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WEST SUBURBAN BANCORP INC
10-Q, 2000-11-13
STATE COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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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 September 30, 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 0 -17609

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WEST SUBURBAN BANCORP, INC.
(Exact name of Registrant as specified in its charter)

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

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

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

15,000,000 shares of Common Stock, no par value, were authorized and 432,495 shares of Common Stock were issued and outstanding as of November 1, 2000.

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WEST SUBURBAN BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I

				Page Number
Item 1.		Financial Statements		3
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		18
PART II
Item 1.		Legal Proceedings		20
Item 2.		Changes in Securities and Use of Proceeds		20
Item 3.		Defaults Upon Senior Securities		20
Item 4.		Submission of Matters to a Vote of Security Holders		20
Item 5.		Other Information		20
Item 6.		Exhibits and Reports on Form 8-K		20
Form 10-Q Signature Page				21

    This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. West Suburban Bancorp, Inc. (together with West Suburban Bank, the "Company") intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, as amended, and is including this statement for purposes of indicating such intent. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of West Suburban Bancorp, Inc. ("West Suburban") and West Suburban Bank (the "Bank") include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the Bank's loan or securities portfolios, demand for loan products, deposit flows, heightened competition, including increased competition from insurance and securities firms, demand for financial services in the Company's market area, our implementation of new technologies, our ability to develop and maintain secure and reliable electronic systems 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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PART I

ITEM 1. FINANCIAL STATEMENTS

WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(UNAUDITED)

					September 30, 2000			December 31, 1999
Assets
	Cash and due from banks				$	56,016		$	49,838
	Federal funds sold					7,668			47,395
	Commercial paper					—			69,849
			Total cash and cash equivalents			63,684			167,082
	Securities
		Available for sale (amortized cost of $151,246 in 2000; $167,068 in 1999)				148,011			163,453
		Held to maturity (fair value of $170,670 in 2000; $170,637 in 1999)				173,479			174,375
			Total securities			321,490			337,828
	Loans, less allowance for loan losses of $11,537 in 2000; $10,759 in 1999					967,759			845,706
	Premises and equipment, net					38,978			35,709
	Other real estate					2,041			3,488
	Accrued interest and other assets					19,236			18,249
			Total assets		$	1,413,188		$	1,408,062
Liabilities and shareholders' equity
	Deposits
		Noninterest-bearing			$	140,641		$	124,563
		Interest-bearing				1,113,984			1,129,692
			Total deposits			1,254,625			1,254,255
	Accrued interest and other liabilities					16,436			18,174
			Total liabilities			1,271,061			1,272,429
	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				102,554			96,288
		Accumulated other comprehensive loss				(1,950	)		(2,178	)
			Total shareholders' equity			142,127			135,633
			Total liabilities and shareholders' equity		$	1,413,188		$	1,408,062

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands, except per share data)
(UNAUDITED)

					2000			1999
Interest income
	Loans, including fees				$	59,569		$	48,337
	Securities
		Taxable				13,942			15,874
		Exempt from federal income tax				1,110			1,193
	Federal funds sold					861			1,082
	Commercial paper					167			—
			Total interest income			75,649			66,486
Interest expense on deposits						33,443			27,384
Net interest income						42,206			39,102
Provision for loan losses						1,125			1,589
Net interest income after provision for loan losses						41,081			37,513
Noninterest income
	Service fees on deposit accounts					2,649			2,545
	Net gain on sales of loans held for sale					19			352
	Loan servicing fees					168			212
	Net realized (loss) gain on sales of securities available for sale					(7	)		89
	Net gain on sales of other real estate					54			23
	Litigation settlement					—			3,555
	Other					3,459			3,371
		Total noninterest income				6,342			10,147
Noninterest expense
	Salaries and employee benefits					13,449			12,731
	Occupancy					2,615			2,533
	Furniture and equipment					3,180			3,133
	Other real estate					130			57
	Other					5,490			5,595
		Total noninterest expense				24,864			24,049
Income before income tax expense						22,559			23,611
Income tax expense						6,778			7,410
Net income					$	15,781		$	16,201
Earnings per share (432,495 shares outstanding)					$	36.49		$	37.46

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands, except per share data)
(UNAUDITED)

					2000			1999
Interest income
	Loans, including fees				$	21,650		$	16,523
	Securities
		Taxable				4,545			5,083
		Exempt from federal income tax				366			362
	Federal funds sold					201			255
			Total interest income			26,762			22,223
Interest expense on deposits						12,159			9,143
Net interest income						14,603			13,080
Provision for loan losses						375			550
Net interest income after provision for loan losses						14,228			12,530
Noninterest income
	Service fees on deposit accounts					931			885
	Net gain on sales of loans held for sale					6			54
	Loan servicing fees					54			64
	Net gain on sales of other real estate					3			9
	Other					1,218			1,104
			Total noninterest income			2,212			2,116
Noninterest expense
	Salaries and employee benefits					4,494			4,262
	Occupancy					880			863
	Furniture and equipment					898			1,094
	Other real estate					72			18
	Other					1,711			1,736
			Total noninterest expense			8,055			7,973
Income before income tax expense						8,385			6,673
Income tax expense						2,664			2,040
Net income					$	5,721		$	4,633
Earnings per share (432,495 shares outstanding)					$	13.23		$	10.71

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)
(UNAUDITED)

				Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, January 1, 1999				$	3,457		$	38,066		$	92,461		$	409		$	134,393
	Net income				—			—			16,201			—			16,201
	Change in accumulated other comprehensive income (loss)				—			—			—			(1,908	)		(1,908	)
	Cash dividends declared — $20.50 per share				—			—			(8,866	)		—			(8,866	)
Balance, September 30, 1999				$	3,457		$	38,066		$	99,796		$	(1,499	)	$	139,820

				Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, January 1, 2000				$	3,457		$	38,066		$	96,288		$	(2,178	)	$	135,633
	Net income				—			—			15,781			—			15,781
	Change in accumulated other comprehensive income (loss)				—			—			—			228			228
	Cash dividends declared — $22.00 per share				—			—			(9,515	)		—			(9,515	)
Balance, September 30, 2000				$	3,457		$	38,066		$	102,554		$	(1,950	)	$	142,127

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)
(UNAUDITED)

					2000			1999
Cash flows from operating activities
	Net income				$	15,781		$	16,201
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation				2,864			2,807
		Provision for loan losses				1,125			1,589
		Deferred income tax benefit				(274	)		(274	)
		Net discount accretion and premium amortization of securities				(36	)		566
		Net realized loss (gain) on sales of securities available for sale				7			(89	)
		Net gain on sales of loans held for sale				(19	)		(352	)
		Proceeds from sales of loans held for sale				357			27,987
		Origination of loans held for sale				(338	)		(23,514	)
		Gain on sales of premises and equipment				(29	)		(23	)
		Net gain on sales of other real estate				(54	)		(23	)
		Increase in accrued interest and other assets				(865	)		(1,407	)
		Increase (decrease) in accrued interest and other liabilities				2,371			(1,549	)
			Net cash provided by operating activities			20,890			21,919
Cash flows from investing activities
	Securities available for sale
		Proceeds from sales				—			21,534
		Proceeds from maturities				34,819			65,917
		Purchases				(19,318	)		(71,492	)
	Securities held to maturity
		Proceeds from maturities				1,747			63,631
		Purchases				(501	)		(69,574	)
	Net increase in loans					(123,279	)		(64,451	)
	Purchases of premises and equipment					(6,137	)		(4,386	)
	Proceeds from sales of premises and equipment					33			101
	Proceeds from sales of other real estate					1,602			933
			Net cash used in investing activities			(111,034	)		(57,787	)
Cash flows from financing activities
	Net increase (decrease) in deposits					370			(17,090	)
	Cash dividends paid					(13,624	)		(12,975	)
			Net cash used in financing activities			(13,254	)		(30,065	)
Net decrease in cash and cash equivalents						(103,398	)		(65,933	)
Beginning cash and cash equivalents						167,082			106,863
Ending cash and cash equivalents					$	63,684		$	40,930
Supplemental disclosures of cash flow information
	Cash paid for
		Interest on deposits and other borrowings			$	31,121		$	28,064
		Income taxes				6,748			7,089
	Transfers from loans to other real estate					101			707

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)
(UNAUDITED)

				Nine Months Ended September 30,						Three Months Ended September 30,
				2000			1999			2000			1999
Net income				$	15,781		$	16,201		$	5,721		$	4,633
Other comprehensive income:
	Unrealized holding gains (losses) on available for sale securities				373			(3,077	)		939			(648	)
	Less reclassification adjustments for losses and (gains) later recognized in income				7			(89	)		—			—
	Tax effect				(152	)		1,258			(375	)		256
		Other comprehensive income (loss)			228			(1,908	)		564			(392	)
Total comprehensive income				$	16,009		$	14,293		$	6,285		$	4,241

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1—BASIS OF PRESENTATION

    The condensed consolidated financial statements include the accounts of West Suburban Bancorp, Inc. ("West Suburban") and West Suburban Bank (the "Bank" and collectively with West Suburban, the "Company"). Significant intercompany accounts and transactions have been eliminated. The unaudited interim consolidated financial statements are prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual financial statements have been omitted. The interim financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the latest Annual Report on Form 10-K filed by the Company. The 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 amounts reported in prior periods have been reclassified to conform to the 2000 presentation.

NOTE 2—SECURITIES

    Debt and marketable equity securities are classified into one of two categories, "held to maturity" or "available for sale." Held to maturity securities include those debt securities where the Company has both the ability and positive intent to hold them to maturity. Securities not meeting these criteria are classified as available for sale. Held to maturity securities are carried at amortized cost and available for sale securities are carried at fair value with net unrealized gains and losses (net of tax) reported in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. Gains or losses on disposition are based on the net proceeds and the adjusted carrying amount of the specific securities sold. The Company does not engage in trading activities, futures, forward commitments, interest rate swaps or option contracts.

    During the first nine months of 2000, the Company's unrealized loss on securities available for sale, net of taxes, decreased $.2 million to a $2.0 million loss at September 30, 2000 from a $2.2 million loss at December 31, 1999, net of taxes.

NOTE 3—FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK—(dollars in thousands)

    The Company also had $12.7 million and $6.3 million of commitments to originate residential mortgage loans as of September 30, 2000 and December 31, 1999, respectively.

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NOTE 4—NEW ACCOUNTING STANDARDS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. This standard requires all derivatives be recorded on the balance sheet at fair value and establishes accounting guidelines for hedges of changes in the fair value of assets, liabilities, or firm commitments (referred to as fair value hedges); hedges of the variable cash flows of forecasted transactions (cash flow hedges); and hedges of foreign currency exposures of net investment in foreign operations. SFAS 133 is effective for the year 2001. The Company has determined that the adoption of SFAS 133 will not have a material impact on the Company's financial condition or results of operations. However, in the event that the Company holds derivatives or engages in hedging activities in the future, SFAS 133 may have a material impact on the Company's financial condition or results of operations.

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

CONDENSED BALANCE SHEET ANALYSIS

    Asset Distribution.  Total consolidated assets at September 30, 2000 increased $5.1 million (.4%) to $1,413.2 million from $1,408.1 million at December 31, 1999. Total cash and cash equivalents decreased $103.4 million to $63.7 million at September 30, 2000 from $167.1 million at December 31, 1999. Reductions in short-term commercial paper and federal funds sold were the largest components of this decrease. This decrease resulted from uses of cash equivalents to fund growth in the loan portfolio. Aggregate holdings in securities declined $16.3 million to $321.5 million at September 30, 2000 from $337.8 million at December 31, 1999. This decrease was primarily due to the use of proceeds from maturing securities to fund growth in the loan portfolio. The Company's objectives in managing the securities portfolio include maximizing yield over an entire interest rate cycle while providing liquidity.

    Total loans increased $122.8 million (14.3%) to $979.3 million at September 30, 2000 from $856.5 million at December 31, 1999. This increase was primarily due to growth in the commercial loan portfolio of $75.6 million. The growth in the commercial loan portfolio was the result of opportunities that were created when certain of the Company's competitors were acquired by larger organizations as well as the success of the Company's customer and non-customer calling program. The Company believes the new commercial loans were underwritten in a manner consistent with the Company's past loan underwriting standards and do not represent increased credit risk to the Company. The Company attempts to remain competitive by offering attractive rates and loan products and, from time to time, by introducing new products and entering into new business lines. The Company presently intends to continue maintaining its current credit evaluation standards when making its credit decisions and in evaluating new products and business lines.

    Allowance for Loan Losses and Asset Quality.  The Company's provision for loan losses is based on management's quarterly evaluations of the adequacy of the allowance for loan losses. In these evaluations, management considers numerous factors including, but not limited to, historical loan loss experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers' ability to repay, estimated value of any underlying collateral and prevailing economic conditions. 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.

    The provision for loan losses decreased $.5 million (29.2%) to $1.1 million for the nine months ended September 30, 2000 from $1.6 million for the nine months ended September 30, 1999. The Company's provision for loan losses was reflective of management's evaluation of the loan portfolio within the context of the factors outlined above. The decrease was the result of declining levels of nonperforming loans and net loan charge-offs. Net loan charge-offs were $.3 million and $1.1 million for the nine months ended September 30, 2000 and 1999, respectively.

    The allowance for loan losses increased $.8 million for the nine-month period ended September 30, 2000. This increase in the allowance for loan losses was primarily due to the 14.3% increase in loans outstanding in 2000. The ratio of the allowance for loan losses to total loans outstanding decreased at September 30, 2000 to 1.18% compared to 1.26% at December 31, 1999.

    Nonperforming loans decreased $1.8 million (38.2%) to $2.9 million at September 30, 2000 from $4.7 million at December 31, 1999. The allowance for loan losses was 394.6% and 227.6% of nonperforming loans at September 30, 2000 and December 31, 1999, respectively.

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

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

    Liability Distribution.  Total liabilities decreased $1.3 million (.1%) to $1,271.1 million at September 30, 2000 from $1,272.4 million at December 31, 1999. The decrease in total liabilities was primarily due to a decrease in accrued interest and other liabilities. Demand and other noninterest-bearing deposits increased $16.1 million. This increase was primarily due to increased in-clearings with the end of the quarter falling on the weekend. Although demand and other noninterest-bearing deposits increased, one $83.0 million short-term time deposit that the Company received during December 1999 was withdrawn at maturity in January 2000. This withdrawal was partially offset by an increase in time deposits of less than $100,000 of $46.3 million due to increased promotional efforts. In order to retain current and attract new deposits, the Company plans to open new branches in South Elgin and Oswego, Illinois in the near future.

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

				September 30, 2000			December 31, 1999			Dollar Change			Percent Change
Demand and other noninterest-bearing deposits				$	140,641		$	124,563		$	16,078		12.9	%
NOW					219,458			213,754			5,704		2.7
Money market checking					140,475			121,666			18,809		15.5
Savings					275,359			297,141			(21,782	)	(7.3	)
Time deposits
	Less than $100,000				365,230			318,959			46,271		14.5
	$100,000 and greater				113,462			178,172			(64,710	)	(36.3	)
		Total		$	1,254,625		$	1,254,255		$	370		—	%

    Management believes the continued growth in money market checking deposits is a result of customers taking advantage of this product which pays a higher interest rate than the Company's traditional savings accounts.

CAPITAL RESOURCES

    Total shareholders' equity increased $6.5 million (4.8%) to $142.1 million at September 30, 2000 from $135.6 million at December 31, 1999. This increase was a result of net income of $15.8 million for the first nine months of 2000 reduced by dividends declared of $9.5 million and a decrease in accumulated other comprehensive loss of $.2 million resulting from net appreciation in the fair value of securities available for sale.

    The Company's capital ratios as well as those of the Bank as of September 30, 2000 are presented below. All capital ratios are in excess of the regulatory capital requirements which call for a minimum total risk-based capital ratio of 8% for the Company and the Bank, a minimum Tier 1 risk-based capital ratio of 4% 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% depending on their particular circumstances and risk and growth profiles) for the Company and the Bank. Bank holding companies and their subsidiaries are generally expected to operate at or above the minimum capital requirements. The ratios shown below are in excess of regulatory minimums and should allow the Company and the Bank to operate without significant capital adequacy concerns.

    The following table sets forth the regulatory capital ratios of the Company and the Bank at September 30, 2000:

    The Federal Deposit Insurance Corporation Improvement Act of 1991 provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or requiring it to be acquired; restricting transactions with affiliates; restricting the interest rates the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and, ultimately, appointing a receiver for the institution. Management has been advised that as of September 30, 2000 and December 31, 1999, the Bank qualified as a "well-capitalized" institution.

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LIQUIDITY

    Effective liquidity management ensures there is sufficient cash flow to satisfy demand for deposit withdrawals as well as attractive loan and investment opportunities. A large, stable core deposit base and strong capital position are the solid foundation for the Company's liquidity position. Liquidity is enhanced by a securities portfolio structured to provide liquidity as needed. Additionally, the Company maintains lines of credit to purchase federal funds in the amount of $75 million from other financial institutions as well as an additional line of credit of approximately $81 million at the Federal Home Loan Bank of Chicago. 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 to meet its liquidity needs. Additional liquidity is provided by maintaining assets which mature within a short time-frame or which may be quickly converted to cash without significant loss. These assets include federal funds sold, commercial paper and securities available for sale. As of September 30, 2000 and December 31, 1999, these liquid assets represented 15.0% and 23.5% of total assets, respectively. A more detailed discussion concerning these assets is presented in the Asset Distribution section of this report.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

    Net Income.  The Company's net income for the nine months ended September 30, 2000 and 1999 was $15.8 million and $16.2 million, respectively. This represents a decrease of $.4 million (2.6%) for the 2000 period when compared to the same period in 1999. This was primarily due to a decrease of $3.8 million in total noninterest income in 2000 when compared to the same period in 1999. During the first quarter of 1999, the Company recorded non-recurring other income of $3.6 million representing the settlement of a lawsuit brought by the Company in connection with an investment that it made in the late 1980's.

    Net interest income, on a tax-equivalent basis, increased $3.0 million during the first nine months of 2000 compared to the same period in 1999. Income tax expense decreased $.6 million during this period, primarily due to lower pre-tax income. The provision for loan losses decreased $.5 million. Partially offsetting the increase in net interest income and decreases to income tax expense and the provision for loan losses was an increase in total noninterest expense of $.8 million.

    Interest Income.  Total interest income, on a tax-equivalent basis, increased $9.1 million for the nine months ended September 30, 2000 compared to the same period in 1999. This increase was primarily due to increases in average balances in all major components of the loan portfolio. There were increases in yields on all major components of the loan portfolio with the exception of indirect automobile loans. The Company's net interest income as a percentage of average earning assets increased to 4.51% for the nine months ended September 30, 2000 compared to 4.40% for the nine months ended September 30, 1999. The yield on average interest-earning assets increased 59 basis points to 8.02% at September 30, 2000 compared to 7.43% for the nine months ended September 30, 1999. Total interest income on the Company's securities portfolio declined primarily due to decreased average balances of corporate securities and obligations of government agencies and corporations.

    Interest Expense.  Total interest expense increased $6.1 million for the nine months ended September 30, 2000 compared to the same period during 1999. The yield on average interest-bearing liabilities increased 60 basis points to 4.13% at September 30, 2000 compared to 3.53% at September 30, 1999.

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    The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities on a tax equivalent basis for the nine-month period ended September 30, 2000, as compared to the same period in 1999 (dollars in thousands):

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

		2000									1999
		September 30			June 30			March 31			December 31			September 30
Securities		$	330,937		$	334,132		$	337,034		$	375,232		$	385,270
Total loans			919,171			896,967			868,757			809,594			794,179
Interest-earning assets			1,271,729			1,257,431			1,233,826			1,224,075			1,209,780
Noninterest-bearing deposits			128,994			126,752			123,073			118,387			115,937
Interest-bearing deposits			1,078,506			1,069,055			1,050,032			1,041,801			1,034,093
Total deposits			1,207,500			1,195,807			1,173,105			1,160,188			1,150,030
Interest-bearing liabilities			1,081,675			1,072,094			1,052,985			1,045,285			1,038,280

    Provision for Loan Losses.  The Company's provision for loan losses decreased $.5 million (29.2%) for the nine months ended September 30, 2000 compared to the same period in 1999. See the section entitled "Allowance for Loan Losses and Asset Quality" for further details.

    Noninterest Income.  Total noninterest income decreased $3.8 million (37.5%) for the nine months ended September 30, 2000 compared to the same period in 1999. This was primarily due to the Company recording non-recurring income of $3.6 million in the first quarter of 1999 representing the settlement of a lawsuit brought by the Company in connection with an investment that it made in the late 1980's. The Company also experienced decreases in gains on sale of loans held for sale of $.3 million.

    Noninterest Expense.  Total noninterest expense increased $.8 million (3.4%) for the nine months ended September 30, 2000 compared to the same period in 1999. This increase was primarily the result of salary and employee benefits increasing $.7 million, principally due to the opening of the Romeoville and Charlestowne facilities. The Company's efficiency ratio, a measure of the amount of expense needed to generate each dollar of revenue, was approximately 51% and 53% at September 30, 2000 and 1999, respectively. The efficiency ratio for 1999 excludes the $3.6 million litigation settlement.

    Income Taxes.  Income tax expense decreased $.6 million (8.5%) for the nine months ended September 30, 2000 compared to the same period in 1999. The decrease was principally due to lower pre-tax income. The effective tax rates for the nine months ended September 30, 2000 and 1999 were 30.0% and 31.4%, respectively.

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

    Net Income.  The Company's net income for the three months ended September 30, 2000 and 1999 was $5.7 million and $4.6 million, respectively. This represents an increase of $1.1 million (23.5%) for the 2000 period when compared to the same period in 1999. Net interest income increased $1.5 million during this period. Additionally, income tax expense increased $.6 million during this period.

    Interest Income.  Total interest income, on a tax equivalent basis, increased $4.5 million for the three months ended September 30, 2000 compared to the same period in 1999. This increase was primarily due to increased average balances and yields on the commercial, real estate, home equity and indirect automobile loan portfolios. The Company's net interest margin, on a tax equivalent basis, increased to 4.53% for the three months ended September 30, 2000 compared to 4.34% for the three months ended September 30, 1999. The yield on average interest-earning assets increased 93 basis points to 8.25% for the three months ended September 30, 2000 compared to 7.32% for the three months ended September 30, 1999. Total interest income on the Company's securities portfolio declined primarily due to lower average balances of corporate securities.

    Interest Expense.  Total interest expense increased $3.0 million for the three months ended September 30, 2000 compared to the same period during 1999. The yield on average interest-bearing liabilities increased 86 basis points to 4.38% at September 30, 2000 compared to 3.52% at September 30, 1999.

    The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities on a tax equivalent basis for the three-month period ended September 30, 2000, as compared to the same period in 1999 (dollars in thousands):

    The following table presents an analysis of the Company's quarterly average interest-earning assets, interest-bearing liabilities, and non-interest bearing deposits, as of the date indicated (dollars in thousands):

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    Provision for Loan Losses.  The Company's provision for loan losses decreased $.2 million (31.8%) for the three months ended September 30, 2000 compared to the same period in 1999. See the section entitled "Allowance for Loan Losses and Asset Quality" for further details.

    Noninterest Income.  Total noninterest income increased $.1 million (4.5%) for the three months ended September 30, 2000 compared to the same period in 1999. This was primarily due to increases in other noninterest income of $.1 million.

    Noninterest Expense.  Total noninterest expense increased $.1 million (1.0%) for the three months ended September 30, 2000 compared to the same period in 1999. Salary and employee benefits increased $.2 million. This increase was primarily due to the opening of the Charlestowne and Romeoville facilities. Furniture and equipment expense decreased $.2 million. This was primarily due to a reduction in depreciation expense arising from certain assets becoming fully depreciated by June 30, 2000.

    Income Taxes.  Income tax expense increased $.6 million (30.6%) for the three months ended September 30, 2000 compared to the same period in 1999. This increase was primarily the result of higher taxable income. The effective tax rates for the three months ended September 30, 2000 and 1999 were 31.8% and 30.6%, respectively.

OTHER CONSIDERATIONS

    General.  Earnings of bank holding companies and their subsidiaries are affected by general economic conditions and by the fiscal and monetary policies of federal regulatory agencies, including the Board of Governors of the Federal Reserve System. Such policies have affected the operating results of all commercial banks in the past and are expected to do so in the future. The Company cannot accurately predict the nature or the extent of any effects which fiscal or monetary policies may have on its subsidiary's business and earnings.

    Recent Regulatory Developments.  The Gramm-Leach-Bliley Act (the "Act"), which was enacted in November, 1999, allows eligible bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities. Under the Act, an eligible bank holding company that elects to become a financial holding company may engage in any activity that the Board of Governors of the Federal Reserve System (the "Federal Reserve"), in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature, incidental to any such financial activity, or complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.

    National banks are also authorized by the Act to engage, through "financial subsidiaries," in any activity that is permissible for financial holding companies (as described above) and any activity that the Secretary of the Treasury, in consultation with the Federal Reserve, determines is financial in nature or incidental to any such financial activity.

    As of the date of this filing, West Suburban (like more than 90% of all bank holding companies operating in the United States) has not applied for or received approval to operate as a financial holding company. In addition, the Bank has not applied for or received approval to establish any financial subsidiaries. Accordingly, although various bank regulatory agencies have issued regulations as mandated by the Act, except for the regulations regarding the privacy of consumer financial information, the Act and its implementing regulations have had limited impact on the operations of the Company and, at this time, it is not possible to predict the impact the Act and its implementing regulations may have on the Company in the future.

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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 net interest margins are minimized regardless of the level of interest rates, although the net interest margin does vary somewhat due to management's response to increasing competition from other financial institutions.

    Listed below are the balances in the major categories of the rate sensitive assets and liabilities that are subject to repricing as of September 30, 2000 (dollars in thousands):

					Three Months or Less			Over Three Months to Twelve Months			Over One Year to Five Years			Over Five Years			Total
Rate sensitive assets
	Federal funds sold				$	7,668		$	—		$	—		$	—		$	7,668
	Securities					35,045			80,953			167,853			37,639			321,490
	Loans					400,438			113,996			357,941			106,921			979,296
			Total		$	443,151		$	194,949		$	525,794		$	144,560		$	1,308,454
Rate sensitive liabilities
	NOW				$	219,458		$	—		$	—		$	—		$	219,458
	Money market checking					140,475			—			—			—			140,475
	Savings					275,359			—			—			—			275,359
	Time deposits
		Less than $100,000				72,551			192,340			56,890			43,449			365,230
		$100,000 and over				44,967			44,884			23,611			—			113,462
			Total		$	752,810		$	237,224		$	80,501		$	43,449		$	1,113,984
Interest sensitivity gap					$	(309,659	)	$	(42,275	)	$	445,293		$	101,111		$	194,470
Cumulative interest sensitivity gap						(309,659	)		(351,934	)		93,359			194,470
Cumulative net interest-earning assets to cumulative net interest-bearing liabilities						58.9	%		64.5	%		108.7	%		117.5	%
Cumulative interest sensitivity gap to total assets						(21.9	)%		(24.9	)%		6.7	%		13.8	%

    Included in "Three Months or Less" rate sensitive liabilities are $275.4 million of savings deposits, $219.5 million of NOW deposits and $140.5 million of money market checking deposits that management considers more core deposit in nature than time deposits. There are no securities callable for the remainder of 2000 based upon their contractual terms included in the above table.

    While the shorter term negative GAP position represents a potential adverse impact on the Company's net interest income position in periods of rising interest rates, the same position generally results in a favorable impact when interest rates remain constant or decline.

    The target GAP position, as defined by the Company's Asset and Liability Policy, is to maintain a ratio (as adjusted) of cumulative net interest-earning assets to cumulative net interest-bearing liabilities of at least 60.0% and not more than 120.0% for the twelve-month time frame.

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    The previous table does not necessarily indicate the future impact of general interest rate movements on the Company's net interest income because the repricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, assets and liabilities indicated as repricing within the same period may in fact reprice at different times and at different rate levels. Assets and liabilities are reported in the earliest time frame in which maturity or repricing may occur. The consolidated interest rate sensitivity position of the Company within the one year window at September 30, 2000 reflects cumulative net interest-earning assets compared to cumulative net interest-bearing liabilities of 64.5% and cumulative net interest-earning assets that reprice or mature within one year compared to similarly sensitive liabilities of negative 24.9% of total assets. The percentage indicated for the cumulative net interest-earning assets as a percentage of cumulative net interest-bearing liabilities is within the Company's target range of acceptable gap values for the twelve-month time frame.

    In addition to the previous gap analysis, the Company also measures rate sensitivity through a net interest income analysis. The net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of changes in net interest income in the event of a sudden and sustained 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. The replacement rate for securities is the current market rate.



•

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



•

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 September 30, 2000 and December 31, 1999 (dollars in thousands):

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PART II

ITEM 1.  LEGAL PROCEEDINGS

    There are no material pending legal proceedings to which the Company or the Bank are a party other than ordinary 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

    None

ITEM 5.  OTHER INFORMATION

    None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.  Exhibits

27

Financial Data Schedule

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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: November 13, 2000
		/s/ Kevin J. Acker KEVIN J. ACKER CHAIRMAN OF THE BOARD
		/s/ Duane G. Debs DUANE G. DEBS PRESIDENT AND CHIEF FINANCIAL OFFICER

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INDEX OF EXHIBITS

				Sequential Page No.
27.		Financial Data Schedule		24

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QuickLinks

PART I
WEST SUBURBAN BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (UNAUDITED)
WEST SUBURBAN BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in thousands, except per share data) (UNAUDITED)
WEST SUBURBAN BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in thousands, except per share data) (UNAUDITED)
WEST SUBURBAN BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in thousands) (UNAUDITED)
WEST SUBURBAN BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in thousands) (UNAUDITED)
WEST SUBURBAN BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Dollars in thousands) (UNAUDITED)
WEST SUBURBAN BANCORP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INDEX OF EXHIBITS

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