,561			1,386,491
Total deposits		1,557,879			1,529,931
Federal funds purchased		16,420			—
Stored value cards		17,701			17,049
Accrued interest and other liabilities		16,112			13,803
Common stock in ESOP subject to contingent repurchase obligation		48,952			51,371
Shareholders’ equity
Common stock, no par value; 15,000,000 shares authorized; 432,495 shares issued and outstanding		3,457			3,457
Surplus		38,066			38,066
Retained earnings		113,165			109,952
Accumulated other comprehensive loss		(8,964		)	(363		)
Unearned ESOP shares		(201		)	(1,200		)
Amount reclassified on ESOP shares		(48,952		)	(51,371		)
Total shareholders’ equity		96,571			98,541
Total liabilities and shareholders’ equity		$	1,753,635		$	1,710,695

 

See accompanying notes to consolidated financial statements.

 

4

 

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(Dollars in thousands, except per share data)

(UNAUDITED)

 

		2004			2003
Interest income
Loans, including fees		$	29,089		$	32,434
Securities
Taxable		9,336			7,716
Exempt from federal income tax		945			581
Federal funds sold		77			118
Total interest income		39,447			40,849
Interest expense
Deposits		10,290			11,654
Other		26			14
Total interest expense		10,316			11,668
Net interest income		29,131			29,181
Provision for loan losses		200			900
Net interest income after provision for loan losses		28,931			28,281
Noninterest income
Service fees on deposit accounts		3,773			4,271
Debit card fees		857			910
Net realized gain on securities transactions		52			1,863
Net gain on sales of loans held for sale		152			562
Litigation settlement		—			1,085
Stored value cards		2,694			1,044
Other		2,293			2,034
Total noninterest income		9,821			11,769
Noninterest expense
Salaries and employee benefits		11,040			10,546
Occupancy		1,956			1,991
Furniture and equipment		2,362			2,435
Advertising and promotion		697			579
Professional fees		789			514
Stored value cards		1,945			787
Other		3,041			2,758
Total noninterest expense		21,830			19,610
Income before income taxes		16,922			20,440
Income tax expense		5,059			6,720
Net income		$	11,863		$	13,720
Earnings per share		$	27.50		$	31.72
Average shares outstanding		431,399			432,495

 

See accompanying notes to consolidated financial statements.

 

5

 

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003

(Dollars in thousands, except per share data)

(UNAUDITED)

 

		2004			2003
Interest income
Loans, including fees		$	14,427		$	16,086
Securities
Taxable		5,005			3,972
Exempt from federal income tax		489			288
Federal funds sold		15			55
Total interest income		19,936			20,401
Interest expense
Deposits		5,272			5,840
Other		23			9
Total interest expense		5,295			5,849
Net interest income		14,641			14,552
Provision for loan losses		200			500
Net interest income after provision for loan losses		14,441			14,052
Noninterest income
Service fees on deposit accounts		1,966			2,019
Debit card fees		457			489
Net realized gain on securities transactions		66			295
Net gain on sales of loans held for sale		73			334
Stored value cards		1,341			816
Other		1,180			980
Total noninterest income		5,083			4,933
Noninterest expense
Salaries and employee benefits		5,523			5,375
Occupancy		941			986
Furniture and equipment		1,180			1,246
Advertising and promotion		345			286
Professional fees		485			258
Stored value cards		902			530
Other		1,707			1,374
Total noninterest expense		11,083			10,055
Income before income taxes		8,441			8,930
Income tax expense		2,336			3,015
Net income		$	6,105		$	5,915
Earnings per share		$	14.14		$	13.68
Average shares outstanding		431,795			432,495

 

See accompanying notes to consolidated financial statements.

 

6

 

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(Dollars in thousands, except per share data)

(UNAUDITED)

 

		Common Stock and Surplus			Retained Earnings			Accumulated Other Compre- hensive Income			Unearned ESOP Shares			Amount Reclassified on ESOP Shares			Total Shareholders’ Equity			Common Stock in ESOP Subject to Contingent Repurchase Obligation
Balance, January 1, 2003		$	41,523		$	103,074		$	3,088		$	—		$	(40,241	)	$	107,444		$	40,241
Comprehensive income
Net income		—			13,720			—			—			—			13,720			—
Change in unrealized gain on available for sale securities, net of reclassification and tax effects		—			—			338			—			—			338			—
Total comprehensive income																	14,058
Cash dividends declared - $16.00 per share		—			(6,920		)	—			—			—			(6,920		)	—
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation		—			—			—			—			(3,730		)	(3,730		)	3,730
Balance, June 30, 2003		$	41,523		$	109,874		$	3,426		$	—		$	(43,971	)	$	110,852		$	43,971

 

		Common Stock and Surplus			Retained Earnings			Accumulated Other Compre- hensive Loss			Unearned ESOP Shares			Amount Reclassified on ESOP Shares			Total Shareholders’ Equity			Common Stock in ESOP Subject to Contingent Repurchase Obligation
Balance, January 1, 2004		$	41,523		$	109,952		$	(363	)	$	(1,200	)	$	(51,371	)	$	98,541		$	51,371
Comprehensive income
Net income		—			11,863			—			—			—			11,863			—
Change in unrealized loss on available for sale securities, net of reclassification and tax effects		—			—			(8,601		)	—			—			(8,601		)	—
Total comprehensive income		3,262
Cash dividends declared - $20.00 per share		—			(8,650		)	—			—			—			(8,650		)	—
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation		—			—			—			—			2,419			2,419			(2,419		)
ESOP shares committed to be released		—			—			—			999			—			999			—
Balance, June 30, 2004		$	41,523		$	113,165		$	(8,964	)	$	(201	)	$	(48,952	)	$	96,571		$	48,952

 

See accompanying notes to consolidated financial statements.

 

7

 

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(Dollars in thousands)

(UNAUDITED)

 

		2004			2003
Cash flows from operating activities
Net income		$	11,863		$	13,720
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		1,923			2,154
Provision for loan losses		200			900
Deferred income tax expense (benefit)		68			(635		)
Net premium amortization of securities		1,046			1,179
Net realized gain on securities transactions		(52		)	(1,863		)
Federal Home Loan Bank stock dividends		(157		)	(206		)
Increase in cash surrender value of company-owned life insurance		(985		)	(400		)
Net gain on sales of loans held for sale		(152		)	(562		)
Sales of loans held for sale		10,809			49,146
Origination of loans held for sale		(10,113		)	(48,595		)
Net loss on sales of premises and equipment		12			—
Net gain on sales of other real estate		(17		)	—
ESOP compensation expense		999			—
Write down of other real estate		—			40
Increase in accrued interest and other assets		(292		)	(663		)
Increase in accrued interest and other liabilities		2,310			2,361
Net cash provided by operating activities		17,462			16,576
Cash flows from investing activities
Securities available for sale
Sales		67,703			91,538
Maturities and calls		94,752			201,448
Purchases		(240,690		)	(423,687		)
Securities held to maturity
Maturities and calls		5,709			6,205
Purchases		(4,038		)	—
Net decrease in loans		2,852			22,975
Investment in company-owned life insurance policies		(10,000		)	(10,000		)
Purchases of premises and equipment		(454		)	(741		)
Sales of premises and equipment		3			—
Sales of other real estate		268			—
Net cash used in investing activities		(83,895		)	(112,262		)
Cash flows from financing activities
Net increase in deposits		27,948			78,868
Increase in federal funds purchased		16,420			—
Increase in stored value cards		652			4,708
Dividends paid		(8,650		)	(11,245		)
Net cash provided by financing activities		36,370			72,331
Net decrease in cash and cash equivalents		(30,063		)	(23,355		)
Beginning cash and cash equivalents		69,344			66,788
Ending cash and cash equivalents		$	39,281		$	43,433
Supplemental disclosures
Cash paid for
Interest		$	10,510		$	12,011
Income taxes		3,466			7,001
Other real estate acquired through loan foreclosure		4,419			258

 

See accompanying notes to consolidated financial statements.

 

8

 

WEST SUBURBAN BANCORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands, except per share data)

 

Note 1 - Basis of Presentation

 

The condensed consolidated financial statements include the accounts of West Suburban Bancorp, Inc. (“West Suburban”) and West Suburban Bank (the “Bank” and collectively with West Suburban and its other direct and indirect subsidiaries, the “Company”). Significant intercompany accounts and transactions have been eliminated. The unaudited interim consolidated financial statements are prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual financial statements have been omitted. The interim financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the latest Annual Report on Form 10-K filed by the Company. The condensed consolidated financial statements include all adjustments (none of which were other than normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. Certain reclassifications have been made in prior periods’ financial statements to conform to the current period’s presentation.

 

Note 2 - Financial Instruments with Off-Balance Sheet Risk

 

Unused lines of credit and other commitments to extend credit not reflected in the financial statements are as follows:

 

 

Fixed rate commercial loan commitments at June 30, 2004 generally had interest rates ranging from 4.75% to 9.00% with terms ranging from 1 to 5 years. Fixed rate mortgage loan commitments at June 30, 2004 generally had interest rates ranging from 5.00% to 6.75% with terms ranging from 10 to 30 years. Fixed rate check credit lines of credit had interest rates ranging from 12.90% to 18.00% as of June 30, 2004.

 

Note 3 - - Common Stock in ESOP Subject to Contingent Repurchase Obligation

 

At June 30, 2004 and December 31, 2003, the ESOP held 82,843 and 82,671 shares of West Suburban common stock, respectively. At June 30, 2004 and December 31, 2003, respectively, 82,550 and 80,772 shares of West Suburban common stock were allocated to ESOP participants. Upon termination of their employment, participants who elect to receive their benefit payments in the form of West Suburban common stock may require the Company to purchase the common stock distributed at fair value during two 60-day periods. The first purchase period begins on the date the benefit is paid and the second purchase period begins on the first anniversary of the payment date. This contingent repurchase obligation is reflected in the Company’s financial statements as “Common stock in ESOP subject to contingent repurchase obligation” and reduces shareholders’ equity by an amount that represents the independently appraised fair value of all West Suburban common stock held by the ESOP and allocated to participants, without regard to whether it is likely that the shares would be distributed or that the recipients of the

 

9

 

shares would be likely to exercise their right to require the Company to purchase the shares. At June 30, 2004 and December 31, 2003, this contingent repurchase obligation reduced shareholders’ equity by $48,952 and $51,371, respectively. The Company believes that the ESOP will continue to have a sufficient amount of cash to distribute benefit payments to former employees and that the exercise of the right of former employees to cause the Company to purchase West Suburban common stock is unlikely.

 

Note 4 - New Accounting Pronouncements

 

In November 2003, the Emerging Issues Task Force (“EITF”) issued consensus requirements concerning Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments relating todisclosures for investment securities that require additional numerical and narrative disclosures for debt and marketable equity securities that have unrealized losses. The requirements applied to December 31, 2003 year-end disclosures and were adopted by the Company in 2003. In March 2004, Issue 03-1 was expanded to include guidance on recognition and measurement of impairment losses. The additional guidance applies to reporting periods beginning after June 15, 2004. Management is reviewing the additional guidance that was recently issued.

 

In December 2003, the Accounting Standards Executive Committee (“AcSEC”) issued Statement of Position 03-3, Accounting for Certain Loans and Debt Securities Acquired in a Transfer. AcSEC began this project to address practice issues relating to purchases of troubled loans (including purchases of individual loans, pools of loans or in connection with business combinations) and the treatment of the allowance for loan losses in such acquisitions. This Statement clarifies that a buyer cannot carry over the seller’s allowance for loan losses in connection with an acquisition of loans with credit deterioration. Deterioration may be demonstrated by such evidence as FICO scores (an automated rating process for credit reports), downgrading, decline in value of collateral or past-due status. The Statement is effective for the Company’s December 31, 2005 year-end and only applies to loans purchased after the Statement is effective. At this time, management does not anticipate that the Statement will have a material impact on the Company’s financial condition or results of operations.

 

Effective for loan commitments entered into April 1, 2004 or later, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 105, Loan Commitments. SAB 105 clarifies how loan commitments that are derivatives should be valued. Loan commitments where the loan is expected to be sold in mortgage banking operations are classified as derivatives, and must be carried at fair value. This SAB, which provides guidance regarding the manner in which fair value should be measured, requires that fair value be determined for the loan commitment without considering future cash flows related to servicing the loan. The SEC reasons that considering such future cash flows in fair value is, in effect, immediately recognizing a servicing asset, and a servicing asset may only be recognized once the servicing has been separated from the loan by sale or securitization of the loan. Fair value for customer relationship intangibles or other internally-developed intangibles should also not be considered when determining the fair value of the loan commitment. Rather, recognition of the intangibles occurs upon consummation of a third-party transaction.  Accordingly, the adoption of SAB 105 has not had a material impact on the Company’s financial condition or results of operations.

 

10

 

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Critical Accounting Policies

 

The Company’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. These accounting principles, which can be complex, are significant to our financial condition and our results of operations and require management to apply significant judgment with respect to various accounting, reporting and disclosure matters. Management must use estimates, assumptions and judgments to apply these principles where actual measurements are not possible or practical. These estimates, assumptions and judgments are based on information available as of the date of this report and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. Changes in such estimates may have a significant impact on the financial statements. Management has reviewed the application of these policies with the Audit Committee of West Suburban’s Board of Directors. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements included herein.

 

In management’s view, the accounting policies that are critical to the Company are those relating to estimates, assumptions and judgments regarding the determination of the adequacy of the allowance for loan losses.

 

Allowance for Loan Losses. The Company maintains an allowance for loan losses at a level management believes is sufficient to absorb credit losses inherent in the loan portfolio. The allowance for loan losses represents the Company’s estimate of probable losses in the loan portfolio at each balance sheet date and is based on the review of available and relevant information. The allowance contains allocations for probable losses that have been identified relating to specific borrowing relationships as well as probable losses for pools of loans. The allowance for loan losses is reassessed monthly by the Company to determine the appropriate level of the allowance. The amount of the allowance for loan losses is determined based on a variety of factors, including assessment of the credit risk of the loans in the loan portfolio, volume of the loans, delinquent loans, evaluation of current economic conditions in the market area, actual charge-offs during the period and historical loss experience. Loan quality is continually monitored by management and reviewed by the loan committee on a monthly basis.

 

All categories of loans are evaluated on a category by category basis. In addition, individual commercial, construction and commercial mortgage loans are evaluated to determine if a specific loss allocation is needed for problem loans deemed to have a shortfall in collateral. Management also considers the borrower’s current economic status including liquidity and future business viability. Other factors used in the allocation of the allowance include levels and trends of past dues and charge-offs along with concentrations of credit within the commercial and commercial real estate loan portfolios. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur. Along with the allocation of the allowance on a category by category basis and the specific allocations for individual borrowing relationships, the allowance includes a relatively small portion that remains unallocated.

 

Management adjusts the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at the level determined appropriate. Loans are charged-off when deemed to be uncollectible by management. The Company believes that the allowance for loan losses is adequate to provide for estimated probable credit losses inherent in the loan portfolio.

 

Contractual Obligations, Commitments, Off-Balance Sheet Arrangements and Contingent Liabilities

 

Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments. Such obligations generally relate to the funding of operations through deposits, as well as leases for premises and equipment. As a financial services provider, the Company routinely enters into commitments to extend credit. While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval as comparable loans made by the Company.

 

11

 

The following table presents the Company’s significant fixed and determinable contractual obligations and significant commitments by payment date as of June 30, 2004 (dollars in thousands). The payment amounts represent those amounts contractually due to the recipient and do not include any carrying value adjustments.

 

 

Balance Sheet Analysis

 

Asset Distribution.  Total consolidated assets at June 30, 2004 increased 2.5% from December 31, 2003. Total year-to-date average assets at June 30, 2004 increased 6.5% from June 30, 2003. An increase in securities available for sale was the largest component of the increase in total consolidated assets and was partially offset by decreases in cash and cash equivalents and loans. Asset growth was funded primarily by higher levels of deposits.

 

Cash and cash equivalents at June 30, 2004 decreased 43.4% from December 31, 2003 primarily due to the use of cash and cash equivalents to purchase securities available for sale.

 

The Company’s securities portfolio increased 12.5% during the first six months of 2004. This increase was primarily due to an increase in the available for sale securities portfolio of 13.7%. The Company had made significant investments in U.S. government agency securities. Investing in U.S. government agency securities and classifying them as available for sale increases the Company’s liquidity and is an important element in the Company’s liquidity management in the current low interest rate environment. This practice has allowed the Company to better control the level of liquidity risk and obtain a higher yield over investments such as federal funds sold over the entire interest rate cycle. During this six month period, the Company’s accumulated other comprehensive loss increased $8.6 million due to a change in unrealized losses on securities available for sale, net of reclassification and tax effects. The Company continues to classify the majority of new security purchases made as available for sale. The Company will continue to monitor its level of available for sale and held to maturity securities and will classify new securities in the appropriate category at the time of purchase. Factors to be reviewed during the process include, but are not limited to, the current interest rate and economic environments.

 

12

 

The carrying value of the Company’s major categories of securities are summarized in the following table (dollars in thousands):

 

		June 30, 2004			December 31, 2003			Dollar Change			Percent Change
Securities available for sale
Corporate		$	61,301		$	46,330		$	14,971		32.3	%
U.S. government agencies and corporations		373,402			323,579			49,823			15.4	%
Mortgage-backed		35,292			38,041			(2,749		)	(7.2	)%
States and political subdivisions		35,465			33,466			1,999			6.0	%
Total debt securities		505,460			441,416			64,044			14.5	%
Preferred stock		15,619			16,730			(1,111		)	(6.6	)%
Total securities available for sale		$	521,079		$	458,146		$	62,933		13.7	%
Securities held to maturity
U.S. government agencies and corporations		$	8,998		$	13,998		$	(5,000	)	(35.7	)%
Mortgage-backed		1,841			1,959			(118		)	(6.0	)%
States and political subdivisions		16,715			13,238			3,477			26.3	%
Total securities held to maturity		$	27,554		$	29,195		$	(1,641	)	(5.6	)%

 

 

At June 30, 2004, the Company held $489.6 million of investment securities that had net unrealized losses.  Of these investment securities, at June 30, 2004, securities with an amortized cost of $12.3 million had unrealized losses for a continuous period of twelve months or more.  The amount of the unrealized losses was $1.1 million as of that date.  In accordance with generally accepted accounting principles, unrealized losses on debt securities are not recognized if management has the intent and ability to hold the securities until the maturity date of the securities and no concerns exist with respect to the ability of the issuer to satisfy its obligations at maturity.  At June 30, 2004, debt securities with an amortized cost of $7.0 million had unrealized losses for a continuous period of twelve months or more and the amount of the unrealized losses as of that date was $.3 million.  Management believes that the fair value of these debt securities will recover as the securities approach their maturity date.  At June 30, 2004, equity securities with an amortized cost of $5.3 million had unrealized losses for a continuous period of twelve months or more and the amount of the unrealized losses as of that date was $.8 million.  In accordance with the guidance provided in EITF 03-1, the Company is monitoring these equity securities which were issued by the Federal Home Loan Mortgage Corporation.  Although the requirement to recognize impairment losses under EITF 03-1 does not become effective until the quarter ending September 30, 2004, the Company has considered its intent and ability to hold the securities for the foreseeable future and that the credit ratings assigned to the issuer have not changed since the securities were issued.

 

Total loans outstanding at June 30, 2004 decreased ..8% from December 31, 2003 primarily due to decreased balances in the real estate construction and indirect automobile loan portfolios. The real estate construction loan portfolio declined primarily due to loan repayments and the cyclical nature of the real estate construction industry. The decrease in the indirect automobile loan portfolio was primarily due to prepayments and scheduled repayments as well as the effect of promotional programs offered by new automobile dealers such as 0% financing. The Company expects to see this trend continue until the automobile dealers discontinue their promotional programs. These decreases were partially offset by increases in the home equity loan portfolio. The growth in the home equity loan portfolio resulted from a combination of promotional marketing efforts for this product and the current low interest rate environment. The growth in the home equity loan portfolio was primarily in fixed rate second mortgages.

 

13

 

Balances in the Company’s categories of loans are summarized in the following table (dollars in thousands):

 

 

Allowance for Loan Losses and Asset Quality.  The Company’s allowance for loan losses as a percent of nonperforming loans increased to 107% at June 30, 2004 from 94% at December 31, 2003 and the ratio of nonperforming loans to total loans decreased to 1.14% at June 30, 2004 from 1.41% at December 31, 2003.  The ratio of nonperforming assets to total assets increased to 1.01% at June 30, 2004 from .97% at December 31, 2003.

 

The Company’s loans 90 days or more past due increased $1.5 million. This increase was primarily due to the addition of one real estate loan. The level of nonaccrual loans decreased $4.5 million during the first six months of 2004 primarily due to the completion of the foreclosure proceedings relating to two properties with an aggregate valuation of $4.4 million.  This increase accounted for the majority of the increase in other real estate only partially offset by the sale of one property.  Approximately $8.7 million of the Company’s nonaccrual loans at June 30, 2004 relate to three loan relationships for which $4.0 million of specific reserves have been established. Although the Company’s analysis as of that date indicates that the established specific reserves would be sufficient to absorb the probable losses with respect to the three loan relationships, no assurances can be provided that the actual losses will not exceed the specific reserves.

 

The ratio of the allowance for loan losses to total loans outstanding was 1.23% and 1.33% at June 30, 2004 and December 31, 2003, respectively.

 

The following table presents an analysis of the Company’s nonperforming loans and other real estate as of the dates indicated (dollars in thousands):

 

 

14

 

The following table presents an analysis of the Company’s provision for loan losses for the periods stated (dollars in thousands):

 

 

 

Company-Owned Life Insurance (“COLI”).  The cash surrender value of COLI increased to $24.4 million at June 30, 2004 from $13.4 million at December 31, 2003. The Company acquired $10.0 million of additional insurance in connection with its management of costs associated with certain employee benefits obligations.

 

Deposits.  Total deposits at June 30, 2004 increased 1.8% from December 31, 2003. The increase in total deposits primarily resulted from an increase in time deposits.  Management believes the increase in time deposits resulted from a promotional program that the Company introduced during the first quarter of 2004.  In general, management promotes its deposit products when feasible while preserving the Company’s net interest margin.

 

Balances in the Company’s major categories of deposits are summarized in the following table (dollars in thousands):

 

 

During the first six months of 2004, average balances in demand-noninterest-bearing deposits decreased $2.0 million from the 2003 period. Average balances in interest-bearing deposits increased $90.9 million from the 2003 period.

 

Stored Value Cards.  Stored value cards at June 30, 2004 increased 3.8% from December 31, 2003. This liability reflects the outstanding balances of the Company’s stored value card customers. The Company anticipates that this liability will continue to grow as the Company’s various stored value card products gain wider acceptance and use.

 

15

 

CAPITAL RESOURCES

 

Shareholders’ equity at June 30, 2004 decreased 2.0% from December 31, 2003 as a result of $11.9 million of net income, reduced by dividends declared of $8.7 million and a decrease in the fair value of securities available for sale of $8.6 million, net of deferred taxes. The decrease in the fair value of securities available for sale change reflects changes in the prevailing interest rate environment. Management believes that since the end of first quarter, the financial markets have priced in an increase in yield for investments with a 2-10 year investment horizon ranging from 75 to 120 basis points. Additionally, shareholders’ equity was increased by a $2.4 million decrease in common stock in ESOP subject to contingent repurchase obligation. Shareholders’ equity was increased by $1.0 million due to additional unearned ESOP shares being committed to be released to participants during the first six months of 2004.

 

Management has been advised that as of June 30, 2004 and December 31, 2003, the Bank qualified as a “well-capitalized” institution as defined by the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended. On a consolidated basis, the Company also exceeded regulatory capital requirements. In accordance with applicable regulations, the appraised fair value of West Suburban common stock owned by the ESOP and allocated to participants is included in Tier 1 capital.

 

The Company’s capital ratios as well as those of the Bank as of June 30, 2004 are presented in the following table. All capital ratios are in excess of the regulatory capital requirements which call for a minimum total risk-based capital ratio of 8% (10% to be well capitalized) for each of the Company and the Bank, a minimum Tier 1 risk-based capital ratio of 4% (6% to be well capitalized) for each of the Company and the Bank and a minimum leverage ratio (3% for the most highly rated banks and bank holding companies that do not expect significant growth; all other institutions are required to maintain a minimum leverage capital ratio of 4% to 5% (5% to be well capitalized) depending on their particular circumstances and risk and growth profiles) for each of the Company and the Bank. Bank holding companies and their subsidiaries are generally expected to operate at or above the minimum capital requirements. The ratios shown in the following table are in excess of regulatory minimums and should allow the Company and the Bank to operate without significant capital adequacy concerns.

 

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The following table sets forth the actual and minimum capital ratios of the Company and the Bank as of the dates indicated:

 

 

LIQUIDITY

 

Effective liquidity management ensures there is sufficient cash flow to satisfy demand for credit and deposit withdrawals and to take advantage of earnings enhancement opportunities. A large, stable core deposit base and a strong capital position are the solid foundation for the Company’s liquidity position. Liquidity is enhanced by a securities portfolio structured to provide liquidity as needed. The Company also maintains relationships with correspondent banks to purchase federal funds subject to underwriting and collateral requirements. Additionally, subject to credit underwriting, collateral, capital stock, and other requirements of the Federal Home Loan Bank of Chicago (“FHLB”), the Company is able to borrow from the FHLB on a “same day” basis. As of June 30, 2004, the Company could have borrowed up to approximately $104 million from the FHLB secured by certain of its real estate loans and securities. The Company manages its liquidity position through continuous monitoring of profitability trends, asset quality, interest rate sensitivity and maturity schedules of earning assets and liabilities.

 

Generally, the Company uses cash and cash equivalents and securities available for sale to meet its liquidity needs. As of June 30, 2004 and December 31, 2003, these liquid assets represented 32.0% and 30.8% of total assets, respectively. During the first six months of 2004, the Company’s cash and cash equivalents decreased $30.1 million. Net cash provided by operating activities was $17.4 million, while net cash used in investing activities was $83.9 million. The net cash used in investing activities was primarily used to purchase securities available for sale. Net cash flows provided by financing activities were $36.4 million, resulting primarily from deposit growth. Management expects operations to be a continuing source of cash flow in the future.

 

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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

 

Net Income.  The Company’s net income for the first six months of 2004 decreased 13.5% compared to the first six months of 2003 primarily due to a decrease in total noninterest income of $1.9 million. Net income was also affected negatively by an increase in total noninterest expense of $2.2 million. These decreases to noninterest income and increases to noninterest expense were partially offset by a decrease in the provision for loan losses of $.7 million and a decrease in income tax expense of $1.7 million.

 

Net Interest Income. Net interest income for the first six months of 2004 decreased .2% compared to the first six months of 2003. Net interest income is the primary source of income for the Company. Net interest income is the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is affected by changes in the volume and yield on interest-earning assets and the volume and rates on interest-bearing liabilities. Interest-earning assets consist of federal funds sold, securities and loans. Interest-bearing liabilities primarily consist of deposits. The net interest margin is the percentage of tax equivalent net interest income to average earning assets. The Company’s net interest margin (on a fully tax-equivalent basis) for the first six months of 2004 decreased to 3.69% compared to 3.87% for the first six months of 2003.

 

Total interest income (on a fully tax-equivalent basis) for the first six months of 2004 decreased 2.9% compared to the first six months of 2003 due to declining yields and volume of assets in the Company’s loan portfolio. Average loans in 2004 decreased 4.5% and the yield on the portfolio decreased 36 basis points. Yields on the Company’s real estate loan portfolio declined 34 basis points during this period. Management anticipates that additional increases in interest rates will further curtail activity in the mortgage loan market. Yields on the Company’s home equity loan portfolio declined 41 basis points during this period. Yields on fixed rate home equity loans have declined due to decreases in the Company’s rates on new fixed rate home equity loans. Yields on variable rate home equity lines of credit vary with the prime rate on semi-annual repricing dates. The average prime rate during the first six months of 2004 was 4.00% compared to 4.25% during the first six months of 2003. Yields on the commercial loan portfolio declined 33 basis points during the period. The majority of commercial loans have adjustable rates that are tied to one of a number of rate indices. Generally, these indices were at a lower level during the first six months of 2004 when compared to the same period during 2003. Yields on investment securities decreased 31 basis points during the first six months of 2004 primarily as a result of the Company’s reinvestment of proceeds from called and matured securities in securities that provide a lower yield.

 

Total interest expense decreased 11.6% for the first six months of 2004 compared to the first six months of 2003. Interest on deposits, which accounted for all of this decrease, decreased primarily due to lower market rates. The yield on interest-bearing deposits for the first six months of 2004 decreased 31 basis points to 1.47% compared to 1.78% for the first six months of 2003.

 

The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities (on a fully tax-equivalent basis) for the six-month period ended June 30, 2004, as compared to the same period in 2003 (dollars in thousands):

 

 

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The following table presents an analysis of the Company’s year-to-date average interest-earning assets, demand-noninterest-bearing deposits and interest-bearing liabilities, for the dates indicated (dollars in thousands):

 

		2004						2003
		June 30			March 31			December 31			September 30			June 30
Federal funds sold		$	15,329		$	25,569		$	17,947		$	16,701		$	20,636
Securities		543,088			508,077			441,090			425,772			401,762
Loans		1,063,512			1,062,580			1,106,639			1,111,993			1,114,036
Total interest- earning assets		$	1,621,929		$	1,596,226		$	1,565,676		$	1,554,466		$	1,536,434
Demand-noninterest- bearing deposits		$	143,373		$	142,349		$	152,443		$	149,088		$	145,355
Interest-bearing deposits		1,410,907			1,385,492			1,343,107			1,334,571			1,320,022
Total deposits		$	1,554,280		$	1,527,841		$	1,495,550		$	1,483,659		$	1,465,377
Total interest- bearing liabilities		$	1,415,159		$	1,386,367		$	1,345,571		$	1,337,232		$	1,321,951

 

Provision for Loan Losses.  The provision for loan losses decreased 77.8% for the first six months of 2004 compared to the first six months of 2003. This was primarily due to a $9.2 million decrease in total loans (including a $3.0 million decrease in nonperforming loans) during the first six months of 2004. A more detailed discussion concerning the allowance for loan losses is presented in the “Allowance for Loan Losses and Asset Quality” section of this report.

 

Noninterest Income.  Total noninterest income decreased 16.6% in the first six months of 2004 compared to the first six months of 2003. Service fees on deposit accounts decreased $.5 million, resulting primarily from a decline in service charges associated with the overdraft honors program. Although management believes the income generated from this program may vary significantly from period to period, the program is intended to provide continuing fee income. Net realized gains on securities transactions decreased $1.8 million. The Company also experienced a decrease in net gain on sales of loans held for sale of $.4 million due to a flat mortgage market as refinancing activity slowed significantly. During 2004, the Company has elected to hold certain 30-year fixed mortgage loans which is a change from its prior practice of selling these loans into the secondary market. Management anticipates that this change and additional increases in interest rates will continue to impact gain on sale of loans held for sale negatively. During the first six months of 2003, the Company recorded $1.1 million of additional income in connection with a litigation settlement which was not repeated during the 2004 period. Stored value card income increased $1.7 million as a result of the implementation of new programs and increased usage of the Company’s stored value card products. Other noninterest income increased $.3 million primarily due to income received from COLI policies.

 

Noninterest Expense.  Total noninterest expense increased 11.3% in the first six months of 2004 compared to 2003. Salaries and employee benefits increased $.5 million primarily as a result of normal salary increases and increased medical insurance costs. The number of full-time equivalent employees was 504 at June 30, 2004 and 501 at June 30, 2003. Advertising and promotion expense increased $.1 million primarily due to the Company’s home equity product. Professional fees increased $.3 million primarily due to costs associated with profitability enhancement initiative implemented during the first six months of 2004. Stored value card expense, including expenses relating to the production of cards, postage and processing services, increased $1.2 million during this period. This increase was driven by increases in volume for current programs as well as the implementation of new programs. Other expense increased $.3 million primarily due to increases in Visa® cardholder expense, loan expense, and other loss expense partially offset by a decrease in postage and freight expense.

 

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Income Taxes.  Income tax expense decreased 24.7% for the first six months of 2004 compared to 2003 primarily due to lower pre-tax income levels. Additionally, the Company experienced higher income levels over the same period a year ago on tax-exempt income on municipal and agency securities and COLI income. The effective tax rates for the first six months of 2004 and 2003 were 29.9% and 32.9%, respectively.

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003

 

Net Income.  The Company’s net income for the second quarter of 2004 increased 3.2% compared to the second quarter of 2003 primarily due to a decrease in income tax expense of $.7 million. Net income was also affected positively by a decrease in the provision for loan losses of $.3 million and an increase in total noninterest income of $.2 million. These decreases to expense and increases to income were partially offset by an increase in total noninterest expense of $1.0 million.

 

The Company’s net interest margin (on a fully tax-equivalent basis) for the second quarter of 2004 decreased to 3.61% compared to 3.76% for the second quarter of 2003.

 

Net Interest Income.  Total interest income (on a fully tax-equivalent basis) for the second quarter of 2004 decreased 2.0% compared to the second quarter of 2003 primarily due to declining yields on the Company’s loan portfolio. Average loans for the period decreased 4.5% and the average yields on the loan portfolio decreased 35 basis points. This was primarily due to the decline in yields on the commercial and home equity loan portfolios of 36 and 35 basis points, respectively. Average balances in securities increased 33.4% during this period primarily due to the significant investment the Company has made in U.S. Government agency and corporation securities. The yield on average interest-earning assets in the second quarter of 2004 decreased 35 basis points to 4.90% compared to 5.25% in the second quarter of 2003.

 

Total interest expense for the second quarter of 2004 decreased 9.5% compared to the second quarter of 2003. Interest on deposits, which accounted for all of this decrease, decreased primarily due to lower interest rates as discussed earlier. The yield on interest-bearing deposits for the second quarter of 2004 decreased 26 basis points to 1.47% compared to 1.73% for the second quarter of 2003.

 

The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities (on a fully tax-equivalent basis) for the three-month period ended June 30, 2004, as compared to the same period in 2003 (dollars in thousands):

 

20

 

The following table presents an analysis of the Company’s quarterly average interest-earning assets, demand-noninterest-bearing deposits and interest-bearing liabilities, for the dates indicated (dollars in thousands):

 

 

 

Provision for Loan Losses.  The Company’s provision for loan losses decreased 60.0% in the second quarter of 2004 compared to the second quarter of 2003. A more detailed discussion concerning the allowance for loan losses is presented in the “Allowance for Loan Losses and Asset Quality” section of this report.

 

Noninterest Income.  Total noninterest income increased 3.0% in the second quarter of 2004 compared to the second quarter of 2003. Net realized gains on securities transactions decreased $.2 million. The Company also experienced a decrease in net gain on sales of loans held for sale of $.3 million due to a flat mortgage market as refinancing activity slowed significantly. During 2004, the Company has elected to hold certain 30-year fixed mortgage loans which is a change from its prior practice of selling these loans into the secondary market. Management anticipates that this change and additional increases in interest rates will continue to impact gain on sale of loans held for sale negatively. Stored value card income increased $.5 million as a result of the implementation of new programs and with increased usage of the Company’s stored value card products. Other noninterest income increased $.2 million primarily due to income received from COLI policies.

 

Noninterest Expense.  Total noninterest expense increased 10.2% in the second quarter of 2004 compared to the second quarter of 2003. Salaries and employee benefits increased $.1 million primarily as a result of normal salary increases and increased medical insurance costs. Professional fees increased $.2 million primarily due to costs associated profitability enhancement initiative implemented during the first six months of 2004. Stored value card expense, including expenses relating to the production of cards, postage and processing services, increased $.4 million during this period. This increase was driven by increases in volume for current programs as well as the implementation of new programs. Other expense increased $.3 million primarily due to increases in Visa® cardholder expense, loan expense, and other loss expense partially offset by a decrease in postage and freight expense.

 

Income Taxes.  Income tax expense decreased 22.5% for the second quarter of 2004 compared to 2003. The Company experienced higher income levels of tax-exempt income on municipal and agency securities and COLI income in 2004 compared to 2003. The effective tax rates for the second quarter of 2004 and 2003 were 27.7% and 33.8%, respectively.

 

RECENT REGULATORY DEVELOPMENTS

 

Trust Preferred Securities.  On May 6, 2004, the Board of Governors of the Federal Reserve System (the “Board”) issued a Notice of Proposed Rulemaking in which it proposed to allow the continued inclusion of trust preferred securities in the tier 1 capital of bank holding companies, subject to stricter standards.  The Board is proposing to limit the aggregate amount of a bank holding company’s cumulative perpetual preferred stock, trust preferred securities and other minority interests to 25% of the company’s core capital elements, net of goodwill.  Current regulations do not require the deduction of goodwill from the amount of core capital elements.  The proposal also

 

21

 

provides that amounts of qualifying trust preferred securities and certain minority interests in excess of the 25% limit may be included in tier 2 capital but would be limited, together with subordinated debt and limited-life preferred stock, to 50% of tier 1 capital.  The proposal provides a three-year transition period for bank holding companies to meet these quantitative limitations.

 

Bank Sales of Securities.  On June 17, 2004, the Securities and Exchange Commission (the “SEC”) issued a proposed rule in which it described the parameters under which banks may sell securities to their customers without having to register as broker-dealers with the SEC in accordance with Title II of the Gramm-Leach-Bliley Act of 1999.  The proposal, which is designated as Regulation B, clarifies, among other things: (i) the limitations on the amount that unregistered bank employees may be compensated for making referrals in connection with a third-party brokerage arrangement; (ii) the manner by which banks may be compensated for effecting securities transactions for its customers in a fiduciary capacity; and (iii) the extent to which banks may engage in certain securities transactions as a custodian.  At this time, it is not possible to predict the impact that this proposal would have on the Company and its subsidiaries.

 

Illinois Department of Financial and Professional Regulation.  On July 1, 2004, the Office of Banks and Real Estate (the “OBRE”), the Department of Financial Institutions, the Department of Insurance and the Department of Professional Regulation were consolidated into a new agency known as the Illinois Department of Financial and Professional Regulation (“IDFPR”).  The OBRE is now designated as the Division of Banks and Real Estate within the IDFPR.

 

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company attempts to maintain a conservative posture with regard to interest rate risk by actively managing its asset/liability GAP position and monitoring the direction and magnitude of gaps and risk. The Company attempts to moderate the effects of changes in interest rates by adjusting its asset and liability mix to achieve desired relationships between rate sensitive assets and rate sensitive liabilities. Rate sensitive assets and liabilities are those instruments that reprice within a given time period. An asset or liability reprices when its interest rate is subject to change or upon maturity.

 

Movements in general market interest rates are a key element in changes in the net interest margin. The Company’s policy is to manage its balance sheet so that fluctuations in the net interest margin are minimized regardless of the level of interest rates, although the net interest margin does vary somewhat due to management’s response to increasing competition from other financial institutions.

 

The Company measures rate sensitivity through a net interest income analysis. The net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of changes in net interest income in the event of a sudden and sustained 100 to 200 basis point increase or decrease in market interest rates. This analysis is subject to certain assumptions made by the Company including the following:

 

•                  Balance sheet volume reflects the current balances and does not project future growth or changes. This establishes the base case from which all percentage changes are calculated.

 

•                  The replacement rate for loan and deposit items that mature is the current rate offered by the Company as adjusted for the assumed rate increase or decrease. The replacement rate for securities is the current market rate as adjusted for the assumed rate increase or decrease.

 

•                  The repricing rate for balance sheet data is determined by utilizing individual account statistics provided by the Company’s data processing systems.

 

22

 

•                  The maturity and repricing dates for balance sheet data are determined by utilizing individual account statistics provided by the Company’s data processing systems.

 

Listed below are the Company’s projected changes in net interest income over a twelve-month horizon for the various rate shock levels as of the periods indicated (dollars in thousands):

 

 

 

Management does not believe that an analysis assuming a 200 basis point drop in market rates at June 30, 2004 and December 31, 2003 is relevant.

 

ITEM 4.      CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman and Chief Executive Officer and the President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2004. Based on that evaluation, the Company’s management, including the Chairman and Chief Executive Officer and the President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls.

 

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PART II

ITEM 1.      LEGAL PROCEEDINGS

 

There are no material pending legal proceedings to which West Suburban or the Bank are a party other than ordinary course, routine litigation incidental to their respective businesses.

 

ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

A.    The Annual Meeting of Shareholders was held on May 12, 2004.

 

B.             The following individuals were elected to serve as directors of the Company for a term of one year at the Annual Meeting.  The votes for such individuals and those withholding authority are set forth below:

 

 

C.    Ratification of Crowe Chizek and Company LLC as the Company’s independent auditors.

 

 

ITEM 5.      OTHER INFORMATION

 

None

 

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

 

a.               The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

 

b.              No reports on Form 8-K were filed by the Company during the quarter ended June 30, 2004.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	WEST SUBURBAN BANCORP, INC.
	(Registrant)
Date: August 6, 2004
	/s/  Kevin J. Acker
	KEVIN J. ACKER
	CHAIRMAN AND CHIEF EXECUTIVE OFFICER
	/s/  Duane G. Debs
	DUANE G. DEBS
	PRESIDENT AND CHIEF FINANCIAL OFFICER

 

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INDEX TO EXHIBITS

 

Exhibit Number		Description
3.1		Articles of Incorporation of West Suburban filed March 14, 1986 – Incorporated by reference from Exhibit 3.1 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.
3.2		Articles of Amendment to Articles of Incorporation of West Suburban filed November 2, 1988 – Incorporated by reference from Exhibit 3.2 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.
3.3		Articles of Amendment to Articles of Incorporation of West Suburban filed June 20, 1990 – Incorporated by reference from Exhibit 3.3 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.
3.4		Articles of Amendment to Articles of Incorporation of West Suburban filed June 8, 1998 – Incorporated by reference from Exhibit 3.4 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.
3.5		Articles of Amendment to Articles of Incorporation of West Suburban filed May 27, 2003 – Incorporated by reference from Exhibit 3.5 of Form 10-Q of West Suburban dated August 14, 2003, under Commission File No. 0-17609.
3.6		Amended and Restated By-laws of West Suburban – Incorporated by reference from Exhibit 3.3 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.
4.1		Specimen of Common Stock certificate – Incorporated by reference from Exhibit 4.1 of the Form 10-K of West Suburban dated March 29, 1999, Commission File No. 0-17609.
31.1		Certification of Kevin J. Acker, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2		Certification of Duane G. Debs, President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule15d-14(a).
32.1		Certification of Kevin J. Acker, Chairman and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Duane G. Debs, President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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