SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ____________ to ______________
Commission file number 005-57237
FIRST OTTAWA BANCSHARES, INC
(Exact name of Registrant as specified in its charter)
DELAWARE 36-4331185
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
701-705 LASALLE STREET 61350
OTTAWA, ILLINOIS (ZIP Code)
(Address of principal executive offices)
(815) 434-0044
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date: As of April 27, 2000 the
Registrant had outstanding 662,281 shares of common stock, $1.00 par value per
share.
FIRST OTTAWA BANCSHARES, INC.
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Form 10-Q Quarterly Report
Table of Contents
PART I
Item 1. Condensed Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Item 7. Signatures 15
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2.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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Mar. 31, 2000 Dec. 31, 1999
------------- -------------
ASSETS
Cash and due from banks $ 6,586 $ 13,243
Securities available-for-sale 89,720 89,983
Loans held for sale - 1,738
Loans, less allowance for loan losses of $1,030
and $1,059 123,861 126,647
Bank premises and equipment, net 2,529 2,494
Interest receivable and other assets 6,383 6,385
------------- -------------
Total assets $ 229,079 $ 240,490
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Demand - non-interest-bearing $ 20,218 $ 17,917
NOW accounts 27,139 30,338
Money market accounts 11,162 10,530
Savings 19,375 18,702
Time, $100,000 and over 21,638 23,073
Other time 79,582 83,329
------------- -------------
Total deposits 179,114 183,889
Federal funds purchased 12,600 7,600
Securities sold under agreements to repurchase 13,842 18,665
Interest payable and other liabilities 2,428 4,353
------------- -------------
Total liabilities 207,984 214,507
Shareholders' equity
Common stock - $1 par value, 750,000 shares
authorized and issued 750 750
Additional paid-in capital 4,000 4,000
Retained earnings 23,490 22,947
Accumulated other comprehensive income (loss) (2,145) (1,714)
Treasury stock, at cost, 87,719 shares (5,000) -
------------- -------------
Total shareholders' equity 21,095 25,983
------------- -------------
Total liabilities and shareholders' equity $ 229,079 $ 240,490
============= =============
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See accompanying notes to financial statements.
3.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months ended March 31, 2000 and 1999
(In thousands, except share and per share data)
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2000 1999
---- ----
Interest income
Loans (including fee income) $ 2,646 $ 2,484
Securities
Taxable 931 1,135
Exempt from federal income tax 436 486
---------- ----------
Total interest income 4,013 4,105
Interest expense
NOW account deposits 151 168
Money market deposit accounts 98 91
Savings deposits 102 123
Time deposits 1,377 1,521
Repurchase agreements 229 94
Federal funds purchased 92 55
---------- ----------
Total interest expense 2,049 2,052
---------- ----------
NET INTEREST INCOME 1,964 2,053
Provision for loan losses 90 90
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,874 1,963
Noninterest income
Service charges on deposit accounts 169 127
Trust and farm management fee income 90 108
Other fees and commissions 95 96
---------- ----------
Total noninterest income 354 331
Noninterest expenses
Salaries and employee benefits 835 782
Occupancy and equipment expense 224 231
Data processing expense 134 118
Supplies 33 48
Advertising and promotions 42 45
Professional fees 66 39
Other expenses 246 181
---------- ----------
Total noninterest expenses 1,580 1,444
---------- ----------
INCOME BEFORE INCOME TAXES 648 850
Provision for income taxes 105 168
---------- ----------
NET INCOME $ 543 $ 682
========== ==========
Earnings per share $ 0.80 $ 0.91
========== ===========
Average shares outstanding 681,631 750,000
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See accompanying notes to financial statements.
4.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months ended March 31, 2000 and 1999
(In thousands, except per share data)
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Accumulated Total
Additional Other Share-
Common Paid-In Retained Treasury Comprehensive holders'
Stock Capital Earnings Stock Income (Loss) Equity
----- ------- -------- ----- ------------- ------
Balance at January 1, 1999 $ 750 $ 4,000 $ 23,043 $ - $ 1,466 $ 29,259
Net income - - 682 - - 682
Unrealized net loss on securities
available-for-sale, net of reclassi-
fication and tax effects - - - - (636) (636)
---------
Comprehensive income - - - - - 46
--------- ----------- ---------- ---------- --------- ---------
Balance at March 31, 1999 $ 750 $ 4,000 $ 23,725 $ - $ 830 $ 29,305
========= ========== ========== ========= ========= =========
Balance at January 1, 2000 $ 750 $ 4,000 $ 22,947 $ - $ (1,714) $ 25,983
Net income - - 543 - - 543
Unrealized net loss on securities
available-for-sale, net of reclassi-
fications and tax effects - - - - (431) (431)
---------
Comprehensive income 112
Purchase of 87,719
treasury shares - - - (5,000) - (5,000)
--------- ---------- ---------- --------- --------- ---------
Balance at March 31, 2000 $ 750 $ 4,000 $ 23,490 $ (5,000) $ (2,145) $ 21,095
========= ========== ========== ========= ========= =========
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See accompanying notes to financial statements.
5.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31, 2000 and 1999
(In thousands)
- -------------------------------------------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 543 $ 682
Adjustments to reconcile net income to net cash
from operating activities
Change in deferred loan fees 1 7
Provision for loan losses 90 90
Depreciation and amortization 73 73
Premium amortization on securities, net 19 13
Net real estate loans originated for sale 1,720 (317)
Loss on loan sales 18 -
Loss on sale of other real estate owned 14 -
Change in interest receivable and other assets 301 389
Change in interest payable and other liabilities (419) (582)
----------- -----------
Net cash from operating activities 2,360 355
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available-for-sale - 8,788
Proceeds from maturities of securities 304 6,650
Purchases of securities available-for-sale (714) (8,940)
Net change in loans receivable 2,484 1,600
Proceeds from sale of other real estate owned 40 -
Proceeds from sale of bank premises 15 -
Property and equipment expenditures (48) (218)
----------- -----------
Net cash from investing activities 2,081 7,880
CASH FLOWS FROM FINANCING ACTIVITIES
Change in deposits (4,775) 698
Change in federal funds purchased 5,000 (550)
Change in securities sold under agreements
to repurchase (4,823) (7,500)
Purchase of treasury stock (5,000) -
Dividends paid (1,500) (1,500)
----------- -----------
Net cash from financing activities (11,098) (8,852)
----------- ------------
Change in cash and due from banks (6,657) (617)
Cash and due from banks at beginning of period 13,243 7,601
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 6,586 $ 6,984
=========== ===========
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See accompanying notes to financial statements.
6.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2000 and 1999
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NOTE 1 - BASIS OF PRESENTATION
The accounting policies followed in the preparation of the interim condensed
consolidated financial statements are consistent with those used in the
preparation of annual consolidated financial statements. The interim condensed
consolidated financial statements reflect all normal and recurring adjustments,
which are necessary, in the opinion of management, for a fair statement of
results for the interim periods presented. Results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
First Ottawa Bancshares, Inc. ("Company") was organized during 1999 and on
October 1, 1999 exchanged 100% of its common stock for 100% of the First
National Bank of Ottawa's ("Bank") common stock. This exchange was accounted for
as an internal reorganization. Accordingly, all information reflects the
internal reorganization as if it had occurred as of the beginning of the
earliest reporting period.
NOTE 2 - TREASURY STOCK
On December 6, 1999, the Company commenced a tender offer ("the Offer") to
acquire up to 87,719 common shares at $57 per share. The Offer expired on
January 20, 2000 and the Company purchased 86,373 shares, representing
approximately 11.51% of its outstanding common shares, for an aggregate purchase
price of $4,923,261.
On March 6, 2000, the Company commenced a tender offer (the "Odd-lot Offer") to
acquire up to 1,346 common shares at $57 per share from stockholders who own
fewer than 100 shares. The Odd-lot Offer expired on March 30, 2000 and the
Company purchased 1,346 shares, representing .20% of its outstanding common
shares for an aggregate purchase price of $76,722.
NOTE 3 - CAPITAL RATIOS
At the end of the period the Company and Bank's capital ratios were:
March 31, 2000 December 31, 1999
-------------- -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Total capital (to risk-weighted assets) $ 24,270 18.1% $ 28,756 20.8%
Tier I capital (to risk-weighted assets) 23,240 17.4 27,697 20.1
Tier I capital (to average assets) 23,240 10.0 27,697 11.7
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(Continued)
7.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2000 and 1999
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NOTE 3 - CAPITAL RATIOS (Continued)
At March 31, 2000, the Company and the Bank were categorized as well capitalized
and management is not aware of any conditions or events since the most recent
notification that would change the Company's or Bank's category.
NOTE 4 - NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 on derivatives will, in
2001, require all derivatives to be recorded at fair value in the balance sheet,
with changes in fair value reported in income. If derivatives are documented and
effective as hedges, the change in the derivative fair value will be offset by
an equal change in the fair value of the hedged item. Under the new standard,
securities held-to-maturity can no longer be hedged, except for changes in the
issuer's creditworthiness. Therefore, upon adoption of the Statement, companies
will have another one-time window of opportunity to reclassify held-to-maturity
securities to either trading or available-for-sale, provided certain criteria
are met. The Statement may be adopted early, at the start of a calendar quarter.
The Company does not plan to adopt the Statement early and adoption is not
expected to have a material impact since the Company does not have significant
derivative instruments or hedging activity and all securities are classified as
available-for-sale.
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8.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended as a review of significant
factors affecting the financial condition and results of operations of the
Company for the periods indicated. The discussion should be read in conjunction
with the Condensed Consolidated Financial Statements and Notes. In addition to
historical information, the following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ significantly from those anticipated in these forward-looking
statements as a result of certain factors discussed elsewhere in this report.
CONSOLIDATED FINANCIAL CONDITION
Total assets at March 31, 2000 were $229.1 million compared to $240.5 million at
December 31, 1999, a decrease of $11.4 million, or 4.7%. This decrease was the
result of reductions in cash and due from banks, loans held for sale and loans.
Cash and due from banks was reduced $6.7 million to remove the extra liquidity
that had been built up as a contingency against any year 2000 problems. Loans
held for sale was reduced by $1.7 million due to the sale of all of the loans in
the portfolio. Additionally, loans decreased $2.8 million as loan repayments
exceeded new loan demand during the first quarter.
Total equity was $21.1 million at March 31, 2000 compared to $26.0 million at
December 31, 1999. This decrease was the result of the stock repurchases
completed by the Company in January 2000 and March 2000. The Company repurchased
87,719 shares of common stock at $57 per share. Additionally, net income of
$543,000 was largely offset by a $431,000 increase in unrealized loss on
securities available for sale.
CONSOLIDATED RESULTS OF OPERATIONS
Net income for the first quarter of 2000 was $543,000, or 80 cents per share, a
20.4% decrease compared to $682,000, or 91 cents per share, in the first quarter
of 1999. The annualized return on average assets was 0.94% in 2000 compared to
1.14% in 1999. The return on average equity increased to 9.60% in 2000 from
9.25% in 1999.
NET INTEREST INCOME
Net interest income was $1,964,000 and $2,053,000 during the three months ended
March 31, 2000 and 1999. The Company's net interest margin was 3.96% for the
three months ended March 31, 2000, and 4.08% a year earlier. The decrease was
due to an increase in the ratio of average interest bearing liabilities to
average interest earning assets as the Company purchased federal funds and then
repurchased $5,000,000 of common stock. This increase in the ratio of average
interest bearing liabilities to interest earning assets was partially offset by
a slight decrease in the yield on earning assets.
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(Continued)
9.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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PROVISION FOR LOAN LOSSES
The provision for loan losses remained unchanged at $90,000 in 2000 and 1999. As
of March 31, 2000, the allowance for loan losses totaled $1.0 million, or .82%
of total loans which is the same percentage as of December 31, 1999 Nonaccrual
loans decreased from $397,000 at December 31, 1999 to $271,000 at March 31,
2000. Nonperforming loans also decreased $768,000 to $1,172,000 over the same
period. The amounts of the provision and allowance for loan losses are
influenced by current economic conditions, actual loss experience, industry
trends and other factors, including real estate values in the Company's market
area and management's assessment of current collection risks within the loan
portfolio.
NONINTEREST INCOME
The Company's noninterest income totaled $354,000 for the three months ended
March 31, 2000 compared to $331,000 for the same period in 1999, an increase of
$23,000. Service charges on deposit accounts increased $42,000, to $169,000.
Changes in the way overdraft charges are assessed accounted for $36,000 of this
increase. The increase in service charges on deposit accounts were partially
offset by a decrease of $18,000 in trust and farm management fee income. This
decrease was caused by a reduction in the amount of farm acreage managed and
fewer estates administered.
NONINTEREST EXPENSE
The Company's noninterest expenses increased to $1,580,000 for the three months
ended March 31, 2000 from $1,444,000 in 1999. Salaries and benefits increased
$53,000, or 6.8%, to $835,000. Data processing expense increased $16,000, or
13.6%, to $134,000. Additional services, such as internet banking, were added
after March 31, 1999 that led to this increase in data processing expense. These
increases were offset by a decrease in supplies expense of $15,000 as management
implemented cost control procedures. Professional fees increased as a result of
a special loan review project that was outsourced and expenditures related to
increased disclosure requirements as the Company transitioned from filing under
the small business regulations of the Securities and Exchange Commission to the
full disclosure regulations. The majority of the increase in other expenses
resulted from a $21,000 increase in expenses related to other real estate owned,
a $10,000 increase in the accrual for directors' fees, a $10,000 increase in
cash over and short and charged off checks and a $5,000 increase for an
appraisal obtained which was used to successfully appeal the Bank's property
taxes.
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(Continued)
10.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and proceeds from principal
and interest payments on loans and securities. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Company generally manages the pricing
of its deposits to be competitive and to increase core deposit relationships.
Liquidity management is both a daily and long-term responsibility of management.
The Company adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-earning deposits and securities, and (iv) the
objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. government and agency obligations.
The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending,
and investing activities during any given year. At March 31, 2000, cash and
short-term investments totaled $6.6 million. The Company has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Company may also utilize the
sale of securities available-for-sale, federal funds lines of credit from
correspondent banks and advances from the Federal Home Loan Bank.
During the first quarter 2000, the Company repurchased 87,719 shares, or 11.7%
of its outstanding shares, at $57 per share.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations of
the Company is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
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(Continued)
11.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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SAFE HARBOR STATEMENT
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies, and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Company and the Bank include, but are not
limited to, changes in interest rates; general economic conditions; the
legislative/regulatory situation; monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board; the quality or composition of the loan or securities portfolios; demand
for loan products; deposit flows; competition; demand for financial services in
the Company's market area; and accounting principles, policies, and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements, and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
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(Continued)
12.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's overall interest rate sensitivity is demonstrated by net income
analysis and "Gap" analysis. Net income analysis measures the change in net
income in the event of hypothetical changes in interest rates. This analysis
assesses the risk of change in net income in the event of sudden and sustained
2.0% increases and decreases in market interest rates. The tables below present
the Company's projected changes in annualized net income for the various rate
shock levels at March 31, 2000 and March 31, 1999.
---------------------------------2000 NET INCOME------------------
AMOUNT CHANGE CHANGE
------ ------ ------
(Dollars in Thousands)
+200 bp $ 1,955 $ (281) (12.6)%
Base 2,236 - -
-200 bp 2,419 183 8.2%
---------------------------------1999 NET INCOME------------------
AMOUNT CHANGE CHANGE
------ ------ ------
(Dollars in Thousands)
+200 bp $ 2,787 $ (408) (12.8)%
Base 3,195 - -
-200 bp 3,568 373 11.7%
As shown above, at March 31, 2000, the effect of an immediate 200 basis point
increase in interest rates would decrease the Company's net interest income by
12.6% or approximately $281,000. The effect of an immediate 200 basis point
decrease in rates would increase the Company's net interest income by 8.2% or
approximately $183,000. Overall net income sensitivity is largely unchanged from
March 31, 1999 to March 31, 2000.
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13.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
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PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Company or its subsidiary are a party other than ordinary routine
litigation incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
None
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14.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
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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.
FIRST OTTAWA BANCSHARES, INC.
(Registrant)
/s/ JOACHIM J. BROWN
----------------------------------------
Joachim J. Brown
President (Principal Executive Officer)
/s/ DONALD J. HARRIS
----------------------------------------------------
Donald J. Harris
Executive Vice President, Cashier, and Trust Officer
(Principal Financial Officer)
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15.