Table ofContents

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**Exhibit 13**

** **

# **Profile**

# ** **

West Suburban Bancorp, Inc.(“West Suburban”) is the parent bank holding company of West Suburban Bank,Lombard, Illinois (the “Bank” and, together with West Suburban, the “Company”).The Company had total assets at December 31, 2008 of approximately $1.9billion. The Bank is one of the largest independent banks headquartered in DuPage County.

 

**WestSuburban Bancorp, Inc.**

**FinancialHighlights**

 
| ** **                 | ** ** | **Years Ended December 31,**                                     | ** ** |
|----------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **(Dollars in thousands, except per share data)** | ** ** |
| ** **                 | ** ** | **2008**                                                                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                 |       | $                                                                               | 16,816     |   | $ | 23,413 |   | $ | 25,351 |   | $ | 25,486 |   | $ | 23,658 |   |
| Per share data             |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Earnings                   |       | 38.88                                                                           |       | 54.13 |   | 58.62 |   | 58.93 |   | 54.82 |   |
| Book value  (GAAP)         |       | 264.12                                                                          |       | 241.76 |   | 220.43 |   | 218.87 |   | 223.60 |   |
| Book value  (non-GAAP) (1) |       | 372.03                                                                          |       | 373.34 |   | 359.18 |   | 344.60 |   | 347.87 |   |
| Net loans                  |       | 1,233,595                                                                       |       | 1,226,571 |   | 1,153,885 |   | 1,091,747 |   | 1,046,125 |   |
| Total assets               |       | 1,867,420                                                                       |       | 1,851,357 |   | 1,876,643 |   | 1,827,191 |   | 1,748,049 |   |
| Total deposits             |       | 1,591,565                                                                       |       | 1,637,714 |   | 1,677,844 |   | 1,639,666 |   | 1,569,742 |   |
|                            |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Book value per share (non-GAAP)represents the aggregate amount of shareholders’ equity and common stock inESOP subject to contingent repurchase obligation divided by the number ofoutstanding shares. See Note 7 to the Company’s consolidated financialstatements and “Non-GAAP Financial Measures.” This presentation is consistentwith the Company’s belief that it is unlikely that the Company would berequired to satisfy the contingent repurchase obligation.

** **

**Table ofContents**

** **
| Profile                                                                                             | 1  |
|-----------------------------------------------------------------------------------------------------|----|
| Special  Note Concerning Forward-Looking Statements and Risk Factors                                | 2  |
| Letter  to Our Shareholders, Customers and Friends                                                  | 3  |
| Common  Stock, Book Value and Dividends                                                             | 4  |
| Business Review                                                                                     | 4  |
| Management’s  Report on Internal Control Over Financial Reporting                              | 5  |
| Report  of Independent Registered Public Accounting Firm                                            | 6  |
| Consolidated Financial Statements                                                                   | 7  |
| Notes to Consolidated Financial Statements                                                          | 11 |
| Stock Performance Presentation                                                                      | 34 |
| Selected  Financial Data                                                                            | 36 |
| Non-GAAP  Financial Measures                                                                        | 37 |
| Average Balance Sheets, Net Interest Income and  Average Rates and Yields on a Tax Equivalent Basis | 38 |
| Management’s Discussion and Analysis of Financial  Condition and Results of Operations         | 39 |
| Boards  of Directors and Officers                                                                   | 50 |
| Addresses of West Suburban Facilities                                                               | 53 |
| Map of Facilities                                                                                   | 55 |
| Shareholder  Information                                                                            | 57 |

###### *** ***

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###### ***Special Note ConcerningForward-Looking Statements and Risk Factors***

###### *** ***

*Thisdocument (including information incorporated by reference) contains, and futureoral and written statements of the Company and its management may contain,forward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 with respect to the financial condition, resultsof operations, plans, objectives, future performance and business of theCompany. Forward-looking statements, which may be based upon beliefs,expectations and assumptions of the Company’s management and on informationcurrently available to management, are generally identifiable by the use ofwords 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, speakonly as of the date they are made, and the Company undertakes no obligation toupdate any statement in light of new information or future events.*

 

*Anumber of factors, many of which are beyond the ability of the Company tocontrol or predict, could cause actual results to differ materially from thosein its forward-looking statements. These factors include, among others, thefollowing: (i) the strength of U.S. and global economies and financialmarkets in general and the strength of the local economies in which the Companyconducts its operations, including the local residential and commercial realestate markets, which may be less favorable than expected and may result in,among other things, a deterioration in the credit quality and value of theCompany’s assets; (ii) the effects of, and changes in, federal, state andlocal laws, regulations and policies affecting banking, securities, taxation,insurance and monetary and financial matters, as well as any laws andregulations otherwise affecting the Company, including laws and regulationsintended to address the current stresses in the U.S. and global financialmarkets, national security and money laundering; (iii) the effects ofcontinued adverse market conditions and further volatility in investmentsecurities generally, which may result in a deterioration in the value of thesecurities in the Company’s investment portfolio; (iv) the ability**of the Company to comply with applicable federal, state and locallaws, regulations and policies and the consequences that may result from anysuch inability to comply; (v) the effects of changes in interest rates(including the effects of changes in the rate of prepayments of the Company’sassets) and the policies of the Board of Governors of the Federal ReserveSystem; (vi) the ability of the Company to compete with other financialinstitutions as effectively as the Company currently intends due to increasesin competitive pressures in the financial services sector; (vii) theability of the Company to maintain an acceptable net interest margin; (viii) theability of the Company to obtain new customers and retain existing customers; (ix) thetimely development and acceptance of products and services, including productsand services offered through alternative delivery channels such as theInternet; (x) technological changes implemented by the Company and byother parties, including third party vendors, which may be more difficult ormore expensive than anticipated or which may have unforeseen consequences tothe Company and its customers, including technological changes implemented for,or related to, the Company’s website or new products such as prepaid solutionscards, payroll cards and other similar products and services; (xi) the abilityof the Company, and certain of its vendors, to develop and maintain secure andreliable electronic systems, including systems developed for the Company’swebsite or new products such as prepaid solutions cards, payroll cards andother similar products and services; (xii) the ability of the Company to retainkey executives and employees, and the difficulty that the Company mayexperience in replacing key executives and employees in an effective manner;(xiii) consumer spending and saving habits which may change in a manner thataffects the Company’s business adversely; (xiv) the economic impact of past andany future terrorist attacks, acts of war or threats thereof and the responseof the U.S. to any such attacks and threats; (xv) business combinations and theintegration of acquired businesses, which may be more difficult or expensivethan expected; (xvi) the costs, effects and outcomes of existing or futurelitigation and disputes with third parties; (xvii) changes in accountingpolicies and practices, as may be adopted by state and federal regulatoryagencies and the Financial Accounting Standards Board, the Public CompanyAccounting Oversight Board and the Securities and Exchange Commission; (xviii)credit risks and the risks from concentrations (by geographic area or industry)within the Company’s loan portfolio; (xix) the failure of the Company’s RealEstate Investment Trust (“REIT”) to qualify as a REIT and the effects of suchfailure on the Company’s consolidated effective tax rate; and (xx) the abilityof the Company to manage the risks associated with the foregoing as well as anticipated.*

 

*Additionalinformation concerning the Company and its business, including risk factorsthat could materially affect the Company’s results of operations and financialcondition, is included in the Company’s filings with the Securities and ExchangeCommission, including the Company’s most recent Annual Report on Form 10-K.*

 

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# **To Our Shareholders, Customers and Friends**

# ** **

We think that most of youwill agree that 2008 was one of the most challenging years since the years ofThe Great Depression. The financial markets were in turmoil worldwide for mostof the year and there is clear consensus that the U.S. entered into arecession. Many of this country’s premier large financial servicesorganizations experienced extreme stress which, in some cases, could not beovercome. Bear Stearns, Lehman Brothers, Countrywide Financial, WashingtonMutual, National City and Wachovia are just a few of the organizations thatwere not able to successfully overcome the challenges they faced during 2008.

 

While 2008 was not abanner year for West Suburban, we were able to outperform most of our peers(U.S. banks between $1 and $3 billion in assets) according to Uniform BankPerformance data as of, and for the year ended, December 31, 2008. Our netincome for 2008 represented a .90% return on average assets in comparison to areturn of .35% for our peers. Our non-current loans as a percentage of grossloans was 2.02% compared to 2.50% for our peers as of December 31, 2008.

 

Although we compared wellto our peers, our net income decreased by 28.2% in 2008 to $16.8 million. Thedecrease resulted primarily from a $10 million increase in our provision forloan losses as we increased our allowance for loan losses to total loans to1.25%. Building our allowance for loan losses was appropriate in light of thestate of the local and national economy and the increases in our problem andnonaccrual loans. Even as we built our reserves, our performance permitted usto pay our quarterly dividend of $10 per share for total 2008 dividends of $40per share. As we look forward to better times, we remain focused on providingour customers superior service and an extensive menu of loan and depositproducts.

 

At the end of 2008 weclosed our travel department after 30 years of providing travel and vacationpackages throughout the U.S. and to countries around the world. During January of2009, Dennis Woodyatt, the manager of Travel with West Suburban, passed away.Dennis will be missed by West Suburban and our many regular patrons of thetravel department.

 

As in the past, wecontinue to provide our customers traditional banking products such aschecking, savings and certificate of deposit accounts as well as competitivehome equity, residential real estate and commercial loans. We will continue toenhance our online banking services at*www.westsuburbanbank.com*in order to offer our customers improved accessibility 24 hours a day, sevendays a week. Our new consumer banking initiatives will not distract us from ourcommitment to our business customers. We value these relationships andappreciate that our future success depends upon our ability to continue to be agood partner to business throughout the communities we serve.

 

We would like to expressour appreciation to everyone for the support that has allowed us to become andremain one of the largest independent banks headquartered in DuPage Countyand we welcome your comments, criticisms and suggestions. We could not haveachieved our success without the support of our shareholders, customers,communities, friends and employees.

 
| Sincerely,            |                                   |
|-----------------------|----------------------------------------|
|                  |                                   |
|                       |                                        |
| Kevin J. Acker        | Duane G. Debs                          |
| Chairman of the Board | President and Chief  Financial Officer |

 

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# **Common Stock, Book Value and Dividends**

# ** **

West Suburban hasa single class of common stock issued and outstanding. The common stock is nottraded on any stock exchange or on the over-the-counter market. West Suburban’sper share book value as of the end of each quarter and dividends declared forthe last two years are set forth below:

 
| **Year** | ** ** | **Quarter** | ** ** | **BookValue  GAAP** | ** ** | **BookValue  Non-GAAP (1)** | ** ** | **Dividends  Declared** | ** ** |
|----------|------------|-------------|------------|---------------------|------------|----------------------------------|------------|-------------------------|------------|
| **2008** |       | 4th         |       | $                   | 264.12     |                             | $          | 372.03                  |       | $ | 10.00 |   |
|     |       | 3rd         |       | 263.04              |       | 376.34                           |       | 10.00                   |       |
|     |       | 2nd         |       | 249.64              |       | 374.87                           |       | 10.00                   |       |
|     |       | 1st         |       | 242.62              |       | 382.15                           |       | 10.00                   |       |
|     |       |        |       |                |       |                             |       |                    |       |
| 2007     |       | 4th         |       | $                   | 241.76     |                             | $          | 373.34                  |       | $ | 20.00 |   |
|     |       | 3rd         |       | 235.85              |       | 377.08                           |       | 10.00                   |       |
|     |       | 2nd         |       | 227.25              |       | 366.85                           |       | 10.00                   |       |
|     |       | 1st         |       | 226.33              |       | 366.47                           |       | 10.00                   |       |

 

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(1)          Book value per share (non-GAAP) represents theaggregate amount of shareholders’ equity and common stock in ESOP subject tocontingent repurchase obligation divided by the number of outstanding shares.See Note 7 to the Company’s consolidated financial statements and “Non-GAAPFinancial Measures.” This presentation is consistent with the Company’s beliefthat it is unlikely that the Company would be required to satisfy thecontingent repurchase obligation.

 

The dividendsdeclared during the fourth quarter of 2007 included a special $10.00 per sharedividend payable on December 15, 2007 to shareholders of record as of December 1,2007. The Company did not pay a special dividend during the fourth quarter of2008.

 

# **Business Review**

# ** **

As of December 31, 2008, the Companyhad total assets of approximately $1.9 billion and maintained 34 full-servicebranches, five limited-service branches and five departments providinginsurance, financial and other services for the convenience of the customers ofthe Bank throughout DuPage, Kane, Kendall and Will Counties in Illinois. TheBank focuses on providing retail and commercial banking products and servicesin its market area. The Company had 533 full-time equivalent employees at December 31,2008.

 

# ****

 

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# **MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

# ** **

Management of the Companyis responsible for establishing and maintaining an effective system of internalcontrol over financial reporting. The Company’s system of internal control overfinancial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. There are inherent limitations in the effectiveness of any systemof internal control over financial reporting, including the possibility ofhuman error and the circumvention or overriding of controls. Accordingly, evenan effective system of internal control over financial reporting can provideonly reasonable assurance with respect to financial statement preparation.Projections of any evaluation of effectiveness to future periods are subject tothe risks that controls may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures maydeteriorate.

 

Management assessed theCompany’s systems of internal control over financial reporting as of December 31,2008. This assessment was based on criteria for effective internal control overfinancial reporting described in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on this assessment, management believes that, as of December 31,2008, the Company maintained effective internal control over financialreporting based on those criteria.

 

The Company’s independentauditors have issued an audit report on the effectiveness of the Company’sinternal control over financial reporting.

 

 

March 9, 2009

 

Kevin J. Acker

Chairman and ChiefExecutive Officer

 

Duane G. Debs

President and ChiefFinancial Officer

 

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# ****

# ** **

# **Report of Independent Registered PublicAccounting Firm**

# ** **

Board of Directorsand Shareholders

West SuburbanBancorp, Inc.

Lombard, Illinois

 

We have audited the accompanying consolidated balancesheets of West Suburban Bancorp, Inc. (the “Company”) as of December 31, 2008 and 2007, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows foreach of the years in the three-year period ended December 31, 2008. Wealso have audited the Company’s internal control over financial reporting as ofDecember 31, 2008, based on the criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Company’s management is responsible for thesefinancial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Management’s Report onInternal Controls Over Financial Reporting. Our responsibility is to express anopinion on these financial statements and an opinion on the Company’s internalcontrol over financial reporting based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement and whether effective internal control over financialreporting was maintained in all material respects. Our audits of the financialstatements included examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. Our audit of internal controlover financial reporting included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in the circumstances.We believe that our audits provide a reasonable basis for our opinions.

 

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that: (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position of theCompany as of December 31, 2008 and 2007, and the results of itsoperations and its cash flows for each of the years in the three-year periodended December 31, 2008 in conformity with accounting principles generallyaccepted in the United States of America. Also in our opinion, the Companymaintained, in all material respects, effective internal control over financialreporting as of December 31, 2008, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).

 

 
|               |                  |
|--------------------|-----------------------|
|               | /s/ Crowe Horwath LLP |
|               |                  |
| Oakbrook, Illinois |                  |
| March 9, 2009 |                  |

 

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**WESTSUBURBAN BANCORP, INC.**

# **CONSOLIDATED BALANCESHEETS**

## **DECEMBER 31, 2008 AND2007**

(Dollars inthousands)

 
| ** **                                                                                        | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Assets**                                                                                        |       |      |       |      |       |
| Cash and due  from banks                                                                          |       | $         | 33,174     |      | $          | 32,183 |   |
| Federal funds  sold                                                                               |       | 22,300    |       | 1,000     |       |
| Total cash and  cash equivalents                                                                  |       | 55,474    |       | 33,183    |       |
| Securities                                                                                        |       |      |       |      |       |
| Available for  sale (amortized cost of $227,333 in 2008 and $461,100 in 2007)                     |       | 225,814   |       | 459,405   |       |
| Held to maturity  (fair value of $244,928 in 2008 and $23,953 in 2007)                            |       | 240,234   |       | 24,076    |       |
| Federal Home  Loan Bank stock                                                                     |       | 6,144     |       | 5,258     |       |
| Total securities                                                                                  |       | 472,192   |       | 488,739   |       |
| Loans, less  allowance for loan losses of $15,578 in 2008 and $9,269 in 2007                      |       | 1,233,595 |       | 1,226,571 |       |
| Bank-owned life  insurance                                                                        |       | 35,442    |       | 37,283    |       |
| Premises and  equipment, net                                                                      |       | 45,298    |       | 43,097    |       |
| Other real  estate                                                                                |       | 4,658     |       | 824       |       |
| Accrued interest  and other assets                                                                |       | 20,761    |       | 21,660    |       |
| **Total  assets**                                                                                 |       | $         | 1,867,420  |      | $          | 1,851,357 |   |
|                                                                                              |       |      |       |      |       |
| **Liabilities  and shareholders’ equity**                                                    |       |      |       |      |       |
| Deposits                                                                                          |       |      |       |      |       |
| Demand-noninterest-bearing                                                                        |       | $         | 132,664    |      | $          | 141,724 |   |
| Interest-bearing                                                                                  |       | 1,458,901 |       | 1,495,990 |       |
| Total deposits                                                                                    |       | 1,591,565 |       | 1,637,714 |       |
| Federal funds  purchased                                                                          |       | 55,000    |       | —    |       |
| Prepaid  solutions cards                                                                          |       | 37,964    |       | 24,649    |       |
| Accrued interest  and other liabilities                                                           |       | 21,992    |       | 27,526    |       |
|                                                                                              |       |      |       |      |       |
| Common stock in  ESOP subject to contingent repurchase obligation                                 |       | 46,670    |       | 56,907    |       |
|                                                                                              |       |      |       |      |       |
| 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                                                                                |       | 120,676   |       | 121,360   |       |
| Accumulated  other comprehensive loss                                                             |       | (1,300    | )          | (1,415    | )          |
| Amount  reclassified on ESOP shares                                                               |       | (46,670   | )          | (56,907   | )          |
| **Total  shareholders’ equity**                                                              |       | 114,229   |       | 104,561   |       |
| **Total  liabilities and shareholders’ equity**                                              |       | $         | 1,867,420  |      | $          | 1,851,357 |   |

 

*See accompanying notes toconsolidated financial statements.*

 

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**WESTSUBURBAN BANCORP, INC.**

### **CONSOLIDATED STATEMENTSOF INCOME**

## **YEARS ENDED DECEMBER 31,2008, 2007 AND 2006**

(Dollars inthousands, except per share data)

 
| ** **                                                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Interest  income**                                          |       |     |       |     |       |     |       |
| Loans, including  fees                                        |       | $        | 72,577     |     | $          | 85,088   |       | $ | 82,542 |   |
| Securities                                                    |       |     |       |     |       |     |       |
| Taxable                                                       |       | 21,109   |       | 19,192   |       | 19,222   |       |
| Exempt from  federal income tax                               |       | 1,176    |       | 1,121    |       | 1,040    |       |
| Federal funds  sold                                           |       | 198      |       | 3,061    |       | 2,932    |       |
| Total interest  income                                        |       | 95,060   |       | 108,462  |       | 105,736  |       |
|                                                          |       |     |       |     |       |     |       |
| **Interest  expense**                                         |       |     |       |     |       |     |       |
| Deposits                                                      |       | 33,308   |       | 48,203   |       | 45,303   |       |
| Other                                                         |       | 664      |       | 3        |       | 31       |       |
| Total interest  expense                                       |       | 33,972   |       | 48,206   |       | 45,334   |       |
| **Net  interest income**                                      |       | 61,088   |       | 60,256   |       | 60,402   |       |
| **Provision  for loan losses**                                |       | 10,360   |       | 375      |       | 150      |       |
| **Net  interest income after provision for loan losses**      |       | 50,728   |       | 59,881   |       | 60,252   |       |
|                                                          |       |     |       |     |       |     |       |
| **Noninterest  income**                                       |       |     |       |     |       |     |       |
| Prepaid  solutions cards                                      |       | 16,206   |       | 13,380   |       | 8,295    |       |
| Service fees on  deposit accounts                             |       | 6,357    |       | 6,435    |       | 6,978    |       |
| Debit card fees                                               |       | 2,150    |       | 2,081    |       | 1,970    |       |
| Bank-owned life  insurance                                    |       | (2,179   | )          | 1,525    |       | 1,462    |       |
| Net gain on  sales of loans held for sale                     |       | 70       |       | 50       |       | 124      |       |
| Net realized  gains (losses) on securities transactions       |       | 101      |       | (6       | )          | 85       |       |
| Impairment of  FHLMC preferred stock                          |       | —   |       | (381     | )          | —   |       |
| Gain on  redemption and interest in escrow fund of VISA stock |       | 2,075    |       | —   |       | —   |       |
| Other                                                         |       | 3,890    |       | 3,980    |       | 3,951    |       |
| Total  noninterest income                                     |       | 28,670   |       | 27,064   |       | 22,865   |       |
|                                                          |       |     |       |     |       |     |       |
| **Noninterest  expense**                                      |       |     |       |     |       |     |       |
| Salaries and  employee benefits                               |       | 22,162   |       | 24,422   |       | 24,238   |       |
| Prepaid  solutions cards                                      |       | 12,037   |       | 9,645    |       | 5,767    |       |
| Furniture and  equipment                                      |       | 6,340    |       | 5,570    |       | 4,759    |       |
| Occupancy                                                     |       | 5,224    |       | 4,509    |       | 4,581    |       |
| Advertising and  promotion                                    |       | 2,126    |       | 2,324    |       | 1,916    |       |
| Professional  fees                                            |       | 2,263    |       | 1,673    |       | 1,217    |       |
| Other                                                         |       | 7,631    |       | 6,891    |       | 5,378    |       |
| Total  noninterest expense                                    |       | 57,783   |       | 55,034   |       | 47,856   |       |
|                                                          |       |     |       |     |       |     |       |
| **Income  before income taxes**                               |       | 21,615   |       | 31,911   |       | 35,261   |       |
| **Income  tax expense**                                       |       | 4,799    |       | 8,498    |       | 9,910    |       |
| **Net  income**                                               |       | $        | 16,816     |     | $          | 23,413   |       | $ | 25,351 |   |
| ** **                                                    |       |     |       |     |       |     |       |
| **Earnings  per share**                                       |       | $        | 38.88      |     | $          | 54.13    |       | $ | 58.62 |   |
| **Average  shares outstanding**                               |       | 432,495  |       | 432,495  |       | 432,495  |       |

 

*See accompanying notes toconsolidated financial statements.*

 

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**WESTSUBURBAN BANCORP, INC.**

#### **CONSOLIDATED STATEMENTSOF CHANGES IN SHAREHOLDERS’ EQUITY**

**YEARSENDED DECEMBER 31, 2008, 2007 AND 2006**

(Dollars inthousands, except per share data)

 
| ** **                                                                                                         | **Common  Stock  and  Surplus** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income  (Loss)** | ** ** | **Amount  Reclassified  on ESOP  Shares** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|---------------------------------|------------|------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------|------------|
| Balance,  January 1, 2006                                                                                     | $                               | 41,523     |                   | $          | 115,846                                               |       | $                                              | (8,331     | )                                     | $          | (54,378 | ) | $ | 94,660 |   |
|                                                                                                               |                            |       |                   |       |                                                  |       |                                           |       |                                  |       |
| Comprehensive income                                                                                               |                            |       |                   |       |                                                  |       |                                           |       |                                  |       |
| Net income                                                                                                         |                            |       | 25,351                 |       |                                                  |       |                                           |       | 25,351                                |       |
| Change in  unrealized loss on available for sale securities, net of reclassification and  tax effects              |                            |       |                   |       | 2,878                                                 |       |                                           |       | 2,878                                 |       |
| Total  comprehensive income                                                                                        |                            |       |                   |       |                                                  |       |                                           |       | 28,229                                |       |
| Adjustment to  initially apply SFAS No. 158, net of tax                                                       |                            |       |                   |       | (298                                                  | )          |                                           |       | (298                                  | )          |
| Cash dividends  declared - $50.00 per share                                                                        |                            |       | (21,625                | )          |                                                  |       |                                           |       | (21,625                               | )          |
| Reclassification  due to change in fair value of common stock in ESOP subject to contingent  repurchase obligation |                            |       |                   |       |                                                  |       | (5,631                                         | )          | (5,631                                | )          |
| Balance,  December 31, 2006                                                                                   | 41,523                          | ** ** | 119,572                |       | (5,751                                                | )          | (60,009                                        | )          | 95,335                                |       |
|                                                                                                               |                            |       |                   |       |                                                  |       |                                           |       |                                  |       |
| Comprehensive  income                                                                                              |                            |       |                   |       |                                                  |       |                                           |       |                                  |       |
| Net income                                                                                                         |                            |       | 23,413                 |       |                                                  |       |                                           |       | 23,413                                |       |
| Change in  unrealized loss on available for sale securities, net of reclassification and  tax effects              |                            |       |                   |       | 4,432                                                 |       |                                           |       | 4,432                                 |       |
| Change in  post-retirement obligations, net of reclassificaton and tax effects                                     |                            |       |                   |       | (96                                                   | )          |                                           |       | (96                                   | )          |
| Total  comprehensive income                                                                                        |                            |       |                   |       |                                                  |       |                                           |       | 27,749                                |       |
| Cash dividends  declared - $50.00 per share                                                                        |                            |       | (21,625                | )          |                                                  |       |                                           |       | (21,625                               | )          |
| Reclassification  due to change in fair value of common stock in ESOP subject to contingent  repurchase obligation |                            |       |                   |       |                                                  |       | 3,102                                          |       | 3,102                                 |       |
| Balance,  December 31, 2007                                                                                   | 41,523                          | ** ** | 121,360                |       | (1,415                                                | )          | (56,907                                        | )          | 104,561                               |       |
|                                                                                                               |                            |       |                   |       |                                                  |       |                                           |       |                                  |       |
| Cummulative  adjustment to apply EITF 06-04                                                                        |                            |       | (200                   | )          |                                                  |       |                                           |       | (200                                  | )          |
| Comprehensive  income                                                                                              |                            |       |                   |       |                                                  |       |                                           |       |                                  |       |
| Net income                                                                                                         |                            |       | 16,816                 |       |                                                  |       |                                           |       | 16,816                                |       |
| Change in  unrealized loss on available for sale securities, net of reclassification and  tax effects              |                            |       |                   |       | 106                                                   |       |                                           |       | 106                                   |       |
| Change in  post-retirement obligations, net of reclassificaton and tax effects                                     |                            |       |                   |       | 9                                                     |       |                                           |       | 9                                     |       |
| Total  comprehensive income                                                                                        |                            |       |                   |       |                                                  |       |                                           |       | 16,931                                |       |
| Cash dividends  declared - $40.00 per share                                                                        |                            |       | (17,300                | )          |                                                  |       |                                           |       | (17,300                               | )          |
| Reclassification  due to change in fair value of common stock in ESOP subject to contingent  repurchase obligation |                            |       |                   |       |                                                  |       | 10,237                                         |       | 10,237                                |       |
| **Balance,  December 31, 2008**                                                                               | $                               | 41,523     | ** **             | $          | 120,676                                               |       | $                                              | (1,300     | )                                     | $          | (46,670 | ) | $ | 114,229 |   |

 

*Seeaccompanying notes to consolidated financial statements.*

 

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**WEST SUBURBAN BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006**

(Dollars inthousands)

 
| ** **                                                                        | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Cash  flows from operating activities**                                         |       |     |       |     |       |     |       |
| Net income                                                                        |       | $        | 16,816     |     | $          | 23,413   |       | $ | 25,351 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities |       |     |       |     |       |     |       |
| Depreciation                                                                      |       | 3,644    |       | 3,299    |       | 3,607    |       |
| Provision for  loan losses                                                        |       | 10,360   |       | 375      |       | 150      |       |
| Deferred income  tax benefit                                                      |       | (1,861   | )          | (1,269   | )          | (1,701   | )          |
| Net discount  accretion and premium amortization of securities                    |       | (148     | )          | 291      |       | 564      |       |
| Net realized  (gain) loss on securities transactions                              |       | (101     | )          | 6        |       | (85      | )          |
| Impairment of  FHLMC preferred stock                                              |       | —   |       | 381      |       | —   |       |
| Gain on  redemption of and interest in escrow fund of VISA stock                  |       | (2,075   | )          | —   |       | —   |       |
| Decrease  (increase) in carrying value of bank-owned life insurance               |       | 2,179    |       | (1,525   | )          | (1,462   | )          |
| Amortization of  deferred loan fees                                               |       | 7        |       | 57       |       | 100      |       |
| Net gain on  sales of loans held for sale                                         |       | (70      | )          | (50      | )          | (124     | )          |
| Sales of loans  held for sale                                                     |       | 5,480    |       | 5,875    |       | 9,730    |       |
| Origination of  loans held for sale                                               |       | (6,828   | )          | (6,175   | )          | (9,466   | )          |
| Net gain on  sales of premises and equipment                                      |       | (5       | )          | (2       | )          | (7       | )          |
| Net loss (gain)  on sales of other real estate                                    |       | (29      | )          | 2        |       | (99      | )          |
| Write down of  fair value of other real estate                                    |       | 121      |       | —   |       | —   |       |
| Decrease  (increase) in accrued interest and other assets                         |       | 3,659    |       | (2,461   | )          | (117     | )          |
| (Decrease)  increase in accrued interest and other liabilities                    |       | (5,720   | )          | 5,017    |       | 3,275    |       |
| **Net  cash provided by operating activities**                                    |       | 25,429   |       | 27,234   |       | 29,716   |       |
| **Cash  flows from investing activities**                                         |       |     |       |     |       |     |       |
| Securities  available for sale                                                    |       |     |       |     |       |     |       |
| Sales                                                                             |       | 89,838   |       | 470      |       | —   |       |
| Maturities,  calls and redemptions                                                |       | 167,248  |       | 89,870   |       | 104,130  |       |
| Purchases                                                                         |       | (22,241  | )          | (90,088  | )          | (87,250  | )          |
| Securities held  to maturity and restricted securities                            |       |     |       |     |       |     |       |
| Maturities,  calls and redemptions                                                |       | 23,603   |       | 21,054   |       | 23,379   |       |
| Purchases                                                                         |       | (240,376 | )          | (167     | )          | (2,800   | )          |
| Net increase in  loans                                                            |       | (20,418  | )          | (73,782  | )          | (63,252  | )          |
| Investment in  bank-owned life insurance policies                                 |       | (337     | )          | (1,336   | )          | (735     | )          |
| Purchases of  premises and equipment                                              |       | (5,994   | )          | (6,521   | )          | (3,435   | )          |
| Sales of  premises and equipment                                                  |       | 154      |       | 92       |       | 49       |       |
| Sales of other  real estate                                                       |       | 519      |       | 539      |       | 682      |       |
| **Net  cash used in investing activities**                                        |       | (8,004   | )          | (59,869  | )          | (29,232  | )          |
| **Cash  flows from financing activities**                                         |       |     |       |     |       |     |       |
| Net (decrease)  increase in deposits                                              |       | (46,149  | )          | (40,130  | )          | 38,178   |       |
| Net increase in  federal funds purchased                                          |       | 55,000   |       | —   |       | —   |       |
| Net increase in  prepaid solutions cards                                          |       | 13,315   |       | 3,544    |       | 1,198    |       |
| Dividends paid                                                                    |       | (17,300  | )          | (21,625  | )          | (21,625  | )          |
| **Net  cash provided by (used in) financing activities**                          |       | 4,866    |       | (58,211  | )          | 17,751   |       |
| **Net  increase (decrease) in cash and cash equivalents**                         |       | 22,291   |       | (90,846  | )          | 18,235   |       |
| **Beginning  cash and cash equivalents**                                          |       | 33,183   |       | 124,029  |       | 105,794  |       |
| **Ending  cash and cash equivalents**                                             |       | $        | 55,474     |     | $          | 33,183   |       | $ | 124,029 |   |
| **Supplemental  disclosures**                                                     |       |     |       |     |       |     |       |
| Cash paid for                                                                     |       |     |       |     |       |     |       |
| Interest                                                                          |       | 35,031   |       | 48,816   |       | 43,976   |       |
| Income taxes                                                                      |       | 7,824    |       | 9,082    |       | 11,270   |       |
| Other real  estate acquired through loan foreclosures                             |       | 4,445    |       | 1,014    |       | 724      |       |

 

*Seeaccompanying notes to consolidated financial statements.*

 

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## **WEST SUBURBAN BANCORP, INC.**

## **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(Dollars inthousands, except per share data)

# ** **

# **Note 1 - Nature ofBusiness and Summary of Significant Accounting Policies**

# ** **

West SuburbanBancorp, Inc. (“West Suburban”) through the branch network of itssubsidiary, West Suburban Bank (the “Bank” and, together with West Suburban,the “Company”), operates 34 full-service branches, five limited-servicebranches and five departments providing insurance, financial and other servicesfor the convenience of the customers of the Bank throughout DuPage, Kane,Kendall and Will Counties in Illinois. Customers in these areas are the primaryconsumers of the Company’s loan and deposit products and services. Althoughborrower cash flow is expected to be the primary source of repayment, theCompany’s loans are generally secured by various forms of collateral orsecurity including real estate, business assets, consumer goods, personalguarantees and other items.

 

***OperatingSegments***

While the Company’ssenior management monitors the revenue streams derived from various individualand groups of products and services, operations are managed and financialperformance is evaluated on a Company-wide basis. Accordingly, all of theCompany’s operations are considered by management to be aggregated in onereportable operating segment. Discrete financial information is not availableother than on a Company-wide basis.

 

***Principlesof Consolidation***

Theconsolidated financial statements include the accounts of West Suburban and theBank. Significant intercompany accounts and transactions have been eliminated.

 

***Useof Estimates***

To preparefinancial statements in conformity with accounting principles generallyaccepted in the United States of America, management makes estimates andassumptions, which are subject to change, based on available information. Theseestimates and assumptions affect the amounts reported in the financial statementsand the disclosures provided, and future results could differ. The allowancefor loan losses, fair values of financial instruments and other than temporaryimpairment of securities are particularly subject to change.

 

***Securities***

Debt and marketableequity securities are classified into two categories, “available for sale” and “heldto maturity.” Available for sale securities are carried at fair value with netunrealized gains and losses (net of deferred tax) reported in accumulated othercomprehensive loss as a separate component of shareholders’ equity. Held tomaturity securities are carried at amortized cost as the Company has both theability and positive intent to hold them to maturity. Other securities such asFederal Home Loan Bank stock are carried at cost. Interest income includesamortization of purchase premium or discount. Premiums and discounts onsecurities are amortized on the level-yield method without anticipatingprepayments, except for mortgage backed securities where prepayments areanticipated. Gains and losses on sales are recorded on the trade date anddetermined using the specific identification method. The Company does notengage in trading activities.

 

Declines in the fairvalue of securities below their cost that are other than temporary arereflected as realized losses. In estimating other-than-temporary losses,management considers: (1) the length of time and extent that fair valuehas been less than cost; (2) the financial condition and near termprospects of the issuer; and (3) the Company’s ability and intent to holdthe security for a period sufficient to allow for any anticipated recovery infair value.

 

***Loansand Allowance for Loan Losses***

Loans thatmanagement has the intent and ability to hold for the foreseeable future oruntil maturity or payoff are reported at the principal balance outstanding, netof unearned interest, deferred loan fees and costs and an allowance for loanlosses. Interest income is accrued on the unpaid balance of the Company’s loansand includes amortization of net deferred loan fees and costs over the loanterm. Loan origination fees, net of certain direct origination costs, aredeferred and recognized in interest income using the level-yield method withoutanticipating prepayments. Accrual of interest is generally discontinued onloans 90 days past due, or on an earlier date, if management believes, afterconsidering economic and business conditions and collection efforts, that theborrower’s financial

 

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condition is suchthat collection of principal or interest is doubtful. In some circumstances, aloan more than 90 days past due may continue to accrue interest if it is fullysecured and in the process of collection. When a loan is classified asnonaccrual, interest previously accrued but not collected is charged back tointerest income. When payments are received on nonaccrual loans they are first appliedto principal, then to interest income and finally to expenses incurred forcollection.

 

The allowance forloan losses is a valuation allowance for probable incurred credit losses in theloan portfolio. The allowance is increased by a provision for loan lossescharged to earnings. Loan losses are charged against the allowance whenmanagement believes the uncollectibility of a loan has been established.Subsequent recoveries, if any, are credited to the allowance. The allowanceconsists of specific and general components. The specific component relates tospecific loans that are individually classified as impaired. The generalcomponent covers pools of other loans and is based on historical lossexperience adjusted for current factors. The allowance for loan losses isevaluated monthly based on management’s periodic review of loan collectibilityin light of historical loan loss experience, the nature and volume of the loanportfolio, information about specific borrower situations and estimatedcollateral values and prevailing economic conditions. Although allocations ofthe allowance may be made for specific loans, the entire allowance is availablefor any loan that, in management’s judgment, should be charged-off. Management’sevaluation of loan collectibility is inherently subjective as it requiresestimates that are subject to significant revision as more information becomesavailable or as relevant circumstances change.

 

The Companyevaluates commercial, real estate construction and commercial mortgage loansmonthly for impairment. A loan is considered impaired when, based on currentinformation and events, full payment under the loan terms is not expected.Impairment is measured based on the present value of expected future cash flowsdiscounted at the loan’s effective interest rate or the fair value of the loan’scollateral, if repayment of the loan is collateral dependent. A valuationallowance is maintained for the amount of impairment. Generally, loans 90 daysor more past due and all loans classified as nonaccrual status are consideredfor impairment. Impairment is considered on an entire category basis forsmaller-balance loans of similar nature such as residential real estate andconsumer loans, and on an individual basis for other loans. In general,consumer and credit card loans are charged-off no later than 120 days after aconsumer or credit card loan becomes past due.

 

***LoansHeld for Sale***

Loans areidentified as either held for investment or held for sale upon origination.Loans held for sale are recorded at the lower of amortized cost or fair value,as determined by outside commitments from investors. Unrealized losses, if any,are recognized on a current basis by charges to earnings. At December 31,2008 and 2007, loans held for sale were $1,768 and $350, respectively. The costand fair value of loans held for sale was approximately the same. Mortgageloans held for sale are generally sold with servicing released.

 

***Bank-OwnedLife Insurance (“BOLI”)***

The Company has purchasedlife insurance policies on certain officers and directors. In accordance withEmerging Issues Task Force (the “EITF”) 06-5, Bank-owned life insurance isrecorded at the amount that can be realized under the insurance contract at thebalance sheet date, whichis the cash surrender value adjusted for other charges or other amounts duethat are probable at settlement.

 

***Premisesand Equipment***

Land is carried atcost. Premises and equipment are stated at cost less accumulated depreciation.Depreciation is generally computed on the straight-line method over theestimated useful lives of the assets ranging from 8 to 50 years for premisesand from 3 to 15 years for furniture and equipment.

 

***OtherReal Estate***

Other real estateincludes properties acquired in partial or total settlement of problem loans.Assets acquired through or instead of loan foreclosure are initially recordedat fair value less costs to sell when acquired, establishing a new cost basis.If fair value declines subsequent to foreclosure, a valuation allowance is recordedthrough expense. Operating costs after acquisition are expensed.

 

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###### ***Long-term Assets***

Premises andequipment and other long-term assets are reviewed for impairment when eventsindicate their carrying amount may not be recoverable from future undiscountedcash flows. If impaired, the assets are recorded at fair value.

 

***LoanCommitments and Related Financial Instruments***

Financialinstruments include off-balance sheet credit instruments, such as commitmentsto make loans and commercial letters of credit, issued to meet customerfinancing needs. The face amount for these items represents the exposure toloss, before considering customer collateral or ability to repay. Suchfinancial instruments are recorded when they are funded.

 

***PrepaidSolutions Cards***

Prepaid solutionscards revenues are recognized when services are performed. These revenues arecomprised primarily of service and transaction fees. Service fees representpayments associated with card preparation, customization, usage, non-usage andprocessing. Transaction fees primarily represent interchange fees generated astransactions are made by cardholders. These fees are recognized as revenue inthe same period the related transactions occur or services are rendered. Incomegenerated from the investment of prepaid solutions card balances is notallocated to the prepaid solutions group and therefore is not included in theprepaid solutions cards income category.

 

Prepaid solutionscards expenses are recognized as incurred. These expenses generally includecosts associated with the card preparation and customization, data processingfees associated with the card transaction processing, and other activityexpenses directly associated with the Bank’s prepaid solutions cards customers.The prepaid solutions division utilizes various departments within the Bank inits day to day operations. The costs incurred by these departments are notallocated to the prepaid solutions group and therefore are not included in theprepaid solutions cards expense category. General and administrative expensesincurred by the prepaid solutions division, such as salaries and benefits,furniture and equipment, advertising and promotion, and professional fees areincluded in the corresponding expense line classification in the Company’sconsolidated statements of income.

 

***IncomeTaxes***

Income tax expense is thetotal of the current year income tax due or refundable and the change indeferred tax assets and liabilities. Deferred tax assets and liabilities arethe expected future tax consequences of temporary differences between thecarrying amounts and the tax basis of assets and liabilities, computed usingenacted tax rates. A valuation allowance, if needed, reduces deferred taxassets to the amount expected to be realized.

 

The Company adopted Financial Accounting StandardsBoard (“FASB”) Interpretation 48, “Accountingfor Uncertainty in Income Taxes” (“FIN 48”), as of January 1,2007. A tax position is recognized as a benefit only if it is “more likely thannot” that the tax position would be sustained in a tax examination, with a taxexamination being presumed to occur. The amount recognized is the largestamount of tax benefit that is greater than 50% likely of being realized onexamination. For tax positions not meeting the “more likely than not” test, notax benefit is recorded. The adoption had no impact on the Company’s financialcondition or results of operations.

 

The Company recognizes interest and/or penaltiesrelated to income tax matters in income tax expense.

 

***EmployeeStock Ownership Plan (“ESOP”) and Other Retirement Plans***

In July 2007,the Company established the West Suburban Bank 401(k) Profit Sharing Plan.This plan was established to assist the Company in recruiting and retaining itspersonnel. Participation in the plan issubject to certain age and service requirements. Although the Company currentlyintends to match a percentage of the contributions that each employeevoluntarily makes to the plan, all contributions by the Company arediscretionary and subject to review by the Board of Directors from time totime. The plan is also intended to enable long time employees of the Companythat also participate in the ESOP to diversify their retirement savings.

 

TheBank also maintains an ESOP, which is a noncontributory tax qualifiedretirement plan that covers employees who have satisfied specific servicerequirements. Subject to review by the Board of Directors, the Bank makescontributions to the ESOP for the benefit of the participants from time totime. Dividends declared on common stock owned by the ESOP are charged againstretained earnings.

 

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Dividendspaid on ESOP shares are passed through to participants. Earned and allocatedESOP shares are voted by the respective participants. Because participants mayrequire the Company to purchase their ESOP shares upon termination of theiremployment, the appraised fair value of all earned and allocated ESOP shares isreclassified from shareholders’ equity.

 

The Company has apostretirement heathcare plan covering certain executives. Postretirementbenefit costs are net of service and interest costs and amortization of gainsand losses not immediately recognized.

 

The Company hasdeferred compensation arrangements with certain former and current executiveofficers. Deferred compensation expense allocates the benefits over years ofservice.

 

***EarningsPer Share***

Earnings per shareis calculated on the basis of the daily weighted average number of sharesoutstanding. ESOP shares are considered outstanding for this calculation.

 

***CashFlows***

For purposes ofreporting cash flows, cash and cash equivalents include cash and due from banksand federal funds sold. Generally, federal funds are sold for one-day periods.Net cash flows are reported for customer loan, deposit, federal funds purchasedand prepaid solutions cards transactions.

 

***ComprehensiveIncome***

Comprehensiveincome includes net income and other comprehensive income. The Company’s othercomprehensive income consists of the change in unrealized gains and losses onavailable for sale securities and change in postretirement obligations, net ofreclassification adjustments and deferred tax effects.

 

***LegalProceedings***

Legal proceedings,including claims and legal actions arising in the ordinary course of business,are recorded as liabilities when the likelihood of loss is probable and anamount or range of loss can be reasonably estimated.

 

***Restrictionson Cash***

Cash on hand or ondeposit with the Federal Reserve Bank of $12,982 and $13,055 was required to meetregulatory reserve and clearing requirements at year end 2008 and 2007,respectively.

 

***DividendRestriction***

Banking regulationsrequire maintaining certain capital levels and may limit the dividends paid bythe Bank to West Suburban or by West Suburban to shareholders. (See Note 11 inthe Consolidated Financial Statements for more specific disclosure.)

 

***FairValue of Financial Instruments***

Fair value of financialinstruments are estimated using relevant market information and otherassumptions. (See Note 9 for more specific disclosure.) Fair value estimatesinvolve uncertainties and matters of significant judgment regarding interestrates, credit risk, prepayments, and other factors, especially in the absenceof broad markets for particular items. Changes in assumptions or in marketconditions could significantly affect the estimates.

 

***Reclassifications***

Certainreclassifications have been made in prior years’ financial statements toconform to the current year’s presentation.

 

***Adoptionof New Accounting Standards***

In September 2006,the FASB issued Statement of Financial Accounting Standards (“SFAS”) 157, “FairValue Measurements.” SFAS 157 defines fair value, establishes a framework formeasuring fair value and expands required disclosures about fair value measurements.SFAS 157 establishes a fair value hierarchy about the assumptions used tomeasure fair value and clarifies assumptions about risk and the effect of arestriction on the sale or use of an asset. The standard is effective forfiscal years beginning after November 15, 2007. In February 2008, theFASB issued Staff Position (“FSP”) SFAS 157-2, “Effective Date of SFAS 157.”This FSP delays the effective date of SFAS 157 for all nonfinancial assets andnonfinancial liabilities (except those that are recognized or 

 

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disclosed at fair valueon a recurring basis (at least annually)) to fiscal years beginning after November 15,2008, and interim periods within those fiscal years. The impact of the adoptionwas not material to the Company’s financial condition or results of operations.In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value ofa Financial Asset when the Market for That Asset is Not Active.” FSP 157-3clarifies the application of SFAS 157 in a market that is not active. Pleaserefer to Note 9 for disclosures relating to and resulting from the adoption ofSFAS 157.

 

In February 2007, theFASB issued SFAS 159, “The Fair Value Option for Financial Assets and FinancialLiabilities.” SFAS 159 provides companies with an option to report selectedfinancial assets and liabilities at fair value and establishes presentation anddisclosure requirements designed to facilitate comparisons between companiesthat choose different measurement attributes for similar types of assets andliabilities. SFAS 159 was effective for the Company on January 1, 2008.The Company did not elect the fair value option for any financial assets orfinancial liabilities upon adoption on January 1, 2008.

 

InSeptember 2006, the EITF finalized Issue 06-4, “Accounting for DeferredCompensation and Postretirement Benefit Aspects of Endorsement Split-DollarLife Insurance Arrangements.” This guidance requires that a liability berecorded during the service period when a split-dollar life insurance agreementcontinues after a participants’ employment or retirement. The required accruedliability will be based on either the postretirement benefit cost for thecontinuing life insurance or based on the future death benefit depending on thecontractual terms of the underlying agreement. Upon adoption, the Companyrecorded a cumulative effect adjustment to reduce beginning retained earningsas of January 1, 2008 by $200.

 

Effective December 31,2008, the Company adopted EITF 99-20-1, “Amendment to the Impairment andInterest Income Guidance of EITF Issue No. 99-20.” The EITF strives toresolve the lack of consistency in the impairment guidance of EITF 99-20, “Recognitionof Interest Income and Impairment on Purchased Beneficial Interests andBeneficial Interests That Continue to Be Held by a Transferor in SecuritizedFinancial Assets” and SFAS 115, “Accounting for Certain Investments in Debt andEquity Securities,” for determining whether an other-than-temporary impairmenthas occurred. Prior to the amendment, EITF 99-20 required the use of marketparticipant assumptions regarding future cash flows without consideration ofthe probability that all cash flows will be collected. However, SFAS 115 doesnot require exclusive reliance on market participant assumptions regardingfuture cash flows, permitting management to use reasonable judgment indetermining the probability that a holder will be unable to collect all amountsdue. The EITF removes the “market participant” concept from EITF 99-20. Theimpairment guidance provided by EITF 99-20-1 did not have a significant impacton the Company’s financial condition or results of operations upon adoption.

 

Effective December 31,2008, the Company adopted FSP No. FAS 140-4 and FIN 46R-8, “Disclosures byPublic Entities (Enterprises) about Transfers of Financial Assets and Interestsin Variable Interest Entities.” This FSP was issued in advance of thefinalization of other proposed amendments to SFAS 140 and Interpretation No. 46Rand requires additional disclosures about transfers of financial assets andabout an entity’s involvement with variable interest entities. The FSP iseffective for interim and annual reporting periods ending after December 15,2008. Adoption of this FSP affects disclosures only and therefore has no impacton the Company’s financial condition or results of operations.

 

***Effectof Newly Issued but not Effective Accounting Pronouncements***

In December 2007,the FASB issued SFAS 141R, “Business Combinations.” SFAS 141R replaces thecurrent standard on business combinations and will significantly change theaccounting for and reporting of business combinations in consolidated financialstatements. This statement requires an entity to measure the business acquired at fairvalue and to recognize goodwill attributable to any noncontrolling interests(previously referred to as minority interests) rather than just the portionattributable to the acquirer. The statement will also result in fewerexceptions to the principle of measuring assets acquired and liabilitiesassumed in a business combination at fair value. In addition, the statementwill result in payments to third parties for consulting, legal, and similarservices associated with an acquisition to be recognized as expenses whenincurred rather than capitalized as part of the business combination. SFAS 141Ris effective for fiscal years beginning on or after December 15, 2008. TheCompany does not expect the adoption of SFAS 141R to have a material impact onthe Company’s consolidated financial condition or results of operations.

 

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In December 2007,the FASB issued SFAS 160, “NoncontrollingInterest in Consolidated Financial Statements, an amendment of ARB No. 51”,which will change the accounting and reporting for minority interests, whichwill be recharacterized as noncontrolling interests and classified as acomponent of equity within the consolidated balance sheets. SFAS 160 iseffective as of the beginning of the first fiscal year beginning on or after December 15,2008. The adoption of SFAS 160 did not have a significant impact on the Company’sfinancial condition or results of operations.

 

In March 2008, theFASB issued SFAS 161, “Disclosuresabout Derivative Instruments and Hedging Activities an Amendment of FASB 133.”SFAS 161 amends SFAS 133 by requiring expanded disclosures about an entity’sderivative instruments and hedging activities, but does not change SFAS 133’sscope or accounting. This statement requires increased qualitative,quantitative, and credit-risk disclosures. SFAS 161 also amends SFAS 107 toclarify that derivative instruments are subject to SFAS 107’sconcentration-of-credit-risk disclosures. SFAS 161 is effective for fiscalyears beginning on or after November 15, 2008. Since SFAS 161 affects onlydisclosures, it will not impact the Company’s financial condition or results ofoperations.

 

##### **In December 2008, the FASBissued FSP FAS132R-1, “Disclosures about Plan Assets.” This FSP requiresadditional disclosures about plan assets of a defined benefit pension or otherpost retirement plan. The FSP has two main objectives. First, it requiresadditional disclosures about major categories of plan assets and concentrationsof risk within plan assets. Second, it applies the requirements of FAS 157 todefined benefit plans by requiring disclosure of the inputs and valuationtechniques used to measure the fair value of plan assets and the effect of fairvalue measurements using unobservable inputs to changes in plan assets for theperiod. The requirements of the FSP are not effective until fiscal years endingafter December 15, 2009, and thus will be included in the Company’sfinancial statements beginning with the financial statements for the year endedDecember 31, 2009. Adoption of this FSP affects disclosures only andtherefore has no impact on the Company’s financial condition or results ofoperations.**

##### ** **

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##### **Note 2 - Securities**

##### ** **

Theamortized cost and fair value of securities available for sale are as followsat December 31:

 
| ** **                          | ** ** | **2008**            | ** ** |
|-------------------------------------|------------|---------------------|------------|
| ** **                          | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| Corporate                           |       | $                   | 24,430     |   | $ | — |   | $ | (753 | ) | $ | 23,677 |   |
| Trust preferred                     |       | 8,511               |       | — |   | (5,048 | ) | 3,463 |   |
| U.S. government  sponsored entities |       | 22,170              |       | 1,084 |   | — |   | 23,254 |   |
| Mortgage-backed                     |       | 162,062             |       | 3,385 |   | (153 | ) | 165,294 |   |
| States and  political subdivisions  |       | 10,160              |       | 57 |   | (91 | ) | 10,126 |   |
| Total debt  securities              |       | $                   | 227,333    |   | $ | 4,526 |   | $ | (6,045 | ) | $ | 225,814 |   |

 
| ** **                          | ** ** | **2007**            | ** ** |
|-------------------------------------|------------|---------------------|------------|
| ** **                          | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| Corporate                           |       | $                   | 35,488     |   | $ | 95 |   | $ | (764 | ) | $ | 34,819 |   |
| Trust preferred                     |       | 8,578               |       | — |   | (809 | ) | 7,769 |   |
| U.S. government  sponsored entities |       | 195,193             |       | 134 |   | (833 | ) | 194,494 |   |
| Mortgage-backed                     |       | 207,302             |       | 1,456 |   | (936 | ) | 207,822 |   |
| States and  political subdivisions  |       | 13,918              |       | 38 |   | (76 | ) | 13,880 |   |
| Total debt  securities              |       | 460,479             |       | 1,723 |   | (3,418 | ) | 458,784 |   |
| Preferred stock                     |       | 621                 |       | — |   | — |   | 621 |   |
| Total                               |       | $                   | 461,100    |   | $ | 1,723 |   | $ | (3,418 | ) | $ | 459,405 |   |

 

The amortized cost andfair value of securities held to maturity are as follows at December 31:

 
| ** **                          | ** ** | **2008**            | ** ** |
|-------------------------------------|------------|---------------------|------------|
| ** **                          | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. government  sponsored entities |       | $                   | 28,072     |   | $ | 759 |   | $ | — |   | $ | 28,831 |   |
| Mortgage-backed                     |       | 193,187             |       | 4,499 |   | (26 | ) | 197,660 |   |
| States and  political subdivisions  |       | 18,975              |       | 98 |   | (636 | ) | 18,437 |   |
| Total                               |       | $                   | 240,234    |   | $ | 5,356 |   | $ | (662 | ) | $ | 244,928 |   |

 
| ** **                         | ** ** | **2007**            | ** ** |
|------------------------------------|------------|---------------------|------------|
| ** **                         | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| Mortgage-backed                    |       | $                   | 11,450     |   | $ | 25 |   | $ | (223 | ) | $ | 11,252 |   |
| States and  political subdivisions |       | 12,626              |       | 137 |   | (62 | ) | 12,701 |   |
| Total                              |       | $                   | 24,076     |   | $ | 162 |   | $ | (285 | ) | $ | 23,953 |   |

 

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Securities withunrealized losses at year end 2008 and 2007 not recognized in income arepresented below by the length of time the securities have been in a continuousunrealized loss position:

 
|                               |   | **2008**                               |       |
|------------------------------------|--------|----------------------------------------|------------|
|                               |   | **Less than 12 Months** |       | **12 Months or More** |   | **Total** |   |
|                               |   | **Fair  Value**                        | ** ** | **Unrealized  Loss** | ** ** | **Fair  Value** | ** ** | **Unrealized  Loss** | ** ** | **Fair  Value** | ** ** | **Unrealized  Loss** |   |
| Corporate                          |   | $                                      | 4,839      |   | $ | 79 |   | $ | 18,838 |   | $ | 674 |   | $ | 23,677 |   | $ | 753 |   |
| Trust Preferred                    |   | —                                 |       | — |   | 3,463 |   | 5,048 |   | 3,463 |   | 5,048 |   |
| Mortgage-backed                    |   | 20,607                                 |       | 143 |   | 3,836 |   | 36 |   | 24,443 |   | 179 |   |
| States and  political subdivisions |   | 15,297                                 |       | 727 |   | — |   | — |   | 15,297 |   | 727 |   |
| Total  temporarily impaired        |   | $                                      | 40,743     |   | $ | 949 |   | $ | 26,137 |   | $ | 5,758 |   | $ | 66,880 |   | $ | 6,707 |   |

 
| ** **                          | ** ** | **2007**                               | ** ** |
|-------------------------------------|------------|----------------------------------------|------------|
| ** **                          | ** ** | **Less than 12 Months** | ** ** | **12 Months or More** | ** ** | **Total** | ** ** |
| ** **                          | ** ** | **Fair  Value**                        | ** ** | **Unrealized  Loss** | ** ** | **Fair  Value** | ** ** | **Unrealized  Loss** | ** ** | **Fair  Value** | ** ** | **Unrealized  Loss** | ** ** |
| Corporate                           |       | $                                      | —     |   | $ | — |   | $ | 34,728 |   | $ | 764 |   | $ | 34,728 |   | $ | 764 |   |
| Trust Preferred                     |       | 7,769                                  |       | 809 |   | — |   | — |   | 7,769 |   | 809 |   |
| U.S. government  sponsored entities |       | —                                 |       | — |   | 165,712 |   | 833 |   | 165,712 |   | 833 |   |
| Mortgage-backed                     |       | 8,775                                  |       | 240 |   | 65,677 |   | 919 |   | 74,452 |   | 1,159 |   |
| States and  political subdivisions  |       | 2,903                                  |       | 51 |   | 10,448 |   | 87 |   | 13,351 |   | 138 |   |
| Total temporarily  impaired         |       | $                                      | 19,447     |   | $ | 1,100 |   | $ | 276,565 |   | $ | 2,603 |   | $ | 296,012 |   | $ | 3,703 |   |

 

Debtsecurities, with the exception of trust preferred, are evaluated forother-than-temporary impairment under FSP SFAS 115-1. The Company’s debtsecurities in an unrealized loss position for greater than 12 months totaled$22,674 and the related unrealized loss totaled $710 as of December 31,2008. In accordance with FSP SFAS 115-1, unrealized losses on these debtsecurities are not recognized if management has the intent and ability to holdthe securities until their maturity date and no concerns exist with the respectto the ability of the issuer to satisfy its obligations at maturity. Managementbelieves that the value of these debt securities with unrealized losses willrecover as the securities approach their maturity date and/or repricing date.The Company has concluded that as of December 31, 2008, these debtsecurities were not other-than-temporarily impaired.

 

The Company currently holds pooled trust preferredsecurities which are evaluated for other-than-temporary impairment under EITF99-20 as amended by EITF 99-20-1. As of December 31, 2008, the unrealizedloss on pooled trust preferred securities held by the Company totaled $5,048,or 59% of the amortized cost. The evaluation under EITF 99-20 includes ananalysis to determine whether there has been an adverse change in the expectedcash flows. The evaluation also includes monitoring the rating assigned bynational rating agencies such as Moody’s Investor Service to determine if anydowngrades have occurred, and a detailed review of the underlying collateral todetermine a break in yield point. The Company does not expect changes in itsnet cash flows from these investments from the cash flows that were originallyanticipated. The Company has concluded that as of December 31, 2008, thepooled trust preferred securities were not other-than-temporarily impaired.

 

During the year ended December 31, 2008, the Company sold the preferredstock issued by the Federal Home Loan Mortgage Corporation (the “FHLMC”) at arealized loss of $81.

 

For the year ended December 31,2007, the Company recognized a $381 pre-tax charge for the other-than-temporarydecline in fair value of preferred stock issued by the FHLMC. As required bySFAS 115, when a decline in fair value below cost is deemed to beother-than-temporary, the unrealized loss must be recognized as a charge toearnings. During the fourth quarter of2007, there was a significant decline in the fair value of the preferred stockand as a result the Company concluded that the preferred stock wasother-than-temporarily impaired.

 

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The amortized costand fair value of debt securities available for sale and held to maturity at December 31,2008 by contractual maturity are as follows:

 
| ** **                          | ** ** | **Available for Sale** | ** ** | **Held to Maturity** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                          | ** ** | **Amortized  Cost**              | ** ** | **Fair Value**            | ** ** | **Amortized  Cost** | ** ** | **Fair Value** | ** ** |
| Due in 1 year or  less              |       | $                                | 14,861     |                           | $          | 14,747 |   | $ | 2,540 |   | $ | 2,541 |   |
| Due after 1 year  through 5 years   |       | 36,421                           |       | 36,899                         |       | 13,177 |   | 13,362 |   |
| Due after 5  years through 10 years |       | 1,091                            |       | 1,105                          |       | 21,599 |   | 22,164 |   |
| Due after 10  years                 |       | 12,898                           |       | 7,769                          |       | 9,731 |   | 9,201 |   |
| Mortgage-backed                     |       | 162,062                          |       | 165,294                        |       | 193,187 |   | 197,660 |   |
| Total                               |       | $                                | 227,333    |                           | $          | 225,814 |   | $ | 240,234 |   | $ | 244,928 |   |

 

Expected maturities willdiffer from contractual maturities because issuers may have the right to callor prepay obligations with or without call or prepayment penalties.Approximately $21,142 of securities are callable in 2009. Most of thesecallable securities were issued by U.S. government sponsored entities.

 

Securities with acarrying value of approximately $130,118 and $40,778 at December 31, 2008and 2007, respectively, were pledged to secure public deposits, fiduciaryactivities and for other purposes required or permitted by law.

 

Sales ofsecurities available for sale were as follows:

 
| ** **             | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|
| Proceeds from  sales   |       | $        | 89,838     |     | $          | 470      |       | $ | — |   |
| Gross realized  gains  |       | 135      |       | —   |       | —   |       |
| Gross realized  losses |       | (98      | )          | (30      | )          | —   |       |
|                        |            |          |            |          |            |          |            |  |  |  |

 

*Net gains on securities transactions in 2008, 2007 and 2006include recoveries of $64, $24 and $85, respectively, on securities writtendown in 2001.*The taxbenefit/expense recorded on securities transactions was not material.

* *

**Note 3 -Loans**

 

Majorclassifications of loans were as follows at December 31:

 
| ** **                 | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|----------------------------|------------|-----------|------------|-----------|------------|
| Commercial                 |       | $         | 288,234    |      | $          | 270,293 |   |
| Consumer                   |       | 4,276     |       | 5,653     |       |
| Indirect  automobile       |       | 4,454     |       | 8,559     |       |
| Real estate                |       |      |       |      |       |
| Residential                |       | 242,947   |       | 224,755   |       |
| Commercial                 |       | 276,995   |       | 249,836   |       |
| Home equity                |       | 257,150   |       | 272,098   |       |
| Construction               |       | 161,532   |       | 191,952   |       |
| Held for sale              |       | 1,768     |       | 350       |       |
| Credit card                |       | 10,484    |       | 11,191    |       |
| Other                      |       | 1,333     |       | 1,153     |       |
| Total                      |       | 1,249,173 |       | 1,235,840 |       |
| Allowance for  loan losses |       | (15,578   | )          | (9,269    | )          |
| Loans, net                 |       | $         | 1,233,595  |      | $          | 1,226,571 |   |

 

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TheCompany makes commercial, consumer and residential real estate loans primarilyto customers throughout the western suburbs of Chicago. Construction loans areprimarily made to customers engaged in the development and construction ofresidential real estate projects within the Company’s market area. From time totime the Company will make loans outside of its market area. At December 31,2008, loans outside the Company’s market area included loans totaling $10,579to a customer with collateral in Arizona and loans totaling $10,000 to a secondcustomer with collateral in Florida.

 

Changes in theallowance for loan losses were as follows for the years ended December 31:

 
| ** **                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of year |       | $        | 9,269      |     | $          | 10,650   |       | $ | 10,681 |   |
| Provision for  loan losses  |       | 10,360   |       | 375      |       | 150      |       |
| Loans  charged-off          |       | (4,295   | )          | (2,046   | )          | (418     | )          |
| Recoveries                  |       | 244      |       | 290      |       | 237      |       |
| Balance, end of  year       |       | $        | 15,578     |     | $          | 9,269    |       | $ | 10,650 |   |

 

Impaired loans aresummarized as follows at December 31:

 
| ** **                                                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Year-end loans  with no allocated allowance for loan losses |       | $        | 21,187     |     | $          | 1,048    |       | $ | 12 |   |
| Year-end loans  with allocated allowance for loan losses    |       | 9,036    |       | 2,685    |       | 9,222    |       |
| Total                                                       |       | $        | 30,223     |     | $          | 3,733    |       | $ | 9,234 |   |

 
| Amount of the  allowance for loan losses allocated to impaired loans at year-end |   | $      | 1,684  |   | $      | 421   |   | $ | 4,689 |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|-------|--------|---|-------|--------|
| Average impaired  loans during the year                                          |   | 20,642 |   | 4,629  |   | 7,060 |   |
| Interest income  recognized during impairment                                    |   | 223    |   | 129    |   | 1,096 |   |

 

Nonperformingloans were as follows at December 31:

 
| ** **                                       | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Loans past due  90 days or more still on accrual |       | $        | 1,705      |     | $          | 480      |       | $ | 319 |   |
| Nonaccrual loans                                 |       | 23,569   |       | 2,297    |       | 1,131    |       |
| Total                                            |       | $        | 25,274     |     | $          | 2,777    |       | $ | 1,450 |   |

 

The Companygenerally sells mortgage loans with servicing rights released.

** **
| ** **                                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Activity during  the year:                  |       |     |       |     |       |     |       |
| Origination of  loans held for sale         |       | $        | 6,828      |     | $          | 6,175    |       | $ | 9,466 |   |
| Proceeds from  sales of loans held for sale |       | 5,480    |       | 5,875    |       | 9,730    |       |
| Net gains on  sales of loans held for sale  |       | 70       |       | 50       |       | 124      |       |
|                                             |            |          |            |          |            |          |            |  |  |  |

 

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# **Note 4 - Premises and Equipment**

# ** **

Majorclassifications of assets comprising premises and equipment are summarized asfollows at December 31:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Land                           |       | $        | 15,263     |     | $          | 15,263 |   |
| Premises                       |       | 45,893   |       | 42,963   |       |
| Furniture and  equipment       |       | 50,208   |       | 47,477   |       |
| Total                          |       | 111,364  |       | 105,703  |       |
| Less accumulated  depreciation |       | (66,066  | )          | (62,606  | )          |
| Premises and  equipment, net   |       | $        | 45,298     |     | $          | 43,097 |   |

 

At December 31,2008, construction of bank premises in progress of $1,446 was included inpremises in the table above. Additionally, at December 31, 2008, $129 offurniture and equipment not yet in service was included in furniture andequipment in the table above.

 

The Company leasescertain branch properties and equipment under operating leases. Rent expensewas $421, $465, and $227 for 2008, 2007 and 2006, respectively. Rentcommitments before considering renewal options that generally are present, aresummarized as follows:

 
| 2009       |   | $   | 717    |   |
|------------|--------|-----|--------|--------|
| 2010       |   | 592 |   |
| 2011       |   | 447 |   |
| 2012       |   | 308 |   |
| 2013       |   | 235 |   |
| Thereafter |   | 558 |   |
| Total      |   | $   | 2,857  |   |

 

##### **Note 5 - Deposits**

 

The major categories ofdeposits are summarized as follows at December 31:

 
| ** **                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Demand-noninterest-bearing |       | $        | 132,664    |     | $          | 141,724 |   |
| NOW                        |       | 310,178  |       | 314,741  |       |
| Money market  checking     |       | 322,207  |       | 292,208  |       |
| Savings                    |       | 320,763  |       | 337,028  |       |
| Time deposits              |       |     |       |     |       |
| Less than  $100,000        |       | 361,313  |       | 380,094  |       |
| $100,000 and  greater      |       | 144,440  |       | 171,919  |       |
| Total                      |       | $        | 1,591,565  |     | $          | 1,637,714 |   |

 

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At December 31,2008, the scheduled maturities of time deposits were as follows:

 
| 2009       |   | $       | 291,178 |   |
|------------|--------|---------|---------|--------|
| 2010       |   | 107,919 |    |
| 2011       |   | 19,658  |    |
| 2012       |   | 18,369  |    |
| 2013       |   | 68,382  |    |
| Thereafter |   | 247     |    |
| Total      |   | $       | 505,753 |   |

 

##### **Note 6 - IncomeTaxes**

 

Income tax expense is asfollows for the years ended December 31:

 
| ** **                       | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Currently  payable tax           |       |     |       |     |       |     |       |
| Federal                          |       | $        | 7,971      |     | $          | 9,767    |       | $ | 11,611 |   |
| State                            |       | (1,311   | )          | —   |       | —   |       |
| Deferred tax  (benefit) provison |       | (1,861   | )          | (1,269   | )          | (1,701   | )          |
| Total                            |       | $        | 4,799      |     | $          | 8,498    |       | $ | 9,910 |   |

 

A reconciliation betweentaxes computed at the statutory federal income tax rate and the consolidatedeffective tax rates follows:

 
| ** **                                      | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Statutory  federal income tax rate              |       | 35.0     | %          | 35.0     | %          | 35.0     | %          |
| Decrease in  taxes resulting from:              |       |     |       |     |       |     |       |
| Tax-exempt  income                              |       | (2.7     | )%         | (1.3     | )%         | (1.1     | )%         |
| State income  taxes, net of federal tax benefit |       | (3.4     | )%         | (1.1     | )%         | (1.3     | )%         |
| Dividends on  ESOP shares                       |       | (5.2     | )%         | (4.1     | )%         | (2.7     | )%         |
| Other items, net                                |       | (1.5     | )%         | (1.9     | )%         | (1.8     | )%         |
| Effective tax  rate                             |       | 22.2     | %          | 26.6     | %          | 28.1     | %          |

 

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The temporary differenceswhich created deferred tax assets and liabilities at December 31 aresummarized below:

 
| ** **                                        | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax  assets                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Allowance for  loan losses                        |       | $          | 6,192      |       | $          | 3,585 |   |
| Deferred  compensation                            |       | 2,139      |       | 3,230      |       |
| Unrealized loss  on securities available for sale |       | 604        |       | 674        |       |
| Nonaccrual loan  interest income                  |       | 515        |       | 33         |       |
| SFAS 158  adjustment                              |       | 254        |       | 260        |       |
| State net  operating loss                         |       | 2,053      |       | 1,474      |       |
| Impairment of  FHLMC preferred stock              |       | —     |       | 152        |       |
| Other                                             |       | 707        |       | 933        |       |
| Total deferred  tax assets                        |       | 12,464     |       | 10,341     |       |
| Deferred tax  liabilities                         |       |       |       |       |       |
| Depreciation                                      |       | 799        |       | 468        |       |
| Federal Home  Loan Bank stock dividends           |       | 611        |       | 611        |       |
| Deposit base  intangible                          |       | 266        |       | 252        |       |
| Qualified  prepaid expenses                       |       | 323        |       | 330        |       |
| Total deferred  tax liabilities                   |       | 1,999      |       | 1,661      |       |
| Net deferred tax  assets                          |       | $          | 10,465     |       | $          | 8,680 |   |

 

Net deferred tax assetsare included in accrued interest and other assets. No valuation allowance was considerednecessary for net deferred tax assets. At December 31, 2008, the Companyhad a net operating loss carryforward for state tax purposes totalingapproximately $43,300, which expire at various dates beginning in 2018.

 

The Company filesincome tax returns in the U.S. federal jurisdiction and in Illinois. TheCompany is no longer subject to examination by the U.S. federal tax authoritiesand by Illinois tax authorities for years prior to 2004.

 

The Companyadopted the provisions of FIN 48 on January 1, 2007. As a result of theimplementation of FIN 48, the Company was not required to recognize anyadditional liability for unrecognized tax benefits. A reconciliation of thebeginning and ending amount of unrecognized tax benefits is as follows:

 
| ** **                              | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
| Balance at  January 1              |       | $        | 1,500      |     | $          | 1,030 |   |
| Adjustments  based on tax positions     |       | 229      |       | 470      |       |
| Reductions of  prior year tax positions |       | (1,729   | )          | —   |       |
| Balance at  December 31            |       | $        | —     |     | $          | 1,500 |   |

 

During the thirdquarter of 2008, a new State of Illinois tax law was passed which providedclarification on an uncertain tax position previously adopted by the Company.As a result, the Company determined that the FIN 48 reserve on the uncertaintax position was no longer necessary and $1,311 of unrecognized tax positionswas reversed. The amount of unrecognized tax benefits as of December 31,2007 was $1,082. The total amount of interest and penalties recorded in theincome statement for the year ended December 31, 2008 and 2007 was notmaterial. The amount accrued for interest and penalties at December 31,2007 was $305.

 

# **Note 7 - Benefit Plans**

 

During 2007, the Bankestablished the West Suburban Bank 401(k) Profit Sharing Plan (the “401(k) Plan”),which is anticipated to serve as the Company’s principal retirement plan. The401(k) Plan was established to address the limited availability of WestSuburban common stock for acquisition by the ESOP and to offer participants anavenue to diversify their retirement savings. The Company made contributions tothe 401(k) Plan totaling $1,623 and $1,454 during 2008 and 2007,respectively.

 

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The ESOP providesincentives to employees by granting participants an interest in West Suburbancommon stock, which represents the ESOP’s primary investment. An individualaccount is established for each participant, and the benefits payable uponretirement, termination, disability or death are based upon service, the amountof the employer’s contributions and any income, expenses, gains and losses andforfeitures allocated to the participant’s account. Contributions, which aredetermined by the board of directors of the Bank, are paid by the Bank andtotaled $2,062 in 2006. The Bank did not make a contribution to the ESOP in2008 or 2007.

 

At December 31,2008 and 2007, the ESOP held 90,270 and 86,617 shares of West Suburban commonstock, respectively, that were allocated to ESOP participants. Upon terminationof their employment, participants who elect to receive their benefitdistributions in the form of West Suburban common stock may require the Companyto purchase the common stock distributed at fair value during two 60-dayperiods. The first purchase period begins on the date the benefit isdistributed and the second purchase period begins on the first anniversary ofthe distribution date. This contingent repurchase obligation is reflected inthe Company’s financial statements as “Common stock in ESOP subject tocontingent repurchase obligation” and reduces shareholders’ equity by an amountthat represents the independently appraised fair value of all West Suburbancommon stock held by the ESOP and allocated to participants, without regard towhether it is likely that the shares would be distributed or that therecipients of the shares would be likely to exercise their right to require theCompany to purchase the shares.

 

During 2008 and 2007,the ESOP distributed $1,483 and $814, respectively, in cash representing theinterests of participants. In addition, the ESOP distributed 192 shares in 2008and 194 shares in 2007 of West Suburban common stock.

 

The Company maintainsdeferred compensation arrangements with certain former and current executiveofficers. The deferred compensation expense was $165, $165 and $190 for theyears ended December 31, 2008, 2007 and 2006, respectively. Executiveofficers can elect to defer the payment of a percentage of their salaries andcash bonuses and members of the board of directors can elect to defer thepayment of their directors’ fees. In addition, the Company makes annual contributionsfor the benefit of current participants ($25 for certain senior executiveofficers and $5 for other executive officers) in the Company’s deferredcompensation arrangements. As of December 31, 2008, 13 current executiveofficers participated in the deferred compensation plan.

 

The total accumulatedliability for all deferred compensation arrangements was $5,381 and $8,124 at December 31,2008 and 2007, respectively. These amounts are included in accrued interest andother liabilities in the consolidated balance sheets.

 

In March 2004, theCompany established a noncontributory postretirement benefit plan coveringcertain senior executives. The plan provides postretirement medical, dental andlong term care coverage for certain executives and their surviving spouses. Theeligible retirement age under the plan is age 62. The Company used a December 31measurement date for its postretirement benefit plan. The plan is unfunded.

 

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Information about changesduring 2008 and 2007 in obligations of the postretirement benefit plan follows:

 
| ** **                                    | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Change in  benefit obligation:                |       |     |       |     |       |
| Beginning  benefit obligation                 |       | $        | 885        |     | $          | 651 |   |
| Service cost                                  |       | 37       |       | 26       |       |
| Interest cost                                 |       | 52       |       | 38       |       |
| Actuarial loss                                |       | 28       |       | 189      |       |
| Benefits paid                                 |       | (22      | )          | (19      | )          |
| Ending benefit  obligation                    |       | 980      |       | 885      |       |
|                                          |       |     |       |     |       |
| Change in plan  assets, at fair value:        |       |     |       |     |       |
| Beginning plan  assets                        |       | —   |       | —   |       |
| Employer  contributions                       |       | 22       |       | 19       |       |
| Benefits paid                                 |       | (22      | )          | (19      | )          |
| Ending plan  assets                           |       | —   |       | —   |       |
|                                          |       |     |       |     |       |
| Funded  (unfunded) status at December 31 |       | $        | (980       | )        | $          | (885 | ) |

 

Amounts recognized inaccumulated other comprehensive loss at December 31 consist of:

 
| ** **          | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Net actuarial  loss |       | $        | 387        |     | $          | 380 |   |
| Prior service  cost |       | 252      |       | 274      |       |
| Total               |       | $        | 639        |     | $          | 654 |   |

 

The accumulated benefitobligation was $980 and $885 at December 31, 2008 and 2007, respectively.

 

Net postretirementbenefit costs included the following components:

 
| ** **                                                | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                              |       | $        | 37         |     | $          | 26       |       | $ | 26 |   |
| Interest cost                                             |       | 52       |       | 38       |       | 30       |       |
| Amortization of  unrecognized prior service cost          |       | 21       |       | 21       |       | 21       |       |
| Amortization of  net loss                                 |       | 21       |       | 10       |       | 4        |       |
| Net periodic  postretirement benefit cost                 |       | 131      |       | 95       |       | 81       |       |
|                                                      |       |     |       |     |       |     |       |
| Net loss                                                  |       | 28       |       | 189      |       | 200      |       |
| Prior service  cost                                       |       | —   |       | —   |       | 295      |       |
| Amortization of  net gain                                 |       | (21      | )          | (9       | )          | —   |       |
| Amortization of  prior service cost                       |       | (21      | )          | (21      | )          | —   |       |
| Total recognized  in other comprehensive (income) loss    |       | (14      | )          | 159      |       | 495      |       |
| Postretirement  benefit cost and other comprehensive loss |       | $        | 117        |     | $          | 254      |       | $ | 576 |   |

 

The estimated net lossand prior service costs for the defined postretirement benefit plan that willbe amortized from accumulated other comprehensive income into net periodicbenefit cost over the next fiscal year are $27 and $21, respectively.

 

The discount rate used todetermine net periodic benefit costs and benefit obligations in 2008 and 2007was 6.25% and 6.00%, respectively.

 

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For measurement purposes,a 10% annual rate of increase in the per capita premium cost of covered healthcare benefits was assumed for 2009, with rates reducing .5% per annum to anultimate rate of 5% in 2017. Dental benefits were assumed to increase 7% for2009 with rates reducing .5% per annum to an ultimate rate of 5% in 2012.

 

Assumed health care costtrend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed health care cost trendrates would have the following effects:

 
| ** **                                               | ** ** | **One-Percentage-Point  Increase** | ** ** | **One-Percentage-Point  Decrease** | ** ** |
|----------------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| Effect on total  service and interest cost               |       | $                                  | 16         |                               | $          | (13 | ) |
| Effect on  accumulated postretirement benefit obligation |       | 165                                |       | (137                               | )          |
|                                                          |            |                                    |            |                                    |            |  |  |

 

The Company expects tocontribute amounts in 2009 to satisfy its obligations. The following benefitpayments, which reflect expected future service, are expected for the yearsindicated:

 

| 2009               |   | $   | 19     |   |
|--------------------|--------|-----|--------|--------|
| 2010               |   | 20  |   |
| 2011               |   | 22  |   |
| 2012               |   | 15  |   |
| 2013               |   | 23  |   |
| Following 5  Years |   | 236 |   |

 

# **Note 8 -Off-Balance-Sheet Risk, Contingent Liabilities and Guarantees**

 

The Company is a partyto off-balance-sheet financial instruments to meet the financing needs of itscustomers. These financial instruments include commitments to extend credit andstandby letters of credit. These financial instruments involve, to varyingdegrees, elements of credit and interest rate risks. Such financial instrumentsare recorded when funded.

 

Commitmentsto extend credit are agreements to lend to a customer as long as there is noviolation of any condition established in the agreement. These commitmentsprimarily consist of unused lines of credit, undrawn portions of constructionloans and commitments to make new loans. Commitments generally have fixedexpiration dates or other termination provisions and may require the payment ofa fee. Since many of the commitments are expected to expire without beingexercised or drawn upon, the total commitment amounts do not necessarilyrepresent future cash requirements.

 

The Company’sexposure to credit risk in connection with commitments to extend credit andstandby letters of credit is the contractual amount of those instruments beforeconsidering customer collateral or ability to repay. The Company uses the samecredit policies in making commitments and conditional obligations as it doesfor on-balance-sheet instruments. The Company generally requires collateral orother security to support financial instruments with credit risk. The Companyevaluates each customer’s creditworthiness on a case-by-case basis. The amountof collateral obtained, if deemed necessary by the Company, is based onmanagement’s credit evaluation of the customer. Collateral held varies and mayinclude accounts receivable, inventory and equipment or commercial orresidential properties.

 

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A summary of thecontractual exposure to off-balance-sheet risk as of December 31 follows:

 
| ** **                            | ** ** | **2008**        | ** ** | **2007**           | ** ** |
|---------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                            | ** ** | **Fixed  Rate** | ** ** | **Variable  Rate** | ** ** | **Total** | ** ** | **Fixed  Rate** | ** ** | **Variable  Rate** | ** ** | **Total** | ** ** |
| Commercial loans  and lines of credit |       | $               | 4,940      |               | $          | 224,216 |   | $ | 229,156 |   | $ | 1,274 |   | $ | 228,725 |   | $ | 229,999 |   |
| Check credit  lines of credit         |       | 1,033           |       | —             |       | 1,033 |   | 1,077 |   | — |   | 1,077 |   |
| Mortgage loans                        |       | 6,712           |       | —             |       | 6,712 |   | 7,802 |   | 884 |   | 8,686 |   |
| Home equity  lines of credit          |       | —          |       | 174,739            |       | 174,739 |   | — |   | 180,918 |   | 180,918 |   |
| Letters of  credit                    |       | —          |       | 22,795             |       | 22,795 |   | — |   | 17,663 |   | 17,663 |   |
| Credit card  lines of credit          |       | —          |       | 40,267             |       | 40,267 |   | — |   | 40,528 |   | 40,528 |   |
| Total                                 |       | $               | 12,685     |               | $          | 462,017 |   | $ | 474,702 |   | $ | 10,153 |   | $ | 468,718 |   | $ | 478,871 |   |

 

Fixedrate commercial loan commitments at December 31, 2008 generally hadinterest rates ranging from 4.97% to 7.25% with remaining terms ranging from 1month to 5 years. Fixed rate mortgage loan commitments at December 31,2008 generally had interest rates ranging from 5.00% to 5.375% with termsranging from 10 to 30 years. Fixed rate check credit lines of credit had aninterest rate of 18.00% as of December 31, 2008.

 

# **Note 9 - Fair Value ofFinancial Instruments**

 

SFAS 157 establishes afair value hierarchy which requires an entity to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fair value.The standard describes three levels of inputs that may be used to measure fairvalue as follows:

 

Level 1:       Quotedprices (unadjusted) for identical assets or liabilities in active markets thatthe entity has the ability to access as of the measurement date.

 

Level 2:       Significantother observable inputs other than Level 1 prices such as quoted prices forsimilar assets or liabilities; quoted prices in markets that are not active; orother inputs that are observable or can be corroborated by observable marketdata.

 

Level 3:       Significantunobservable inputs that reflect a reporting entity’s own assumptions about theassumptions that market participants would use in pricing an asset orliability.

 

The fair values ofsecurities available for sale are determined by obtaining quoted prices onnationally recognized securities exchanges (Level 1 inputs) or matrix pricing,which is a mathematical technique widely used in the industry to value debtsecurities without relying exclusively on quoted prices for the specificsecurities but rather by relying on the securities’ relationship to otherbenchmark quoted securities (Level 2 inputs).

 

A discounted cash flow approach is utilized bymanagement to determine the fair value of the pooled trust preferredsecurities. Information such as historical and current performance of theunderlying collateral, deferral/default rates, collateral coverage ratios,break in yield calculations, cash flow projections, liquidity and creditpremiums required by a market participant, and financial trend analysis withrespect to the individual issuing financial institutions and insurancecompanies, are utilized in determining individual security valuations. Due tocurrent market conditions as well as, the limited trading activity of thesesecurities, the market value of the securities is highly sensitive toassumption changes and market volatility. The overall discount rate andliquidity premiums utilized were highly dependent upon the credit quality ofthe collateral, the relative position of the tranche in the capital structureof the trust preferred security and the prepayment assumptions.

 

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The following assets and liabilities were measured atfair value on a recurring basis:

 
| ** **                     | ** ** | ** **                      | ** ** | **Fair Value Measurements at  December 31, 2008 Using** | ** ** |
|--------------------------------|------------|---------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **December 31, 2008** | ** ** | **Significant Other  Observable Inputs  (Level 2)**                    | ** ** | **Significant  Unobservable Inputs  (Level 3)** | ** ** |
| Assets                         |       |                            |       |                                                                                  |       |   |   |
| Available for  sale securities |       | $                               | 225,814    |                                                                                  | $          | 222,351 |   | $ | 3,463 |   |
|                                |            |                                 |            |                                                                                       |            |  |  |  |  |  |

 

The table below presentsa reconciliation and income statement classification of gains and losses forall assets measured at fair value on a recurring basis using significantunobservable inputs (Level 3) for the year ended December 31, 2008:

 
| ** **                               | ** ** | **Securities Available  For Sale** | ** ** |
|------------------------------------------|------------|----------------------------------------------|------------|
| Beginning  balance, January 1, 2008 |       | $                                            | —     |   |
| Transfers into  Level 3                  |       | 5,835                                        |       |
| Increase in  unrealized loss             |       | (2,393                                       | )          |
| Included in  earnings                    |       |                                         |       |
| Interest income  on securities           |       | 21                                           |       |
| Included in  other comprehensive income  |       | —                                       |       |
| Ending balance,  December 31, 2008  |       | $                                            | 3,463      |   |

 

No changes inunrealized gains or losses were recorded through earnings for the year ended December 31,2008.

 

Assets and liabilitiesmeasured at fair value on a non-recurring basis are summarized below:

 
| ** **     | ** ** | ** **                      | ** ** | **Fair Value Measurements at  December 31, 2008 Using** | ** ** |
|----------------|------------|---------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **     | ** ** | **December 31, 2008** | ** ** | **Significant Other  Observable Inputs  (Level 2)**                    | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
| Assets         |       |                            |       |                                                                                  |       |   |   |
| Impaired loans |       | $                               | 7,352      |                                                                                  | $          | — |   | $ | 7,352 |   |
|                |            |                                 |            |                                                                                       |            |  |  |  |  |  |

 

Impaired loans are evaluated and valued at the lowerof cost or fair value at the time the loan is identified as impaired. Fairvalue is measured based on the value of the collateral securing these loans andis classified at Level 3 in the fair value hierarchy. Collateral may includereal estate and business assets, including equipment, inventory and accountsreceivable, and is determined based on appraisals by qualified licensedappraisers retained by the Company. Appraised and reported values may bediscounted based on management’s historical knowledge, changes in marketconditions from the time of valuation, and/or management’s expertise andknowledge of the client and client’s business. Impaired loans are reviewed andevaluated on at least a quarterly basis for additional impairment and adjustedaccordingly, based on the factors identified above.

 

Impaired loans, which aremeasured for impairment using the fair value of the collateral for collateraldependent loans, had a carrying amount of $9,036 at December 31, 2008. Thevaluation allowance on impaired loans was $1,684 as of December 31, 2008.The valuation allowance made for impaired loans during 2008 was $1,263.

 

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Carrying valuesand estimated fair values of the Company’s financial instruments as of December 31is set forth in the table below:

 
| ** **                             | ** ** | **2008**            | ** ** | **2007**                       | ** ** |
|----------------------------------------|------------|---------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **Carrying  Value** | ** ** | **Estimated  Fair Value** | ** ** | **Carrying  Value** | ** ** | **Estimated  Fair Value** | ** ** |
| Financial assets                       |       |                |       |                           |       |   |   |   |   |
| Cash and cash  equivalents             |       | $                   | 55,474     |                           | $          | 55,474 |   | $ | 33,183 |   | $ | 33,183 |   |
| Securities                             |       |                |       |                           |       |   |   |   |   |
| Available for  sale                    |       | 225,814             |       | 225,814                        |       | 459,405 |   | 459,405 |   |
| Held to maturity                       |       | 240,234             |       | 244,928                        |       | 24,076 |   | 23,953 |   |
| Federal Home  Loan Bank stock          |       | 6,144               |       | N/A                            |       | 5,258 |   | N/A |   |
| Loans, less  allowance for loan losses |       | 1,233,595           |       | 1,218,633                      |       | 1,226,571 |   | 1,242,746 |   |
| Accrued interest                       |       | 6,136               |       | 6,136                          |       | 7,793 |   | 7,793 |   |
|                                   |       |                |       |                           |       |   |   |   |   |
| Financial  liabilities                 |       |                |       |                           |       |   |   |   |   |
| Deposits                               |       | 1,591,565           |       | 1,606,865                      |       | 1,637,714 |   | 1,642,377 |   |
| Federal funds  purchased               |       | 55,000              |       | 55,000                         |       | — |   | — |   |
| Accrued interest                       |       | 5,007               |       | 5,007                          |       | 6,066 |   | 6,066 |   |
|                                        |            |                     |            |                                |            |  |  |  |  |  |  |  |  |

 

Estimated fair value forcash and cash equivalents, accrued interest receivable and payable, demanddeposits and variable rate loans or deposits that reprice frequently and fullyare each based on carrying value. For fixed rate loans or deposits and forvariable rate loans or deposits with infrequent repricing or repricing limits,fair value is based on discounted cash flows using current market rates appliedto estimated life and credit. Fair value of debt is based on current rates forsimilar financing. It was not practical to determine the fair value of FHLBstock due to the restrictions placed on its transferability. The fair value ofoff-balance-sheet items is not considered material.

 

# **Note 10 - Related PartyTransactions**

# ** **

Certain executiveofficers and directors of the Company, their affiliates and companies in whichthey have 10% or more beneficial ownership, are customers of the Bank andreceived loans from the Bank totaling $9,730 and $21,316 at December 31,2008 and 2007, respectively. During 2008, $8,215 in new loans and $8,768 inprincipal payments were made. An additional $11,033 decline in the relatedparty loan balances relates to the resignation of a director of the Bank during2008. Related parties maintained deposits at the Bank totaling $49,261 and$51,442 at December 31, 2008 and 2007, respectively.

 

# **Note 11 - CapitalRequirements**

# ** **

The Company andthe Bank are subject to various regulatory capital requirements administered byfederal banking agencies. Failure to meet minimum capital requirements mayresult in the initiation of actions by regulators that could have directmaterial effects on the financial statements. Under capital adequacy guidelinesand the regulatory framework for prompt corrective action, each entity mustmeet specific capital guidelines that involve quantitative measures of assets,liabilities and certain off-balance-sheet items as calculated under regulatoryaccounting practices. Capital amounts and classifications are also subject toqualitative judgements by the regulators about components, risk weightings andother factors.

 

Regulationsrequire the Company and the Bank to maintain minimum capital amounts and ratios(set forth in the following table). Management believes that as of December 31,2008, the Company and the Bank exceeded all capital adequacy requirements.

 

Management’spresent policy is to limit dividends from the Bank so that the Bank qualifiesas a “well-capitalized” institution as defined by the Federal Deposit InsuranceCorporation Improvement Act of 1991. This policy minimizes the amount ofFederal Deposit Insurance Corporation (“FDIC”) insurance premiums paid by theBank 

 

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and providescapital to fund growth. As of December 31, 2008, the Bank could pay, inthe aggregate, dividends of approximately $15,100 to West Suburban whileremaining a “well-capitalized” institution. Dividends from the Bank are WestSuburban’s primary source of cash flow.

 

Asof December 31, 2008 and 2007, the most recent notifications from the FDICcategorized the Bank as “well- capitalized” under the regulatory framework forprompt corrective action. To be categorized as “well-capitalized”, the Bankmust maintain minimum ratios for total capital to risk weighted assets, Tier 1capital to risk weighted assets and Tier 1 capital to average assets as setforth in the following table. There are no conditions or events since thatnotification that management believes would result in a change of the category.

 

Thecapital amounts and ratios of the Company and the Bank for purposes of theprompt corrective action framework are presented in the table below:

 
| ** **                                      | ** ** | **Actual** | ** ** | **Minimum For  Capital Adequacy  Purposes** | ** ** | **Minumum  To Be Well-  Capitalized** | ** ** |
|-------------------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **Amount** | ** ** | **Ratio**                                             | ** ** | **Amount**                                      | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| **As of December 31, 2008** | ** ** | ** ** | ** ** | ** **                                            | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total capital  (to risk weighted assets)        |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Company                                         |       | $          | 177,062    |                                                  | 12.1       | %                                               | $          | 117,232 |   | 8.0 | % | N/A |   | N/A |   |
| Bank                                            |       | 161,575    |       | 11.0                                                  | %          | 117,136                                         |       | 8.0 | % | 146,421 |   | 10.0 | % |
| Tier 1 capital  (to risk weighted assets)       |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Company                                         |       | 161,484    |       | 11.0                                                  | %          | 58,616                                          |       | 4.0 | % | N/A |   | N/A |   |
| Bank                                            |       | 145,997    |       | 10.0                                                  | %          | 58,568                                          |       | 4.0 | % | 87,852 |   | 6.0 | % |
| Tier 1 capital  (to average assets)             |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Company                                         |       | 161,484    |       | 8.7                                                   | %          | 74,317                                          |       | 4.0 | % | N/A |   | N/A |   |
| Bank                                            |       | 145,997    |       | 7.9                                                   | %          | 74,065                                          |       | 4.0 | % | 92,581 |   | 5.0 | % |
|                                            |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| As of  December 31, 2007                   |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Total capital (to  risk weighted assets)        |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Company                                         |       | $          | 171,440    |                                                  | 11.7       | %                                               | $          | 117,473 |   | 8.0 | % | N/A |   | N/A |   |
| Bank                                            |       | 150,495    |       | 10.3                                                  | %          | 117,330                                         |       | 8.0 | % | 146,663 |   | 10.0 | % |
| Tier 1 capital  (to risk weighted assets)       |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Company                                         |       | 162,170    |       | 11.0                                                  | %          | 58,736                                          |       | 4.0 | % | N/A |   | N/A |   |
| Bank                                            |       | 141,225    |       | 9.6                                                   | %          | 58,665                                          |       | 4.0 | % | 87,998 |   | 6.0 | % |
| Tier 1 capital  (to average assets)             |       |       |       |                                                  |       |                                            |       |   |   |   |   |   |   |
| Company                                         |       | 162,170    |       | 8.8                                                   | %          | 73,848                                          |       | 4.0 | % | N/A |   | N/A |   |
| Bank                                            |       | 141,225    |       | 7.7                                                   | %          | 73,688                                          |       | 4.0 | % | 92,109 |   | 5.0 | % |

 

The appraised fair valueof West Suburban common stock owned by the ESOP is included in Tier 1 capital.

 

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**Note 12 - Other ComprehensiveIncome**

 

Other comprehensiveincome components and related taxes were as follows:

 
| ** **                                                                      | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net unrealized  holding gain on available for sale securities                   |       | $        | 277        |     | $          | 6,968    |       | $ | 4,862 |   |
| Reclassification  adjustments for (gains) and losses later recognized in income |       | (101     | )          | 387      |       | (85      | )          |
| Tax effect                                                                      |       | (70      | )          | (2,923   | )          | (1,899   | )          |
| Net unrealized  gain on available for sale securities                           |       | 106      |       | 4,432    |       | 2,878    |       |
|                                                                            |       |     |       |     |       |     |       |
| Change in  postretirement obligation, gain (loss)                               |       | 15       |       | (159     | )          | —   |       |
| Tax effect                                                                      |       | (6       | )          | 63       |       | —   |       |
| Net change in  postretirement obligation, gain (loss)                           |       | 9        |       | (96      | )          | —   |       |
| Other  comprehensive income                                                     |       | $        | 115        |     | $          | 4,336    |       | $ | 2,878 |   |

 

# **Note 13 - CondensedFinancial Information - Parent Only**

 

**CondensedBalance SheetsDecember 31, 2008 and 2007**

## ** **

| ** **                                                                       | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Assets**                                                                       |       |     |       |     |       |
| Cash                                                                             |       | $        | 14,977     |     | $          | 17,632 |   |
| Securities  available for sale (amortized cost of $0 in 2008 and $2,948 in 2007) |       | —   |       | 2,912    |       |
| Securities held  to maturity (fair value of $4,427 in 2008 and $4,510 in 2007)   |       | 4,703    |       | 4,564    |       |
| Investment in  subsidiary                                                        |       | 144,822  |       | 139,956  |       |
| Other assets                                                                     |       | 985      |       | 1,029    |       |
| **Total  assets**                                                                |       | $        | 165,487    |     | $          | 166,093 |   |
|                                                                             |       |     |       |     |       |
| **Liabilities  and shareholders’ equity**                                   |       |     |       |     |       |
| Dividends  payable                                                               |       | $        | 4,325      |     | $          | 4,325 |   |
| Other  liabilities                                                               |       | 263      |       | 300      |       |
|                                                                             |       |     |       |     |       |
| Common stock in  ESOP subject to contingent repurchase obligation                |       | 46,670   |       | 56,907   |       |
|                                                                             |       |     |       |     |       |
| Shareholders’  equity                                                       |       | 114,229  |       | 104,561  |       |
| **Total  liabilities and shareholders’ equity**                             |       | $        | 165,487    |     | $          | 166,093 |   |

 

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**Condensed Statements of IncomeYears Ended December 31, 2008, 2007 and 2006**

** **
| ** **                                                          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Income**                                                          |       |     |       |     |       |     |       |
| Dividends from  subsidiary                                          |       | $        | 11,761     |     | $          | 20,558   |       | $ | 20,755 |   |
| Interest income                                                     |       |     |       |     |       |     |       |
| Deposits                                                            |       | 242      |       | 513      |       | 573      |       |
| Securities                                                          |       | 279      |       | 291      |       | 291      |       |
| Net realized  gains on securities transactions                      |       | 16       |       | —   |       | —   |       |
| Other                                                               |       | 13       |       | —   |       | 56       |       |
| Total income                                                        |       | 12,311   |       | 21,362   |       | 21,675   |       |
|                                                                |       |     |       |     |       |     |       |
| **Expense**                                                         |       |     |       |     |       |     |       |
| Other                                                               |       | 659      |       | 417      |       | 382      |       |
| Total expense                                                       |       | 659      |       | 417      |       | 382      |       |
| **Income  before income taxes**                                     |       | 11,652   |       | 20,945   |       | 21,293   |       |
| **Income  tax (benefit) expense**                                   |       | (190     | )          | 14       |       | 120      |       |
| **Income  before equity in undistributed net income of subsidiary** |       | 11,842   |       | 20,931   |       | 21,173   |       |
| **Equity  in undistributed net income of subsidiary**               |       | 4,974    |       | 2,482    |       | 4,178    |       |
| **Net  income**                                                     |       | $        | 16,816     |     | $          | 23,413   |       | $ | 25,351 |   |

 

**Condensed Statements of Cash FlowsYears Ended December 31, 2008, 2007 and 2006**

** **
| ** **                                                                        | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Cash  flows from operating activities**                                         |       |     |       |     |       |     |       |
| Net income                                                                        |       | $        | 16,816     |     | $          | 23,413   |       | $ | 25,351 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities |       |     |       |     |       |     |       |
| Deferred income  tax (benefit) provision                                          |       | (7       | )          | 7        |       | 8        |       |
| Equity in  undistributed net income of subsidiary                                 |       | (4,974   | )          | (2,482   | )          | (4,178   | )          |
| Net discount  accretion of securities                                             |       | (131     | )          | (121     | )          | (121     | )          |
| Net realized  gains on securities transactions                                    |       | (16      | )          | —   |       | —   |       |
| Decrease  (increase) in other assets                                              |       | 37       |       | (69      | )          | (42      | )          |
| (Decrease)  increase in other liabilities                                         |       | (37      | )          | 41       |       | 49       |       |
| **Net  cash provided by operating activities**                                    |       | 11,688   |       | 20,789   |       | 21,067   |       |
| **Cash  flows from investing activities**                                         |       |     |       |     |       |     |       |
| Securities  available for sale                                                    |       |     |       |     |       |     |       |
| Sales                                                                             |       | 2,472    |       | —   |       | —   |       |
| Maturities and  calls                                                             |       | 485      |       | —   |       | —   |       |
| **Net  cash provided by investing activities**                                    |       | 2,957    |       | —   |       | —   |       |
| **Cash  flows from financing activities**                                         |       |     |       |     |       |     |       |
| Cash dividends  paid                                                              |       | (17,300  | )          | (21,625  | )          | (21,625  | )          |
| **Net  cash used in financing activities**                                        |       | (17,300  | )          | (21,625  | )          | (21,625  | )          |
| **Net  decrease in cash**                                                         |       | (2,655   | )          | (836     | )          | (558     | )          |
| **Beginning  cash**                                                               |       | 17,632   |       | 18,468   |       | 19,026   |       |
| **Ending  cash**                                                                  |       | $        | 14,977     |     | $          | 17,632   |       | $ | 18,468 |   |

 

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# **Note 14 - Quarterly Results of Operations(Unaudited)**

 

The following table setsforth certain unaudited income, expense and per share data on a quarterly basisfor the three-month periods indicated:

 
| ** **                                           | ** ** | **Fourth  Quarter** | ** ** | **Third  Quarter** | ** ** | **Second  Quarter** | ** ** | **First  Quarter** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
| **Year Ended December 31, 2008**                |       |                |       |               |       |                |       |               |       |
| Interest income                                      |       | $                   | 22,534     |               | $          | 23,785              |       | $                  | 23,876     |   | $ | 24,865 |   |
| Interest expense                                     |       | 7,567               |       | 7,951              |       | 8,331               |       | 10,123             |       |
| Net interest  income                                 |       | 14,967              |       | 15,834             |       | 15,545              |       | 14,742             |       |
| Provision for  loan losses                           |       | 3,250               |       | 4,060              |       | 2,200               |       | 850                |       |
| Net interest  income after provision for loan losses |       | 11,717              |       | 11,774             |       | 13,345              |       | 13,892             |       |
| Noninterest  income                                  |       | 5,854               |       | 7,076              |       | 7,312               |       | 8,428              |       |
| Noninterest  expense                                 |       | 13,848              |       | 14,301             |       | 15,133              |       | 14,501             |       |
| Income before  income taxes                          |       | 3,723               |       | 4,549              |       | 5,524               |       | 7,819              |       |
| Income tax  expense                                  |       | 1,308               |       | 72                 |       | 1,277               |       | 2,142              |       |
| Net income                                           |       | $                   | 2,415      |               | $          | 4,477               |       | $                  | 4,247      |   | $ | 5,677 |   |
| Earnings per  share                                  |       | $                   | 5.58       |               | $          | 10.35               |       | $                  | 9.82       |   | $ | 13.13 |   |
|                                                 |       |                |       |               |       |                |       |               |       |
| Year Ended December 31, 2007                    |       |                |       |               |       |                |       |               |       |
| Interest income                                      |       | $                   | 26,048     |               | $          | 27,647              |       | $                  | 27,673     |   | $ | 27,094 |   |
| Interest expense                                     |       | 11,661              |       | 12,304             |       | 12,160              |       | 12,081             |       |
| Net interest  income                                 |       | 14,387              |       | 15,343             |       | 15,513              |       | 15,013             |       |
| Provision for  loan losses                           |       | 275                 |       | 100                |       | —              |       | —             |       |
| Net interest  income after provision for loan losses |       | 14,112              |       | 15,243             |       | 15,513              |       | 15,013             |       |
| Noninterest  income                                  |       | 6,846               |       | 7,075              |       | 6,814               |       | 6,329              |       |
| Noninterest  expense                                 |       | 14,547              |       | 13,799             |       | 13,769              |       | 12,919             |       |
| Income before  income taxes                          |       | 6,411               |       | 8,519              |       | 8,558               |       | 8,423              |       |
| Income tax  expense                                  |       | 1,480               |       | 2,444              |       | 2,506               |       | 2,068              |       |
| Net income                                           |       | $                   | 4,931      |               | $          | 6,075               |       | $                  | 6,052      |   | $ | 6,355 |   |
| Earnings per  share                                  |       | $                   | 11.40      |               | $          | 14.04               |       | $                  | 14.00      |   | $ | 14.69 |   |

 

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**STOCK PERFORMANCE PRESENTATION**

 

*The stock performance graph belowshall not be deemed incorporated by reference by any general statementincorporating by reference this annual report into any filing under theSecurities Act of 1933 or under the Securities Exchange Act of 1934, except tothe extent West Suburban specifically incorporates this information byreference, and shall not otherwise be deemed filed under such Acts.*

 

The Securities and Exchange Commissionrequires that West Suburban include a line-graph presentation comparingcumulative, five-year shareholder returns on an indexed basis with the Standard &Poor’s 500 Stock Index (“S&P 500”) and either a nationally recognizedindustry standard or an index of peer companies selected by West Suburban. TheBoard of Directors has elected to compare an investment in its stock to a peergroup index rather than a published industry index because it believes the peergroup index includes companies whose businesses are more similar to that of theCompany than any published index. The “old peer group” index is comprised ofthe following companies selected by West Suburban (based on their similarity insize, loan portfolios and business markets):****1stSource Corporation; AMCORE Financial Inc.; Corus Bankshares Inc.; MB FinancialInc.; Midwest Banc Holdings Inc.; Old Second Bancorp, Inc.; PrivateBancorp, Inc.;and Wintrust Financial Corporation. The “new peer group” index is intended toreflect a broader group of comparable companies as of a current date. The “newpeer group” index is comprised of the following companies selected by WestSuburban (based on their similarity in size, loan portfolios and business markets):1st Source Corporation; AMCORE Financial Inc.; Corus Bankshares Inc.; MBFinancial Inc.; Midwest Banc Holdings Inc.; Old Second Bancorp, Inc.;PrivateBancorp, Inc.; Taylor Capital Group, Inc.; and WintrustFinancial Corporation.

 

**COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN***

AmongWest Suburban Bancorp, Inc., The S&P 500 Index,An Old Peer Group And A New Peer Group

 

 

----

*$100 invested on 12/31/03 in stock orindex, including reinvestment of dividends.Fiscal year ending December 31.

 

Copyright© 2009 S&P, a division ofThe McGraw-Hill Companies Inc. All rights reserved.

 

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The following table sets forth the dollar amounts of the annual TotalReturns (as defined below) for the Company, the S&P 500, the “old peergroup” and the “new peer group”, which are plotted on the line graph on theprevious page. “Total Return” means the sum of dividends received, assuming dividendreinvestment, and the increase (or decrease) in the share price at the end ofthe period compared to the beginning of the period, divided by the share priceat the beginning of the period.

 
| ** **     | ** ** | **Total Return Based on Initial Investment of $100.00** | ** ** |
|----------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **     | ** ** | **2003**                                                                                   | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
| The Company    |       | $                                                                                          | 100.00     |   | $ | 108.54 |   | $ | 115.92 |   | $ | 132.23 |   | $ | 131.32 |   | $ | 108.18 |   |
| S&P 500    |       | $                                                                                          | 100.00     |   | $ | 110.88 |   | $ | 116.33 |   | $ | 134.70 |   | $ | 142.10 |   | $ | 89.53 |   |
| Old Peer Group |       | $                                                                                          | 100.00     |   | $ | 128.96 |   | $ | 131.08 |   | $ | 134.15 |   | $ | 92.78 |   | $ | 61.11 |   |
| New Peer Group |       | $                                                                                          | 100.00     |   | $ | 129.31 |   | $ | 132.41 |   | $ | 134.62 |   | $ | 92.19 |   | $ | 59.24 |   |

 

The Total Returns of the companies included in the above peer groupshave been assigned various weights based on their relative marketcapitalizations.

 

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# **SELECTED FINANCIAL DATA**

(Dollars inthousands, except per share data)

 

Thefollowing information should be read in conjunction with Management’sDiscussion and Analysis of Financial Condition and Results of Operations andthe Company’s Consolidated Financial Statements and Notes to ConsolidatedFinancial Statements included in this annual report.

 
| ** **                                                                                                                            | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Selected  operating data**                                                                                                          |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest income                                                                                                                       |       | $                                           | 95,060     |   | $ | 108,462 |   | $ | 105,736 |   | $ | 89,389 |   | $ | 79,326 |   |
| Interest expense                                                                                                                      |       | 33,972                                      |       | 48,206 |   | 45,334 |   | 30,269 |   | 21,839 |   |
| Net interest  income                                                                                                                  |       | 61,088                                      |       | 60,256 |   | 60,402 |   | 59,120 |   | 57,487 |   |
| Provision for loan  losses                                                                                                            |       | 10,360                                      |       | 375 |   | 150 |   | 1,375 |   | 200 |   |
| Net interest  income after provision for loan losses                                                                                  |       | 50,728                                      |       | 59,881 |   | 60,252 |   | 57,745 |   | 57,287 |   |
| Noninterest  income (1)                                                                                                               |       | 28,670                                      |       | 27,064 |   | 22,865 |   | 23,571 |   | 18,407 |   |
| Noninterest  expense                                                                                                                  |       | 57,783                                      |       | 55,034 |   | 47,856 |   | 45,507 |   | 43,107 |   |
| Income before  income taxes                                                                                                           |       | 21,615                                      |       | 31,911 |   | 35,261 |   | 35,809 |   | 32,587 |   |
| Income tax  expense                                                                                                                   |       | 4,799                                       |       | 8,498 |   | 9,910 |   | 10,323 |   | 8,929 |   |
| Net income                                                                                                                            |       | $                                           | 16,816     |   | $ | 23,413 |   | $ | 25,351 |   | $ | 25,486 |   | $ | 23,658 |   |
|                                                                                                                                  |       |                                        |       |   |   |   |   |   |   |   |   |
| **Per share  data**                                                                                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Earnings                                                                                                                              |       | $                                           | 38.88      |   | $ | 54.13 |   | $ | 58.62 |   | $ | 58.93 |   | $ | 54.82 |   |
| Cash dividends  declared                                                                                                              |       | 40.00                                       |       | 50.00 |   | 50.00 |   | 50.00 |   | 50.00 |   |
| Book value (2)                                                                                                                        |       | 372.03                                      |       | 373.34 |   | 359.18 |   | 344.60 |   | 347.87 |   |
|                                                                                                                                  |       |                                        |       |   |   |   |   |   |   |   |   |
| **Selected  balances, end of year**                                                                                                   |       |                                        |       |   |   |   |   |   |   |   |   |
| Securities                                                                                                                            |       | $                                           | 472,192    |   | $ | 488,739 |   | $ | 503,201 |   | $ | 536,362 |   | $ | 558,883 |   |
| Loans, less  allowance for loan losses                                                                                                |       | 1,233,595                                   |       | 1,226,571 |   | 1,153,885 |   | 1,091,747 |   | 1,046,125 |   |
| Total assets                                                                                                                          |       | 1,867,558                                   |       | 1,851,357 |   | 1,876,643 |   | 1,827,191 |   | 1,748,049 |   |
| Deposits                                                                                                                              |       | 1,591,565                                   |       | 1,637,714 |   | 1,677,844 |   | 1,639,666 |   | 1,569,742 |   |
| Shareholders’  equity plus common stock in ESOP subject to contingent repurchase obligation  (2)                                 |       | 160,899                                     |       | 161,468 |   | 155,344 |   | 149,038 |   | 150,454 |   |
|                                                                                                                                  |       |                                        |       |   |   |   |   |   |   |   |   |
| **Ratios**                                                                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Return on  average total assets                                                                                                       |       | 0.90                                        | %          | 1.26 | % | 1.38 | % | 1.43 | % | 1.36 | % |
| Return on  average shareholders’ equity plus common stock in ESOP subject to contingent  repurchase obligation (2)               |       | 10.40                                       | %          | 14.83 | % | 16.83 | % | 17.05 | % | 15.58 | % |
| Cash dividends  declared to net income                                                                                                |       | 102.88                                      | %          | 92.36 | % | 85.30 | % | 84.85 | % | 91.41 | % |
| Average  shareholders’ equity plus common stock in ESOP subject to contingent  repurchase obligation to average total assets (2) |       | 8.67                                        | %          | 8.49 | % | 8.18 | % | 8.40 | % | 8.73 | % |
| Net interest  margin (3)                                                                                                              |       | 3.58                                        | %          | 3.50 | % | 3.54 | % | 3.59 | % | 3.60 | % |

 

----

| (1) |   | Noninterest income  includes gains (losses) on sales on securities of $101 in 2008, ($6) in 2007,  $85 in 2006, $206 in 2005 and ($2,004) in 2004. Noninterest income for 2007  includes the impairment of FHLMC stock of ($381).                                                         |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | See Note 7 to the Company’s consolidated financial  statements and “Non-GAAP Financial Measures.” This presentation is consistent  with the Company’s belief that it is unlikely that the Company would be  required to satisfy the contingent repurchase obligation. |
| (3) |   | Net interest margin is  presented on a tax equivalent basis, assuming a federal income tax rate of  35%.                                                                                                                                                                                  |

 

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# **NON-GAAP FINANCIALMEASURES**

# ** **

The accounting andreporting policies of the Company conform to accounting principles generallyaccepted in the United States (“GAAP”). However, management uses certainnon-GAAP measures and ratios to evaluate and measure the Company’s performance.These measures and ratios include book value per share, return on shareholders’equity and average shareholders’ equity to average total assets. For each ofthese measures and ratios, the Company adds to shareholders’ equity the amountin “common stock in ESOP subject to contingent repurchase obligation.” Underthe ESOP, the Company has certain contingent repurchase obligations to buy backcommon stock distributed to participants, as described in more detail in Note 7to the Company’s audited financial statements. This contingent repurchaseobligation is reflected in the Company’s financial statements as “common stockin ESOP subject to contingent repurchase obligation” and, in accordance withGAAP, reduces shareholders’ equity. The Company believes that it is unlikelythat the Company would be required to satisfy its contingent repurchaseobligation and therefore believes that adjusting shareholders’ equity by adding“common stock in ESOP subject to contingent repurchase obligation” to thatamount provides a more meaningful view of the applicable measures and ratios.In addition, management believes that the return on average shareholders’equity, a financial measure frequently considered to evaluate the performanceof bank holding companies, would be significantly overstated.

 

The following tablepresents a reconciliation of certain non-GAAP performance measures and ratiosused by the Company to the most directly comparable GAAP financial measures forthe years ended December 31:

 
| ** **                                                                                                                                       | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Shareholders’  equity (GAAP)                                                                                                                |       | $        | 114,229    |     | $          | 104,561  |       | $        | 95,335     |     | $          | 94,660 |   | $ | 96,495 |   |
| Shareholders’  equity plus common stock in ESOP subject to contingent repurchase obligation  (non-GAAP)                                     |       | 160,899  |       | 161,468  |       | 155,344  |       | 149,038  |       | 150,454  |       |
| Book Value Per  Share (GAAP) (1)                                                                                                                 |       | 264.12   |       | 241.76   |       | 220.43   |       | 218.87   |       | 223.60   |       |
| Book Value Per  Share (non-GAAP) (2)                                                                                                             |       | 372.03   |       | 373.34   |       | 359.18   |       | 344.60   |       | 347.87   |       |
| Return on  average shareholders’ equity (GAAP) (3)                                                                                          |       | 16.01    | %          | 24.04    | %          | 27.05    | %          | 26.62    | %          | 23.64    | %          |
| Return on  average shareholders’equity plus common stock in ESOP subject to contingent  repurchase obligation (non-GAAP) (4)                |       | 10.40    | %          | 14.83    | %          | 16.83    | %          | 17.05    | %          | 15.58    | %          |
| Average  shareholders’ equity to average total assets (GAAP) (5)                                                                            |       | 5.63     | %          | 5.24     | %          | 5.09     | %          | 5.38     | %          | 5.75     | %          |
| Average  shareholders’ equity plus common stock in ESOP subject to contingent  repurchase obligation to average total assets (non-GAAP) (6) |       | 8.67     | %          | 8.49     | %          | 8.18     | %          | 8.40     | %          | 8.73     | %          |
|                                                                                                                                                  |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

----

| (1) |   | Book Value Per Share (GAAP) equals shareholders’ equity divided by the  number of outstanding shares.                                                                                                                                                                                     |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Book Value Per Share (non-GAAP) equals shareholders’ equity plus  common stock in ESOP subject to contingent repurchase obligation divided by  the number of outstanding shares.                                                                                                          |
| (3) |   | Return on average shareholders’ equity (GAAP) equals net income  divided by average shareholders’ equity.                                                                                                                                                                            |
| (4) |   | Return on average shareholders’ equity plus common stock in ESOP  subject to contingent repurchase obligation (non-GAAP) equals net income divided  by average shareholders’ equity plus common stock in ESOP subject to  contingent repurchase obligation.                          |
| (5) |   | Average shareholders’ equity to average total assets (GAAP) equals  average shareholders’ equity divided by average total assets.                                                                                                                                                    |
| (6) |   | Average  shareholders’ equity plus common stock in ESOP subject to contingent  repurchase obligation to average total assets (non-GAAP) equals average  shareholders’ equity plus common stock in ESOP subject to contingent  repurchase obligation divided by average total assets. |

 

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**AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND****AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS**

(Dollars inthousands)

 

The following tablepresents for the years indicated the total dollar amount of interest incomefrom average interest-earning assets and their yields, as well as the interestexpense on average interest-bearing liabilities and their costs, expressed bothin dollars and rates. All average balances are daily average balances. To theextent received, interest on nonaccruing loans has been included in the table.

 
| ** **                                                                                            | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2008**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                                                  |       | **Average  Balance**                        | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| **Assets**                                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds  sold                                                                                   |       | $                                           | 7,898      |   | $ | 198 |   | 2.5 | % | $ | 58,267 |   | $ | 3,061 |   | 5.3 | % | $ | 58,208 |   | $ | 2,932 |   | 5.0 | % |
| Securities                                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                               |       | 465,555                                     |       | 21,109 |   | 4.5 | % | 467,953 |   | 19,192 |   | 4.1 | % | 503,161 |   | 19,222 |   | 3.8 | % |
| Exempt from  federal income tax (1)                                                                   |       | 30,428                                      |       | 1,809 |   | 5.9 | % | 27,789 |   | 1,725 |   | 6.2 | % | 25,684 |   | 1,600 |   | 6.2 | % |
| Total securities  (1)                                                                                 |       | 495,983                                     |       | 22,918 |   | 4.6 | % | 495,742 |   | 20,917 |   | 4.2 | % | 528,845 |   | 20,822 |   | 3.9 | % |
| Loans (1)(2)                                                                                          |       | 1,231,226                                   |       | 72,916 |   | 5.9 | % | 1,185,439 |   | 85,181 |   | 7.2 | % | 1,136,102 |   | 82,574 |   | 7.3 | % |
| Total  interest-earning assets (1)(2)                                                                 |       | 1,735,107                                   |       | 96,032 |   | 5.5 | % | 1,739,448 |   | 109,159 |   | 6.3 | % | 1,723,155 |   | 106,328 |   | 6.2 | % |
| Cash and due from  banks                                                                              |       | 34,877                                      |       |   |   |   |   | 38,444 |   |   |   |   |   | 40,142 |   |   |   |   |   |
| Premises and  equipment, net                                                                          |       | 43,827                                      |       |   |   |   |   | 42,074 |   |   |   |   |   | 40,124 |   |   |   |   |   |
| Other real estate                                                                                     |       | 997                                         |       |   |   |   |   | 627 |   |   |   |   |   | 550 |   |   |   |   |   |
| Allowance for  loan losses                                                                            |       | (11,505                                     | )          |   |   |   |   | (9,985 | ) |   |   |   |   | (10,721 | ) |   |   |   |   |
| Accrued interest  and other assets (2)                                                                |       | 61,977                                      |       |   |   |   |   | 49,648 |   |   |   |   |   | 47,808 |   |   |   |   |   |
| **Total  assets**                                                                                     |       | $                                           | 1,865,280  |   |   |   |   |   | $ | 1,860,256 |   |   |   |   |   | $ | 1,841,058 |   |   |   |   |   |
| **Liabilities  and shareholders’ equity**                                                        | ** ** | ** **                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  deposits                                                                            | ** ** | ** **                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW                                                                                                   |       | $                                           | 307,033    |   | 1,347 |   | 0.4 | % | $ | 306,680 |   | 2,881 |   | 0.9 | % | $ | 315,209 |   | 2,873 |   | 0.9 | % |
| Money market  checking                                                                                |       | 326,367                                     |       | 8,021 |   | 2.5 | % | 290,610 |   | 12,415 |   | 4.3 | % | 254,492 |   | 10,642 |   | 4.2 | % |
| Savings                                                                                               |       | 334,266                                     |       | 2,627 |   | 0.8 | % | 359,173 |   | 6,347 |   | 1.8 | % | 398,013 |   | 8,920 |   | 2.2 | % |
| Time deposits                                                                                         |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less than  $100,000                                                                                   |       | 368,943                                     |       | 15,282 |   | 4.1 | % | 393,708 |   | 18,516 |   | 4.7 | % | 381,062 |   | 16,005 |   | 4.2 | % |
| $100,000 and greater                                                                                  |       | 146,492                                     |       | 6,031 |   | 4.1 | % | 164,785 |   | 8,044 |   | 4.9 | % | 154,178 |   | 6,863 |   | 4.5 | % |
| Total  interest-bearing deposits                                                                      |       | 1,483,101                                   |       | 33,308 |   | 2.2 | % | 1,514,956 |   | 48,203 |   | 3.2 | % | 1,502,954 |   | 45,303 |   | 3.0 | % |
| Other  interest-bearing liabilities                                                                   |       | 32,375                                      |       | 664 |   | 2.1 | % | 65 |   | 3 |   | 4.6 | % | 738 |   | 31 |   | 4.2 | % |
| Total  interest-bearing liabilities                                                                   |       | 1,515,476                                   |       | 33,972 |   | 2.2 | % | 1,515,021 |   | 48,206 |   | 3.2 | % | 1,503,692 |   | 45,334 |   | 3.0 | % |
| Demand-noninterest-bearing  deposits                                                                  |       | 138,106                                     |       |   |   |   |   | 145,314 |   |   |   |   |   | 152,423 |   |   |   |   |   |
| Accrued interest  and other liabilities                                                               |       | 50,035                                      |       |   |   |   |   | 42,001 |   |   |   |   |   | 34,315 |   |   |   |   |   |
| Shareholders’  equity plus common stock in ESOP subject to contingent repurchase obligation  (3) |       | 161,663                                     |       |   |   |   |   | 157,920 |   |   |   |   |   | 150,628 |   |   |   |   |   |
| **Total  liabilities and shareholders’ equity**                                                  |       | $                                           | 1,865,280  |   |   |   |   |   | $ | 1,860,256 |   |   |   |   |   | $ | 1,841,058 |   |   |   |   |   |
| Net interest  income                                                                                  |       |                                        |       | $ | 62,060 |   |   |   |   |   | $ | 60,953 |   |   |   |   |   | $ | 60,994 |   |   |   |
| Interest rate  spread                                                                                 |       |                                        |       |   |   | 3.3 | % |   |   |   |   | 3.1 | % |   |   |   |   | 3.2 | % |
| Net interest  margin (1)                                                                              |       |                                        |       |   |   | 3.6 | % |   |   |   |   | 3.5 | % |   |   |   |   | 3.5 | % |

 

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| (1) |   | Interest income, net  interest margin and yields are presented on a tax equivalent basis, assuming  a federal income tax rate of 35%.                                                                                                                                                     |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | The average balances of  nonaccrual loans are included in accrued interest and other assets.                                                                                                                                                                                              |
| (3) |   | See Note 7 to the Company’s consolidated financial  statements and “Non-GAAP Financial Measures.” This presentation is consistent  with the Company’s belief that it is unlikely that the Company would be  required to satisfy the contingent repurchase obligation. |

 

 

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## **MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**

## ** **

The followingdiscussion and analysis provides information regarding the Company’s financialcondition as of December 31, 2008 and 2007, and the results of operationsfor each of the three years in the period ended December 31, 2008. Thisdiscussion and analysis should be read in conjunction with the Company’sConsolidated Financial Statements and Notes to Consolidated FinancialStatements included in this annual report. The financial information providedbelow is rounded in order to simplify the presentation of management’sdiscussion and analysis. However, the ratios and percentages provided below arecalculated using the more detailed financial information contained in thefinancial statements, notes and tables included elsewhere in this annualreport.

 

###### ***Critical Accounting Policies***

###### *** ***

*The Company’s financial statements are prepared inconformity with accounting principles generally accepted in the United Statesof America. These accounting principles, which can be complex, are significantto our financial condition and our results of operations and require managementto apply significant judgment with respect to various accounting, reporting anddisclosure matters. Management must use estimates, assumptions and judgments toapply these principles where actual measurements are not possible or practical.These estimates, assumptions and judgments are based on information availableas of the date of this report and, as this information changes, actual resultscould differ from the estimates, assumptions and judgments reflected in thefinancial statements. Changes in such estimates may have a significant impacton the financial statements. Management has reviewed the application of thesepolicies with the Audit Committee of West Suburban’s Board of Directors. ThisManagement’s Discussion and Analysis of Financial Condition and Results of Operationsshould be read in conjunction*theCompany’s Consolidated Financial Statements and Notes to Consolidated FinancialStatements included in this annual report.

* *

Inmanagement’s view, the accounting policies that are critical to the Company arethose relating to estimates, assumptions and judgments regarding thedetermination of the adequacy of the allowance for loan losses, the Company’sfederal and state tax obligations and the determination of the fair value ofcertain of the Company’s investment securities.

 

**Allowancefor Loan Losses.** The Company maintains an allowance for loanlosses at a level management believes is sufficient to absorb probable incurredcredit losses in the loan portfolio. The allowance for loan losses representsthe Company’s estimate of probable incurred credit losses in the loan portfolioat each balance sheet date and is based on the review of available and relevantinformation. The allowance contains allocations for probable incurred creditlosses that have been identified relating to specific borrowing relationshipsas well as probable incurred credit losses for pools of loans. The allowancefor loan losses is reassessed monthly by the Company to determine theappropriate level of the allowance. The amount of the allowance for loan lossesis determined based on a variety of factors, including assessment of the creditrisk of the loans in the loan portfolio, volume of the loans, delinquent loans,evaluation of current economic conditions in the market area, actual charge-offsduring the period and historical loss experience. Loan quality is continuallymonitored by management and reviewed by the loan committee on a monthly basis.

 

All categories of loansare evaluated on a category by category basis. In addition, individual commercial,construction and commercial mortgage loans are evaluated to determine if aspecific loss allocation is needed for problem loans deemed to have a shortfallin collateral. Management also considers the borrower’s current economic statusincluding liquidity and future business viability. Other factors used in theallocation of the allowance include levels and trends of past dues andcharge-offs along with concentrations of credit within the commercial andcommercial real estate loan portfolios. This evaluation is inherentlysubjective as it requires estimates that are susceptible to significantrevision as more information becomes available or as developments occur. Alongwith the allocation of the allowance on a category by category basis and the specificallocations for individual borrowing relationships, the allowance includes arelatively small portion that remains unallocated. Management adjusts the allowance for loan losses by an amount sufficientto maintain the allowance at the level determined appropriate. Loans arecharged-off when deemed to be uncollectible by management. The Company believesthat the allowance for loan losses is adequate to provide for estimatedprobable incurred credit losses in the loan portfolio.

 

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**Income Taxes.**The Company is subject to income tax laws of the United States and the State ofIllinois. These laws are complex and subject to different interpretations bythe taxpayer and the various taxing authorities. Management makes certainjudgments and estimates about the application of these inherently complex lawswhen determining the provision for income taxes. Federal and state taxingauthorities have recently become increasingly aggressive in challenging taxpositions taken by financial institutions, including positions that may betaken by the Company. During the preparation of the Company’s tax returns,management makes reasonable interpretations of the tax laws which are subjectto challenge upon audit by the tax authorities. These interpretations are alsosubject to reinterpretation based on management’s ongoing assessment of factsand evolving case law.

 

On a quarterly basis,management evaluates the reasonableness of its effective tax rate based uponits current best estimate of net income and applicable taxes expected for thefull year. Deferred tax assets and liabilities are evaluated on a quarterlybasis, or more frequently if necessary.

 

**Temporary Decline inFair Value of Securities.**  The Company evaluates its securities forother-than-temporary impairment under FSP SFAS 115-1 or EITF 99-20. FSP SFAS115-1 applies to debt securities within the scope of SFAS 115, as well asequity securities not accounted for under the equity method (i.e., cost methodinvestments), unless the investments are subject to other accounting guidance,such as EITF 99-20. Investments in securitized structures such ascollateralized mortgage obligations and collateralized debt obligations thatare not high quality investment grade securities upon acquisition are subjectto EITF 99-20. High quality investment grade securities are defined assecurities with an investment grade of “AA” or higher.

 

In accordance withFSP SFAS 115-1, declines in the fair value of securities below their cost thatare other-than-temporary are reflected as realized losses. Management evaluatesall debt securities, except for trust preferred securities, to determine if managementhas the intent and ability to hold the securities until their maturity date andno concerns exist with the respect to the ability of the issuer to satisfy itsobligations at maturity.

 

Managementevaluates pooled trust preferred securities in accordance with EITF 99-20, which requires theevaluation of the expected cash flows to determine whether there has been anadverse change in the expected cash flows. Additionally, the Company monitorsinvestment grades on the pooled trust preferred securities to determine whetherthere has been an adverse change in the investment grades and performs ananalysis of the underlying collateral to determine a break in yield point. Anyadverse changes in expected cash flows that are other-than-temporary arereflected as realized losses.

 

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

 

Through the normal courseof operations, the Company has entered into certain contractual obligations andother commitments. Such obligations generally relate to the funding ofoperations through deposits, as well as leases for premises and equipment. As afinancial services provider, the Company routinely enters into commitments toextend credit. While contractual obligations represent future cash requirementsof the Company, a significant portion of commitments to extend credit mayexpire without being drawn upon. Such commitments are subject to the samecredit policies and approval as comparable loans made by the Company.

 

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The following tablepresents the Company’s significant fixed and determinable contractualobligations and significant commitments by payment date as of December 31,2008 (dollars in thousands). The payment amounts represent those amountscontractually due to the recipient and do not include any carrying valueadjustments. Further discussion of the nature of each obligation is included inthe referenced Note to the Company’s Consolidated Financial Statements includedin this annual report.

 
| ** **                          | ** ** | **Note  Reference** | ** ** | **One Year  or Less** | ** ** | **Over One  Year to  Three Years** | ** ** | **Over Three  Years to  Five Years** | ** ** | **Over  Five Years** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|---------------------|------------|---------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------|------------|-----------|------------|
| Deposits without  a stated maturity |       | 5                   |       | $                               | 1,085,812  |                                              | $          | —                                              |       | $                         | —     |      | $          | — |   | $ | 1,085,812 |   |
| Time deposits                       |       | 5                   |       | 291,178                         |       | 127,577                                           |       | 86,751                                              |       | 247                       |       | 505,753   |       |
| Prepaid  solutions cards            |       |                |       | 37,964                          |       | —                                            |       | —                                              |       | —                    |       | 37,964    |       |
| Operating Leases                    |       | 4                   |       | 717                             |       | 1,039                                             |       | 543                                                 |       | 558                       |       | 2,857     |       |
| Commitments to  extend credit       |       |                |       |                            |       |                                              |       |                                                |       |                      |       |      |       |
| Fixed rate                          |       | 8                   |       |                            |       |                                              |       |                                                |       |                      |       | 12,685    |       |
| Variable rate                       |       | 8                   |       |                            |       |                                              |       |                                                |       |                      |       | 462,017   |       |
|                                     |            |                     |            |                                 |            |                                                   |            |                                                     |            |                           |            |           |            |  |  |  |  |  |

 

**BalanceSheet Analysis**

 

***TotalAssets.*** Total consolidated assets at December 31,2008 increased .9% from the prior year-end. This increase was primarily due toincreases in cash and cash equivalents and the loan portfolio partially offsetby decreases in the securities portfolio. Total average assets in 2008increased .3% from the prior year primarily due to an increase in average loansoutstanding.

 

***Cashand Cash Equivalents.*** Cash and cash equivalents at December 31,2008 increased 67.2% from the prior year-end primarily due to an increase infederal funds sold. Although rates paid on federal funds sold are currently athistorically low levels, the Company believes that it is prudent to maintain ahigher level of liquidity with the current state of the economy.

 

***Securities.***The Company’s securities portfolio decreased 3.4% at December 31, 2008from the prior year-end. This decrease was primarily due to maturities, callsand sales of securities issued by U.S. government sponsored entities along withmaturities and sales of corporate securities. This decrease was partiallyoffset by purchases of mortgage-backed securities. The Company manages itsinvestment portfolio to maximize the return on invested funds within acceptablerisk guidelines, to meet pledging and liquidity requirements, and to adjustbalance sheet interest rate sensitivity in an effort to insulate net interestincome against the impact of interest rate changes. During 2008, the Companypurchased approximately $262.6 million in securities and designatedapproximately $240.4 million of the securities as held to maturity. Thepurchases significantly increased the percentage of securities classified asheld to maturity. The majority of new securities purchased consisted ofamortizing mortgage-backed securities issued by U.S. government agencies.Classifying the new purchases as held to maturity reflects the Company’s thencurrent investment intent and allows the Company to maintain a steady level ofcash flows and limit the effect of fluctuations in market prices of thesesecurities. The Company will continue to monitor its level of available forsale and held to maturity securities and will classify new securities purchasedin the appropriate category at the time of purchase.

 

Securities available forsale are carried at fair value, while securities held to maturity and FederalHome Loan Bank stock are carried at historical cost. Security portfolio grossunrealized gains of $9.9 million were offset by gross unrealized losses of $6.7million as of December 31, 2008, as compared with gross unrealized gainsof $1.9 million and gross unrealized losses of $3.7 million as of December 31,2007.

 

Fair values formunicipal securities are generally determined by matrix pricing, which is amathematical technique widely used in the industry to value debt securitieswithout relying exclusively on quoted prices for the specific securities butrather by relying on the securities’ relationship to other benchmark quotedsecurities. Characteristics utilized by matrix pricing include insurer, creditsupport, state of issuance, and bond rating. These factors are used toincorporate additional spreads and municipal curves. A separate curve structureis used for bank-qualified municipal 

 

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bonds. Thisstructure is different than the approach used for general market municipals.For the bank-qualified municipal bonds, active quotes are obtained whenavailable.

 

Fair values for U.S. government sponsored entityissued securities are determined using a combination of daily closing prices,evaluations, income data, security master (descriptive) data, and terms andconditions data. Additional data used to compute the fair value of U.S.government sponsored entity issued mortgage-backed pass-through securities(FHLMC, FNMA, and GNMA pools) includes daily composite seasoned, pool-specific,and generic coupon evaluations, and factors and descriptive data for individualpass-through pools. Additional data used to compute the fair value of U.S.government sponsored entity issued collateralized mortgage obligations includedaily evaluations and descriptive data.

 

Our pooled trust preferred securities were pricedusing significant unobservable inputs. These securities were historicallypriced using Level 2 inputs and the decline in the level of observable inputsand market activity in this class of investments by the measurement date hasbeen significant and resulted in unreliable external pricing. Broker pricingand bid/ask spreads, when available, vary widely. The once active market has becomecomparatively inactive. As such, these investments are now priced using Level 3inputs.

 

A discounted cash flow approach is used to calculatethe Level 3 fair values for trust preferred securities. The approach has a twostep process to calculate the fair value. The first step is to evaluate thecredit quality of the collateral and the deal structure. The process producesexpected cash flows that have been adjusted for expected credit events basedupon a credit component of the discount rate. The expected cash flows are thenfurther discounted for liquidity premium to produce a discounted cash flowvaluation.

 

To test the fair values calculated by the discountedcash flow approach, management analyzed the effective discount rate implied bythe process. The test assumes an effective discount rate using targetedprepayment/maturity dates of 10, 20 and 30 years from the original issue date.Each calculation uses the contractual cash flows and was performed throughBloomberg YA screen. The discount rate is all-inclusive since it includes therisk free rate, a credit component and a spread for liquidity. Management thenreviewed the effective discount rate for reasonableness. The effective discountrates range from 18% to 28% over a 10 year time horizon to 8% to 21% over a 30year time horizon.

 

***Loans.***Total loans outstanding at December 31,2008 increased 1.1% from the prior year-end primarily due to growth in theresidential and commercial real estate and commercial loan portfolios. The growth in the residential real estateloan portfolio was primarily due to increases in originations of fixed rateloans. The commercial real estate loan portfolio increased primarily due to theaddition of several large relationships. Outstanding balances in the commercialloan portfolio increased as customers used a portion of their available linesof credit. These increases were partially offset by decreases in theconstruction and home equity loan portfolios. The construction loan portfoliodecreased primarily due to normal portfolio runoff, as well as buildersdisplaying market discipline by not adding to their present inventory.Additionally, the completion of land development projects, as well as asignificant slowdown in new activity in the construction loan portfolio alsocontributed to the decrease. The decrease in the home equity loan portfolio wasprimarily due to payoffs as a result of refinancing activity, as well asreduced home equity originations. Although the Company makes loans primarily tocustomers throughout the western suburbs of Chicago, the Company maintains twolarge lending relationships aggregating $20.6 million outside of this marketarea, specifically in Arizona and Florida.

 

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***Allowance for Loan Losses and Asset Quality.*** The ratioof the allowance for loan losses to total loans outstanding was 1.25% and .75%at December 31, 2008 and 2007, respectively. The following table is ananalysis of the Company’s nonperforming loans and other real estate at December 31(dollars in thousands):

 
| ** **                                                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Loans past due  90 days or more still on accrual               |       | $        | 1,705      |     | $          | 480      |       | $ | 319 |   |
| Nonaccrual loans                                               |       | 23,569   |       | 2,297    |       | 1,131    |       |
| Total  nonperforming loans                                     |       | $        | 25,274     |     | $          | 2,777    |       | $ | 1,450 |   |
| Nonperforming  loans as a percent of total loans               |       | 2.02     | %          | 0.22     | %          | 0.12     | %          |
| Allowance for  loan losses as a percent of nonperforming loans |       | 62       | %          | 334      | %          | 734      | %          |
| Other real  estate                                             |       | $        | 4,658      |     | $          | 824      |       | $ | 351 |   |
| Nonperforming  assets as a percent of total assets             |       | 1.60     | %          | 0.19     | %          | 0.10     | %          |

 

 

Netloan charge-offs were $4.1 million and $1.8 million in 2008 and 2007,respectively. The increase was primarily due to the charge-offs of two fullyreserved commercial credits. Nonperforming loans (nonaccrual and loans past due90 days or more still on accrual) increased to $25.3 million at December 31,2008 from $2.8 million at December 31, 2007. Nonaccrual loans increased to$23.6 million at December 31, 2008 from $2.3 million at December 31,2007 as a result of additions of five large loan relationships to nonaccrualstatus. The Company’s loans past due 90 days or more still on accrual increasedto $1.7 million at December 31, 2008 from $.5 million at December 31,2007. The increase was primarily due to seven residential real estate loanstotaling approximately $1.0 million becoming 90 days or more past due duringthe fourth quarter of 2008. These loans are well secured and in the process ofcollection.

 

Theprovision for loan losses increased $10.0 million in 2008. The Companydetermined that additional loan loss provisions were necessary due to theincreased levels of charge-offs and nonperforming loans, an increase in loanloss reserves allocated to specific impaired loans and downward trends in thenational and local economies.

 

Approximately $1.7million, or 10.9%, of the $15.6 million allowance for loan losses at December 31,2008, relates to loans specifically reserved. This compares to a specificreserve of $.1 million, or 4.6%, of the total allowance for loan losses at December 31,2007. The increase in the percent of the portfolio from specific reserves isattributable to a higher overall balance of impaired loans at December 31,2008, as compared to 2007, decreases in value assigned to collateral,especially for construction loans. The general reserve as a percent of overallloans, net of unearned discount, was 1.11% at December 31, 2008, ascompared to .72% at December 31, 2007. The increase in the general reserveas a percent of loans, net of unearned discount, is due to actual historicallosses, management’s review of internal classified loans, management’sexpectation of overall economic conditions in the areas in which the Companyoperates and management’s expected losses with the overall level of real estateloans within the Company’s portfolio.

 

***Bank-OwnedLife Insurance (“BOLI”).*** The carrying value of BOLIdecreased to $35.4 million at December 31, 2008 from $37.3 million at December 31,2007. This decrease was due to a decline in the market value of the underlyinginvestments associated with the insurance policies that are tied to thedeferred compensation plan. The decline was a direct result of the marketconditions that existed during the year. The underlying investments consist ofmutual funds and the investment decisions are made by the participants in thedeferred compensation plan. This decrease was partially offset by BOLIpurchases of $.3 million.

 

***OtherReal Estate.*** During 2008, the Company acquired propertieswith an aggregate carrying value of $4.4 million. Of this amount, $3.2 millionwas transferred to other real estate during December 2008 and consisted ofthree construction properties. During 2008, the Company sold properties with anaggregate carrying value of $.5 million. On a monthly basis, the Companyevaluates the carrying value of all other real estate properties and takeswrite-downs on other real estate properties as necessary. During 2008, thewrite-downs, which totaled $.1 million, related to an existing other realestate property and were attributed to the lack of marketability.

 

***Deposits.*** Total deposits atDecember 31, 2008 decreased 2.8% from the prior year-end primarily due todecreases in short-term time deposits. Additionally, the Companyexperienced decreased balances for all other deposit

 

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components withthe exception of money market checking. Management believes that in the currentinterest rate environment some customers have migrated from non-liquid timedeposits to more liquid deposit products such as money market checking. Ingeneral, management promotes the Company’s deposit products when it believesappropriate and prices the Company’s products in a manner intended to retainthe Company’s current customers, as well as attract new customers whilemaintaining an acceptable net interest margin.

 

***FederalFunds Purchased.*** Federal funds purchased at December 31,2008 increased $55.0 million from the prior year-end as the result of apurchase by the Company of 90 day term funds that remained outstanding as ofyear-end. The interest rates offered by the Federal Reserve were more attractivethan the interest rates available from alternative funding sources.

 

***PrepaidSolutions Cards.***Outstanding balances on prepaidsolutions cards at December 31, 2008 increased 54.0% from the prioryear-end. This increase was primarily due to growth in four existing programs,including payroll and phone gift cards.

 

# **Capital Resources**

# ** **

Shareholders’equity at December 31, 2008 increased 9.2% from December 31, 2007, asa result of $16.8 million of net income, and increases resulting from changesof $10.2 million in the amount reclassified on ESOP shares and $.1 million inaccumulated other comprehensive loss, which amounts were reduced by regulardividends declared of $17.3 million. The Company eliminated the specialdividend in 2008, in an effort to continue to maintain its strong capitallevels. In addition, the Company has applied for, but has not yet decided toparticipate in, the U.S. Treasury’s Capital Purchase Program. If the Companyelects to participate in the program, the Company will become subject tosignificant additional capital restrictions, including limitations on increasesin dividends and a prohibition against certain stock repurchases.

 

All capital ratios are in excess of the regulatorycapital requirements which call for a minimum total risk-based capital ratio of8% for each of the Company and the Bank, a minimum Tier 1 risk-based capitalratio of 4% 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 expectsignificant growth; all other institutions are required to maintain a minimumleverage capital ratio of 4% to 5% depending on their particular circumstancesand risk and growth profiles) for each of the Company and the Bank. Bankholding companies and their subsidiaries are generally expected to operate ator above the minimum capital requirements. All capital ratios are in excess ofregulatory minimums and should allow the Company and the Bank to operatewithout significant capital adequacy concerns. In addition, the Bank formed asubsidiary in 2004 that participates in the Bank’s real estate lending businessand is intended to qualify as a real estate investment trust. This subsidiaryis also intended to facilitate capital raising efforts, if such efforts becomenecessary, by enabling the Bank to access the capital markets through thesubsidiary.

 

Managementhas been advised that as of December 31, 2008 and 2007, the Bank qualifiedas a “well-capitalized” institution as defined by the Federal Deposit InsuranceCorporation Improvement Act of 1991, as amended. On a consolidated basis, theCompany also exceeded regulatory capital requirements. In accordance withapplicable regulations, the appraised fair value of West Suburban common stockowned by the ESOP is included in Tier 1 capital.

 

# **Liquidity**

 

*Effectiveliquidity management ensures the availability of funding sources at minimumcost to meet fluctuating deposit balances, loan demand needs and to takeadvantage of earnings enhancement opportunities. A large, stable core depositbase and a strong capital position are the solid foundation for the Company’sliquidity position. Liquidity is enhanced by a securities portfolio structuredto provide liquidity as needed. The Company also maintains relationships withcorrespondent banks to purchase federal funds subject to underwriting andcollateral requirements. Additionally, subject to credit underwriting,collateral, capital stock, and other requirements of the Federal Home Loan Bankof Chicago (the “FHLB”), the Company is able to borrow from the FHLB on a “sameday” basis. As of December 31, 2008, the Company could have borrowed up toapproximately $123 million from the FHLB secured by certain of its real estateloans and securities. Furthermore, the Company has agreements in*

* *

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* *

*placeto borrow up to $100 million in federal funds. The Company manages itsliquidity position through continuous monitoring of profitability trends, assetquality, interest rate sensitivity and maturity schedules of interest-earningassets and interest-bearing liabilities.*

* *

Generally, the Companyuses cash and cash equivalents and securities available for sale to meet itsliquidity needs. As of December 31, 2008 and 2007, these liquid assetsrepresented 15.1% and 26.6% of total assets, respectively. The decrease inliquidity was primarily due to the maturities and sales of U.S. governmentsponsored agency obligations available for sale as well as classifyingpurchases of new mortgage backed securities as held to maturity. A moredetailed discussion of this activity can be found in the Securities discussionof the Balance Sheet Analysis section of this report.

 

During 2008, the Company’scash and cash equivalents increased $22.3 million. Net cash provided byoperating activities for this period was $25.4 million, while net cash used ininvesting activities was $8.0 million. Net cash flows provided by financingactivities for this period were $4.9 million.

 

**IncomeStatement Analysis — 2008 Compared to 2007**

 

***General*****.** The Company’s net income decreased 28.2% in 2008 ascompared to 2007. Net income was positively affected by an increase in netinterest income of $.8 million, an increase in total noninterest income of $1.6million and a decrease in income tax expense of $3.7 million. Net income wasnegatively affected by an increase in the provision for loan loss of $10.0million and an increase in total noninterest expense of $2.8 million.

 

***NetInterest Income.*** Net interest income in 2008 (on a fullytax-equivalent basis) increased 1.8% compared to 2007. Net interest income isthe primary source of income for the Company. Net interest income is thedifference between interest income earned on interest-earning assets andinterest expense incurred on interest-bearing liabilities. Net interest incomeis affected by changes in volume and yield on interest-earning assets and thevolume and rates on interest-bearing liabilities. Interest-earning assetsconsist of federal funds sold, securities and loans. Interest-bearingliabilities primarily consist of deposits and federal funds purchased. The netinterest margin is the percentage of tax-equivalent net interest income toaverage earning assets. The Company’s net interest margin (on a fullytax-equivalent basis) was 3.6% in 2008 and 3.5% in 2007.

 

Total interest income(on a tax-equivalent basis) decreased 12.0% in 2008 primarily due to decreasingyields in the Company’s loan portfolio. Average loan balances increased 3.9%during this period. The yield on the Company’s home equity loan portfoliodecreased 98 basis points during this period primarily due to decreases in theinterest rate charged for home equity lines of credit that adjusted as a resultof decreases in the prime rate. These decreases were a direct result of theFederal Reserve initiating interest rate reductions of 400 basis points in 2008and 100 basis points during the last six months of 2007. The average prime ratewas 5.08% for 2008 and 8.05% for 2007. Yields on the Company’s commercial loanportfolio decreased 259 basis points during this period. This decrease waspartially due to the majority of adjustable rate commercial loans being tied tothe prime rate, as well as a $21.3 million increase in nonaccrual loans during2008, which accounted for $1.3 million of lost interest and a reduction inyield of 30 basis points. Yields on federal funds sold decreased 274 basispoints due to decreases in interest rates initiated by the Federal Reserve.Yields on investment securities increased 40 basis points due to proceeds frommaturities and sales of securities issued by U.S. government sponsored entitiesbeing invested in higher yielding mortgage-backed securities issued by U.S.government sponsored entities.

 

Total interest expensedecreased 29.5% in 2008. Interest on deposits accounted for the decrease, whichwas only partially offset by an increase in interest expense on federal fundspurchased. The yield on interest-bearing deposits decreased 93 basis points to2.25% in 2008 from 3.18% in 2007. Approximately 58% of the Company’scertificates of deposit are scheduled to mature in 2009, which will reduce thecost of funds as management expects that the certificates of deposit will beeither renewed at a substantially lower rate or replaced with lower costingalternative funding sources.

 

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The following tablereflects the impact of changes in volume and rates of interest-earning assetsand interest-bearing liabilities on a tax equivalent basis for the years ended December 31,2008 and 2007 (dollars in thousands):

 
| ** **                          | ** ** | **2008 compared to 2007** | ** ** | **2007 compared to 2006** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                          | ** ** | **Change due to**              | ** ** | **Total**                                | ** ** | **Change due to** | ** ** | **Total** | ** ** |
| ** **                          | ** ** | **Volume**                               | ** ** | **Rate**                                 | ** ** | **Change** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Change** | ** ** |
| **Interest  Income**                |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Federal funds  sold                 |       | $                                        | (1,263     | )                                        | $          | (1,600 | ) | $ | (2,863 | ) | $ | 3 |   | $ | 126 |   | $ | 129 |   |
| Securities                          |       | 11                                       |       | 1,990                                    |       | 2,001 |   | (1,397 | ) | 1,492 |   | 95 |   |
| Loans                               |       | 2,712                                    |       | (14,977                                  | )          | (12,265 | ) | 3,545 |   | (938 | ) | 2,607 |   |
| Total interest  income              |       | 1,460                                    |       | (14,587                                  | )          | (13,127 | ) | 2,151 |   | 680 |   | 2,831 |   |
|                                |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| **Interest  Expense**               |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Interest-bearing  deposits          |       | (715                                     | )          | (14,180                                  | )          | (14,895 | ) | 382 |   | 2,518 |   | 2,900 |   |
| Other  interest-bearing liabilities |       | 661                                      |       | —                                   |       | 661 |   | (14 | ) | (14 | ) | (28 | ) |
| Total interest  expense             |       | (54                                      | )          | (14,180                                  | )          | (14,234 | ) | 368 |   | 2,504 |   | 2,872 |   |
| Net interest  income                |       | $                                        | 1,514      |                                     | $          | (407 | ) | $ | 1,107 |   | $ | 1,783 |   | $ | (1,824 | ) | $ | (41 | ) |

 

***Provision for Loan Losses.***Theprovision for loan losses increased $10.0 million in 2008. The Companydetermined that additional loan loss provisions were necessary due to theincreased levels of charge-offs and nonperforming loans, an increase in loanloss reserves allocated to specific impaired loans and downward trends in thenational and local economies. A more detailed discussion concerning theallowance for loan losses is presented in the Allowance for Loan Losses and AssetQuality section of this annual report.

 

***NoninterestIncome.***Total noninterest income increased 5.9% during2008 compared to 2007. Prepaid solutions cards income increased $2.8 million,primarily due to continued growth in two existing programs. BOLI incomedecreased $3.7 million, primarily due to the decline in the market value of theunderlying investments associated with the insurance policies that are tied tothe Company’s deferred compensation plans. During 2008, the Company recorded again of $1.1 million on the mandatory partial redemption of VISA stock inconnection with the VISA public offering. A portion of the VISA stock allocatedto the Company in the initial public offering was withheld to cover the costsand expenses associated with various lawsuits for which the Company, as amember of the VISA network, is obligated to indemnify VISA. As a result, theCompany also recorded $.8 million of income related to the recovery of expensesrecorded in the fourth quarter of 2007 and $.2 million in recovery of expensesrecorded during the third quarter of 2008 in connection with the creation oflitigation reserves relating to these lawsuits.

 

***NoninterestExpense.*** Total noninterest expense increased 5.0% during2008 compared to 2007. Salaries and employee benefits decreased $2.3 millionprimarily due to a decline in the market value of the underlying investmentsassociated with the insurance policies that are tied to the Company’s deferredcompensation plans. Excluding this decline, salaries and employee benefitsincreased $.8 million. Additionally, the Company experienced increased employeeinsurance expense. Prepaid solutions cards expense increased $2.4 million. Thisincrease was primarily due to expenses associated with the production andprocessing of cards and postage associated with the issuance of new cards.Furniture and equipment expense increased $.8 million, primarily due toincreased equipment depreciation and data processing expense. Occupancy expenseincreased $.7 million, primarily due to costs associated with increasedmaintenance and utilities expense. Advertising and promotion expense decreased$.2 million primarily due to reduced costs associated with home equity andcommercial loan advertising. Professional fees expense increased $.6 millionprimarily due to increased legal expenses incurred by the prepaid solutionsgroup. Other noninterest expense increased $.7 million primarily due toexpenses relating to litigation settlements associated with the prepaidsolutions division.

 

***IncomeTaxes.*** Income tax expense decreased 43.5% in 2008,primarily due to lower pre-tax income. The effective tax rates for the yearsended December 31, 2008 and 2007 were 22.2% and 26.6%, respectively. Thisdecrease was primarily due to changes in the State of Illinois tax lawsdiscussed in Note 6 to the Company’s financial statements. As a result of thechanges in the State of Illinois tax laws, the Company expects the effectivetax rates to be higher in future years.

 

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**IncomeStatement Analysis — 2007 Compared to 2006**

 

***General*****.** The Company’s net income decreased 7.6% in 2007 as comparedto 2006. Net income was positively affected by an increase in noninterestincome of $4.2 million and a decrease in income tax expense of $1.4 million.Net income was negatively affected by an increase in the provision for loanlosses of $.2 million and an increase in total noninterest expense of $7.2million.

 

***NetInterest Income.*** Net interest income in 2007 (on a fullytax-equivalent basis) was level compared to 2006. Net interest income is theprimary source of income for the Company. The Company’s net interest margin (ona fully tax-equivalent basis) was 3.5% in 2007 and 2006.

 

Total interest income(on a tax-equivalent basis) increased 2.7% in 2007 primarily due to increasingbalances in the Company’s loan portfolio. Average loan balances increased 4.3%during this period. Additionally, the yield on the loan portfolio decreased 8basis points primarily due to interest rate reductions initiated by the FederalReserve beginning in the third quarter of 2007. Management anticipates furtherdeclines in the loan portfolio yield as the Federal Reserve cut rates by 125basis points in January 2008. The average prime rate was 8.05% for 2007and 7.96% for 2006. However, the average prime rate for the fourth quarter of2007 was 7.53% compared to 8.25% for the fourth quarter of 2006. Yields on thecommercial loan portfolio decreased 13 basis points during this period due todecreased balances along with decreasing rates as described above. Yields oninvestment securities increased 28 basis points due to proceeds from maturitiesof U.S. government securities being reinvested in higher yieldingmortgage-backed securities.

 

Total interest expenseincreased 6.3% in 2007. Interest on deposits accounted for all of thisincrease. The yield on interest-bearing deposits increased 17 basis points to3.18% in 2007 from 3.01% in 2006. This increase was primarily due to increasingyields and balances on the Company’s certificates of deposit portfolio.Approximately 78% of the Company’s certificates of deposit are scheduled tomature in 2008, which management expects will lead to reductions in cost offunds, as proceeds are reinvested at a lower rate or run-off.

 

***Provisionfor Loan Losses.***The provision for loans losses increased$.2 million in 2007. This was primarily related to the current environmentalfactors in the economy and due to an increase of $71.3 million in total loans,partially offset by the reduction in specific reserves allocated to impairedloans as of December 31, 2007. The increase in total loans was primarilydue to lower risk residential and home equity loans. A more detailed discussionconcerning the allowance for loans losses is presented in the Allowance forLoan Losses and Asset Quality section of this annual report.

 

***NoninterestIncome.***Total noninterest income increased 18.4% during2007 compared to 2006. Prepaid solutions cards income increased $5.1 millionprimarily due to continued growth in existing programs along with the additionof new gift card programs. Service fees on deposit accounts decreased $.5million primarily due to decreases in fee revenue related to the Company’soverdraft honors program. Although management believes the income from theoverdraft honors program may vary from period to period, the program isintended to provide continuing fee income. Debit card income increased $.1million due to increased customer usage. During the fourth quarter of 2007, theCompany recorded a loss of $.4 million after making the determination that thedecrease in market value of FHLMC preferred stock representedother-than-temporary impairment.

 

 ***NoninterestExpense.*** Total noninterest expense increased 15.0% during 2007compared to 2006. Salaries and employee benefits increased $.2 millionprimarily due to normal salary increases and increased medical insuranceexpense. This increase was partially offset by a reduction in contributions tothe Company’s retirement plans as a result of the Company’s transition from theESOP to the 401(k) Plan as the Company’s principal retirement plan.Prepaid solutions cards expense increased $3.9 million. This increase was dueto expenses associated with the production and processing of cards and postageassociated with the issuance of new cards along with increased revenue sharingwith one new client. The Company anticipates that this expense will continue toincrease as new programs continue to be implemented. Furniture and equipmentexpense increased $.8 million primarily due to increased equipment depreciationand maintenance along with increased data processing expense. Occupancy expensedecreased $.1 million in 2007 primarily due to the acceleration of buildingdepreciation expense that occurred in 2006 resulting from management’s decisionto close the Metra Main facility. This decrease was partially offset byincreases in utilities expense and building maintenance costs. Advertising andpromotion expense 

 

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increased $.4million primarily due to expenses resulting from newspaper, television andbillboard marketing campaigns associated with retail banking as well ascommercial and mortgage loans. Professional fees expense increased $.5 millionprimarily due to costs associated with the prepaid solutions cards business. Otherexpense increased $1.5 million primarily due to the Company establishinglitigation reserves in connection with various lawsuits brought against VisaUSA Inc. along with increased Visa cardholder expense. The Company, as a memberof the Visa network, is obligated to indemnify Visa for certain litigationlosses. In 2007, the Company recognized indemnity charges of approximately$.8 million related to this obligation. As anticipated, at the time thatVisa completed an initial public offering (the “IPO”) of its common stock in2008, the Company recognized gains on its interest in Visa which more thanexceeded the charges taken in 2007.

 

***IncomeTaxes.*** Income tax expense decreased 14.2% in 2007,primarily due to lower pre-tax income. The effective tax rates for the yearsended December 31, 2007 and 2006 were 26.6% and 28.1%, respectively.

 

In August 2007, theState of Illinois enacted legislation that will affect the tax obligations ofbanks operating in Illinois. The legislative provisions have various effectivedates, the earliest beginning January 1, 2008. Although the legislation isnot expected to have a material adverse impact on the Company’s 2008 state taxliability, the full impact of the legislation is currently unknown. The Companywill continue to evaluate this legislation as well as any related legislationor guidance.

 

# **Interest RateSensitivity**

# ** **

The Company attempts to maintain a conservative posturewith regard to interest rate risk by actively managing its asset/liability GAPposition and monitoring the direction and magnitude of gaps and risk. TheCompany attempts to moderate the effects of changes in interest rates byadjusting its asset and liability mix to achieve desired relationships betweenrate sensitive assets and rate sensitive liabilities. Rate sensitive assets andliabilities are those instruments that reprice within a given time period. Anasset or liability reprices when its interest rate is subject to change or uponmaturity.

 

Movements in general market interest rates are a key elementin changes in the net interest margin. The Company’s policy is to manage itsbalance sheet so that fluctuations in the net interest margin are minimizedregardless of the level of interest rates, although the net interest margindoes vary somewhat due to management’s response to increasing competition fromother financial institutions.

 

The Companymeasures interest rate sensitivity through a net interest income analysis. Thenet interest income analysis measures the change in net interest income in theevent of hypothetical changes in interest rates. This analysis assesses therisk of changes in net interest income in the event of a sudden and sustained100 to 200 basis point increase or decrease in market interest rates. Thisanalysis is subject to the Company’s assumptions, which include the following:

 

·                  Balancesheet volume reflects the current balances and does not project future growthor changes. The current balances establish the base case from which all percentchanges are calculated.

 

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

 

·                  Therepricing rate for balance sheet data is determined by utilizing individualaccount statistics provided by the Company’s data processing systems.

 

·                  Thematurity and repricing dates for balance sheet data are determined by utilizingindividual account statistics provided by the Company’s data processingsystems.

 

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

 
| ** **                      | ** ** | **Amount** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|---------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|
| **December 31, 2008** |       |       |       |               |       |                |       |
| +200 basis  points              |       | $          | 59,584     |               | $          | 1,772               |       | 3.1 | % |
| +100 basis  points              |       | 58,976     |       | 1,164              |       | 2.0                 | %          |
| Base                            |       | 57,812     |       |               |       |                |       |
| -100 basis  points              |       | 52,497     |       | (5,315             | )          | (9.2                | )%         |
| -200 basis  points              |       | 46,324     |       | (11,488            | )          | (19.9               | )%         |
|                            |       |       |       |               |       |                |       |
| December 31,  2007         |       |       |       |               |       |                |       |
| +200 basis  points              |       | $          | 63,598     |               | $          | 996                 |       | 1.6 | % |
| +100 basis  points              |       | 63,310     |       | 708                |       | 1.1                 | %          |
| Base                            |       | 62,602     |       |               |       |                |       |
| -100 basis  points              |       | 62,349     |       | (253               | )          | (0.4                | )%         |
| -200 basis  points              |       | 57,728     |       | (4,874             | )          | (7.8                | )%         |

 

# **Effects of Inflation**

# ** **

Unlike industrialcompanies, nearly all of the assets and liabilities of the Company are monetaryin nature. As a result, interest rates have a more significant impact on theCompany’s performance than do the effect of general levels of inflation.Interest rates do not necessarily move in the same direction or experience thesame magnitude of change as goods and services, since such prices are affectedby inflation. In the current economic environment, liquidity and interest rateadjustments are features of the Company’s asset/liability management, which areimportant to the maintenance of acceptable performance levels. The Companyattempts to maintain a balance between monetary assets and monetary liabilities,over time, to offset the potential effects of changing interest rates.

 

**Recent Regulatory Issues**

 

On December 3,2008, the Bank entered into an Order to Cease and Desist (the “Order”) with theFDIC and the Illinois Department of Financial and Professional Regulation (the “DFPR”),which is based on FDIC and DFPR findings that the Bank’s Secrecy Act/Anti-MoneyLaundering Program (“BSA/AML Program”) was inadequate and that the Bank hadviolated various laws and regulations related to the Bank Secrecy Act (the “BSA”).The Order requires the Bank to take certain corrective actions aimed atresolving any outstanding violations of BSA-related laws or regulations and toimplement a revised BSA/AML Program, which is designed to ensure compliancewith these BSA-related laws and regulations. The Order also requires the Bankto, among other things, assess its BSA Department staffing needs, provide forindependent testing of BSA/AML Program compliance, conduct a review of certainhistorical deposit and transaction activity and submit periodic reports ofprogress to the FDIC and DFPR. The Order does not relate to the Bank’s assetquality, capital position or the safety and soundness of its financialoperations. The Bank expects the Order to increase the Bank’s cost of regulatorycompliance, which may adversely affect its earnings.

 

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| ** ** | ** ****BOARDS OF DIRECTORS**
  | ** ** |
|------------|------------------------------------------|------------|

 

**WestSuburban Bancorp, Inc.**

** **
| Kevin J. Acker    |   | Chairman of the Board                        |
|-------------------|--------|----------------------------------------------|
| David S. Bell     |   | Certified Public  Accountant                 |
| Duane G. Debs     |   | President and Chief  Financial Officer       |
| Charles P. Howard |   | Parkview Community  Church, Associate Pastor |
| Peggy P. LoCicero |   | Former Banker                                |

 

**West Suburban Bank**

 
| Robert W. Schulz |   | Chairman                                                     |
|------------------|--------|--------------------------------------------------------------|
| Keith W. Acker   |   | President                                                    |
| Craig R. Acker   |   | Former Banker                                                |
| Earl K. Harbaugh |   | Ditch Witch Midwest,  President                              |
| Ronald J. Kuhn   |   | Harry W.  Kuhn, Inc., Chairman, Secretary and Treasurer |
| John G. Williams |   | Bracing Systems, Vice  President                             |

 
| ** ** | ** ****OFFICERS**
  | ** ** |
|------------|-------------------------------|------------|

## ** **

**West SuburbanBancorp, Inc.**

 
| Kevin J. Acker       |   | Chief Executive Officer                |
|----------------------|--------|----------------------------------------|
| Duane G. Debs        |   | President and Chief  Financial Officer |
| Keith W. Acker       |   | Chief Operations  Officer              |
| Michael P. Brosnahan |   | Vice President                         |
| Timothy W. Clifford  |   | Internal Audit Manager                 |
| George E. Ranstead   |   | Secretary to the Board  and Treasurer  |

 

## **West Suburban Bank**

 
| **Senior Officers**                     |   |                                                  |
|-----------------------------------------|--------|-------------------------------------------------------|
| Keith W. Acker                          |   | President, Trust  Officer                             |
| Kevin J. Acker                          |   | Senior Vice President,  Marketing                     |
| Michael P. Brosnahan                    |   | Senior Vice President,  Lending                       |
| Duane G. Debs                           |   | Senior Vice President,  Comptroller and Trust Officer |
| Daniel P. Grotto                        |   | Senior Vice President,  Prepaid Solutions             |
| ** **                              |   |                                                  |
| **Bank Secrecy/Anti-Money  Laundering** |   |                                                  |
| Gina Lowdermilk                         |   | Vice President, Bank  Secrecy Act Officer             |
| ** **                              |   |                                                  |
| **Building Management**                 |   |                                                  |
| Edward J. Garvey                        |   | Vice President,  Building Management                  |

 

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| **Cash Management**          |       |                                                                              |
|------------------------------|------------|-----------------------------------------------------------------------------------|
| Gary Raczek                  |       | Vice President, Cash  Management Manager                                          |
| ** **                   |       |                                                                              |
| **Commercial Loans**         |       |                                                                              |
| Stanley C.  Celner, Jr. |       | Vice President,  Commercial Loans                                                 |
| Grant O. Cowen               |       | Vice President,  Commercial Loans                                                 |
| Timothy P. Dineen            |       | Vice President,  Commercial Real Estate Loans                                     |
| Michael F. Moone             |       | Vice President,  Commercial Real Estate Loans                                     |
| David S. Orr                 |       | Vice President,  Commercial Loans                                                 |
| John J. Schroeder            |       | Vice President,  Commercial Loans                                                 |
| Edwin S. Stephens IV         |       | Vice President,  Commercial Loans                                                 |
| Gregory L. Young             |       | Vice President,  Commercial Loans                                                 |
| Matthew R. Acker             |       | Business Development                                                              |
| ** **                   |       |                                                                              |
| **Compliance**               |       |                                                                              |
| Cyndia S. Heap               |       | Compliance Officer,  Community Reinvestment Act Officer                           |
| ** **                   |       |                                                                              |
| **Comptroller**              |       |                                                                              |
| George E. Ranstead           |       | Vice President,  Assistant Comptroller and Investment Officer                     |
| Jay J.P. Greifenkamp         |       | Vice President, Financial  Analyst, Investment Officer and Secretary to the Board |
| ** **                   |       |                                                                              |
| **Consumer Loans**           |       |                                                                              |
| Charles J. Svoboda           |       | Vice President,  Consumer Loans - Department Head                                 |
| Cynthia A. Meredith          |       | Vice President,  Consumer Loans                                                   |
| David J. Wanek               |       | Vice President,  Consumer Loans                                                   |
| ** **                   |       |                                                                              |
| **Corporate Operations**     |       |                                                                              |
| Danielle Budig               |       | Vice President,  Corporate Operations and Visa                                    |
| Michael J. Lynch             |       | Vice President,  Corporate Operations                                             |
| ** **                   |       |                                                                              |
| **Financial Services**       |       |                                                                              |
| Michael Abbatacola           |       | Vice President,  Financial Services                                               |
| ** **                   |       |                                                                              |
| **Human Resources**          |       |                                                                              |
| Mary Ellen Condon            |       | Vice President, Human  Resources                                                  |
| ** **                   |       |                                                                              |
| **Information Systems**      |       |                                                                              |
| Steven A. Jennrich           |       | Vice President,  Information Systems                                              |
| Jacqueline R. Weigand        |       | Vice President, Project  Manager                                                  |
| ** **                   |       |                                                                              |
| **Internal Audit**           |       |                                                                              |
| Timothy W. Clifford          |       | Vice President, Internal  Audit Manager                                           |
| ** **                   |       |                                                                              |
| **Loan Operations**          |       |                                                                              |
| Sandra C. Boyce              |       | Vice President,  Residential Mortgage Loan Processing                             |
| Gary H. Brandes              |       | Vice President,  Consumer Loan Operations                                         |
| Kevin Bussey                 |       | Vice President,  Collections                                                      |
| Debra H. Crowley             |       | Vice President,  Commercial Loan Operations                                       |
| Lawrence J. Ortman           |       | Vice President, Credit  Analysis and Loan Review                                  |
| ** **                   | ** ** | ** **                                                                        |
| **Marketing**                | ** ** | ** **                                                                        |
| Denise M. Zatarski           |       | Director of Marketing                                                             |
| ** **                   |       |                                                                              |
| **Prepaid Solutions**        |       |                                                                              |
| Doug R. Bobenhouse           |       | Business Development  and Sales Manager - Prepaid Solutions                       |

 

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| **Purchasing**                        |   |                                                                      |
|---------------------------------------|--------|---------------------------------------------------------------------------|
| Helen G. Schmitt                      |   | Assistant Vice  President, Purchasing Manager                             |
| ** **                            |   |                                                                      |
| **Retail Banking**                    |   |                                                                      |
| William J. Jennrich                   |   | Vice President, Retail  Branch Banking                                    |
| Jack Buscemi                          |   | Vice President,  Regional Manager - Central Region                        |
| Marc L. DiNatale                      |   | Vice President,  Regional Manager - East Region                           |
| Kirsten L. Erickson                   |   | Vice President,  Regional Manager - West Region                           |
| Marcia K. Worobec                     |   | Vice President, Branch  Operations and Branch Manager - Westmore          |
| Jennifer Bentson                      |   | Assistant Vice  President, Branch Manager - Warrenville                   |
| Kathleen M. Brockman                  |   | Assistant Vice  President, Branch Manager - Eola Road                     |
| Jeanne L. Carlisle                    |   | Assistant Vice  President, Branch Manager - Bolingbrook West              |
| Maribel Colon                         |   | Assistant Vice  President, Branch Manager - Oswego West                   |
| Beverly D. Cornelious                 |   | Assistant Vice  President, Branch Manager - Bolingbrook East              |
| Gina M. Corral                        |   | Assistant Vice  President, Branch Manager - President Street              |
| Barbara D. Darden                     |   | Assistant Vice  President, Branch Manager - Chicago Avenue, Naperville    |
| Robert G.  Dover, Jr.            |   | Assistant Vice  President, Branch Manager - Gary Avenue                   |
| Nansi E. Eivaz                        |   | Assistant Vice  President, Branch Manager - Romeoville                    |
| Sharon A. Fonte                       |   | Assistant Vice  President, Branch Manager - Glendale Heights              |
| James R. Graziano                     |   | Assistant Vice  President, Branch Manager - North Main                    |
| Cheli Harper                          |   | Assistant Vice  President, Branch Manager - Charlestown                   |
| Priya Hira                            |   | Assistant Vice  President, Branch Manager - Danada, Wheaton               |
| Rosemary Kasal                        |   | Assistant Vice  President, Branch Manager - Bartlett                      |
| Jason M. Knapp                        |   | Assistant Vice  President, Branch Manager - Fair Oaks                     |
| Mary L. Kureja                        |   | Assistant Vice  President, Branch Manager - Finley Road, Downtown Downers |
| Terry Leitner                         |   | Assistant Vice  President, Branch Manager - South Main                    |
| Jeffery W. Miska                      |   | Assistant Vice  President, Branch Manager - Cass Avenue, 75th Street |
| Carlos Muzquiz                        |   | Assistant Vice  President, Branch Manager - Lake Street                   |
| Brian S. Nickleski                    |   | Assistant Vice  President, Branch Manager - Westmont                      |
| Gwen B. O’Loughlin               |   | Assistant Vice  President, Branch Manager - Villa Park                    |
| Robert L. Pauling                     |   | Assistant Vice  President, Branch Manager - Stratford Square              |
| Cynthia A. Picton                     |   | Assistant Vice President,  Branch Manager - West Galena                   |
| Laura Saad                            |   | Assistant Vice  President, Branch Manager - Yorkville, Oswego             |
| Lisa M. Schmidt                       |   | Assistant Vice  President, Branch Manager - South Elgin                   |
| Patience K. Tannenbaum                |   | Assistant Vice  President, Branch Manager - Randall Road                  |
| Mihaela Tonchevici                    |   | Assistant Vice  President, Branch Manager - Montgomery                    |
| Jill E. Castillo                      |   | Manager Trainee -  Oakbrook Terrace                                       |
| ** **                            |   |                                                                      |
| **Trust**                             |   |                                                                      |
| Christine H. Pawlak                   |   | Trust Officer                                                             |
| ** **                            |   |                                                                      |
| **West Suburban Insurance  Services** |   |                                                                      |
| Patricia Falstrom                     |   | Insurance Agent                                                           |

 

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## **ADDRESSES OF WEST SUBURBAN FACILITIES**

**(630) 652 - 2000**

 

**Aurora**

Eola Road Branch: 335North Eola Road, Aurora, Illinois 60504

Galena Branch: 2000 WestGalena Boulevard, Aurora, Illinois 60506

Lake Street Branch: 101North Lake Street, Aurora, Illinois 60506

 

**Bartlett**

Bartlett Branch: 1061West Stearns Road, Bartlett, Illinois 60103

** **

**Bloomingdale**

Stratford Square Branch:355 West Army Trail Road, Bloomingdale, Illinois 60108

 

**Bolingbrook**

Bolingbrook East Branch:672 East Boughton Road, Bolingbrook, Illinois 60440

Bolingbrook West Branch:1104 West Boughton Road, Bolingbrook, Illinois 60440

 

**CarolStream**

Gary Avenue Branch: 401North Gary Avenue, Carol Stream, Illinois 60188

Fair Oaks Branch: 1380West Army Trail Road, Carol Stream, Illinois 60188

President Street Branch:895 East Geneva Road, Carol Stream, Illinois 60188

 

**Darien**

75th Street Branch: 1005 75th Street, Darien, Illinois 60561

Cass Avenue Branch: 8001South Cass Avenue, Darien, Illinois 60561

 

**DownersGrove**

Downtown Downers Branch:5330 Main Street, Downers Grove, Illinois 60515

Finley Road Branch: 2800Finley Road, Downers Grove, Illinois 60515

 

**GlendaleHeights**

Glendale Heights Branch:1657 Bloomingdale Road, Glendale Heights, Illinois 60139

 

**Lombard**

North Main Branch: 707North Main Street, Lombard, Illinois 60148

South Main Branch: 1122South Main Street, Lombard, Illinois 60148

*WestmoreBranch: 711 South Meyers Road, Lombard, Illinois 60148 (Headquarters)*

 

**Montgomery**

Montgomery Branch: 1830Douglas Road, Montgomery, Illinois 60538

 

**Naperville**

Chicago Avenue Branch:1296 East Chicago Avenue, Naperville, Illinois 60540

Naperville Branch: 2020Feldott Lane, Naperville, Illinois 60540

River Run Branch: 1004104th Street, Naperville, IL 60564

 

**OakbrookTerrace**

Oakbrook Terrace Branch:17W754 22nd Street, Oakbrook Terrace, Illinois 60181

 

**Oswego**

Oswego Branch: 2830 Route34, Oswego, Illinois 60543

Oswego West Branch: 1071Station Drive, Oswego, Illinois 60543

 

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**Romeoville**

Romeoville Branch: 505North Weber Road, Romeoville, Illinois 60446

 

**SouthElgin**

South Elgin Branch: 1870McDonald Road, South Elgin, Illinois 60177

 

**St.Charles**

Charlestowne Branch: 3000East Main Street, St. Charles, Illinois 60174

St. Charles Branch: 315South Randall Road, St. Charles, Illinois 60174

 

**VillaPark**

Villa Park Branch: 40East St. Charles Road, Villa Park, Illinois 60181

 

**Warrenville**

Warrenville Branch: 3S041Route 59, Warrenville, Illinois 60555

 

**Westmont**

Westmont Branch: 6400South Cass Avenue, Westmont, Illinois 60559

 

**Wheaton**

Danada Branch: 295 WestLoop Road, Wheaton, Illinois 60187

Wheaton Branch: 221 SouthWest Street, Wheaton, Illinois 60187

 

**Yorkville**

Yorkville Branch: 10Saravanos Drive, Yorkville, Illinois 60560

 

ATMs are available at allof the above banking branches.

 

**Limited-Service Branches**

*Beacon Hill Retirement Community:Lombard, Illinois 60148*

*Clare Oaks: Bartlett, Illinois60103*

*Financial Center: 717 SouthMeyers Road, Lombard, Illinois 60148*

*Lexington Health Care Center ofElmhurst: Elmhurst, Illinois 60126*

*Lexington Health Care Center ofLombard: Lombard, Illinois 60148*

 

**Other Services**

*Prepaid Solutions Group: 8001South Cass Avenue, Darien, Illinois 60561 - (630) 652-2000*

*West Suburban Bank Land Trust:711 South Meyers Road, Lombard, Illinois 60148 - (630) 652-2225*

*West Suburban Bank Visa: 701South Meyers Road, Lombard, Illinois 60148 - (630) 652-2000 extension 2903*

***WestSuburban Financial Services: 711 South Meyers Road, Lombard, Illinois 60148 -(630) 652-2232***

*West Suburban Insurance Services, Inc.:711 South Meyers Road, Lombard, Illinois 60148 - (630) 652-2550*

 

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## **[MAP OF MARKET AREA THAT INDICATES LOCATION OFFACILITIES]**

 

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****

 

***Unlike Any Other Bank***

 

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# **SHAREHOLDER INFORMATION**

# ** **

# **Annual Report on Form 10-K**

A copy of West SuburbanBancorp, Inc.’s Annual Report on Form 10-K, filed with the Securitiesand Exchange Commission, is available on their web site at www.sec.govorwithout charge to shareholders by writing to:

 

Duane G. Debs

President and ChiefFinancial Officer

West Suburban Bancorp, Inc.

2800 Finley Road

Downers Grove, Illinois60515

(630) 652-2801

 

# **Annual Meeting of Shareholders**

The annual meeting ofshareholders of West Suburban Bancorp, Inc. will be held at West SuburbanBank, 711 South Meyers Road, Lombard, Illinois on Wednesday, May 13, 2009at 8:00 a.m. All shareholders are cordially invited to attend.

 

# **Stock Transfer Agent and Registrar**

Inquiries regardingstock transfers, registration, lost certificates and changes of name andaddress should be directed to the stock transfer agent and registrar by writingto:

 

George E. Ranstead

Secretary to the Boardand Treasurer

West Suburban Bancorp, Inc.

2800 Finley Road

Downers Grove, Illinois60515

(630) 652-2802

 

# **Community Reinvestment Act**

West Suburban Bankadheres to a well-established policy of helping to meet the credit needs of ourlocal communities, consistent with safe and sound lending practices, inaccordance with the Community Reinvestment Act. For additional information,contact:

 

Cyndia S. Heap

West Suburban Bank

711 South Meyers Road

Lombard, Illinois 60148

(630) 652-2611

 

# **Independent Registered Public Accounting Firm**

Crowe Horwath LLP

One Mid America Plaza, Suite 700

Post Office Box 3697

Oak Brook, Illinois 60522

 

# **Corporate Counsel**

Barack FerrazzanoKirschbaum & Nagelberg LLP

200 West Madison Street, Suite 3900

Chicago, Illinois 60606

 

**MEMBER FDIC**

 

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